P. Gaekwad & Ors Vs. Shantadevi P. Gaekwad & Ors  Insc 50 (20 January 2005)
Hegde & S.B. Sinha
W I T
H CIVIL APPEAL NOS. 6360 AND 6361 OF 2001 S.B. SINHA, J:
appeals are directed against a judgment and order dated 9.8.2000 passed by a
Division Bench of the High Court of Gujarat at Ahmedabad in O.J. Appeal Nos. 6,
7 and 8 of 1995 whereby and whereunder the judgment and order dated 17.12.1994
passed by a learned Single Judge of the said Court dismissing Company Petition
No. 51 of 1991 filed by the First Respondent herein, was set aside.
Gaekwad was the Ruler of Baroda. Maharani Shantadevi Gaekwad was his wife. They
had eight children. For certain reasons with which we are not concerned, the
estate of Gaekwad came into the hands of their elder son, Fatesinghrao P. Gaekwad
(FRG) even during the life time of Sir Pratap Singh. FRG floated several
companies, three of which are Baroda Rayon Corporation Ltd. (BRC), Gaekwad
Investment Corporation Company Ltd. (GIC) and Alaukik Trading & Investment
Corporation Pvt. Ltd. (Alaukik). BRC came into existence in 1958. At the
outset, it was being run under Managing Agency System which was abolished in or
about 1968 and later on the same was being managed by the Board of Directors
with the assistance of professional executives. Appellant No. 1 herein, the
youngest son of Pratapsinghrao Gaekwad, joined the said company in 1968. He was
the Director of Managing Agents till 31.12.1969 whereafter he became the
Additional Director with effect from 1st January, 1970. He in the same year became Joint
Managing Director. In April 1976, he became the Managing Director of BRC. He
was reappointed as Managing Director for two periods of five years each with
effect from 19th
February, 1980 and 19th February, 1985. FRG passed away on 1st September, 1988, whereafter he was appointed as
Chairman and Managing Director on 23.9.1988.
was a small investment company. Its equity capital consisted of 425 shares of Rs.
100/- each. The said shares were mainly held by the family members. A large
chunk of shares was held by Jaisingh Ghorpade Trust of which FRG was a trustee.
The beneficiaries of this Trust are said to be outsiders. Some shares of GIC
were held by outsiders also. The share holding pattern of the Company was as
No. of Shares
Fatesinghrao Gaekwad 301
H.H. Maharani Shantadevi Gaekwad 7
H.H. Maharani Padmavatidevi Gaekwad 20
Prince Ranjitsingh P. Gaekwad 10
Sangramsinh P. Gaekwad 1
Princess Shubhanginidevi Gaekwad 5
H.H. Mrunalinidevi Puar 10
Lalitadevi Kirdatt 5
H.H. Padmavatidevi Gaekwar & H.H. Maharani Shantadevi Gaekwar 4
Pramila Raje of Jasdan 4
Asharaje Gaekwad 5
Ajaysinh Murarrao Ghorpade 1
Vasundhara Raje Murarrao Ghorpade 1
Ashokraje Gaekwad 1
Vimala Raje Gaekwad 1
Devayanidevi Gaekwad 1
Ajitsinh Gaekwad 1
Jaysinghrao M. Ghorpade & H.H. Maharani Padmavatidevi Gaekwad 5
Dilipsinh G. Desai & Smt. Kusumben D. Desai 5
Kusumban D. Desai & Shri Dilipsinh G.Desai 5
Capt. V.S.Hazare 10
Pramilabai Hazare 10
Malhari N. Khade 1
Rameshchandra V. Dhaibar 10
equity shares 425 Alaukik was a subsidiary of GIC. Respondent No. 12, Mrs. Mrunalini
Devi Puar was its Managing Director.
GIC suffered a loss during the financial years ending 31st March, 1987 and 31st March, 1988 as a result whereof substantial parts of the equity and
reserves were wiped out. It could not even pay off the loans and credits. It
had no funds to subscribe for the rights issue made in 1989 by BRC. Its share
holding in BRC was likely to fall with which its forged fortunes were closely
linked as the dividend from the shares of BRC was the major source of income of
the company. GIC came into financial trouble when BRC did not declare dividend
in 1986-87. The value of BRC shares also declined and, thus, it became
difficult to avail of an overdraft facility from the Banks. It was then decided
to raise funds from the existing members. The Board of Directors of GIC in a
meeting held on 10.11.1987, decided to broad-base the company, whereafter an
extraordinary general meeting was convened on 17.12.1987. In the said EGM, a
decision was taken to increase the capital by issuing 25000 equity shares of Rs.
100/- each. The matter was again placed in a Board Meeting of GIC on 8th January, 1988. In the said Board Meeting presided
over by Appellant No. 1 and attended by Mr. P.U. Rana and Mr. P.H. Chinoy, a
resolution was passed that 15000 equity shares of Rs. 100/- each be issued at
par to the members of the company. The said resolution reads as under:
that out of 25000 equity shares of Rs. 100/- each, 15000 equity shares of Rs.
100/- covering Rs. 15,00,000/- be issued at par to the members of the Company
at present and the balance as and when required.
Resolved that the Management Committee of the Company be and is hereby
authorized to issue equity shares to members in such proportion as it deems
Resolved that the Management Committee be and is hereby authorized to do all
such acts, deeds and things necessary for the purpose." Pursuant to or in
furtherance of the said resolution, the Company Secretary, Mr. M.N. Khade
issued a circular letter dated 12.2.1988 to all the existing shareholders
requesting them to subscribe for the equity shares at par wherefor a time limit
of three weeks was fixed. It was stated that if no reply is received by 10th March, 1988 it would be presumed that the
concerned shareholder was not interested in the offer. The said circular letter
reads as under:
"12th February, 1988 Shrimant Fatehsinhrao Gaekwad Hoechest
House, Nariman Point Bombay 400 021 It has been decided to increase the equity
capital of the Company by the issue of 15000 equity shares of Rs. 100/- each at
par, to the members of the Company.
are hereby requested to convey your acceptance for the number of shares for
which you would like to subscribe, along with a cheque covering the full amount
at the rate of Rs. 100/- per share, within three weeks from the date of receipt
of this letter. If no reply is received by 10th March, 1988 it will be presumed that you are
not interested in the offer and the shares will be offered to the other
you, Yours faithfully, For Gaekwad Investment Corporation Pvt. Ltd. (M.N. Khade)
SECRETARY" On or about 13th February, 1988, another meeting was convened
which was chaired by FRG wherein the resolution passed in the meeting dated 8th January, 1988 was confirmed. The Managing
Committee, having regard to the fact that no offer was received from the existing
shareholders, in its meeting dated 21st March, 1988 extended the time for the aforesaid
offer. It was further decided that out of 15000 shares, 8000 shares be kept
apart for the time being for FRG and the balance 7000 shares be kept apart for
other existing members. Allegedly, on instructions of Appellant No. 1 herein,
the Company Secretary gave first option to the other family members to
subscribe for shares according to their request and the remaining were put in
the name of Appellant No. 1 and his family; pursuant whereto only two persons,
Mrs. Puar asked for allotment of 500 shares and Mrs. Shubhanginidevi Gaekwad
for 25 shares respondent and, thus, the remaining 6475 shares were allotted to
Appellant No. 1 and family.
further alleged that FRG became disinterested in the 8000 shares allotted to
him. The contention of the Appellants herein is that the balance 7500 shares
were renunciated by FRG in his favour and in favour of his children in June,
1988 as the same remained unallotted as other members specifically refused to
take up any share. His sons and daughters applied for further 3000 shares
through Appellant No. 1 as guardian and the same was allowed. The remaining
4500 shares, however, remained unallotted. The issue is said to have been closed
No. 12, Mrs. Puar who was the Managing Director of Alaukik in a meeting held on
12.10.1989 which was chaired by her issued to herself 1500 shares without
allegedly issuing any notice to the existing shareholders and wherefor allegedly
no payment was even made. It is contended that by reason of such overt act, the
Respondent No. 12 herein, came in majority of Alaukik as a result thereof it
would cease to be a subsidiary company of GIC. GIC had 84% shares in Alaukik
but by reason of the said allotment in favour of Respondent No. 12, its share
holding therein was diluted to 32%. The account of the Company was also said to
have been transferred to a current account.
1.9.1990, a Civil Suit being No. 675/90 was filed by GIC against Alaukik
questioning inter alia the allotment of 1500 equity shares of Rs. 100/- each to
the defendant No. 2 therein.
said suit, Mrs. Puar filed her written statement on 29.11.1990 wherein inter alia
a stand was taken that 8000 shares kept apart for FRG devolved on Shantadevi as
a Class I heir of FRG. She incidentally applied for allotment of the said
shares also on 29.11.1990. A contention was also raised in the said written
statement that if the said shares are allotted, Respondent Nos. 1 and 12 would
be holding the majority shares in GIC and Alaukik even if allotment of 1500
shares in Alaukik is held to be bad in law.
also not in dispute that Indreni Holding Pvt. Ltd. (Indreni) was a wholly owned
company of the Appellants herein. Allegedly, by way of tax planning, the
Appellants herein decided to transfer 9415 shares in favour of the said company
wherefor allegedly a letter was prepared by the Company Secretary on or about
15.11.1989 which reads as under:
"November 15, 1989 To All the Shareholders.
Company has received intimation from existing shareholders about their
intention to sale some of their shares of Gaekwad Investment Corporation the
details of which are attached herewith.
to the provision of the Articles, it is hereby brought to your notice about the
sale of the shares by the existing shareholders. You are therefore requested to
intimate to the Company about your interest in purchasing the share before 20th December, 1989.
note that in case if the company does not hear from you within stipulated
period it will be construed that you are not interested in purchasing..of the
same as board deem fit.
faithfully, For Gaekwad Investment Corporation Pvt. Ltd. (M.N. Khade)
SECRETARY" It, however, stands admitted that the said letter was not
Appellants herein were allegedly under a belief that the said notice had been
circulated and as no response thereto was received, they transferred 9415
shares out of 9481 shares to Indreni. Questioning the said transfer, three
suits came to be filed by different shareholders marked as Suit No. 305/90,
867/90 and 872 of 90. Suit No. 305/90 was filed by Pramilaraje Khacchar on
28.11.1990 in the Rajkot
Civil Court wherein
inter alia following reliefs were sought for:
it be declared that the purported sales and transfers by the defendants Nos. 3
to 7 of the 9415 equity shares owned by them in the first defendant company in favour
of the second defendant company are ultra vires their powers, illegal, null and
void ab initio and that the said shares continue to be of the ownership of the
respective defendants Nos. 3 to 7 as if no such sale or transfer was ever made.
decree for permanent mandatory injunction be passed in favour of the plaintiff
and against the first defendant directing it to offer and transfer the said
9415 equity shares in the first defendant company to the plaintiff and other
decree for permanent mandatory injunction be passed in favour of the plaintiff
and against the defendant No. 2 restraining the second defendant from
exercising or enjoying any voting or other rights in respect of the said 9415
equity shares in the first defendant company.
that a decree for permanent mandatory injunction be passed in favour of the
plaintiff and against the second defendant directing the second defendant to
repay the first defendant company dividend, if any, paid to the second
defendant with interest at 24 per cent per annum.
other relief that the Hon'ble Court deems fit in the circumstances of the case
be granted." Suit No. 867/90 was filed by Shubhangini Gaekwad in Baroda
Civil Court on 12.12.1990 praying for identical reliefs.
No. 872 of 1990 was filed on 19.11.1990 by Ajit Singh Gaikwad, the Respondent No.
8 herein, wherein one additional relief was claimed which is in the following
be decreed and first defendant be directed to offer and transfer 9415 equity
shares with distinctive numbers mentioned in para 18(a) to the plaintiff and
other remaining members of the first defendant company in pursuance of the
Articles of Association." In Suit No.867 of 1990, concededly an order of
injunction was passed on 28.11.1990, as prayed for by the plaintiffs,
restraining Indreni from exercising or enjoying any voting or other rights in
respect of the said 9415 equity shares in GIC.
similar order of injunction was passed by Civil Judge, S.D. Vadodara in Suit
No. 867 of 1990 in the suit filed by Mrs. Shubhanginidevi Gaekwad on
their replies filed in the suits, the Appellants herein inter alia contended
that a Board Meeting was convened on 13.7.1990 for reconsidering the transfer
of shares to Indreni. They also sought for legal opinion in view of the fact
that the notice dated 15.11.1989 was not circulated to the members. The
purported resolution passed in the said meeting reads as under:
that the transfer of 9415 equity shares in favour of Indreni Holdings Pvt. Ltd.
approved by the Board on 30.3.90 be reconsidered and that the matter be
referred to Transferors and Transferees.
further that the legal opinion be sought in the matter of captioned transfer of
9415 equity shares of the company in favour of Indreni Holdings Pvt. Ltd."
The Respondents herein, however, contend that the said resolution was a
fabricated one as no Board Meeting was held on the said date. On or about 20th
July, 1990, the Appellant No. 1 issued a letter to the Board of Directors that
if the transfer of shares was found to be irregular, he should be permitted to
remove transfer notice as per articles. On 9.8.1990, allegedly, a Board meeting
was held and the shares transferred to Indreni were rescinded. The Respondents
contend that the said plea is by way of an afterthought inasmuch as dividend
had been paid to Indreni and TDS on the amount of dividend was deposited in
State Bank of India after 9.8.1990.
said suits are still pending.
Respondent Nos. 1 and 12 herein took inspection of the Registers of Members and
other documents on 10.12.1996 and the relevant extracts were taken and notarised.
Annual General Meeting was allegedly held on 20.12.1990 wherein except for
appointment of auditors all other resolutions e.g. seeking appointment of
Directors in favour of Appellant No. 1, his wife (Appellant No. 2) and his
group were rejected. In the said meeting the share holdings said to have been
acquired by Indreni i.e. 9415 shares was not taken into account and the voting
rights of the Appellants were kept confined to 66 shares. It is also not in
dispute that prior to the said meeting, Appellant No. 1 lodged a First
Information Report apprehending trouble in the said meeting.
No. 1 filed an application under Sections 397 and 398 before the Gujarat High
Court on or about 4th March 1991 wherein she initially prayed for the following
Declaration that she is allottee of 8000 equity shares of respondent No. 6
Direction to issue share certificates immediately to her of these 8000 shares.
Declaration that issue and allotment of 3000 shares in excess of 6475 shares to
respondent No. 1 (present Appellant No. 1) or nominees of respondent No. 1 to 5
(present Appellant No. 1 to 5) is null and void ab-initio.
Declare that she is sole heir of Late F.P.G. and as such she is entitled to be
in majority and control of respondent No. 6 company.
Declare respondent No. 1,2 (present Appellant No. 1&2) 9, 10 and 11
(present Respondent No. 9,10,11) have ceased to be directors in respondent No.
by injunction respondent No. 1,2 (present Appellant No. 1&2) 9, 10 & 11
(present Respondent No. 9,10,11) from acting as director, officer of respondent
No. 6 company.
Declare any act deed or thing done after A.G.M. of 20-12-1990 by respondent No.
1,2 (present Appellant No. 1&2)9,10&11(present Respondent No. 9,10,11)
as null and void.
Declarations in regard to resolutions passed at the E.G.M. dated 14-1- 1991.
Appointment of receiver.
Pending Admission respondent No. 1 & 2 (present Appellant No. 1 & 2) be
directed to produce before this Hon'ble Court or receiver all documents,
Pending admissions interim injunction against respondent No. 1,2 (present
Appellant No. 1&2) 9, 10 & 11 (present Respondent No. 9,10,11) from
acting as directors or officers of the company.
