TaxTMI 
TaxTMI 
1998 (9) TMI 680
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....is judgment, dispose of the main application filed by Sri Bajrang Prasad Jalan against the appellants and other respondents under Sections 155/397/398/399/402/403 and 406 of the Companies Act. 4. B.P. Jalan for self as Karta of a Hindu undivided family filed an application against 32 persons including Akshay Nidhi Ltd. the respondent No. 1 and its four subsidiaries, viz. respondent Nos. 2 to 5 claiming various reliefs stated in the application. 5. The matter has a chequered career. 6. One Mohanlal Jalan was the father of the applicant - B.P. Jalan (Applicant-Respondent, Mahabir Prasad Jalan (Respondent No. 1-Appellant) and one Tolaram Jalan. They held the properties left by the aforementioned Mohonlal Jalan jointly. Tolaram Jalan separated his 1/3rd share from the joint family however, remained as a result whereof a partition took place Mahabir Prasad Jalan (MPJ), and Bajrang Prasad Jalan (BPJ). The sisters of the aforementioned B.P. Jalan, Mahabir Prasad Jalan and Tolaram Jalan allegedly relinquished their right, title and interest in the properties and assets of Mohanlal Jalan. 7. Allegedly after the death of Mohanlal Jalan his sons Bajrang Prasad Jalan, (BPJ) and Mah....
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....ration Ltd. 10. All other companies including Akshay Nidhi, respondent No. 2, Sree Credit Company Private Ltd., Bhanu Traders Pvt. Ltd. respondent Nos. 4 and 5, Ultra Holdings Pvt. Ltd. respondent No. 3, Fee India Dry Accumulators Ltd., respondent No. 6 Subsequently M. P. Jalan Group and B. P. Jalan Group acquired and/or floated several other companies viz. 1. Lovelock Properties Pr. Ltd. 2. Balaji Development Pr. Ltd. 3. Shree Hanuman Properties & Finance Ltd. 4. Dover Part Builders Pr. Ltd. 5. Mahabir Holdings & Finance Ltd. 6. Nityanand Merchantile Ltd. (R-19). 7. Dee Cee Trading & Finance Ltd. 8. Phool Holdings Ltd. (R. 20) 9. Juban Leasing Ltd. 10. Aarkay Mercantile Ltd. 11. Pursuant to or in furtherence of an agreement the said two groups and their family members began to control and manage in equal shares the affairs of 31 companies which allegedly are domestic companies as also other companies, as indicated hereinbefore. In middle of 1988, the Jalan family retained through Dinesh Vinyog Ltd. about 48% control of the shareholding of Oriental Gas Co. Ltd. Allegedly the shareholding....
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....n and his group allegedly came to learn about the alleged various misdeeds on the part of the M.P. Jalan and his group. In the suit filed by B.P. Jalan therein interim orders were passed including inventory of records and documents by officers of the Court. During the course of inventory of, such books, records and documents it was discovered from time to time that fabrication of the books, record and documents of the above companies had been resorted to by M. P. J. and his son to cause prejudice to the Applicant and his family members which led to filing of 3 proceedings under the Companies Act viz. Application under Section 397 and 398 of the Companies Act against Sandip Investment and Marut Jute Udyog Limited being Company Petition No. 493/89 (Re. Sandip Investment Pvt. Ltd.), application under Section 397/398 of the Companies Act against Debonair Agency Ltd. and its subsidiary Dinesh being Company Petition 494/89 as also the present proceedings in respect of Akshay Nidhi Ltd.... Allegedly during course of hearing of those proceedings, inspections were made resulting discovery of various others acts of omissions and commissions. The proceedings in relation to Sandip Investment L....
