TaxTMI 
TaxTMI 
1998 (9) TMI 475
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....e aforementioned judgment for the first time from a letter dated June 27, 1996, written by respondent No. 7 wherewith the operative portion of the judgment dated June 3, 1996, was annexed. Phool Holdings Ltd. has inter alia, urged that it being a separate company, it is not bound by any order passed by the learned trial judge as the affairs of the company were not the subject of the application under sections 397 and 398 of the Companies Act filed by the first respondent and his group. It has been denied that the assets of the petitioners are assets of Debonair Agency Ltd. It has, however, been brought to our notice that Phool Holding's Ltd. was also a party in the proceedings against Akshay Nidhi Ltd. in which similar allegations had been made. Before dealing with the merits of the matter the maintainability of the two applications filed by Phool Holdings Ltd. and Anushree Jalan may be considered. As indicated hereinbefore, allegations had been made in the application filed by the respondents as to under what circumstances the main appellants herein, have by taking recourse to manipulation and machinations, acted in a manner prejudicial and/or oppressive to them. It is not d....
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....sh section. If the section is of a remedial nature, its proper construction should be to give the words used their widest amplitude. Probably the Legislature in England did not contemplate belligerent and unprincipled shareholders like the appellants in this case" In view of the questions involved in these appeals it may not be necessary to state the fact of the matter in great detail. Suffice it to say that one Dinesh Viniyog Limited incorporated under the Indian Companies Act was fully owned by Debonair Agencies Ltd. The said Dinesb Viniyog Ltd. held a substantial share in the Oriental Gas Company Ltd. Admittedly the Oriental Gas Company Ltd. has been nationalised and a huge amount of compensation has been paid/is payable in relation thereto. Mahabir Prasad Jalan and Bajrang Prasad Jalan who are brothers, represent two different groups. The shareholding in respect of the said companies are as follows : Debonair Agencies Limited Paid-up capital 2,00,000 Nos. of equity shares of Rs. 10 each M. P.Jalan B. P. Jalan Others Direct Proxies Direct Proxies M. P. Jalan 35,000 B. P. Jalan 31,000 &nb....
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.... 2, 1989, were in question. It has further been alleged that in respect of one Sandeep Investment Co. Ltd. which was also a sister concern, various irregularities have been committed and the validity or otherwise of the board meeting dated October 12, 1989, the board meeting dated October 16, 1989, the board meeting dated October 10, 1989, the board meeting dated October 27, 1989, the board meeting dated November 15, 1989, and board meeting dated March 21, 1989 were questioned besides making other allegations. The contentions raised by the appellant before the learned trial judge, inter alia, were : (1)All proceedings were taken to the knowledge of Bajrang Prasad Jalan. (2)An application under section 397 is maintainable qua the share holder and not as a director qua director. (3)In view of the conduct of Bajrang Prasad Jalan, the service of notice for winding up of the company and further in view of the fact that they had continued to work to the prejudice of Dinesh Viniyog Limited which was a subsidiary company of Debonair Agencies Ltd., they were not entitled to any order. The learned trial judge in terms of his aforementioned judgment, on the basis of the materia....
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.... whatsoever. So far the alleged transfer of shares by Nityanand Mercantile Ltd. in favour of Aditya Kanoria is concerned, it was submitted that the company, in view of the said transfer and in the absence of any objection from the vendor, was bound to register such transfer and, thus, no illegality has been committed in respect thereof. Sarkar and Mukherjee, learned counsel, appearing on behalf of the respondents, on the other hand, submitted that the charges levelled by the Bajrang Prasad Jalan group against the Mahabir Prasad Jalan group are serious in nature. Learned counsel contends that Bajrang Prasad Jalan and Mahabir Prasad Jalan had another brother, named Tularam Jalan. The said Tularam Jalan had separated and there had been an understanding" between the two brothers who remained joint that they would have rights shares to the extent of 50 per cent, each in the properties of each concern irrespective of the pattern of shareholdings. Sarkar would urge that the business and management of the company was in the nature of a partnership firm. Learned counsel further submitted that a finding of fact has been arrived at by the learned trial judge and, thus, it would not be prop....
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.... directors in respect of the accounts for the period March 31, 1989, was recorded which could not have been done in view of the fact that such accounts had been signed by the first petitioner-respondent at his residence. As regards the annual general meeting held on September 28, 1989, it is alleged that no notice had been served. In that meeting respondent No. 5 was shown to have been present when in fact he was in Bombay. Anushree Jalan, the wife of respondent No. 5 before the learned trial judge who was also shown to be present was also away from Calcutta. No board meeting had been held for convening the annual general meeting and, thus, the same having allegedly been held for approval of accounts of respondent No. 1 was illegal. As regards the meeting of the board of directors dated October 12, 1989, is concerned it was submitted that therein the mala fide and illegal transfer of shares held by Nityanand Mercantile Limited in favour of Aditya Kanoria had been recorded and thereby the share pattern was sought to be changed. In respect of the said meeting also no notice had been served. Bajrang Prasad Jalan was shown as absent without there being any application for leave of abse....