Ad-interim relief's in terms of para H, I & J above.
the said reliefs were subsequently amended and the following additional reliefs
were also prayed for :
That this Hon'ble Court be pleased to declare that all allotments of shares in
Respondent No. 6 company made beyond the original paid up capital consisting of
425 equity shares as existing on 23rd March 1988 are null and void and illegal
and of no legal effect whatsoever and be pleased to set them aside;
In the alternative to prayer A-1 and in any event, this Hon'ble Court be
pleased to declare that the allotments of 6475 equity shares to Respondent Nos.
1 to 5 and/or to their nominees or to the members of their nominee or to the
members of their family is subject to the simultaneous allotment of 8000 equity
shares to petitioner no. 1.
equity shares to Smt. Mrunalinidevi Puar, 25 equity shares to Smt. Shubhangini Devi
Gaekwad and that the allotment of any further shares including the said 3000
shares to Respondent No. 4 and 5 is null and void and illegal and be pleased to
set them aside.
In the event that this Hon'ble Court holds that the allotment of 6475 shares to
Respondent Nos. 1 to 5 and of 3000 shares to Respondent Nos. 4 and 5 is valid,
this Hon'ble Court be pleased to declare that the said 9475 shares were
transferred to M/s. Indrani Holdings Pvt. Ltd. and shall be offered and
transferred by Respondent No. 6 to the shareholders holding pro rata on the
basis of the original shareholding of 425 equity shares.
That this Hon'ble Court be pleased to direct Respondent No. 6 by an order of
mandatory injunction to forthwith transmit 300 equity share registered in the
name of late Fatehsinhrao Gaekwad as the then trustee of the Jaysinhrao Ghorpada
Trust in favour of the present trustees. Petitioner No. 1 and Smt. Mrunalidevi Puar;
That this Hon'ble Court be pleased to transfer (1) Special Civil Suit No. 675
of 1990 pending before the Court of the Civil Judge (Senior Division) at
Baroda, (ii) Special Civil Suit No. 305 of 1990 pending before the Court of the
Civil Judge, Senior Division, at Rajkot (iii) Special Civil Suit No. 867 of
1990 pending before the Court of the Civil Judge (Senior Division) Baroda, at
Baroda (iv) Special Civil Suit No. 872 of 1990 pending before the Court of the
Civil Judge (Senior Division) at Baroda and (v) Special Civil Suit No. 63 of
1991 pending before the Court of the Civil Judge Senior Division (Surat) at Surat,
to the file of this Hon'ble Court for hearing and disposal along with the
present company petition;
In the alternative to prayer A-5, this Hon'ble Court be pleased to stay all
interim or ad interim orders passed in the suits mentioned in prayer A-5
above;" Sections 397-398 of the Companies Act were amended in 1990 in
terms whereof the jurisdiction of the High Court in that behalf vested in the
Company Law Board pursuant whereto the Respondent No. 12 herein filed a
purported application under the said provisions before the Company Law Board,
Special Bench, New Delhi which was marked as Company Petition No. 7 of 1992 on
the ground of alleged continued mis-management of the Company and oppression.
Allegedly, with a view to avoid simultaneous proceeding before two forums Respondent
No. 1 herein sought permission before the Gujarat High Court to withdraw the
proceedings being C.P. No. 50 of 1991 but the said request was opposed by the
Appellants herein and was ultimately rejected by the High Court by an order
dated 21.4.1992. An appeal thereagainst was preferred before the Division Bench
which was marked as 22 of 1992. The Appellants, on the other hand, sought stay
of the proceedings before the Company Law Board whereupon an order was passed
appointing Mr. Justice C.T. Dighe as an independent Chairman. Mr. Ranjitsinh Gaekwad,
Respondent No. 4 herein was also appointed as a Director of GIC and the
proceedings were stayed. Against the said order an appeal was preferred by
Respondent No. 12 herein before a Division Bench of the Gujarat High Court
which was marked as Appeal No. 20 of 1992 wherein the following interim order
Returnable on 19.1.1993. Ad-interim injunction restraining the company from
raising its share capital, confirmed or undertake sale or purchase and/ or
mortgage fixed assets/ investments of the Company by way of its shares in its
holding or subsidiary company, start new businesses and decide the matters
relating to policy decisions of material bearing, without placing the agenda to
that effect before the Board of Directors and without holding a meeting
presided over by an independent Chairman appointed by the Company Law Board by
its order dated 28th September, 1992." A question as regard the efficacy
of simultaneous proceedings, one before the High Court and another before the
Company Law Board arose for consideration and by an order 9.3.1993 the Division
Bench directed that in view of the nature of controversy it would be in the
interest of the parties if the matter was finally heard and disposed of. The
Appellants herein allegedly took a stand that if the said petition under
Section 397 was heard on merits and disposed of expeditiously they would have
no objection to the matter being heard either before the Company Law Board or
before the learned Company Judge. Upon obtaining liberty from the Division
Bench, the matter was mentioned before the learned Company Judge enquiring as
to whether it can be disposed of expeditiously whereupon a schedule of hearing
was worked out. Respondent Nos. 12 and 13 herein were also added as parties in
the said proceedings. The affidavits filed by the parties in all the
proceedings were permitted to be brought on records and they were further
permitted to file replies and/ or rejoinders thereto.
learned Company Judge disposed of the matters on the basis of said affidavits.
J. by reason of his judgment dated 17.12.1994 dismissed the said Company
Allotment of 6475 shares having been admitted, no dispute could be raised as
regard thereto. Further allotment of 3000 shares was in terms of the resolution
adopted by the Board Meeting which was preceded by the offer of shares to
others. Such allotment was made in terms of the decision of the Managing
Committee which was authorized therefor by the Board of Directors. No time was
specified for the Managing Committee to take appropriate decision in that
regard. FRG renounced his shares and 3000 shares out of 8000 shares which were
to be allotted to the appellants was also valid.
As regard the transfer of 9415 shares by the Appellants in favour of Indreni
lifting the corporate veil thereof, the learned Judge held that the
shareholders of Indreni being the Appellants only; any transfer made in its favour
did not affect the company. Assuming such transfer was bad in law, the voting
rights in relation thereto continued to remain vested with the transferors.
In a petition under Sections 397 and 398 of the Companies Act, the Court is
concerned with the question as to whether the control of the company slipped
from one party to the other and as the Appellants, in any event, continued to
form majority and, thus, any transfer made in favour of Indreni did not amount
Shifting of registered office from Baroda to Bombay although was questionable,
no relief was granted on the ground that the same would amount to putting the
clock back and would invalidate the entire AGM and subsequent events which
would not be in public interest and furthermore would result in unnecessary
expenditure to the parties.
did not have a right to 8000 shares by inheritance. An adhoc allotment of
shares was merely an invitation which did not culminate in a right and, thus,
no case could have been built thereupon.
On the question of mismanagement, it was opined "there was hardly any
mismanagement and only an apprehension that the change in control may amount to
mismanagement" would not be acts of mismanagement.
appeals were filed against the said judgment before the Division Bench of the
said High Court which came to be allowed by reason of the impugned judgment.
Division Bench, on the other hand, held that the allotment of both 6475 and
3000 shares was invalid. As far as 6475 shares are concerned, it was held that
the allotment was solely motivated by self- interest and the minutes confirming
such allotment were not acceptable. As far as 3000 shares are concerned, the
Division Bench did not accept the authenticity of the letter by the Company
Secretary of FRG renouncing the shares. Transfer of 9415 shares to Indreni was
held to be invalid as no transfer notice was given to the company as required
in terms of Article 8 of the Articles of Association. As the transfer was duly
recorded, to undo any such transfer, a resolution by the Board of Directors of Indreni
would be required. In the absence of any such resolution the transfer being
complete, only Indreni could have transferred the shares back to the
Division Bench further held that there was a breach of fiduciary duty on the
part of the Appellant No.1. It opined that the relief that may be granted by
the Courts is equitable though originating from a statutory provision. Since
the actions of the respondents were designed to wrest control of the company by
improper means, the minority shareholders could approach the courts for relief
which may be granted by the courts.
granted to the Respondents by the Division Bench are as under :
It is hereby declared and ordered that all the allotments of shares from the
additional share capital increased pursuant to the resolution of the
Extra-ordinary General Meeting held on 17.12.1987 and the resolution of the
Board of Directors dated 8.1.1988 and the decisions for such allotments, of the
Managing Committee be treated as invalid and ineffective for all purposes and
the shareholdings of all the members of the respondent No. 6 company hereby
stand restored to the original 425 shares held by the members ignoring such
subsequent allotments. The Register of members and other records of the company
will stand rectified accordingly.
Registered Office of the respondent No. 6 company is hereby declared to be
continuing at the same place i.e. "Indumati Mahal" at Baroda,
irrespective of the resolution to shift it to Surat and the respondent Nos. 1
and 2 are directed to forthwith restore the entire record of the company to its
Registered Office at Baroda.
the Directors or purported Directors of the respondent No. 6 company stand
removed forthwith. They will from today, not deal with the affairs of the
company in any manner.
Extra-ordinary General Meeting of the shareholders of the company will be
convened on 14th
October, 2000 at 11.00 A.M. at the Registered Office of the Company at Baroda, for appointing Directors of the
Company on the basis of the existing share-holding of 425 shares of the members
of the company, in accordance with the Article of Association.
aforesaid meeting scheduled to be held on 14th October, 2000 will be conducted under the
Chairmanship of the Additional Registrar of the High Court Shri V.B. Gandhi.
All the share- holders of 425 shares including the petitioner No. 1 as the sole
hair of the deceased Shrimant Fathesinhrao P. Gaekwad in respect of the shares
which stood in his name in the register of the members of the company at the
time of his demise out of the said 425 shares in respect of which he had voting
rights, will be entitled to vote by themselves or through their proxies at the
said meeting for appointing the Directors of the Company. No outsider will be
allowed to remain present at the meeting except the Additional Registrar who
will Chair and conduct the meeting with his official assistants. The Additional
Registrar will be assisted by a Section Officer of the High Court of his choice
in the said work.
the share-holders who are parties to the present proceedings are hereby put to
notice about the date of the said Extra-ordinary General Meeting to be held on
14.10.2000 at 11.00 AM at the Registered Office of the
respondent No. 6 company at "Indumati Mahal", Baroda. The Additional Registrar will,
however, get published the notice of the meeting in one English daily and one
Gujarati daily having circulation in the area.
Additional Registrar will also immediately issue individual notices of the said
meeting to the share-holders. The Additional Registrar is authorized to seek
assistance for conducting the meeting from all or any of the parties to these
proceedings and/ or the officials of the company who shall be bound to assist
him in that regard.
adjournment motion will be entertained at the said meeting.
Additional Registrar will on completion of the said meeting, prepare and sign
the minutes of the meeting recording its outcome and declare in writing the
names of persons who are appointed by the share-holders as the Directors of the
respondent No. 6 company at the said meeting, and thereupon such directors
shall assume the management of the company on such declaration being made.
remuneration of the Additional Registrar is fixed at Rs. 10,000/- and the
remuneration of the Section Officer will be Rs. 3,000/- for the said purpose.
The respondent No. 6 is permitted to withdraw the said amount and also a
further amount towards the expenses for publishing notice etc. totaling Rs.
30,000/- from its Banks for the purpose of depositing it in the registry. The
learned Counsel for the respondent No. 6 company states that the respondent No.
6 will deposit the amount of Rs. 30,000/- in the Registry of this Court within
learned Counsel for the respondent No. 6 Company has agreed to supply the names
and present addresses of all the share-holders of the 425 shares of the
Company, to the Additional Registrar on or before 19th August, 2000." SUBMISSIONS ON BEHALF OF THE APPELLANTS:
were made on behalf of the Appellants by Mr. Harish Salve, learned senior
counsel and Mr. Kailash Jethmalani. In assailing the judgment of the Division
Bench, the learned counsel at the outset would draw our attention to the fact
that the concerned companies were family companies, having been floated by FRG
and the affairs of several of them were being managed by his brothers and
sisters. Appellant No. 1 had been put incharge of the BRC and GIC for a long
time. It was urged that no dispute was ever raised as regard the decision of
the Board of Directors to broad-base the company by floating 25000 shares out
of which 15000 shares were to be allotted at the first instance. The pattern of
share allotment pursuant to or in furtherance of the decision of the Board of
Directors i.e. 8000 shares were allotted to FRG and 6475 shares were allotted
to the Appellants stood admitted. It was urged that the Division Bench of the
High Court committed a manifest error insofar as it failed to take into
consideration the admission of Respondent No. 1 and Respondent No. 12 herein
that 6475 shares were allotted pursuant to the Resolution of the Board during
the life time of FRG. Such allotment was in fact admitted in the company
petition filed by the Respondent No. 1. The learned counsel would contend that
only at a later stage when the Respondent No. 12 herein filed a company
petition before the Company Law Board, Delhi a challenge as regards allotment of 6475 shares was also made. In the
Company Petition although the reliefs were later on amended, pleadings were
not. On a fair and reasonable reading of the pleadings, it was submitted that
only inference that can be drawn was that the subject matter of challenge
centered round the allotment of 3000 shares only and transfer of their shares
by the Appellants to Indreni on the premise that it being an outsider it was
impermissible in terms of the relevant provisions of the Articles of
Salve would argue that as the Appellants had acquired 6475 additional shares,
there was indisputably no question of their abusing any position to take over
the company as they had all along been incharge thereof.
Nos. 1 and 12, Mr. Salve would contend, having taken inspection of the
documents on 10.12.1990 and company petition having been filed on 4.3.1991 as
well as the relevant documents having been annexed thereto would clearly
demonstrate that reliance thereupon had been placed by the Respondent No. 1
herein and, thus, on the admitted fact, the Division Bench committed a manifest
error in issuing the impugned directions insofar as it failed to take into
consideration that the company was a family concern in respect whereof a
completely different standard should be applied. In this case, it has not been
found that the Respondents had been thrown out of the Management or they were
deprived of the shares of BRC.
contended that the company was not in active business and had held only some
shares in Alaukik and BRC. Furthermore, there was no lack of probity or acts of
misfeasance of company property on the part of the Appellants. The composition
of the parties would not change even if allotment of 3000 shares as also the
transfer of Indreni are held to be invalid inasmuch as by reason of the
shareholding pattern the Appellants would continue to be in the majority. The
learned counsel would contend that the dispute arose only after Mrs. Puar
transferred 1500 shares of Alaukik to herself and by reason thereof the mother
and daughter intended to take over Alaukik and consequently BRC. Only as a face
saving measure, Respondent No. 1 claimed 8000 shares which were allotted to FRG
on 29.11.1990 and not prior thereto. It was pointed out that Respondent No. 1
applied for succession certificate on 28.11.1989 wherein she disclosed the
assets of FRG but except 22 shares in GIC she did not lay claim on any other
share of GIC, far less 8000 shares. Before filing their respective company
petitions both Respondent Nos. 1 and 12 were aware about the entire state of
affairs and their purported ignorance about the internal affairs of the company
is not borne out of records. In this connection, our attention has been drawn
to paragraphs 7 and 8 of the statements made in the company petition by the
Respondent No. 1. It was pointed out that identical statements were made by the
Respondent no.12 in her Company Petition before the Company Law Board., Delhi.
therein no allegation as regard fabrication of document or any aggrandizement
on the part of the Appellant was raised. Respondent Nos. 1 and 12, it was
urged, prevaricated their stand from time to time and as such their plea should
not have been accepted by the Division Bench.
Desai and Mr. P.V. Kapoor, learned senior counsel appearing on behalf of
Respondent Nos. 1 and 12 respectively, on the other hand, would submit:
Appellant No. 1 being in fiduciary position as the Director of GIC as also a
family member was required to act in utmost good faith, make full and honest
disclosure to other shareholders and thus he could not have made any profit by
allotting shares to himself and his family members directly or indirectly and
was furthermore required to inform the shareholders as regard the benefits arising
therefrom so that they could participate therein. Such a fiduciary position
remains, despite non-applicability of Section 81 of the Company Act.