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....arch, 1997 and in the mean time certain interim directions were passed and a special officer was also appointed. Upon an appeal made by M.P. Jalan and another being L. P. No. 1/97 a division bench comprising of S.K. Mookherjee and N.K. Batabyal, JJ. heard the matter for six days and by a judgment dated 19-6-97 disposed of the entire appeal. However, thereafter a grievance was made that the Court was addressed only on the stay application, pursuant whereto to matter was heard again and by a dictated order dated 20th June, 1997 the said judgment was suitably modified in terms whereof Their Lordships merely directed disposal of the stay application. As against the said order a special leave petition was filed by the applicants herein and the Apex Court directed hearing of the appeal afresh without reference to the said judgment dated 19-6-97. 16. However, as stated hereinbefore, before us the counsel for both the parties prayed that the main Company Petition itself be disposed of. By a separate judgment we have disposed of the appeal in respect of that portion of the order passed by the learned trial Judge dated 6-2-97 whereby criminal proceedings under Schedule XI of the Companies....
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.... 12. Annual General Meeting of Bhanu Traders held on 5-7-89. 13. Sale of FIDA. 20. However, at the outset the sharehol-ding pattern of the respective parties may be noticed :- C. P. No. 447 OF 1990 AKSHYA NIDHI LTD. (RESPONDENT No. 1) AS ON 31ST MARCH. 1989 Paid ud Share Capital : 1.95.425 Nos. of Equity Share of Rs. 10/- each MPJ GROUP BPJ GROUP OTHERS Names Direct % Proxy % Names Direct % Names Shares % M. P. Jalan 20,000 10.23% B. P. Jalan 10.000 5.12% SHS Investments Ltd./Swagat Properties Ltd. 15,000 7.67% M.P. Jalan (HUF) 10,000 5.12% B.P Jalan (HUF) 25,000 12.80% A. Jalan 10,000 5.12% Aditya Kanoria/Nityanand Merchantile Ltd. 15,000 7.67% Pholl Holding Ltd. 20,000 10.23% Bhanu Traders Ltd. 20,000 10.23% Aarkay Mercantile Ltd. 15,000 7.67% Misc. Shareholders (Various) 10,....
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....on would exercise its equitable jurisdiction and may grant appropriate reliefs. 23-24. In Life Insurance Corporation of India v. Escorts Ltd., the Apex Court after taking into consideration various decisions and treatises held that for certain purposes corporate veil can be lifted. It was stated (at page 1418 (of AIR) :- "Generally and broadly speaking, we may say that the corporate veil may be lifted where a statute itself contemplates lifting the veil, or fraud or improper conduct is intended to be prevented, or a taxing statute or a beneficent statute is sought to be evaded or where associated companies are inextricably connected as to be, in reality, part of one concern. It is neither necessary nor desirable to enumerate the classes of cases where lifting the veil is permissible, since, they must necessarily depend on the relevant statutory or other provisions, the object sought to be achieved, the impugned conduct, the involvement of the element of the public interest, the effect on parties who may be affected etc.,." 25. Reference in this connection may also be made to 1972 (2) All ER 492 at page 496 to 500, Hind Overseas Private Ltd. v. Raghunath Prasad Jhunjh....
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.... of the Respondents argued that it was obligatory on the part of the said Sri Padia to show as to what had actually transpired in the said meeting. Having regard to the seriousness of the nature of allegations and having regard to the fact that two of the Directors who were admittedly present in the said meeting and who were said to have manipulated the whole thing, it was for them to swear and affidavit. Why two persons, viz. M.G. Lakhotia an R.K. Nakhat were asked to sign purchase deeds has not been explained by M.P.J. and his group. 31. It is not for this Court to consider the matter in the light of the alleged practice as regards writing of the minutes in the next meeting by a person who chairs the same but there cannot be any doubt whatsoever that in law such minutes should be written immediately and must contain the signature of all those who attended the meeting. The purpose of authorising person who are favouring a particular group must, prima facie, be held to be made mala fide and with Collateral object and with a view to prevent the applicants from enjoying the benefit of shareholder of Akshay Nidhi Ltd. in other companies inasmuch as Akshay Nidhi Ltd. holds shares in....