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....e learned trial judge. In relation to Sandeep Investment Company Limited it has been alleged as follows : (1)As regards the purported board meeting dated October 12, 1989, no notice had been served upon Bajrang Prasad Jalan and one Jagdish Prasad Poddar also denied that any such notice had been received by him. It has further been alleged that respondent No. 5 before the learned trial judge was shown to have attended two meetings at the same time. As regards the board meeting of Marut Investment Ltd. held on October 16, 1989, similar allegation of non-service of notice had been made. It was further alleged that Hemant Kumar Jalan (respondent No.5) without the authority of the petitioner sought to represent respondent No. 2 in the United Kingdom. It is not denied that he had been to England but it was alleged that he was a senior executive of the Oriental Gas Company and had been to the United Kingdom for the purpose of finalising the accounts of Oriental Gas Company for the period June 30, 1989. It has been alleged that Hemant Kumar sought to file proxy and was the authorised representative on behalf of respondent No. 2 Dinesh Viniyog Ltd. for the purpose of having" sole c....
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....ares in respondent No. 1 and/or are purporting to transfer the shareholding of respondent No. 8 therein and in so doing, they sought to contend that they are the majority shareholders. It was also alleged that Oriental Gas Company holds valuable tenancy under the Life Insurance Corporation, Queen's Mansion, Park Street, Calcutta, and respondent No. 4 has wrongfully permitted his wife's sister Sova Bajoria to stay in the said flat to the loss and detriment of Oriental Gas Company. In reply, it is stated that Bajoria had been residing at the said place to the knowledge of the petitioners-respondents Nos. 1, 3 and 4 ; but the same had not been objected to by them. It was further stated that prior to occupation of Sova Bajoria, the said flat was lying vacant. It has further been stated that the Company Law Board passed an order, dated February 22, 1990, on the basis of a resolution of respondent No. 1 passed at its board meeting dated March 21, 1989, but on inspection it was found that such resolution does not exist. In short, it is admitted that applicants-respondents Nos. 1 and 3 held 31 per cent, equity shares, whereas the appellant held 32.5 per cent, equity shares. Other com....
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....y Law Board) may, with a view to bringing to an end the matters complained of, make such order as it thinks fit. 398. (1) Any members of a company who complain- (a)that the affairs of the company (are being conducted in a manner prejudicial to public interest or) in a manner prejudicial to the interests of the company ; or (b)that a material change (not being a change brought about by, or in the interests of, any creditors including debenture holders, or any class of shareholders, of the company) has taken place in the management or control of the company, whether by an alteration in its board of directors (or of its managing agent or secretaries and treasures) (or manager) (or in the constitution or control of the firm or body corporate acting as its managing agent or secretaries and treasures), or in the ownership of the company's share, or if it has no share capital, in its membership, or in any other manner whatsoever, and that by reason of such change, it is likely that the affairs of the company (will be conducted in a manner prejudicial to public interest or) in a manner prejudicial to the interests of the company : may apply to the (Company Law Board) for an ord....
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....ise 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. I think that one thing which emerges from the cases to which I have referred is that in such a case, as the present Miss Clemens is not entitled to exercise her majority vote in whatever way she pleases. The difficulty is in finding a principle, and obviously expressions such as 'bona fide for the benefit of the company as a whole', 'fraud on a minority' and 'oppressive' do not assist in formulating a principle. I have come to the conclusion that it would be unwise to try to produce a principle, since the circumstances of each case are infinitely varied." It is also permissible for the court to direct restoration of status quo ante in exercise of its equitable jurisdiction. The scope, effect and purport of a proceeding under section 397/398 of the Companies Act had been considered by the apex court in detail in Needle Industries (India) Ltd. v. Needle Industries Newey (India) Holding Ltd. [1981] 51 Comp Cas 743 ; [1981] 3 S....
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....lding of annual general meeting are mandatory in nature. Such a notice is necessary in order to enable all the persons to participate in the board meeting as they are entitled to do so as a matter of right. It is no good contending that as the meeting has been attended by the majority members, the same would be valid. It is a general rule of common law that a corporate body is not properly constituted unless the notice of meeting is given to every member. Section 286 of the Act mandates service of such notice specifying the place, date and hour of the meeting and containing the statement of the business to be transacted thereto. Sub-section (2) of section 286 provides for service of notice on every member of the company in the manner authorised by sub-sections (1) to (4) of section 53. The provisions of the Companies Act are applicable notwithstanding anything to the contrary even in the articles of association with respect to the general meeting of a public company and of a private company which is a subsidiary of a public limited company. The same provisions are applicable also in respect of a private company unless the articles of the company provide otherwise. The lear....
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....to see that respondent No. 1 was not re-elected as director of Dinesh as has actually happened at the annual general meeting' of Dinesh which is said to have been held on June 22, 1989, and August 31, 1989. It may be that in the years 1986 to 1988 even outsiders were allowed to represent Debonair, but at that point of time, there was no dispute between two sets of shareholders. It is, however, true that respondent No. 1 has signed accounts but according to him he has done so at his residence. So far as that part of the matter is concerned, respondents Nos. 1 to 3 cannot be said to have been prejudiced as the accounts had not been found to be false. In the board meeting, dated October 12, 1989, an important resolution had been passed as Rewati Goenka was appointed as an additional director and transfer of 20,000 shares in the company held by Nityanand in favour of Aditya was registered. There cannot be any earthly reason why such a board meeting would be held without service of due notice upon all the directors. The question as to whether the board of directors was already tilted towards the appellant and, thus, by reason of appointing an additional director, respondents Nos. 1 t....