Appellant No. 1 in breach of said fiduciary duty aggrandized himself by
transforming himself from a miniscule minority of 1.86% to 86% and failed to
explain as to how he got such advantages to the detriment of other
shareholders. The explanations offered by him as regard allotment of shares are
wholly inconsistent and contradictory as conflicting versions had been set out
which do not clearly and cogently explain as to how the different shares were
to be issued,
to Appellant No. 1 and
to Indreni was a device to put the shares beyond the reach of the original
shareholders and the said company actually received the benefits thereof by
It is true that Respondents came out with a different case but that was because
of the fact that they had no knowledge about the complete affairs of the
company to start with having regard to the fact that the Appellants were in
control of the relevant documents. The total constellation of the circumstances
would show that the Appellant No. 1 had aggrandized himself and his conduct had
led to oppression of other members.
The power of the company court under Sections 397 and 398 being of widest
amplitude the reliefs granted by the Division Bench were permissible in law.
Each share of GIC was a valuable one keeping in view of the share price of BRC,
Alaukik and other properties possessed by it. The value of each share of GIC
which was floated at the rate of Rs. 100 would have been worth more than Rs.
900 and furthermore by investing nine lakhs, the Appellants received more than
30 lakhs of rupees by way of dividend.
As BRC had declared dividend and was a profit making company; there was no need
to broad-base company. The burden to prove bonafide was on the Appellants.
Salve in reply would inter alia contend that the question of aggrandizement had
neither been pleaded nor proved. The learned counsel furthermore urge that
there was no factual foundation as regard the allegation of fraud or
self-aggrandizement. He would contend that a distinction has to be borne in
mind as regard fiduciary relationship with the company and with the
Whether the Appellant No. 1 in his capacity as Director of the Company had a
fiduciary duty towards the shareholders.
Whether there has been a valid decision to broad-base the company by issuing
Whether the allotment of 6475 shares and 3000 shares in favour of the
Appellants herein was valid in law.
Whether the Respondent No. 1 herein could claim title in respect of 8000 shares
in the petition filed under Sections 397 and 398 of the Companies Act.
Whether transfer of 9415 shares in favour of Indreni by the Appellants was
valid and if not the effect thereof.
Whether the issue of oppression and/ or mis-management on the part of the
Appellant No. 1 herein in running the affairs of the Company towards the
Respondent Nos. 1 and 12 have been proved.
IX of the Indian Trusts Act provides for certain obligations in the nature of
trusts. The Trust Act recognizes various kinds of trusts including resulting
trust. An express trust, however, may be created by Quistclose Investments
 AC 567] By reason of Section 88 of the Indian Trusts Act, a person bound
in fiduciary character is required to protect the interests of other persons
but the heart and soul thereof is that as between two persons one is bound to
protect the interests of the other and if the former availing of that
relationship makes a pecuniary gain for himself; Section 88 would be attracted.
What is sought to be prevented by a person holding such fiduciary benefit is
unjust enrichment or unjust benefit derived from another which is against
conscience that he should keep. When a person makes a pecuniary gain by reason
of a transaction, the cestui qui trust created thereunder must be restored
purported breach of trust on the part of Appellant No. 1 herein relate to :
Issuance of additional 15000 shares;
Allotment of 6475 shares to himself and his family members as also an HUF; and
Allotment of 3000 shares out of 8000 shares which had been allotted to FRG in favour
of his minor children.
Transfer of 9415 shares in favour of Indreni.
of equity based capital shares under the Companies Act in relation to a private
company would be governed by its Memorandum of Association and Articles of
Association. It has not been pointed out that in terms of Memorandum of
Association the Board of Directors acted ultra vires in adopting a resolution
as regard issuance of 25000 capital shares; out of which 15000 shares were to
be issued at the first instance. Section 81 of the Companies Act indisputably
has no application in relation to a private company, the pre-requisite thereof
is, thus, not attracted in the instant case.
No. 1, therefore, apart from Section 88 of the Indian Trusts Act in the event
of its applicability did not have any statutory obligation to discharge as a
trustee in this behalf.
Director of a Company indisputably stands in a fiduciary capacity vis-`-vis the
Company. He must act for the paramount interest of the company. He does not
have any statutory duty to perform so far as individual shareholders are
concerned subject of course to any special arrangement which may be entered
into or a special circumstance that may arise in a particular case. Each case,
thus, is required to be considered having regard to the fact situation
obtaining therein and having regard to the existence of any special arrangement
or special circumstance.
question came up for consideration as far back in 1901 in Percival in few hands
which were transferable only with the approval of the Board of Directors. The
shares did not carry any market price and were not to be quoted at the stock
exchange. The plaintiffs therein intended to dispose of certain shares wherefor
they offered 12 l.5s. per share purported to be based on a valuation which they
had obtained from independent valuers a few months prior thereto. The said offer
was accepted. The transaction pertaining to the said agreement was entered into
but it was later on discovered by the plaintiffs that prior to and during their
own negotiations for sale the Chairman and the Board were approached by one
Holden with a view to the purchase the entire undertaking of the company with a
view to resell the same at a profit to a new company. The question of fiduciary
obligation on the part of the Directors arose therein when the plaintiff
brought an action against the Chairman and the two other purchasing Directors
asking for setting aside the sale on the ground that the defendants as
Directors ought to have disclosed the feature of negotiations with Holden when
negotiating purchase of their shares. The question therein posed was: Assuming
that directors are, in a sense, trustees for the company, are they trustees for
individual shareholders? The Chancery Division despite holding that the
Directors must act bonafide and for the best interest of the company did not
accept the argument that the relationship between the shareholders inter se are
the same as that of partners in an unincorporated company holding :
contrary view would place directors in a most invidious position, as they could
not buy or sell shares without disclosing negotiations, a premature disclosure
of which might well be against the best interests of the company. I am of the
opinion that directors are not in that position.
is no question of unfair dealing in this case. The directors did not approach the
shareholders with the view of obtaining their shares. The shareholders
approached the directors, and named the price at which they were desirous of
selling." Percival (supra) was noticed by a 4-Judge Bench of this Court in
[1950 SCR 391] in the following terms:
is clear that until the Singhania group get their names entered in the register
of the members they are not shareholders but are complete strangers to the
company. It has been held in Percival v. Wright [L.R. (1902) 2 Ch. 421] that ordinarily the directors are not trustees
for the individual shareholders. Even if the directors owe some duty to the
existing shareholders on the footing of there being some fiduciary relationship
between them as stated in some cases [see for example In re Gresham Life
Assurance Society] [L.R. 8 Ch. App. 446 at p. 449] I see no cogent reason for
extending this principle and imputing any kind of fiduciary relationship
between the directors and persons who are complete strangers to the company. In
my judgment, therefore, the conduct of the respondents 2 to 9 cannot be judged
on the basis of any assumed fiduciary relationship existing between them and
the Singhania group. In my opinion, the respondents 2 to 9 owed no duty to the Singhania
group and, therefore, the motive to exclude them cannot be said to be mala fide
per se." The Court further held that having regard to Regulation 42 read
with Section 105-C of 1936 Companies Act vis-`-vis Regulation 27 of 1882 Act,
the directors exercise a larger power to issue additional capital shares.
true that while referring to 'Percival', the court used the expression
'ordinarily', but if a special situation arises, it would be for the person
complaining to plead and demonstrate the same.
however, do not intend to put our seal of approval on Percival (supra) in its
entirety. The situation may be different when a special contract, special
relationship or special circumstances arise. Percival (supra) may not also be
applicable in a case of take over bid (Gelting vs. Kilner, 1972 (1) All ER
1166) or when the general body of shareholders is only two of them (Glavanies
vs. Brurning hausen (1996) 19 ACSR 204) In Palmer's Company Law, 23rd edition,
page 848, it is stated:
Relationship is with company: The fiduciary relationship of a director exists
with the company: the director is not usually a trustee for individual
shareholders. Thus, a director may accept a shareholder's offer to sell shares
in the company although he may have information which is not available to that other,
and the contract cannot be upset even if the director knew of some fact which
made the offer an attractive proposition.
Percival v. Wright a person who had approached a director and sold him shares
in the company, afterwards, upon discovering that the director had known at the
time of the contract that negotiations were on foot for the purchage by an
outsider of all the shares in the company at a higher figure, could not impeach
the contract. In his judgment Swinfen-Eady J. said "there is no question
of unfair dealing in this case. The directors did not approach the shareholders
with the view of obtaining their shares. The shareholders approached the
directors and named the price at which they were desirous of selling." In
Pennington's Company Law 6th Edn. at page 608-09, it is stated :
owe no fiduciary or other duties to individual members of their company in
directing and managing the company's affairs, acquiring or disposing of assets
on the company's behalf, entering into transactions on its behalf, or in
recommending the adoption by members of proposals made to them collectively. If
directors mis-manage the company's affairs, they incur liability to pay damages
or compensation to the company or to make restitution to it, but individual
members cannot recover compensation for the loss they have respectively
suffered by the consequential fall in value of their shares, and they cannot
achieve this indirectly by suing the directors for conspiracy to breach the
duties which they owed the company. However, there may be certain situations
where directors do owe a fiduciary duty and a duty to exercise reasonable skill
and care in advising members in connection with a transaction or situation
which involves the company or its business undertaking and also the individual
holdings of its members." In Dawson International plc vs. Coats Patons plc
[1988 SLT 854] Percival (supra) was relied upon holding that the Directors are,
in general, under no fiduciary duty to shareholders and in particular current
shareholders with respect to the disposal of their shares in the most
advantageous way as directors are not their agents and as such are not normally
entrusted with the management of their shares. It was, however, observed that
if the directors take it upon themselves to give advice to current shareholders
they have a duty to act in good faith and not fraudulently nor can mislead the
shareholders whether deliberately or carelessly, in which event, they may have
distinction, thus, has been carved out as regards the fiduciary duty of the
directors with regard to the property and funds of the company as
contra-distinguished from the duty of directors to current shareholders as
sellers of their shares. In case of conflict between two interests, the
company's interest must be protected. The directors, however, will have a
fiduciary relation if they have taken unto themselves the burden of giving
advice to current shareholders.
aforementioned principles of law found favour with the Court in (India) Holding Ltd. and Others [(1981) 3
SCC 333] wherein it was held:
directors of a company seek, by entering into an agreement to issue new shares,
to prevent a majority shareholder from exercising control of the company, they
will not be held to have failed in fiduciary duty to the company if they act in
good faith in what they believe, on reasonable grounds, to be the interests of
the company. If the directors' primary purpose is to act in the interests of
the company, they are acting in good faith even though they also benefit as a
result." In Needle (supra), this Court furthermore noticed Punt vs. Symons
[(1903) 2 CH 506] and opined in the following terms :
In Punt v. Symons ((1903) 2 Ch 506 : 72 LJ Ch 768 : 89 LT 525 : 52 WR 41),
which applied the principle of Fraser v. Whalley (71 ER 361 : 11 LT 175), it
was held that :
shares had been issued by the Directors, not for the general benefit of the
company, but for the purpose of controlling the holders of the greater number of
shares by obtaining a majority of voting power, they ought to be restrained
from holding the meeting at which the votes of the new shareholders were to
have been used.
Byrne, J. stated :
may be occasions when Directors may fairly and properly issue shares in the
case of a company constituted like the present for other reasons. For instance
it would not be at all an unreasonable thing to create a sufficient number of
shareholders to enable statutory powers to be exercised.
Peterson, J. applied the principle enunciated in Fraser (71 ER 361 : 11 LT 175)
and in Punt (((1903) 2 Ch 506 : 72 LJ Ch 768 : 89 LT 525 : 52 WR 41) in the
case of Piercy v. S. Mills & Company Ltd. ((1920) 1 Chancery 77 : (1918-19)
All ER Rep 313 (Ch D) : 122 LT 20 : 35 TLR 703). The learned Judge observed at
page 84 :
basis of both cases is, as I understand, that Directors are not entitled to use
their powers of issuing shares merely for the purpose of maintaining their
control or the control of themselves and their friends over the affairs of the
company, or merely for the purpose of defeating the wishes of the existing
majority of shareholders What is considered objectionable is the use of such
powers merely for an extraneous purpose like maintenance or acquisition of
control over the affairs of the Company. .." In Needle Industries (supra),
Nanalal Zaver (supra) was affirmed stating the sole test is whether the issue
of shares is simply or solely for the benefit of the Directors holding:
the shares are issued in the larger interest of the company, the decision to
issue shares cannot be struck down on the ground that it has incidentally
benefited the Directors in their capacity as shareholders." Fiduciary duty
of the Directors to the company should not be equated with the duty to the
(supra) as also other decisions taking similar or contrary view were noticed by
the Court of Appeal including the judgment of the Court of Appeal in New
Zealand in Coleman vs. Myers as also Court of Appeal of New South Wales in Brunninghausen
vs. Glavnics (1999) 46 NSWLR and held that the directors had no fiduciary duty
to the shareholders in the facts and circumstances obtaining therein. However,
observations were made therein that such duties may arise in special
circumstances demonostrating the salient features and well-established
categories of fiduciary relationship such as agency which involves duties of
trust, confidence and loyalty.
of special circumstances or special reasons as pointed out hereinbefore
normally would not bring in the concept of fiduciary relationship in a director
vis-`-vis the current shareholders. However, in Coleman (supra) and Brunninghausen
(supra) it was held that the fiduciary duties of directors to the shareholders
exist in the specially strong context of the familial relationships having
regard to their personal position of influence in the company concerned.
at this stage consider the case laws replied upon by Mr. Desai. Ors. [2004 (7)
SCALE 586] requires a closer scrutiny.
that case one P.K. Prathapan (Prathapan), an NRI through his mother induced Ramanujam
to promote a company by making initial investment of Rs. 5 lakhs in shares. Prathapan,
the principal shareholder of the Company came to know that the Board of
Directors in its meeting held on 24th October, 1994 and chaired by Ramanujam,
adopted a resolution on the premise that a sum of Rs. 6,86,500/- stood to the
credit of said Ramanujam and in lieu thereof equity shares of Rs. 100/- each
would be allotted in his favour. Prathapan was not intimated about the said
reason of the said act, Prathapan who was a majority shareholder in the Company
was reduced to a minority. The case of Prathapan was that Ramanujam did not
contribute any money from his own resources for the purpose of starting the
company and he all along drew a handsome salary for working as Managing
Director thereof. The charge of oppression and mismanagement against Ramanujam
by Prathapan before the Company Law Board succeeded. However, the only relief
which Prathapan obtained was a direction upon him to sell his shares to Ramanujam
which was questioned by him. This Court held that the directors act on behalf
of a company in a fiduciary capacity and their acts and duties are to be
exercised for the benefit of the company. It, however, while analyzing the acts
of a director as an agent of the company observed that in a limited sense they
are also trustees for the shareholders of the company. However, without
discussing the limitations of such fiduciary relationship, it was observed:
The fiduciary capacity within which the Directors have to act enjoins upon them
a duty to act on behalf of a company with utmost good faith, utmost care and
skill and due diligence and in the interest of the company they represent. They
have a duty to make full and honest disclosure to the shareholders regarding
all important matters relating to the company. It follows that in the matter of
issue of additional shares, the directors owe a fiduciary duty to issue shares
for a proper purpose. This duty is owed by them to the shareholders of the
company. Therefore, even though Section 81 of the Companies Act which contains
certain requirements in the matter of issue of further share capital by a
company does not apply to private limited companies, the directors in a private
limited company are expected to make a disclosure to the shareholders of such a
company when further shares are being issued. This requirement flows from their
duty to act in good faith and make full disclosure to the shareholders
regarding affairs of a company. The acts of directors in a private limited
company are required to be tested on a much finer scale in order to rule out
any misuse of power for personal gains or ulterior motives." Evidently,
therefore, the ratio which emerges from the decision is that the duty to
disclose as regard issue of additional shares is relatable to proper purpose
thereof. If the purpose is proper and the action of the director is bonafide,
the ratio should not be extended so as to hold that such a duty of the director
towards the shareholder is absolute despite the fact that there is no legal
requirement therefor. Duty of disclosure to shareholders in that case had a
strong nexus with the affairs of the company. Dale & Carrington (supra) is
not an authority for the proposition that the purported fiduciary duty of a
director towards the shareholder is absolute although the transaction in
question may not have a direct co-relationship with the affairs of the company.