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.... "Resolved that Sri M.G. Lakhotia of failing him Sri. R.K. Nakhat be and are hereby authorised severally to act as the Company's representative pursuant to provision of Section 187 of Companies Act 1956 and to attend on behalf of the Company at the Annual General Meeting or any postponement or adjournment thereof of the following companies : M/s. Bhanu Traders Pvt. Ltd. M/s. Sree Credit Co. Pvt. Ltd. M/s. Ultra Holdings Pvt. Ltd." 33. A bare perusal of the aforementioned minutes of meetings show that resolutions of grave importance were taken in the same meeting. A serious allegation has been made that the said resolution was fabricated as Annual General Meeting of Bhanu Traders Pvt. Ltd. which was scheduled to be held on 31-12-89 had already been held. It was alleged that on that day it had not received the notices conveying M/s. Raigarh Trading Company Ltd. and thus the normal practice is that generally such resolution was passed after receipt of the quorum of Annual General Meeting had not been followed. The minutes of the aforementioned meetings had been signed by the respondent No. 17 on 16-10-89 i.e. well after 30 days of the alleged Bo....
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....icant : Transferor Transferee No. of Shares Nityanand Mercantile Ltd. Sri Aditya Kanoria 15,000 Swagat Properties Ltd SGS Investments. Ltd. 15,000 And that Sri M. G. Lakhotia be and is hereby authorised to register the above transfer and make necessary endorsement in the share certificate." Sale of share : The Chairman informed the Board about the sale of 1,250 Equity Shares of Raigarh Trading Company Ltd. @ Rs. 25/- per share amounting to Rs. 31,250/-. The Board noted and confirmed the above sale of shares General : General affairs of the company were discussed Vote of thanks : There being no other business, the meeting terminated with a vote of thanks to the Chair." 37. In this case also no notice had been served and according to the Applicant no actual meeting was held. The resolution adopted in the said meeting are of grave importance. Some arguments which have been made in connection with the earlier meeting dated 2nd September, 1989 has been advanced in this case also and for the self-same reasons the same are rejected. The argument that neither Nityanand nor Swagat had challenged the....
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....ne of the Directors dated 1 -3-90 and 6-3-90 which are in the following terms :- Mr. B.P. Jalan Executive Director, Raigarh Jute and Textile Mills Ltd. 36, Chowringhee Road, Calcutta-700071. March 1, 1990 Dear Sir, Re : Akshay Nidhi Ltd. With reference to the discussions the undersigned had with you in regard to the above-mentioned company and the various extracts of the minutes which you had shown to me as having been noted in the Directors Minute Book/Shareholders Minute Book of the Company, I would like to comment as follows : (1) The last proper meeting of the Board of Directors of the Company attended by me was on 20th June, 1989. Since then I have received notice for only one meeting held on 28th December, 1989. The Company did not give me adequate notice as requested by me. Also in the latter meeting there were a number of irregularities which I have put on record vide my letter No. NP/2 dt. 5-1-90. I am enclosing herewith a copy of my letter written to the Company for your perusal. (2) At the Board Meeting of 20th June, 1989, there was no resolution authorising Mr. M.G. Lakhot....
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.... March 6, 1990. Akshaya Nidhi Ltd. 36, Chowringhee Road, Calcutta-700071. Dear Sir, Recently I met Mr. B.P. Jalan who showed me extracts of various meetings of the Board of Directors and the Shareholders. There are a lot of irregularities in the same which I would like to point out since you have not granted me inspection, I have not had the opportunity to inspect the records myself. Some of the irregularities which have come to my knowledge are pointed out below. Other irregularities shall be pointed out as and when they come to my notice. (1) The last proper meeting of the Board of Directors was held on 20th June, 1989. Thereafter, I have received a notice for only one meeting which was held on 28th December, 1989. By comments regarding the meeting of 28th December '89 have already been sent to you vide my letter No. NP/2 dt. 5th January, 1990. (2) In the Board Meeting of 20th June, 1989 held at 11.30 a.m. these was no resolution or any discussion regarding authorising Mr. M.G. Lakhotia or Mr. R.K. Nakhat to sign and execute any share transfer deeds, and other documents in connection with the purchase, sale and tr....