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..... It may be true as has been submitted on behalf of respondents Nos. 1 to 3 that the said step had been taken as appellant No. 1 was not sure as to how the two nominees of the Jalan family would behave. It may also be true as was submitted that mere mismanagement may not give rise to an inference that a case under section 397/398 has been made out, but as indicated hereinbefore, the apex court in Needle Industries (India) Ltd. v. Needle Industries Newey (India) Holding Ltd. [1981] 51 Comp Cas 743 has approved the ratio of the Gujarat High Court in Sheth Mohanlal Ganpatram v. Sayaji Jubilee Cotton and Jute Mills Co. Ltd. [1964] 34 Comp Cas 777 ; AIR 1965 Guj 96, that there is no hard and fast rule. In the instant case, however, as indicated hereinbefore, steps had been taken to oust respondents Nos. 1 to 3 from participating in the management of Debonair, Dinesh and even the family company shares had been sold to ostensible outsiders and various important resolutions had been passed illegally in the board meeting. The court, therefore, has to take into consideration the cumulative effect of the findings of fact so as to arrive at a decision as to whether it is mismanagement, s....
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....ioners have come to court with clean hands. In case the facts show that the petitioners and respondents have come together on the basis of certain relationship which already existed, the equitable remedies could be considered. Thus, whether a company is a family company and whether partnership principles have to be applied, would all depend upon the facts of each case, and is a significant issue. This requires piercing the corporate veil to understand the real nature of the relationship. In order that the equitable principles of dissolution of partnership may be invoked, the petitioner must come to the court with clean hands. The other important factors to be looked into have been stated to be more or less equal shareholding, real structure as opposed to the apparent structure, complete deadlock, possibility of continuation of business commercially, etc. The fulfilment of all these conditions cumulatively is not the prerequisite for the application of these principles. These matters rest entirely with the judicial discretion of the court in each case" In this case also, more or less the parties have equal shareholding and being related to each other are seriously at loggerhea....
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....ctors and the creation of new shares to suit their purpose so as to reduce the majority into a helpless minority both on the board and at general meeting's of the company? The answer can only be in the negative, A man may no doubt behave strangely on a particular occasion, but it is impossible to believe that a number of hard-boiled 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 of voting strength" So far as transfer of shares impugned in this case is concerned, the same does not appear to have been made in the normal course. Apart from the notice, lack of material particulars in the affidavits filed by the appellants with regard to the persons to whom the shares had been sold and the element of haste involved therein is a pointer to that effect. The said sales were approved and allegedly registered in the meetings which were held without any notice. See Turner Morrison and Company Ltd. v. Slialimar Tar Products (1935) Ltd. [1980] 50 Comp Cas 296 (Cal). A question has arisen as regards the fair valuation of shares also. Two ....
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....ual direction in view of continued and repeated mismanagement of the company in question and that the company too was a football company whose activities are far from similar to those of the company in the instant case. In the matter of management of a football company the competence of the persons at the helm of the affairs of such a company was held to be crucial for the purpose of running the same. The English court in that case held that the majority by reason of their continued and repeated misconduct and mismanagement was wholly unfit to run the company. The said decision cannot possibly have any application in the facts and circumstances of this case as would be evident from the facts related in the said case, assuming that in the present case the respondents have committed wrong, which is in any event disputed. Moreover, the gravity of the alleged wrongs said to have been committed in the instant case cannot be equated to the gravity of the continued and repeated wrongs for years together committed by the majority in the said English case. The wrongdoers were held to have committed repeated failures to hold annual general meeting, lay accounts before the members illegally, ....
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....y it" On the other hand, in Sandeep Investment Company Ltd., being Company Petition No. 493 of 1989 a learned single judge of this court had directed respondents Nos. 1 to 3 to sell their shares on the terms mentioned therein. The said decision has been upheld by a Division Bench of this court in Appeal No. 485 of 1994 which appointed the Hon'ble Justice Kalyanmay Ganguly, a retired judge, as a special officer to hold a meeting of respondents Nos. 1 and 2 for the purpose of finding out as to who is in majority. In Scottish Co-operative Wlwlesale Society Ltd. v. Meyer [1958] 3 ALL ER 66 (HL) ; [1959] 29 Comp Cas 1 (HL), Lord Denning J. held (page 33) : "One of the most useful orders mentioned in the section-which will enable the court to do justice to the injured shareholders-is to order the oppressor to buy their shares at a fair price ; and a fair price would be, I think, the value which the shares would have had at the date of the petition, if there had been no oppression. Once the oppressor has bought the shares, the company can survive" The same view has been taken in Combust Technic P. Ltd., In re [1986] 60 Comp Cas 872 (Cal) and an unreported judgment of T. K. Bas....