the Bench did not have the advantage of considering the 4- Judge Bench decision
of this Court in Nanalal Zaver (supra). It furthermore did not have the
advantage of noticing the decisions of other jurisdictions which had been
Court, it is interesting to note, noticed Needle Industries (supra) as regards
the power of the company to issue new shares but the legal effect thereof was
not considered in details. The directors have a power to issue additional
capital shares and in the process may obtain some pecuniary gain but only when
such pecuniary gain is obtained through ulterior motive, they would be
answerable to the shareholders.
also interesting to note that while applying the 'extraneous & Co. Ltd. (1920)
1 Ch. 77 wherein it was held:
basis of both cases is, as I understand, that Directors are not entitled to use
their powers of issuing shares merely for the purpose of maintaining their
control or the control of themselves and their friends over the affairs of the
company, or merely for the purpose of defeating the wishes of the existing
majority of shareholders." The expression 'merely' assumes significance.
in Needle Industries (supra) it was categorically held that the Directors have
power to issue shares at par even if their market price is higher being
primarily a matter of policy. (See para 120) 'Proper purpose' doctrine and the
doctrine of 'fairness' vis-`-vis the doctrine of 'bona fide' was considered in
view of its findings that the allotment of all additional shares was gained by Ramanujam
through manipulations and commission of acts of frauds upon becoming the
Managing Director of the Company with a view to gain sole control of the
management thereof and to the exclusion of Prathapan.
ratio in Dale and Carrington (supra), thus, must be understood to have been
rendered in the fact situation obtaining in that case. It does not lay down a
law that fiduciary duty of a director to the company extends to a shareholder
so as to entitle him to be informed of all the important decisions taken by the
Board of Directors. Such a broad proposition of law, if understood to have been
laid down in Dale and Carrington, would be inconsistent with the duty of a
director vis-`-vis the Company and the settled law that the statutory duty of a
direction is primarily to look after the interest of the company. 550], the
Court was concerned with the discretionary exercise of power by the Directors
in terms of Section 111(3) of the Companies Act. In the light of refusal by
director to register a transfer, the Court held that it is necessary for the
directors to act bonafide and not arbitrarily in the following terms:
Article 52 of the appellant company provided that the Directors might at their
absolute and uncontrolled discretion decline to register any transfer of
shares. Discretion does not mean a bare affirmation or negation of a proposal.
Discretion implies just and proper consideration of the proposal in the facts
and circumstances of the case.
exercise of that discretion the Directors will Act for the paramount interest
of the company and for the general interest of the shareholders because the
Directors are in a fiduciary position both towards the company and towards
every shareholder. The Directors are therefore required to act bona fide and
not arbitrarily and not for any collateral motive." (emphasis supplied)
This Court therein also applied the bona fide test of the Director and for the
benefit of the company as a whole. In that case, the directors assigned reasons
which were tested from three angles view, viz.,
the directors acted in the interest of the company;
whether they acted on a wrong principle; and,
they acted with an oblique motive or for Shyam Sunder Jhunjhunwala & Others
[(1962) 2 SCR 339] that the action of the directors must be set aside if the
same was done oppressively, capriciously, corruptly or in some other way malafide.
In this case, this Court is not faced with such a situation.
gist of the complaint made by the appellants against the first respondent was
that he planned to acquire total control of the company at virtually no cost to
himself by means of selling the Strand-Coburg and other properties of the
company and making use of its liquid capital reserves; that his inside
knowledge of the company's affairs and the advice he obtained showed him that
there were good prospects of accomplishing this, leaving him sole owner of an
unencumbered asset worth some millions; and that he not only refrained from
disclosing to the shareholders generally his plan and the magnitude of his
potential gain, but also made misrepresentations tending to conceal the plan.
aforementioned factual backdrop while holding that mere status of a company
director would not create any responsibility towards a shareholder but it was
observed that the standard of conduct required from a Director in relation to
dealings with them will depend upon all the surrounding circumstances and the
nature of responsibility which in a real and practical sense he has assumed.
Pennington's Company Law, at page 609, on Coleman (supra), it is commented:
is uncertain whether this reasoning can be extended to other situations where
directors owe duties to the company but the relevant decision has to be made by
its members individually or collectively, and the directors advise them as to
the decision they should make. Such situations would include a proposed sale or
disposal of the company's assets and undertaking, a proposed merger or division
of the company, a proposed reorganization of the company's share capital
affecting existing members and a proposal for the voluntary liquidation of the
company." No law in absolute terms, thus, had been laid down therein. In
the instant case, there had been no transaction of sale and purchase of shares
between the director and the shareholder.
said decisions, therefore, have no application in the instant case.
way it instead of supporting the contention of Mr. Desai, counters his views.
interesting to note that in Needle Industries (supra), this Court said even in
certain cases the Directors attempt to maintain their control over the company
or in newly acquiring may not amount to abuse of their fiduciary power stating:
this principle, it seems to us difficult to hold that by the issue of rights
shares the Directors of NIIL interfered in any manner with the legal rights of
the majority. The majority had to disinvest or else to submit to the issue of
rights shares in order to comply with the statutory requirements of FERA and
the Reserve Bank's directives. Having chosen not to disinvest, an option which
was open to them, they did not any longer possess the legal rights to insist
that the Directors shall not issue the rights shares. What the Directors did
was clearly in the larger interests of the Company and in obedience to their
duty to comply with the law of the land. The fact that while discharging that
duty they incidentally trenched upon the interests of the majority cannot
invalidate their action. The conversion of the existing majority into a
minority was a consequence of what the Directors were obliged lawfully to do.
Such conversion was not the motive force of their action." No argument in
this case was advanced as regard the purported breach of fiduciary duty on the
part of the Appellant No. 1 in the matter of increase of shares during the life
time of FRG before the learned Single Judge; on the other hand it was admitted
that FRG during his life time was controlling the company, and, thus, the
Appellants herein in no way can be held to have any fiduciary liability towards
other shareholders in respect of issuance of 6475 shares in their favour.
may have a fiduciary duty where a take over bid is made for a company and its
directors advise its shareholders whether to accept or reject the bid as they
owe a duty to advice honestly. The standard of conduct expected of a director
in relation to transaction with the shareholders will differ and would
necessarily depend upon the circumstances and the nature of the responsibility.
thus, not possible to lay down a law which will have universal application. No
authority has been brought to our notice which states that there exists a duty
in a director to advise the shareholder as to whether they should purchase the
share of the company or avail the benefit of an offer. In an appropriate case,
a fiduciary relationship may come into being having regard to the
responsibility undertaken by the directors towards the shareholders by way of a
law which emerges from the discussions made hereinbefore is that the directors
do not have any fiduciary duty to advice shareholders as to when and in what
manner they should enter with the transactions with the company including
acceptance of offer of additional shares. Such a fiduciary duty would arise
inter alia in exceptional situations when the directors take upon themselves
the task of advising the shareholders who may be his family members or when a
transaction of purchase or sale is entered into by and between the director and
the shareholders wherein the former taking undue benefit or having ill or
improper or ulterior motive or malafide act solely to make pecuniary benefit
and gain for himself and to the detriment of such shareholders. If a general
fiduciary duty of a director vis- `-vis shareholders is laid down the same
would lead the directors to the risk of multiple legal actions by dissenting
to Mr. Desai, however, the burden to prove his bona fide was upon the
Respondent No.1. The learned counsel in support of the said contention has
referred to Section 111 of the Evidence Act and also relied upon a decision of
this Court in Krishna Mohan Kul Alias Nani Charan Kul Mohan (supra), this Court
was considering a transaction resulting in execution of a deed of settlement by
one Dasu Charan Kul. The said deed was executed in presence of the witnesses
although they were not in existence. The executant in that case was more than
100 years of age. He was paralytic and his mental and physical conditions were
found to be not in order. Though his left-thumb impression was stated to have
been affixed on the document, there was no witness who could substantiate that
he had in fact put his thumb impression.
aforementioned fact situation, provisions of Section 111 of the Indian Evidence
Act was invoked holding that the burden of establishing perfect fairness,
adequacy and equity is cast upon the person in whom the confidence has been
reposed and the rule applies to all persons standing in confidential relations
such as agents, trustees, executors, administrators, auctioneers, etc. It was,
however, clarified that in term of Section 111 of the Evidence Act, the person
concerned should have been in a position of active confidence where fraud is
this case no transaction took place between the parties and, thus, the ratio of
Krishna Mohan (supra) is not applicable to the fact of the present case. In
view of our findings that having regard to the nature of transactions as the
Appellant No. 1 did not have any fiduciary duty towards the contesting
Respondents, the question of invoking the provisions of Section 111 of the Evidence
Act does not arise in the instant case.
action was brought by the Appellants therein against the Respondents who were
defendants to recover the amount specified therein towards profits made by them
upon the acquisition and sale by them of shares in the subsidiary company
formed by the Appellant. The said action was also brought against the company's
solicitor for recovery of the amount specified therein being profits made by
him in similar dealings in the shares. The action was based on claim for damages
and misfeasance and for negligence on their part. It is in that situation, the
doctrine of trust was applied. In the fact of the present matter neither a case
of trust nor negligence nor misfeasance has been made out.
ratio which can be carved out from this case is that the Directors must not
derive personal profit from information acquired by them as Directors. Such is
not the case here.
Needle Industries (supra), this Court observed that Section 397 "warrants
the court in looking at the business realities of the situation and does not
confine them to a narrow legalistic view". For the said purpose, the test
required to be adopted is the true character of the company. The initial burden
was upon the Respondent No. 1 but nothing had been shown so as to hold that the
burden shifted to the Appellants herein.
OF ADDITIONAL 15000 SHARES AND 6475 SHARES TO THE APPELLANTS:
Extraordinary General Meeting of the GIC was to be convened pursuant to the
Board meeting dated 10.11.1987 wherein a resolution was adopted in the
that an Extra-Ordinary General Meeting of Gaekwad Investment Corporation
Private Limited be convened to consider increase/ issue the capital of the
company on Thursday the
17th December 1987 at 11.00 A.M. in the registered office of the company."
Pursuant to or in furtherance of the said resolution an Extraordinary General
Meeting of the GIC was held wherein a resolution was passed to increase the
equity shares by 25000 shares at the rate of Rs.100/- to the members of the
company in the following terms :
that Clause V of the Memorandum of Association of Gaekwad Investment
Corporation Private Limited be changed as under:- That the authorised capital
of the company shall consist of Rs. 1,00,00,000/- (Ruepes One Crore) divided
into 25,000 equity shares of Rs. 100/- each and 75,000 four percent
Non-cumulative Irredeemable Preference Shares of Rs. 100/- Resolved that
capital clause of the Articles of Association of Gaekwad Investment Corporation
Private Limited be changed as under:- That the Authorised Capital of the
Company shall consist of Rs. 1,00,00,000/- (Rupees one crore) divided into
25,000 equity shares of Rs. 100/- each and 75,000 four per cent Non-cumulative
Irredeemable Preference Shares of Rs. 100/- each.
Resolved that the Board of Directors of the Company be and is hereby authorized
to issue 25,000 equity shares to any members they deem fit.
Resolved that in the event of the company being wound up on reduction of capital
or otherwise the holders of the said Irredeemable Preference Shares shall be
entitled to the surplus assets of the company applied in the first place in
repaying to them the amount paid up on the irredeemable preference shares held
by them respectively but shall not be entitled to any further participation in
such surplus assets. In case of reduction of capital of the equity share
capital, the holders of equity capital shall not be entitled for repayment
unless consent of the irredeemable preference share holders is obtained.
Resolved that the holders of the said preference shares shall not have any
right to vote on any resolution placed before the company unless if directly
affects the rights attached to their preference shares even if the dividend is
not paid for any number of years, however, will have a right to vote only on
those resolutions which will affect their interests." However, on
8.1.1988, the Board decided to issue 15000 shares out of 25000 shares to its
members at that time. On or about 12.2.1988, a notice was issued asking the
members for acceptance and remit cheque covering the full amount as regard
shares allotted to them in three weeks, i.e., by 10th March, 1988.
of the aforementioned notice is not disputed. The Appellant No. 1 herein in the
company petition filed by Respondent No. 1 alleged that prior to the Managing
Committee meeting a Board meeting was also held.
assertion was made in his affidavit dated 11.4.1992 in C.P. No. 7 of 1992.
Reference to the Managing Committee meeting, however, was not made by the
Appellant No. 1 in his affidavit dated 10.12.1992 in C.P. No. 13 of 1992, but
it is of not much consequence as would appear from the discussions made
hereinafter. However, it appears that with a view to give effect to
aforementioned letter dated 12.2.1988, a meeting of the Board of Directors was
held on 13.2.1988 wherein FRG was present. In the said meeting, the following
resolution was adopted:
The Board confirmed the minutes of the Directors Meeting held on 8th January,
was reported to the Board that necessary action has been taken on the Agenda of
the Board Meeting held on 8th January, 1988.
The Financial Position of the Company was discussed at length. The Board was
informed that letters have been addressed on 12th February 1988 to the shareholders informing them that the company has
issued 15000 equity shares of Rs. 100/- each to the members and to convey their
acceptance on or before 10th
March 1988. The
company would know the amount, the company would receive from them." The
said meeting bears the signature of the Secretary to the Chairman.
although in her original pleadings the factum of issuance of such circular
letter dated 12.2.1988 had not been denied or disputed but in her rejoinder to
the reply, she said so. The said stand apparently was taken by way of
afterthought and, thus, cannot be accepted.
moreover, do not see any reason to come to the conclusion as has been done by
the Division Bench of the High Court that the said meeting was not held at all.
The Company being a family company, the minutes of the said meeting, which bear
the signature of the Appellant No. 1 herein, should not be discarded.
pleadings, it was accepted, as would appear from the discussions made
hereinafter, that a decision had been taken to broad-base the company by the
Board of Directors during the life time of FRG himself who participated in the
meetings. His Secretary had furthermore endorsed the draft minutes of one of the
meetings which was in the handwriting of N.K.K. Mohammed and the Chairman (FRG)
had okayed the same. The said draft minutes are annexed to the company petition
of the Respondent No.1 herself. Further Mr. M.N. Khade, Company Secretary had
confirmed the facts relating to the issue of allotment of 15000 shares.
31st Annual General Meeting of GIC held on 30th September, 1989 in this situation assumes
importance. In the said meeting the annual accounts together with Directors
Report and Auditors Report for the year ended 31st March, 1989 were discussed at length and the following resolution was
that the Directors Report and the Audited accounts of the Company for the year
ended 31st March 1989 placed before the meeting be and
the same are hereby received and adopted." The minutes of this meeting
were signed by Mr. P.U. Rana, Director of the Company.
appears that Balance Sheet as on 31.3.1989 clearly indicated the issue of
additional equity share capital being 10,5000 equity shares of Rs. 100 each.
The amount of loan of Rs. 15 lakhs from Shantadevi is clearly shown under
unsecured loans, remaining amounts have also been advanced to the company by
way of loan. No dispute was raised in the said meeting as regard the
Annual Return of this meeting held on 30th September, 1989 was filed before the Registrar of
Companies, Gujarat at Ahmedabad on 30.11.1989. Mr.