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....heir holdings in Akshay Nidhi Ltd. at any point of time. Also, the Company has never decided to sell its holdings in Raigarh Trading Co. Ltd." Those letters speak for themselves. 40. It is also idle to contend that only because M. P. J. and his group were majority shareholders, it was not necessary for them to make any manipulation to tilt the balance in their favour inasmuch as it has rightly been pointed that such a step has been taken with a view to have the complete control over the company by ousting the Applicants. Furthermore, such a contention has to considered in the context of the case of the Applicants to the effect that both the groups were to have equal share in all the family concern. 41. It is also Worth taking note of the fact that the respondent No. 24 received payment for sale of such shares on 21-10-89 after the same had been registered and similarly the respondent No. 22 also received payment on 26-10-89. It has further been alleged in respect whereof there has been only a bare denial that even in the Board Meeting dated 22-6-89 the majority directors of the said company had no knowledge of such resolution of board meeting. 42. Although in the said m....
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.... that M/s. M. L. Choudhury and Co. Chartered Accountants who are retiring and being eligible for reappointment be and are hereby reappointed as Auditors of the Company to hold the office until the conclusion of the Next Annual General Meeting of the Company at a remuneration to be decided by the Board of the Directors of the Company." The allegations made in the application are as follows : (a) No notice of any board meeting of Akshay was given to its directors including R. Padia for the purpose of convening or holding any such annual general meeting and no such board meeting of Akshay was held. (b) No notice was issued by Akshay for convening or holding any annual general meeting on 28th September, 1989 or otherwise and no annual general meeting of Akshay was held on 28th September, 1989 or otherwise for the financial year ended on 31st March, 1989. (c) No notice was received by the shareholders of Akshay including B.P. Jalan and Bhanu. (d) The minutes relating to the said A.G.M. have been fabricated, interpolated and falsely created. (e) Initially such minutes purported to record presence of Anushree Jalan along with others at the s....
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....t by itself may give rise to a cause of action but we may note that the said question has been considered by the Apex Court in Needle Industries (India) Ltd. v. Needle Industries Newey (India) Holding Ltd., . Reference in this connection may also be made to the decision of the Gujarat High Court in Sheth Mohanlal Ganpatram v. Shri Sayaji Jubilee Cotton and Jute Mills Co., and Elder v. Elder and Watson, reported in 1952 SC 49. Both the aforementioned decisions have been considered by the Apex Court in Needle Industries (supra). 47. It is also not correct to contend that an application under Sections 397/398 of the Companies Act cannot be maintained by a person who in a Director as such application has to be made qua shareholder. The applicant B.P. Jalan represent Hindu undivided family. He has not filed the application in his capacity as Director but representing the minority shareholders and as such the said application is maintainable. 48. So far as the submission to the effect that the question as to whether names of B.P. Jalan having not been registered members of respondents Nos. 3 to 6 and thus, he cannot be treated as a member is concerned, it may be noticed that in Wor....
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....spondent No. 5 in held 80% shareholder of respondent No. 6 it would be subsidiary of respondent No. 5 and consequently a subsidiary of respondent No. 2 also. This aspect of the matter has been considered in Life Insurance of India v. Hari Das Mundhra, reported in (1966) 36 Com Cas 371, as also the decisions rendered by this Court in other company applications inter parties. 51. In R. v. Board of Trade, reported in 1964 (2) All ER 561 it has been stated that the affairs of the company could be considered on broad spectrum and it may include of its business transactions, its goodwill, its profit and losses and its contracts and assets and its control of a subsidiary company. This aspect of the matter would also be evident from the chart referred to hereinbefore. Akshay Nidhi Ltd. admittedly holds identical shareholding Share, Ultra and Bhanu to the extent of 4,000 shares and 30,000 dormant shares which are still registered in the name of Mohanlal Jalan, thus, Akshay Nidhi Ltd. is in a position to control the Directorship of all the aforementioned 3 companies. Akshay Nidhi can also decide how FIDA will function as more than 80% of its shares are held by Bhanu. It is not possible to....
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....osed to appoint Sri P.K. Dalmia and Sri J.K. Modi as an additional director of the company to broad base the Board of the Company. Sri P.K. Dalmia and Sri J.K. Modi who were present on invitation accorded consents to be directors of the Company, if appointed. The matter was discussed by the Board and following resolution was passed unanimously. Resolved that Shri P.K. Dalmia be and is hereby appointed as an Additional Director of the Company. Resolved that Shri J.K. Modi be and is hereby appointed as an Additional Director of the Company. Sri R.K. Nakhat was requested to comply with the requirements of the Companies Act, 1956 in this regard." 58. In that meeting one Jugal Kumar Modi (Respondent No. 10) and Pawan Kumar Dalmia (respondent No. 11) were co-opted as Addl. Directors. Allegedly such co-option was made to take management and control of 'Ultra' and make illegal gain and secret profit of its funds and its bona fide shareholders. By reason of the said meeting the directoral pattern of the company was changed. Apart from the fact that the respondents have merely stated that notice had been sent by registered post, it has not filed....
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....ed and judgment is wanted. Circular Resolution: The Chairman informed the Board that due to mistake this item was taken on agenda. The Board noted the same. Purported letter dated 30th September, 1989:- The Chairman informed that vide letters dated 8-5-90 and 17-5-90 Mr. B.P. Jalan has drawn reference to the purported letter of the company dated 30-9-1989 by which as alleged the company had surrendered the tenancy of 14 Dover Park, Calcutta in favour of Mr. B.P. Jalan. Mr. M. Padia at this stage stated that he had also come to know from Mr. B.P. Jalan that the company had issued such a letter of surrender. It was stated that at no time the Company had issued any such letter and in fact the Company is and has already been the tenant of the said premises and have been paying the rent regularly. The Directors discussed the matter and decided that since there is some fabrication and forgeries being made by certain interested persons to illegally take away the valuable tenancy right of the company by using wrongful means, necessary action to protect the interest and right of the Company should be taken and for this purpose any legal action as may be advised taken suita....
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....ri Sodhani to resign from the Board of Director of Ultra by issuing the aforementioned letter of resignation dated 10-1-90. A bare denial has been made to the aforementioned allegation. It is important to note that no affidavit has been filed by the respondent No. 6. Only respondent No. 7 has sworn the affidavit making a bare denial. 64. As regard Board Meeting of Shree Trading Ltd. it may be noticed that respondents Nos. 12, 20, 21 and one A.L. Shah was its Directors is said to be the only Director who are supporting B.P. Jalan and others were supporting M.P. Jalan. He had written a letter dated 25th June, 1990 stating that no Board Meeting had been held for one year and no Annual General Meeting had been held on 31-3-89. He was also forced to resign. A Secretary of Raigarh Jute and Textile Mills Ltd. was forced to resign by respondent No. 6. On 3-10-89 Sri K.B. Tebrial was shown to have been appointed although according to the respondents they were already having the majority Shares, there cannot be any doubt that by ousting Sri Shah, they had been complete control. 65. So far as Bhanu Traders Pvt. Ltd. (Respondent No. 5) is concerned the validity and legality of Annual Gen....