H.A. Shinde wrote a letter to Registrar of Companies. The Annual Return was
signed by Mr. P.U. Rana and Mr. H.A. Shinde. The details of equity shareholding
reflected in the Annual Return was as follows:
Shantadevi Gaekwad 7
F.P. Gaekwad 323
Late Smt. Padmavatidevi Gaekwad 20
R.P. Gaekwad & Shri S.R.G. 10
Capt. V.S. Hazare 10
Shivrajkuar Khacchar 1
Pramilabai Hazare 10
Vimalaraje Gaekwad 1
Shubhangini R. Gaekwad 30
Lalitadevi Kirdatt 5
Mrunalinidevi Puar 1010
Pramilaraje of Jasdan 4
Asharaje Gaekwad 1505
Devyanidevi Gaekwad 1
Ajitsinh Gaekwad 1
Mrunalinidevi Puar & Shri R.P. Gaekwad 5
M. Puar & Smt. Shantadevi G. 4
Ajaysinh Ghorpade 1
Vasundraraje Gorpade 1
Sangramsingh Gaekwad 2001
S.P. Gaekwad H.U.F 1475
S.P. Gaekwad F&NG of Shri Pratapsinh Gaekwad 2750
S.P. Gaekwad F&NG of Priyadarshini Gaekwad 1750
the above allotment of 10500 equity shares was confirmed and accepted in the
31st Annual General Meeting of GIC. All disputes which are now being raised
about the issue of additional capital of 10,500 equity shares cannot be raised
since the allotment is confirmed/ ratified in the said Annual General Meeting.
We would, however, deal with the question as regard validity of allotment of
3000 shares in favour of the appellants and 500 shares allotted in favour of
the Respondent No.12 separately.
taking a view of the admitted unequivocal stand taken by Respondent No.1 as
also by Respondent No. 12 in Company Petition No. 7 of 1992, the High Court was
not correct in holding that the party should be relegated back to the same
position as if no additional shares other than 425 shares were issued and in
that view of the matter the reliefs granted by the Division Bench appear to be
self-contradictory and inconsistent with each other. If the only relief to
which the Respondent Nos. 1,12 and 13 became entitled to that all additional shares
over and above 425 original shares should be directed to be cancelled, the
question of Respondent No. 1's entitlement to further 8000 shares from the
additional 15000 shares would not arise. Her claim in this behalf is not only
wholly inconsistent but also self-destructive.
difficult to believe that the contesting respondents herein were not aware of
the decision of the Board of Directors to broad-base the company and allotment
of 8000 shares in favour of FRG out of the same.
Desai assails the findings of learned Single Judge contending that if FRG was
not inclined to subscribe to 8000 shares kept apart for him, there was
absolutely no reason as to why he should acquire 22 shares belonging to the
Ashokraje Gaekwad 1 Shri R.V. Dhaibar 10 Smt. Kusum Desai & Shri Dilip
Desai 5 Shri Dilip Desai & Smt. Kusum Desai 5 Shri M.N. Khade 1" All
the aforementioned shares are held by the outsiders.
very fact that the Board had approved the transfer of aforementioned 22 shares
is also indicative of the fact that had FRG been interested in subscribing 8000
shares, he would have applied and paid the requisite amount therefor and as he
did not take any such step, it is difficult to hold that the offer became a
the very fact that some outsiders have transferred shares in favour of FRG also
belies the argument of Mr. Desai to the effect that the intrinsic value thereof
was Rs. 1 lakh or 2 lakh per share. Had this been so, there was no reason for
the outsiders to transfer their shares in the name of FRG.
was, therefore, not a case where FRG would try to consolidate his position by
purchasing 22 shares. Some other considerations therefor must have weighed with
him. One of them may be that he intended to oust the outsiders. FRG admittedly
was Chairman of the company till his death. No dispute was raised by any member
as regard allotment of shares during his life time. The findings of the
Division Bench that he had full interest in the company shares may not be correct
inasmuch as had that been the position, he would have definitely opted for
allotment of 8000 shares in his name. In any event, he would have opposed
allotment of 7500 shares in the name of Appellant and Respondent Nos. 12 and 13
if he intended to consolidate his position as had been opined by Division Bench
of the High Court.
not necessary for us to dwell at length the question as to whether there had
been an express renunciation by FRG in relation to 8000 shares allotted to him
as the letter dated 11.6.1988 purported to have been written by Shri Khade to
the Appellant No. 1 is disputed. Even if we proceed on the basis that there had
been no express renunciation by FRG as regards 8000 shares allotted in his favour,
there may not be any doubt whatsoever that in law, having regard to the fact
that he acquired only a personal interest therein, the same came to an end with
absence of any documentary evidence, it is also difficult for us to accede to
the contention raised on behalf of the Respondents herein that the Respondent
Nos. 1 and 12 advanced a sum of Rs. 15 lakhs each without any interest and,
thus, they were in a position to purchase 8000 shares. The fact remains that
the same had not been done. The fact remains that advancement of loan by both
Respondent Nos. 1 and 12 whether with or without interest stands accepted,
which was done in November, 1988.
the question as to whether an interest of 14% per annum was payable thereon or
not is in dispute. According to the Appellants, however, TDS had been deducted
on the interest amount and the certificates had been issued by GIC. There is
also no gainsaying that at least Mrs. Puar was having full knowledge as regards
floating of additional shares. She even in her affidavit did not explain as to
under what circumstances she had applied for allotment of only 1000 shares and
not more. It is inconceivable having regard the tenor of her letter of May 1988
that she was asked the Appellant No. 1 to send a sum of Rs. 1,00,000/- towards
purchase of share by Appellant No. 1 and she complied with the said request
without knowing the implication thereof.
is no allegation (much less proof) that she even made inquiries as regard the
status of allotments. She being the managing director of a subsidiary of GIC,
it is difficult to believe that she was entirely oblivious to the share issue
of GIC having a very small capital base of 425 shares.
had moreover sent two cheques of Rs. 80,000 and Rs. 20,000 respectively being
dated 23rd March, 1988 and 10th May, 1988 and thereby categorically opted to purchase 1000 shares.
There is no mention in the said letter that such offer was made at the instance
of the Appellant No. 1 herein.
not uncommon to advance loan on interest in preference to purchase of shares as
a person may be certain about the return of money vis-`-vis the uncertainty as
regard purchase of shares as in the case of latter, the person investing in the
shares may lose if not entirely, to some extent. Similarly, the question as to
why the Appellants herein did not advance any loan to the Company is again a
matter of not much consequence, particularly, when the parties have not been
examined on oath. It is furthermore not necessary for us to dwell at length the
submissions of Mr. Desai as regard effect of absence of any notice of closure.
futile to go into the question as to whether 14% interest was to be paid on the
amount of loan as admittedly Respondent Nos. 1 and 12 advanced the said amount
by way of loan only. Only at a later stage, a claim was laid to utilize the
amount towards the purchase of 8000 shares.
although the Respondent No. 1 participated in the family meeting dated
23.3.1988 and had received the letter of offer dated 12.2.1988, did not opt for
any share. As indicated hereinbefore, she had not claimed for allotment of any
share even after the death of FRG which took place on 1st September, 1988. Even in November, 1988, she even
did not subscribe for rights issue of BRC and in fact renounced such offer as
had been admitted in her rejoinder affidavit filed in Company Petition No. 51
of 1991 to the reply filed by the Appellant No. 1 herein. In the said
rejoinder, a story was made out for the first time that such renounciation was
made so that BRC equity shares can be purchased by the family in the name of
such persons as was decided.
view of our findings that the Respondent No. 1 is estopped and precluded from
questioning the allotment of 6475 shares to the Appellant herein. It may not be
necessary for us to go into the details of alleged inconsistencies and
contradictions in the three minutes of the meetings as also alleged three
different versions of the Appellant No. 1 herein.
it to point out that the Appellant No. 1 alone is not guilty, if at all, of
taking inconsistent plea. The contesting Respondents are also guilty to that
effect in equal measures. The Respondents herein, as discussed hereinbefore,
have taken not only contradictory stand and inconsistent pleas but also prevaricated
the same from stage to stage. Even before us different contentions have been
raised which were not raised before the learned Single Judge nor were pleaded
in the company petition.
must also be placed on records that in the written submissions, several contentions
have been raised which were not raised in oral submissions.
the Respondent No. 12 was given power of attorney by the Respondent No. 1.
transaction by a lady who is illiterate or a purdah-nashin and a transaction by
a lady who looks after the family business/family property would be differently
viewed. She, being the Managing Director of Alaukik, a subsidiary company of
GIC would be presumed to know the affairs of the Company as Alaukik on her own
showing would be vitally affected by the rights issue.
also chaired a meeting of the Company on 12-10-89 It is, therefore, clear that
the dispute was raised despite full knowledge about allotment of shares by
different persons only after the Respondent No. 12 got 1500 shares of Alaukik allotted
in her name as a result whereof the suit No. 675 of 1990 was instituted.
in the prayer portion, no relief has been prayed for to set aside the transfer,
recession as regard allotment of 6475 shares.
Paragraph (2) while dealing with the contentions of the Respondents purporting
to be as regard alleged false statement relating to the issue of 15000 shares
and related aspects, the Appellants herein had given in great details the
manner in which:
company was being managed;
holding of Board meeting on 10th November, 1997 which was attended by FRG,
Appellant No. 1 and Mr. P.H. Chinoy wherein it was resolved that an
Extra-Ordinary General Meeting be convened on 17th December, 1987 to consider
the increase/ issue of capital of the company .
holding of Extra-Ordinary Genreal Meetng of the Company on 17th December, 1987
chaired by Mr. P.U. Rana and attended by Mr. Shinde and Mr. M.N. Khade wherein
the financial position of the company in the absence of dividend income was
discussed and resolution was adopted that company would issue 25000 equity
shares to any members as the Board of Directors deem fit and subsequent thereto
and as consequence of the authority given by the shareholders to raise capital,
a Board Meeting of the Company was held on 8th January, 1988 wherein Appellant
No. 1, Mr. P.H. Chinoy, Mr. P.U. Rana were present and after discussion, it was
resolved that 15000 equity shares of Rs. 100 each be issued at par to the
members of the company.
The issuance of a circular letter dated 12.2.1988 pursuant to or in furtherance
of the said resolution to all members of the company.
para 10 of her reply to the said affidavit, Respondent No. 12 stated:
is stated in Paras II 2(ii)(iii)(iv) & (v) of the affidavit in reply is
broadly true except that Shri Khade was not only then the Company Secretary of
Respondent No. 6 Company but still continues to be the Company Secretary."
The Respondent No. 1, therefore, accepted and admitted the allegations made by
the Appellant No. 1 herein by reason of non-traversal of the said pleadings.
interesting to note that the Respondent No. 1 in her rejoinder categorically
stated that everybody received the circular letter and even Appellant No. 1 did
not apply for the shares pursuant thereto but the same had not been replied to.
aforementioned situation, in our considered opinion, she cannot now be
permitted to turn around and contend that there was no requirement to raise any
fund or there was no valid reason to increase the capital of GIC by issues of
it is held that the decision to issue 15000 additional shares was validly
taken, out of which 6475 shares were allotted to the Appellants, the Appellants
were in majority. Furthermore, there does not appear to be any reason as to why
the Respondents herein despite knowledge did not object thereto.
sufficient material has been brought on records to satisfy us that the minutes
of the said Board meeting dated 13.2.1988 was a forged and fabricated one. However,
it is not disputed that no offer was received upto 10th March, 1988. The stand
of the Appellants herein is that the said date was later on extended. However,
on 21.3.1988 6475 shares were allotted in terms of the said Resolution to
Appellant No. 1 herein, 8000 shares were allotted to FRG, 500 shares to Mrs. Mrunalini
Devi Puar and 25 shares to Mrs. Shubhangini Raje. Furthermore, it was an adhoc
allotment and not a confirmed one.
now consider the effect of three draft minutes of meetings which are placed on
records by the parties.
on 21.3.1988, a meeting was held. Draft minute No. 1, although was unsigned and
sent with a covering letter of Mr. Khade on or about 29.3.1988 in the following
Committee considered the allotment of 15000 Equity Shares of Rs. 100/- each of
the Company recently offered to the members. After discussion the allotment was
decided as under:
No. of Shares Value of Shares
Fatesinh Gaekwad 8000 8,00,000/-
Sangramsingh Gaekwad 6475 647500
Mrunalinidevi Puar 500 50,000
Shubhanginiraje Gaekwad 25 2500
Shares would be allotted as and when the amounts are received. As there was no
other business the meeting terminated." The second draft minutes of the
meeting are as under:
number of shares to be allotted worth Rs. 15 lakhs, i.e., 15000 at Rs. 100/-
Requisitions so far
Chairman 8000 shares Rs. 8,00,000/-
Maharani of Dhar 500 shares Rs. 50,000/-
Subhangini Raje Gaekwad 25 shares Rs. 2,500/-
P. Gaekwad and others 6475 shares Rs. 6,47,500
15000 shares 15,00,000/-
Shares will be allotted in the names asked for by the above parties." This
is the purported first version.
third draft is said to be in the following terms:
Committee Meeting of Gaekwad Investment Corporation Pvt. Ltd. was held on 21st
March, 1988 at 3.00 PM at Hoechst House, Nariman Point, Bombay 400021 Present:
1. Shrimant Sangramsingh Gaekwad
P.H. Chinoy Shri Sangramsingh Gaekwad was in the Chair. In terms of the
Resolution passed at the Board of Directors meeting held on 8.1.1988 for issue
of 15000 Equity Shares of Rs. 100/- each of the Company offer letter dated 12th
February, 1988 have been sent to the Shareholders of the Company requesting
them to convey their acceptance for the number of shares they would like to
subscribe alongwith their cheques for the full amount of Share. Subscription
accepted by them. Out of these additional Equity Shares it is decided to issue
51% additional Equity Share Capital to Lt. Col. Dr. Fatehsinghrao Gaekwad and
the balance 49% to be issued to the existing members depending on the offer
accepted by them. In case the existing members do not subscribe to the
additional Share Capital offered to them in terms of the letter of offer dated
12th February, 1988 sent to all the members of the Company, it was decided to
offer these Equity Share Capital remaining unsubscribed to the persons as the
Committee deems fit. As there was no other business, the meeting terminated.
Chairman" The apparent difference between the first and second versions of
the meeting is that whereas the words "and others" appear after the
words "Chairman, Sangramsingh Gaekwad", in the second one the same is
having regard to the endorsement made therein; the genuineness whereof has not
been doubted or disputed; and, moreover, as in sum and substance the contents
of both the meetings are same, the fact that 6475 shares were allotted to Sangramsingh
Gaekwad, the Appellant No. 1 herein is beyond any doubt particularly when such
a fact stands admitted by the Respondent No1. in the company petition itself.
purported third minute, however, had been filed by Mrs. Puar in her company
petition, the correctness whereof is in question. Even in the second draft of
the minutes of meeting, however, it was mentioned that the shares will be
allotted in the name asked for by the above parties and, thus, there may not be
in variance of substance in the two drafts.
to Mrs. Shandadevi Gaekwad, Respondent No. 1 herein and others, it was a family
meeting (para 6.5 of the company petition). She has also annexed the draft
minutes of the meeting with the said petition and further annexed allotment
ratio discussed at the meeting. The draft minutes forwarded by Mr. M.N. Khade
had also been annexed in the company petition. It may, therefore, be safe to
opine that the purported family meeting was in fact a Board meeting of which
the parties were fully aware of. The minutes of the said meeting clearly
suggest that the shares were to be allotted if an offer to that effect was made
together with the tender of value thereof whereupon the shares would be
allotted in the names of the persons as asked by the above parties. Liberty, thus, was given to all the parties
named in the said minutes of the meeting to either apply for shares in their
own names or in the names of any other person of their choice. In that view of
the matter, the words written by hand "and others" as contained in
the first draft of the meeting may not be of much significance.
as noticed hereinbefore, the said draft minute was sent by Mr. M.N. Khade with
a covering letter. In the company petition, the issuance of the said letter and
the ratio of allotment having not been denied or disputed, we have to proceed
on the basis that the contents of the said minutes of meetings are correct.
Even in law, shares can be allotted as and when the amounts were received. Admittedly,
all the family members had participated in the issue even if the last date of
offer dated 10.3.1988 had expired. The restriction as regard time of allotment,
thus, may not be of much significance.
aspect of the matter also cannot also be lost sight of. 6475 shares were
allotted in the name of the Appellants as also in the names of SPG, HUF were
allotted between April and June, 1988. Mrs. Shubhanginidevi Gaekwad was
allotted 25 shares and Mrs. Puar was allotted 1000 shares on or about 30.5.1988.
All the share certificates had been issued which bear the signatures of
Appellant No. 1 and Mr. H.A. Shinde, Directors of Company and countersigned by
Mr. M.N. Khade. It is apparent from the records that Shri Shinde and Shri Khade
are now siding with the Respondents and have filed affidavits in support of
their case. It is also of some significance to note that out of two cheques of Rs.
80,000 and Rs. 20,000 issued by Respondent No. 12 for purchase of 1000 shares,
one is dated 23rd
March, 1988 and the other
is dated 10th May, 1988. It is, therefore, difficult to
accept having regard to the aforementioned fact situation that the Respondent
No. 12 was not aware of the affairs of the company. If she had no knowledge
about the issue of the shares, we wonder how she could draw a cheque in March,
1988. We, therefore, are of the opinion that in relation to allotment of 7500
shares, Mrs. Puar and Mrs. Shubhanginidevi Gaekwad are estopped and precluded
from questioning the allotment having received the benefit thereof and having
full knowledge thereabout all along.
attempt has been made by Mr. Desai to show that some contradictory and
inconsistent statements have been made by the Appellant No. 1 herein in his
affidavits dated 21st
March, 1991, 10th April, 1992 and 10th December, 1992.
the views we have taken, it is not necessary to go into the said question as
also the question as to whether in fact time for actual payment towards
allotment of shares had been extended or not.
in her company petition categorically stated that prior to filing of petition
under Sections 397 and 398 of the Companies Act, she made inspection of the
records of the company and obtained notorised copy thereof on 10th December, 1990. At the time of filing the said
company petition concededly she had complete knowledge of the affairs of the
company as reflected from the documents maintained at the Registered Office of
the Company. On her own showing, Mr. P.U. Rana who was a director of the
company had at her request gave her inspection of the registers including
company registers, minute book, share registers, etc.
on or on the basis of the said documents, Respondent No. 1 herein categorically
It was decided and agreed in the said family meeting and also subsequently in a
meeting of the Company's Board of Directors, that out of the 15,000 equity
shares, 8000 equity shares would be allotted to Shri Fatehsinhrao Gaekwad, 500
equity shares to Shrimati Mrunalini Devi Puar, the sister of Shri Fatehsinhrao Gaekwad,
25 shares to Princess Shubhangini Raje and 6475 shares for Shri Sangramsinh Gaekwad,
the First Respondent herein." Despite such categorical admissions in the
pleadings, a statement was made across the bar that at the time of filing of
the Company Petition the Respondent No. 1 herein did not have all informations
which came to light at a much later stage. It was urged that only with a view
to obtain complete reliefs, prayers made in the company petition were amended
and reliefs had been granted by the High Court keeping in view the pleadings
and affidavits filed by the parties in all the three matters. We have our own
doubts how far the procedure adopted were correct when in a case of oppression
the court must strictly go by the pleadings made in the application. The
provisions of the Civil Procedure Code do not envisage that pleadings in any
other case should be the basis for grant of relief, particularly, when the plea
taken in both the petitions are contradictory and inconsistent with each other.
Before us affidavits from different proceedings made by the same person or by
the other supporting or opposing the application have been placed. They have
not been cross-examined. Their attention had not been drawn to their earlier
statements which could be done only in terms of Section 145 of the Evidence
Act. With the view to elicit the truth the court must have before it a clear
picture. In this case, unfortunately, the parties herein have not made any
efforts to examine themselves in court so as to enable the other side to
cross-examine them. Had the parties to the proceedings been examined and
cross-examined, the could have been confronted with the earlier statements made
by them in another affidavit.
Needle Industries (supra), this Court has frowned upon such practices.
Mrs. Puar in her rejoinder to the counter-affidavit filed by the Appellants
herein in Company Petition No. 7 of 1992 accepted that during the life time of
FRG and to his knowledge, a decision to broad-base company by issuing 25000
shares out of which 15000 at the first instance was taken. It also stands
admitted from one or the other minutes of meetings referred to in her petition
that out of the 15000 shares 6475 shares were to be allotted to the Appellants
of the fact that the presence of FRG in the decision making process to
broad-base the company, the authority of FRG as regards control of the company
had never been disputed and his presence in one of the Board meetings, the plea
of issuance of additional shares has sufficiently been established. A decision
to which FRG is a party can only give rise to a question of oppression on his
part and no one else. In any event, such a case has never been made out that
FRG was guilty of commission of any acts of oppression or mismanagement had
been committed while he was the chairman of the company.
are, therefore, of the opinion that the Respondent No.1 failed to substantiate
the charge of oppression on the ground of issuance of 6475 shares in favour the
First Respondent herein claimed 8000 shares evidently relying on or on the
basis of such allotment on the sole ground that on the death of FRG, the same
was inherited by her as a Class-I heir. She raised a grievance only as regards
allotment of 3000 shares to the Respondents Nos. 3 and 4 herein, as would
appear from a perusal of the allegations made in the company petition and on a
reasonable construction thereof.
allotments made to the parties including 8000 shares were provisional in nature
and as such shares were to be allotted on payment, as is evident from the
minutes of the meetings. No other person except the Appellants herein, Mrs. Puar
and Mrs. Shubhangini Devi opted for allotment of shares to the extent of 6475,
1000 and 25 shares respectively.
not in dispute that upon demise of FRG, Respondent No. 1 applied for grant of
succession certificate on 28.11.1989 wherein she disclosed the assets of FRG
but except for his 22 shares in GIC, no claim for any other share was made far
less her right as regard 8000 shares.
also not in dispute that the matter relating to her claim to succeed FRG as his
Class I heir is pending adjudication in Civil Suit No. 725/1991 in Baroda Civil Court. She claimed title in respect of
8000 shares by inheritance in terms of Hindu Succession Act. Indisputably, in
terms of Section 15 of the said Act she is a Class I heir but the Appellants
herein contend that the said provision has no application having regard to
Section 5(2) thereof as inheritance in the family is governed by the rule of
primogeniture. A pure question of title is alien to an application under
Section 397 of the Companies Act wherefor the lack of probity is the only test.
Furthermore, it is now well-settled that the jurisdiction of the Civil Court is
not completely ousted by the provisions of the Companies Act, 6 SCC 220]) A
dispute as regard right of inheritance between the parties is eminently a civil
dispute and cannot be said to be a dispute as regards oppression of minority
shareholders by the majority shareholders and/ or mismanagement.
in the said suit when an application for interim injunction was filed only, a
prima facie observation was made to the effect that the succession was not to
be governed by Hindu Succession Act. Such observations do not constitute a
binding decision as no finality is attached thereto. The matter came upto this
Court in S.L.Ps. (C) No. 17018/95 and 17020/95 which were disposed of
may also allay the fears of the petitioner regarding the observations made by
the learned Single Judge of the High Court in his order now impugned while
accepting the appeals against him.
made clear that those observations are not meant to be final, but have
obviously been made to dispose of the claim to temporary injunction which shall
keep confined to that limited exercise without affecting the merits of the
disposes of the Special Leave Petitions." Our attention has been drawn to
an interlocutory proceedings in the suit relating to title, wherein allegedly a
prima facie case was not found in favour of the Appellants herein but this
Court is not concerned therewith as it has been accepted at the Bar that
keeping in view of the fact that the question is subjudice, this Court would not
go into the said issue. In fact, Mr. Desai, learned counsel appearing on behalf
of the Respondent No. 1, has given up the same.
finding of the Division Bench of the High Court to the effect that the
Respondent No. 1 is entitled to get 8000 shares which was firm allotment made
to FRG is, thus, not sustainable in law.
the allotment in favour of the members of the Company was provisional in nature
which would amount to invitation to offer and not an offer. A right to a share
would fructify only when an offer made by the company is accepted. Only upon
acceptance of such offer, a binding contract comes into being. A right, as is
well known, fructifies only upon conclusion of a contract and not prior
thereto. When a share is allotted in favour of a person as a member of the
company, it becomes his personal right. Such a personal right is not heritable.
By reason of a mere provisional allotment without making any payment therefor
no legal right in the shares was created. It would also be of some interest to
note that even initial allotment of shares cannot be transferred.
(7) SC 266], it has been held:
allotment of CANCIGOS is not a transfer as thereby Canbank Mutual Fund had
allowed the shares not as owner thereof. The Benami Transactions Act applies
when there is a transaction in which the property is transferred. If allotment
of CANCIGOS is not a transfer of property, the Act would not apply. [See Sri Raj
595] and The Swadeshi Cotton Mills, Co., Ltd. , In re. [1932 Comp. Cas 411].
Mills Co. Ltd., In re. [1937 Comp. Cas 71], Varadachariar, J. stated the law
we have already observed, it is no doubt true that in the hands of a
shareholder, a share is property and when a shareholder exchanges his shares
with another it may be possible to regard the transaction as amounting to a
transfer whether by way of exchange or conveyance: Cf. Coats v. Inland Revenue
Commissioners (1897) 2 Q.B. 423. But when the company is for the first time
issuing shares, it seems to us that there is no question of property already
possessed by the company being thereby transferred to the allottee." In
Needle Industries (supra), this Court opined :
We see no substance in Shri Nariman's contention that the letter of offer could
not have been sent to the Holding Company without first obtaining the RBI's
approval under Section 19 of FERA. Counsel contends that under Section
19(1)(b), notwithstanding anything contained in Section 81 of the Companies
Act, no person can, except with the general or special permission of the
Reserve Bank, create 'any interest in a security' in favour of a person
resident outside India. The word "security" is defined by Section
2(u) to mean shares, stocks, bonds, etc. We are unable to appreciate how an
offer of shares by itself creates any interest in the shares in favour of the
person to whom the offer is made. An offer of shares undoubtedly creates
"fresh rights" as said by this Court in Mathalone v. Bombay Life
Assurance Co. Ltd. (1954 SCR 117 : AIR 1953 SC 385 : (1954) 24 Com Cas 1) but,
the right which it creates is either to accept the offer or to renounce it; it
does not create any interest in the shares in respect of which the offer is
made." The Division Bench of the High Court treated the allotment to be a
confirmed one purported to be relating to Regulation 28 of Table A of the
Companies Act. The said provision has no application in the facts and
circumstances of this case.
OF 3000 SHARES:
of 3000 shares, however, stand on a different footing.
conduct of the Appellants in this regard would call for a closer scrutiny.
is no proof of express renunciation of his 8000 shares by FRG in favour of the
true that the Respondent No. 1 herein although questioned the allotment of 3000
shares given to the son and daughter of the Appellant Nos. 1 and 2 herein, no
such challenge was made as regards 500 shares allotted to Respondent No. 12. It
is also true that the dividend had been paid for the year ending 31.3.1991 at
the rate of 10% and 300% respectively to both Respondent Nos. 12 and 13 in
respect of 1000 shares and 25 shares held by them respectively. But this action
on the part of the contesting respondents would not validate the transaction as
regard issuance of 3000 shares in favour of the Appellants.
assuming that the children of the Appellant Nos. 1 and 2 became members, in
relation to the shares originally allotted to Fatehsingh Gaekwad, as was
submitted by Mr. Jethmalani, no further circular or notice to the shareholders
about the availability thereof had been issued. Even the Appellant No. 1 in his
affidavit has contradicted himself by making inconsistent statements.
in absence of any resolution by the Board of Directors, no offer could be made
to the Respondent No. 12 as regard 500 shares out of 8000 shares which were
allotted to FRG.
Appellants herein have utterly failed to prove that there has been any
renunciation of 8000 shares by Fatehsinh Gaekwad or any resolution was taken in
this behalf by the Board. We have grave doubt about the authenticity of the
letter of the Company Secretary of FRG renouncing his shares. Even allotment of
500 shares in favour of Respondent No. 12 out of said 8000 shares is invalid.
In that view of the matter, the contentions of the Appellant No. 1 to the
effect that his children, Pratapsinh S. Gaekwad and Priyadarshiniraje S. Gaekwad
applied for further 3000 shares through him and in view of the availability of
shares, the Board of the Company decided to issue and allotted the said 3000
shares to them cannot be accepted. It also does not appear that the Board of
Directors or the Management Committee took any resolution to allot shares to
the other members out of the said 8000 shares.
also difficult to accept that efforts had been made by the Appellant No. 1 to
find out if any other member would like to offer subscription of shares of the
company as alleged by him and that efforts had also been made to find out
subscribers for those shares.
therefore, are of the opinion that the transactions relating to issue of 3000
additional shares in the names of the Appellant Nos. 3 to 5 and 500 shares to
the Respondent No. 12 out of the 8000 shares originally allotted to FRG are bad
IGNORING RIGHT OF PRE-EMPTION:
3 of the Company states that the Company is a private company and the right of
transfer is restricted in the manner provided for therein. Article 4 provides
for capital of the Company. Article 5 provides that the share in the capital of
the Company for the time being would be under the control of the Directors who
may allot or otherwise dispose of the same to such persons in such proportion
and on such terms and conditions and either at a premium or at par or at a
discount. Article 6 provides that the transfer of shares shall be restricted in
the manner to the extent provided in Articles 7 to 15 thereof.
7 of the Articles of Association of the company provides for embargo in favour
of a person who is not a member of a company and thus postulates the policy of
transfer first to a member only.
8 provides for a notice to transfer for a fair value. A transfer notice is not
revocable except with the sanction of the Directors. Upon receipt of such
notice, if the company finds out a person who intends to purchase the same, a
notice of the Proposing Transferor shall be issued.
10 provides for valuation of shares by the auditors in case of any difference
between the Proposing Transferor and Purchasing Member.
12, however, provides that if the company does not find a Purchasing Member and
give notice in the matter stated in Article 9 with a period of 28 days after
being served with a transfer notice, the Proposing Transferor shall at any time
within three months afterwards be at liberty subject to Article 16 thereof to
sell the share to any person and at any price.
14 envisages transfer to a member of the family in respect whereof the embargo
contained in Articles 7 to 13 would not apply. Only when a share is to be
transferred by a member to an outsider being a person of his choice other than
those specified in Article 14, the requirements contained in the aforementioned
Articles are required to be complied with.
15 provides for registration of transfer whereas Article 16 empowers the
Directors to register any transfer or transmission of a share without assigning
any reason except in a case where the transferee is a member of the company or
in whose favour the transferee has been effected in terms of Article 14.
is a wholly owned company of the Appellants. Such a family company may be
considered to be a quasi-partnership. The learned Single Judge lifted its
corporate veil and held that having regard to the nature of the investment made
by the family, the transfer may not be held to be illegal.
in law no transfer could be made in favour of a body corporate having regard to
the Articles of Association of the Company.
event, when a notice to the company by a member is vitiated, the same can be
withdrawn in law. Furthermore, a transfer in violation of Article is void [See
Palmer's Company Law, 23rd Edition 22-14].
instant case, the actual notice of transfer has not been produced.
a letter has been brought on record to show that Mr. Khade was asked to serve
the notice to the members of the company which he did not.