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....emant Shah in terms of his letter dated 3-1-90 was accepted. It has been stated that letters had been procured by the respondents Nos. 6 and 7. 70. However, it is not possible for this Court to decide the question as to whether Sri Shah resigned on his own volition or not. The annual general meeting of Bhanu had been questioned on the same ground which were the subject-matter of the allegation in respect of the other companies and thus, it may not be necessary to consider the same once over again. 71. So far as the allegation to the effect that Bhanu Traders has surrendered tenancy in respect of Premises No. 12 Dover Park, Calcutta is concerned, the same being subject-matter of another company petition, it is better that no cognizance thereof is taken in this proceeding. 72. So far as the sale of shares in FIDA (Respondent No. 15) is concerned it appears that it was a family company and it was merged with Bhagya Lakshmi Cotton Mills by an order of the Calcutta High Court. 73. Although several other meetings had taken place in respect of the subsidiary companies of Akshay Nidhi Ltd., it is not necessary to deal with the same as it appears that most of them dealt with rou....
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....ers for winding up of the company under Section 433(f) of the Companies Act, the business was originally conceived as a partnership although the said business did not start, keeping in view the fact that the share pattern in the company was approximately in the same ratio. The Court, was held to be entitled to direct winding up of the company as in the case of the dissolution of partnership in terms of Section 44(g) of the Indian Partnership Act. 81. It may be true that mere mismanagement may not give rise to an inference that a case under Sections 397/398 has been made out but in Needle Industry (supra) the Apex Court affirmed the judgment of Gujarat High Court in Mohanlal Ganpatram v. Shri Sayaji Jubilee Cotton and Jute Mills Co. Ltd., wherein it was held that there is no hard and fast rule. 82. In Needle Industries (India) Ltd. v. Newey (India) Holding Ltd., , the Apex Court held at page 1360 :- "Even though the company petition fails and the appeals succeed on the finding that the Holding Company has failed to make out a case of oppression, the Court is not powerless to do substantial justice between the parties and place them, as nearly as it may, in the same po....
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.... 86. But there cannot be any doubt whatsoever that even if the said words are not used in technical sense or in restricted sense, there exists an intention to cause damage or injury. As in the instant case prejudices had been caused to a particular shareholder and the interest of the company has been affected, the decisions reported in (1962) 32 Com Cas 307, N.I. (India) Ltd. v. Newey (India) Holding Ltd. reported in 51 Company Cases 743 and Shanti Prasad Jain v. Kalinga Tubes Ltd. , which strong reliance had been placed by the respondent cannot be said to have any application. This Court is also not impressed with the argument of the respondents that as the allegation is that the companies are family companies and as such no notices of the meetings were required to be given in view of the fact that issuance of such notices is not only the requirement of law but such notices had not been served with a mala fide motive. It was not for the applicant to prove that on earlier occasions such notices had been served inasmuch as the Court would presume that notices are required to be given in ordinary course of business and such requirement has been complied with. 87. The respondent....
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.... 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 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. The wrongdoers therein were held to have committed repeated failures to hold annual general meeting, lay accounts before the members illegally, issuing new share etc. In the instant case, that nature of the alleged wrongdoing is totally different. Moreover, the gravity if any, is far less than those which had been committed in the said case. Further what is most important is that in the instant case no cases has been made out of mismanagement at all. In the said case it was held that the persons in management being the majority were unfit to run the c....
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....ingle Judge of this Court directing sale of the shares by B.P.J. group to M.P.J. group. The said decision has been upheld by a Division Bench of this Court with slight modification by appointing of Hon'ble Mr. Justice K.M. Ganguly, a retired Judge, as a special officer to hold a meeting of the respondents therein for the purpose of finding out as to which group has the majority share. 98. In Scotish Co-operative Wholesale Society Ltd. v. Mayer reported in 1958 (3) All ER 66 Lord Denning, J., held :- "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." 99. Similar direction had been passed in Combust Technic Pvt. Ltd. In Re. reported in (1986) 60 Com Cas 872 and an unreported judgment of T.K. Basu, J. in Re : Asiatic Oxygen Limited disposed of on 10th January, 1986 which has been followed by U.C. Banerjee J. In Re : Bagri Priv....