Desai submitted that as notice of transfer had already been issued, the same
become irrevocable which entitled the Appellants to opt for purchasing the
shares on a pro-rata basis. The said submission of Mr. Desai cannot be accepted
as it is not the case of the Respondents that the said notice was acted upon
and the provisions of Articles 9 to 11 had been complied with.
be noticed that in the suits filed by the shareholders against the Appellant
relating to transfer of shares in favour of Indreni, except in suit No. 872 of
1990, no prayer for pro-rata allotment thereof in favour of other members had
contents of the said circular letter appear to be vague inasmuch as how many
shares are proposed to be transferred had not been stated therein.
no action having been taken within a period of 28 days from the date of
issuance of such notice, the proposed transferee is entitled to transfer the
shares to any person of his choice.
now well-settled that only one pre-emptive offer is to be made which is
otherwise to be accepted or not at all. The existing shareholders are not
entitled to be given further pre-emptive rights in respect of those unaccepted
shares. Even such a right can be waived or modified.
event, the transfer has been rescinded in terms of the resolution passed in a
meeting dated 9.8.1990. At this stage, it is not necessary to consider the validity
or otherwise of the said meeting as no sufficient materials except the factum
of the payment to Indreni had been brought on records to show that the said
resolution dated 13.7.1990/9.8.1990 adopted by the Board are forged and
fabricated. In any event, it is not necessary to go into the details of the
matter as the three suits filed by the Respondents are pending in different
courts of law.
further to be borne in mind that a pre-emptive right is granted in favour of a
member of a private company so that his right of control is not taken away.
Exercise of such pre-emptive rights is particularly needed in relation to those
private companies which are essentially incorporated partnerships. (See Gower
and Davies' Principles of Modern Company Law, Seventh Edition, page 635) As the
notice of transfer itself was rescinded, we are of the view that 'Indreni' was
not required to transfer the said shares back to the Appellants.
event, the title in relation to the aforementioned shares is a matter between
the Appellants and the Indreni and the Respondents herein cannot have any say
the foregoing reasons, we are of the opinion that the Division Bench of the
High Court committed a serious error in holding that the transfer by the
Appellants in favour of the said Indreni being bad in law, the members of the
company were entitled to allotment thereof on pro-rata basis.
397 of the Companies Act reads as under:
(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 Company Law Board for an order under this section : provided
such members have a right so to apply in virtue of Section 399.
If, on any application under sub-section (1), the Company Law Board is of the opinion
the company's affairs are being conducted in a manner prejudicial to public
interest or in a manner oppressive to any member or members;
(b) that to wind up the company would unfairly prejudice such member or
members, but that otherwise the facts would justify the making of a winding up
order on the ground that it was just and equitable that the company should be
Company Law Board may, with a view to bringing to an end the matters complained
of, make such order as it thinks fit.
398 provides for relief in cases of mismanagement in the following terms :
Application to Company Law Board for relief in cases of mismanagement.
Any members of a company who complain
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
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 manager or
in the ownership of the company's shares, or if it has no share capital, in its
membership, or in any other manner whatsoever, and that by reason of such
change, it is likely that the affairs of the company will be conducted in a
manner prejudicial to public interest or in a manner prejudicial to the
interests of the company; may apply to the Company Law Board for an order under
this section, provided such members have a right so to apply in virtue of
If, on any application under sub-section (1), the Company Law Board is of
opinion that the affairs of the company are being conducted as aforesaid or
that by reason of any material change as aforesaid in the management or control
of the company, it is likely that the affairs of the company will be conducted
as aforesaid, the Company Law Board may, with a view to bringing to an end or
preventing the matters complained of or apprehended, make such order as it thinks
it." Section 402 of the Companies Act provides for the reliefs which may
be granted without prejudice to the generality of the powers of the court under
the aforementioned provisions The expression 'oppressive', it is now
well-settled, would mean burdensome, harsh and wrongful.
complained of, thus, must relate to the manner in which the affairs of the
company are being conducted and the conduct complained of must be such as to
oppress the minority members. By reason of such acts of oppression, it must be
shown that the majority members obtained a predominant voting power in the
conduct of the company's affairs.
jurisdiction of the Court to grant appropriate relief under Section 397 of the
Companies Act indisputably is of wide amplitude. It is also beyond any
controversy that the court while exercising its discretion is not bound by the
terms contained in Section 402 of the Companies Act if in a particular fact
situation a further relief or reliefs, as the court may seem fit Sundaramurthy
and others [AIR 1958 Madras 587] But the same would not mean that Section 397
provides for a remedy for every act of omission or commission on the part of
the Board of Directors. Reliefs must be granted having regard to the exigencies
of the situation and the court must arrive at a conclusion upon analyzing the
materials brought on records that the affairs of the company were such that it
would be just and equitable to order winding up thereof and that the majority
acting through the Board of Directors by reason of abusing their dominant
position had oppressed the minority shareholders. The conduct, thus, complained
of must be such so as to oppress a minority of the members including the
petitioners vis-`-vis the shareholders which a fortiorari must be an act of the
majority. Furthermore, the fact situation obtaining in the case must enable the
court to invoke just and equitable rules even if a case has been made out for
winding up for passing an order of winding of the company but such winding up
order would be unfair to the minority members.
interest of the company vis-`-vis the shareholders must be uppermost in the
mind of the court while granting a relief under the aforementioned provisions
of the Companies Act, 1956. . Mala fide, improper motive and similar other
allegations, it is trite, must be pleaded and proved as envisaged in the Code
of Civil Procedure.
of mala fide are required to be pleaded with full particulars so as to obtain
an appropriate relief.
remedy under Section 397 of the Companies Act is not an ordinary one. The acts
of oppression must be harsh and wrongful. An isolated incident may not be
enough for grant of relief and continuous course of oppressive conduct on the
part of the majority shareholders is, thus, necessary to be proved. The acts
complained of may either be designed to secure pecuniary advantage to the
detriment of the oppressors or wrongful usurpation of authority.
Laws of England, 4th Edition, Volume 7, para 1011, it is stated:
Conduct amounting to oppression. In this context, "oppressive" means
burdensome, harsh and wrongful. It does not include conduct which is merely
inefficient or careless. Nor does it include an isolated incident: there must
be a continuing course of oppressive conduct, which must be continuing at the
date of the hearing of the petition.
the conduct must be such as to be oppressive to the petitioner in his capacity
as a member: whatever remedies he may have in respect of exclusion from the
company's business by being dismissed as an employee or a director, he will
have none under the provisions relating to oppression.
other hand, these provisions are not confined merely to conduct designed to
secure pecuniary advantage to the oppressors; they cover the case of wrongful
usurpation of authority, even though the affairs of the company prosper in
consequence." It has to be borne in mind that when a complaint is made as
regard violation of statutory or contractual right, the shareholder may
initiate a proceeding in a civil court but a proceeding under Section 397 of
the Act would be maintainable only when an extraordinary situation is brought
to the notice of the court keeping in view of the wide and far-reaching power
of the court in relation to the affairs of the company. In this situation, it
is necessary that the alleged illegality in the conduct of the majority
shareholders is pleaded and proved with sufficient clarity and precision. If
the pleadings and/ or the evidence adduced in the proceedings remains
unsatisfactory to arrive at a definite conclusion of oppression or mis-
management, the petition must be rejected.
be true that the parties had agreed before the High Court that pleadings in all
connected cases be treated as part of the records of the High Court but by
reason thereof it cannot be inferred that although the High Court had no
jurisdiction to adjudicate upon the company petition filed by the Respondent
No. 12 herein filed before the Company Law Board, Delhi and the Company
Petition filed by the Respondent No. 1 before the Company Law Board, Bombay,
they would be the basis for grant of relief particularly in view of the fact
that the reliefs claimed therein are different.
the amendment in the Companies Act, the Company Law Board alone had the
jurisdiction to entertain an application under Sections 397 and 398 of the Companies
Act, as the jurisdiction of the High Court was ousted thereby and, thus, the
allegations made in the Company Petition filed by the Respondent No. 12 being
company petition No. 7 of 1992 could not have been the subject matter of
adjudication by the High Court. It is trite that what cannot be done directly
cannot be done indirectly. The conduct and the status of the parties vis-`-vis
the company also assume significance.
the Respondent No. 1 herein claimed relief inter alia as a sole class 1 heir of
the FRG, the Respondent No. 12 claimed her relief on the basis of being a
person involved in protecting the affairs of the Gaekwad family as also in her
own right as a shareholder. It is significant, however, that in Suit No. 675 of
1990 pending in the court of Baroda, Gujarat in her written statement the
Respondent No. 12 claimed that if her mother had been issued the 8000 shares,
her holding together with that of her mother's would exceed 60%.
Respondent Nos. 1 and 12 had initiated different proceedings in different
forums to suit their own purposes. From the materials brought on records, it
can safely be inferred that proceeding before the Company Law Board, Delhi was
initiated by the Respondent Nos. 12 herein when it was discovered that the
Respondent No. 1 may not obtain any relief in the Company Petition filed by her
before the Gujarat High Court.
Respondent No. 1 in her application did not disclose the grounds for
challenging the issue of 6475 shares to the Appellants. In that view of the
matter the relief granted by the High Court to the effect that issue of all
shares beyond 425 shares is bad in law cannot be sustained having regard to the
fact that a bald prayer was made in the petition without laying any foundation therefor
in the company petition. Such reliefs evidently had been granted keeping in
view the allegations made by the Respondent No. 12 in her company petition
filed before the Company Law Board, Delhi which is impermissible in law.
at this juncture have a look to the case laws operating in the field with a
view to find out as to what relief, if at all, could be granted to the
Respondent No. 1 by the Gujarat High Court in the facts and circumstances of
the present case.
this Court quoted with the approval the following passage from the decision in
Elder's Case, AIR 1952 SC 49, as summarized at page 394 in Meyer's case, AIR
1965 SC 381:
Although the word 'oppressive is not defined, it is possible, by way of
illustration, to figure 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
share-holders-and in which just and equitable grounds would exist for the
making of a winding- up order....... but in which the 'alternative remedy'
provided by Section 210 by way of an appropriate order might well be open to
the minority shareholders with a view to bringing to an end the oppressive
conduct of the majority." In Shanti Prasad Jain (supra) referring to Elder
Case, it was categorically held that the conduct complained of must relate to
the manner of management of the affairs of the company and must be such so as
to oppress a minority of the members including the petitioners qua
shareholders. The court, however, pointed out that that law, however, has not
defined what oppression is for the purpose of the said Section and it is left
to court to decide on the facts of each case whether there is such oppression.
[(1958) 3 WLR 404] it was categorically held that the conditions precedents
contained in Section 210 of the Act of 1948 must be satisfied before any relief
can be granted.
again in H.R. Harmer Ltd., In re [(1958) 3 All ER 689 (CA)], the Court of
Appeal held that 'the section does not purport to apply to every case in which
the facts would justify the making of a winding up order under the 'just and
equitable' rule, but only to those cases of that character which have in them
the requisite element of oppression'.
It is not lack of confidence between share- holders per se that brings S. 210
into play, but lack of confidence springing from oppression of a minority by a
majority in the management of the company's affairs, and oppression involved at
least an element of lack of probity or fair dealing to a member in the matter
of his proprietary rights as a shareholder." In Needle Industries (supra),
this Court observed:
Coming to the law as to the concept of 'oppression', Section 397 of our Companies
Act follows closely the language of Section 210 of the English Companies Act of
1948. Since the decisions on Section 210 have been followed by our Court, the
English decisions may be considered first. The leading case on 'oppression'
under Section 210 is the decision of the House of Lords in Scottish Co-op.
Wholesale Society Ltd. v. Meyer (1959 AC 324 : (1958) 3 All ER 66 (HL)).
the dictionary meaning of the word 'oppression', Viscount Simonds said at page
342 that the appellant-society could justly be described as having behaved
towards the minority shareholders in an 'oppressive' manner, that is to say, in
a manner "burdensome, harsh and wrongful". The learned Law Lord
adopted, as difficult of being bettered, the words of Lord President Cooper at
the first hearing of the case to the effect that Section 210 "warrants the
court in looking at the business realities of the situation and does not
confine them to a narrow legalistic view".
with the true character of the company, Lord Keith said at page 361 that the
company was in substance, though not in law, a partnership, consisting of the
society, Dr. Meyer and Mr. Lucas and whatever may be the other different legal
consequences following on one or other of these forms of combination, one
result followed from the method adopted, "which is common to partnership,
that there should be the utmost good faith between the constituent members".
Finally, it was held that the court ought not to allow technical pleas to
defeat the beneficent provisions of Section 210 (page 344, per Lord Keith;
pages 368-69, per Lord Denning).
Five Minute Car Wash Service Ltd.  1 All ER 242, the Court upon
considering the nature of relief which can be granted under Section 210 of the
Companies Act, 1948 observed that in a case falling under Section 210 of the
Companies Act, 1948, relief will be granted if the petitioner establishes that
at the time when the petition was presented the affairs of the company were
being conducted in a manner oppressive of himself and if he fails to allege
facts capable of establishing that the company's affairs are being conducted in
such a manner the petition will disclose no ground for granting any relief and
must be dismissed in limine.
who are alleged to have acted oppressively must be shown to have acted at least
unfairly towards those who claim to have been oppressed.
Scottish Co-operative Wholesale Society, Ltd. v. Meyer (a case under s. 210)
Viscount Simonds adopted a dictionary definition of the meaning of
"oppressive" by, it is said, "burdensome, harsh and
Elder v. Elder & Watson, Ltd., also a case under s. 210, the Lord President
(Lord Cooper) said:
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." Lord Keith said:
involves, I think, at least an element of lack of probity or fair dealing to a
member in the matter of his proprietary rights as a shareholder." The
Court in an application under Sections 397 and 398 may also look to the conduct
of the parties. While enunciating the doctrine of prejudice and unfairness
borne in Section 459 of the English Companies Act, the Court stressed the
existence of prejudice to the minority which is unfair and not just prejudice
Court may also refuse to grant relief where the petitioner does not come to
court with clean hands which may lead to a conclusion that the harm inflicted
upon him was not unfair and that the relief granted should be restricted. (See
Re London School of Electronics,  Ch. 211) Furthermore, when the
petitioners have consented to and even benefited from the company being run in
a way which would normally be regarded as unfairly prejudicial to their interests
or they might have shown no interest in pursuing their legitimate interest in
being involved in the company. (See Re RA Noble & Sons (Clothing) Ltd.
 BCLC 273].
given case the Court despite holding that no case of oppression has been made
out may grant such relief so as to do substantial justice between the parties.
now well-settled that a case for grant of relief under Sections 397 and 398 of
the Company Act must be made out in the petition itself and the defects
contained therein cannot be cured nor the lacuna filled up by other evidence
oral or documentary. (See In re Bengal Luxmi Cotton Mills Ltd. 1965 (35) CC
that the power of the company court is very wide and not restricted by any
limitation contained in Section 402 thereof or otherwise In Shoe Specialities
Ltd. vs. Standard Distilleries and Breweries (P) and Others [1997 (1) Comp. LJ
243], it is stated :
exercising the powers under sections 397 and 402 of the Companies Act, the
Court is considering not only the relief that is sought for but also considers
as to what is the nature of the complaint and how the same has to be rectified.
It is the interest of the company that is being considered and not the
individual dispute between the petitioner and the respondent. If that be so,
the interest of the company requires that the majority shareholders must have
their say in the management " as to whether the conduct and the background
of the two companies (their informed way of doing business disregarding the Companies
Act, etc.) could be taken into account to decide whether there had been unfair
prejudice to one party in an application under Section 459 of the English
Companies Act was answered in the affirmative.
decision is taken on a business consideration, it is trite, the court should
not ordinarily interfere. [See Maharashtra
Power Development (Bom)] The burden to prove oppression or mismanagement is
upon the petitioner. The Court, however, will have to consider the entire
materials on records and may not insist upon the petitioner to prove the acts
of oppression. An action in contravention of law may not per se be oppressive. Bhagwati,
J. (as His Lordship then was) in Mohanlal Ganpatram others [AIR 1965 Guj. 96 at
103] stated the law, thus:
may be that a resolution may be passed by the Directors which is perfectly
legal in the sense that it does not contravene any provision of law, and yet it
may be oppressive to the minority shareholders or prejudicial to the interests
of the Company. Such a resolution can certainly be struck down by the Court
under Section 397 or 398. Equally a converse case can happen. A resolution may
be passed by the Board of Directors which may in the passing contravene a
provision of law, but it may be very much in the interests of the Company and
of the shareholders..." The said decision has been referred to with
approval in Needle Industries (supra). (Para
49). The conduct which is technically legal and correct, thus, may justify
grant of relief on the application of the just and equitable jurisdiction and
conversely that conduct involving illegality and contravention of the Act may
not suffice to warrant grant of any remedy.
act of oppression may not be sufficient to grant any relief but there should be
a continued oppression therefor. The test of lack of bonafide should be applied
in both for the winding up petition while determining an application under
Section 397 of the Companies Act. [See Re Guidezone Ltd. (2000) 2 BCLC 321] We
may at this juncture notice that the Respondent No. 1 in her application under
Section 397 of the Companies Act did not complain of any act of mis-management.
Complaints of mis- management were made by the Respondent No. 12 only.
the purpose of grant of relief, the High Court could only consider the
pleadings filed in Company Petition No. 5 of 1991. If no relief could be
granted having regard to the pleadings contained therein, it is inconceivable
in law that such relief would be granted on the basis of the pleadings made in
other proceedings and totally ignoring the admissions made by the Respondent
No. 1 herein in the proceedings initiated by her.
AND PROOF LEGAL REQUIREMENTS:
now consider the submissions of Mr. Desai that the Appellant No. 1 herein is
guilty of commission of fraud. Application filed by the Respondent No. 1 before
the Gujarat High Court does not contain the requisite pleadings in this behalf,
the requirements wherefor can neither be denied nor disputed.
not in dispute that having regard to Rule 6 of the Company Courts Rule, the
provisions of the Code of Civil Procedure will be applicable in a proceeding
under the Companies Act. In terms of Order 6, Rule 4 of the Code of Civil
Procedure, the plaintiff is bound to give particulars of the cases where he
relies on misrepresentation, fraud, breach of trust, etc. [2004 (8) Supreme
845], this Court held:
applying the basic principle of rule of evidence which requires a party
alleging fraud to give particulars of the fraud and having found no such
particulars the Industrial Court came to the conclusion that the respondent
could not be held guilty of fraud" It was observed:
the absence of any such particulars being mentioned in the show cause notice or
at the trial, attributing some overt act to the respondent, we do not think the
Board can infer that the respondent had a role to play in sending a fraudulent
list solely on the basis of the presumption that since respondent got a job by
the said proposal, said list is a fraudulent one. .. " [(2004) 8 SCC 588],
this Court held that the level of proof required for proving fraud is extremely
high. [See also Maharashtra Power Development (Bom)] Order 6, Rule 17 provides
for amendment of the pleading whereas Order 8, Rule 9 provides for subsequent
pleadings by a defendant. The company petitioners did not raise a plea as
regard the value of the company share or commission of fraud by the Appellant
No.1 herein and/or his fiduciary duty towards them either as a director or as a
person looking after the interest of the family in the discharge of his duty
under as a director.
No. 12 in her petition, alleged mismanagement of the Company on the part of the
Respondent No.1. The Appellants in their reply while denying and disputing that
the company was mismanaged alleged that it had earned profit. In Rejoinder to
the said reply, Mrs. Puar questioned the correctness or veracity of the balance
sheet of GIC contending that the so- called profit disclosed in the accounts is
merely a book entry. A contrary stand, however, has been taken before us
suggesting that the shares had been issued by the Appellants unto themselves at
a gross undervalue. The question which arises is as to whether the Respondent
Nos. 1 and 12 are bound by their own pleadings. It is neither in doubt nor in
dispute that the Code of Civil Procedure being applicable to a proceeding of
this nature, not only the plea of fraud is required to be specifically pleaded
an amendment of pleadings could not have been permitted if thereby the Company
Petitioner made an attempt to get rid of her admission.
58 of the Indian Evidence Act reads as under:
Facts admitted need not be proved.-No fact need to be proved in any proceeding
which the parties thereto or their agents agree to admit at the hearing, or
which, before the hearing, they agree to admit by any writing under their
hands, or which by any rule of pleading in force at the time they are deemed to
have admitted by their pleadings:
that the court may, in its discretion, require the facts admitted to be proved
otherwise than by such admission." In terms of the aforementioned
provision, things admitted need not be proved. In view of the admission of
Respondent No. 1 alone, the issue as regards allotment of 6475 shares should
have been answered in favour of the Appellants. The Company Petitioner at a
much later stage could not be permitted to take a stand which was contrary to
or inconsistent with the original pleadings nor could she be permitted to resile
from her admissions contained therein.
made by the Respondent No. 1 was admissible against her proprio vigore.
1974 SC 471], this Court held:
if true and clear are by far the best proof of the facts admitted. Admissions in
pleadings or judicial admissions admissible under Section 58 of the Evidence
Act, made by the parties or their agents at or before the hearing of the case,
stand on a higher footing than evidentiary admission. The former class of
admissions are fully binding on the party that makes them and constitute a
waiver of proof. They by themselves can be made the foundation of the rights of
the parties. On the other hand evidentiary admissions which are receivable at
the rival as evidence are by themselves not conclusive. They can be shown to be
wrong." Others, AIR 1974 SC 117) Syndicate Bank, Belgaum [(1997) 10 SCC 173], this Court
the other hand, it is admitted that due to slump in the market they could not
sell the goods, realize the price of the finished product and pay back the loan
to the Bank. That admission stands in their way to plead at the later stage
that they suffered loss on account of the deficiency in service..."
Judicial Admissions by themselves can be made the foundations of the right of
Ram & Co. [AIR 1977 SC 680], the law is stated in the following terms:
It is true that inconsistent pleas can be made in pleadings but the effect of
substitution of paragraphs 25 and 26 is not making inconsistent and alternative
pleadings but it is seeking to displace the plaintiff completely from the
admissions made by the defendants in the written statement. If such amendments
are allowed the plaintiff will be irretrievably prejudiced by being denied the
opportunity of extracting the admission from the defendants. The High Court
rightly rejected the application for amendment and agreed with the trial
Court." In the instance case, the Respondent No.1 even did not amend the
company petition by withdrawing the admissions or resiling thereform.
Setty [(2004) 8 SCC 717], this Court deprecated raising a plea for the first
time before the appellate court without amendment of plaint holding that when
materials to substantiate such plea had not been brought on record and, thus,
it is impermissible to consider the same, stating:
there is no material placed on record by way of pleadings to show whether the
appellant is a religious or charitable institution.
plaint was never amended. The appellant seeks exemption. Exemption needs to be
alleged and proved. Opportunity is required to be given to the
respondent to meet the plea of exemption. In the circumstances, we are in
agreement with the view expressed by the High Court that the said plea was not
open to the appellant at the stage of second appeal, particularly, in the
absence of any material available to substantiate such plea." Modi
Spinning (supra), it was observed:
facts of the present case are entirely different and consequently the said decision
also cannot be of any help for the learned counsel for the respondents. Even
that apart the said decision of two learned Judges of this Court runs counter
to a decision of a Bench of three learned Judges of this Court in the case of Modi
Spinning and Weaving Mills Co. Ltd. v. Ladha Ram and Co., (1977) 1 SCR 728 :
(AIR 1977 SC 680). In that case Ray, C.J., speaking for the Bench had to
consider the question whether the defendant can be allowed to amend his written
statement by taking an inconsistent plea as compared to the earlier plea which
contained an admission in favour of the plaintiff. It was held that such an
inconsistent plea which would displace the plaintiff completely from the
admissions made by the defendants in the written statement cannot be allowed.
If such amendments are allowed in the written statement plaintiff will be
irretrievably prejudiced by being denied the opportunity of extracting the
admissions from the defendants." It was also observed :
In our view, therefore, on the facts of this case and as discussed earlier, no
case was made out by the respondents, contesting defendants, for amending the
written statement and thus attempting to go behind their admission regarding 5
out of 7 remaining items out of 10 listed properties in Schedule-A of the
plaint" 2002 (96) DLT 829).
view of our findings aforementioned, it must be held that having regard to the
admission made by the Respondent No. 1 in her pleadings as regard broad-basing
of the company and issuance of 6475 shares in favour of the Appellants herein
and further in absence of any pleading of commission of fraud on the part of
the Appellant No. 1 herein, the High Court committed a manifest error in
issuing the impugned directions.
the aforementioned facts are not in question, the company petitioner cannot
take a stand different from that raised in her petition simply on the ground
that other and further reliefs were claimed by amending the reliefs portion. Reliefs
could be granted by the court had the material facts necessary to prove her
case been pleaded and proved. In absence of any pleading, no evidence would be
admissible and the court as is well-known ordinarily would not grant any relief
which has not been pleaded.
FAMILY COMPANY CORPORATE VEIL:
company incorporated under Indian Companies Act is a body corporate. However,
in certain situations, its corporate veil can be lifted.
Hingorani vs. State of Bihar [(2003) 6 SCC 1]) The Court,
however, has made a clear distinction between a family company, a private
company and a public limited company. The true character of the company, the
business realities of the situation should not be confined to a narrow
legalistic view. [See Needle Industries (supra)] It is now well-known that principles
of quasi-partnership is not foreign to the concept of Companies Act. For the
purpose of grant of relief the principles of partnership had been applied even
in a public limited The principles applicable to the winding up of a company
contained in Section 44(g) of the Indian Partnership Act was applied in a
winding up petition under Section 433 (f) of the Companies Act by a 3-Judge
Bench of Jhunjhunwalla and another [AIR 1976 SC 565] following Ebrahimi
it was observed that when more than one family or several friends and relatives
together form a company and there is no right as such agreed upon for active
participation of members were sought to be excluded from management, the
principles of dissolution of partnership cannot be liberally invoked.
it was stated:
promoters of a company. whether or not they were hitherto partners, elect to
avail of the advantages of forming a limited company. They voluntarily and
knowingly bind themselves by the provisions of the Companies Act. The
submission that a limited company should be treated as a quasi-partnership
should, therefore, not be easily accepted. Having regard to the wide powers
under Section 402, very rarely would it be necessary to wind up any company in
a petition filed under Sections 397 and 398.
The present was a petition under Sections 397 and 398. The Division Bench
exercised power under Section 402 to appoint Mehra as a Director to protect his
interest and guard against mismanagement. It required Dubey to return to the
company the sum of Rs 52,875 which he had wrongly appropriated to himself. It
directed the Registrar of Companies to enquire into other allegations of
misconduct in which it found, prima facie, substance; and we may say
immediately that we have perused the report filed by the Registrar of Companies
which shows that no substance was, ultimately, found therein. We agree with the
Division Bench that this was no case for winding up the company and must
dismiss the appeal filed by Mehra." (See also Dabhol Power Co. (supra), para
43) whereupon Mr. Desai placed strong reliance, thus, cannot be said to be an
authority for the proposition that for no purpose whatsoever the principles of
quasi-partnership can be applied to an incorporated company. The real character
of the company, as noticed hereinbefore, for the purpose of judging the
dealings between the parties and the transactions which are impugned may assume
significance and in such an event, the principles of quasi-partnership in a
given case may be invoked.
ratio of the said decision, with respect, cannot be held to be correct as a
bare proposition of law, as was urged by Mr. Desai, being contrary to a larger
Bench judgments of this Court and in particular Needle Industries (supra). It is,
however, one thing to say that for the purpose of dealing with an application
under Section 397 of the Companies Act, the court would not easily accept the
plea of quasi-partnership but as has been held in Needle Industries (supra),
the true character of the company and other relevant factors shall be
considered for the purpose of grant of relief having regard to the concept of
upshot of our aforementioned discussions is:
The Appellant No. 1 had no fiduciary duty to inform the Respondent Nos. 1, 12
and 13 herein as regard the benefit or otherwise of opting for allotment of
The Respondent No. 1 herein in her company petition having admitted the factum
of broad-basing of the company by issuance of 15000 additional equity shares
and allotment of 6475 shares in favour of the Appellants herein cannot now be
permitted to turn around and raise the correctness or validity thereof.
However, allotment of 3000 shares in favour of the Appellants and 500 shares in
favour of the Respondent No. 12 purported to be out of 8000 shares allotted to
FRG are bad in law.
The Respondent No. 1 herein had not been able to prove any act of oppression as
against the Appellant No. 1.
The claim of the Respondent No. 1 as regards declaration of her title and/ or
allotment of 8000 shares is not tenable in law. The alleged right of the
Respondent No. 1 to claim title over the said shares as a class 1 heir of Fatehsinh
Gaekwad cannot be determined in an application filed under Sections 397 and 398
of the Companies Act and in particular having regard to the fact that the said
question is pending adjudication in a duly instituted civil suit.
Transfer of 9415 shares by the Appellants in favour of Indreni by itself was
not an act of oppression keeping in view of the fact that the entire shares of
the said company were held by the Appellants alone and in any event the notice
of transfer having been rescinded, the Appellants continue to be the owner in
the reasons aforementioned, the impugned judgments of the Division Bench cannot
be sustained which is set aside accordingly. The appeals are allowed in part
and to the extent mentioned hereinbefore with the following directions:
is hereby declared that the allotment of shares from the additional share
capital had been increased pursuant to the resolution of the Extraordinary
General Meeting held on 17th December,1987 and the resolution of the Board of
Directors dated 8.1.1988 shall be treated as valid and effective except the
allotment of 3000 shares in favour of Pratapsinh S. Gaekwad and Priyadarshiniraje
S. Gaekwad and 500 shares in favour of Respondent No. 12 herein. The register
of the members and other records of the company will stand rectified
The Board of Directors shall consider the question as regard shifting of the
office of the Company to Surat from Baroda. The records of the company, if any,
in possession of any of the members or any other director shall be restored to
the Registered Office of the Company failing which it would be open to the
company to initiate appropriate proceedings before appropriate forum. An
Extraordinary General Meeting of the Shareholders of the Company will be
convened on 26th February, 2005 at 11.00 a.m. at Baroda for appointment of the
directors of the company on the basis of the shares respectively held by them
as also the Articles of Association and in accordance with this order of this
The aforesaid meeting will be conducted under the Chairmanship of a nominee of
the Registrar of the Companies.
All the shareholders will be entitled to vote by themselves or through their
proxies at the said meeting for appointment of the directors of the company.
The Registrar of the Companies shall for the purpose of holding the said
meeting shall issue notices thereof to the shareholders and may get the said
notice published in newspapers one in English and one in Gujarati for
circulation in the area.
Costs of publication and issuance of such notice shall be borne by the company.
Appellant No. 1, however, shall deposit a sum of Rs. 30,000/- before the
Registrar of the Companies within two weeks from date for meeting the requisite
expenditure thereof. The said sum of Rs. 30000/- shall be reimbursed to
Appellant No. 1 by the company within four weeks from the date of the meting.
The Appellant No. 1 shall further supply the names and addresses of the
shareholders of the company to the Registrar of company within two weeks from
The Registrar of the Companies or his nominee shall be entitled to seek
assistance for peaceful conducting of the meeting from such authority or
authorities as may be considered necessary.
adjournment motion may be entertained.
a copy of this order be forwarded to the Registrar of Companies by the Registry
of this Court forthwith for appropriate action.