TMI Blog2005 (7) TMI 354X X X X Extracts X X X X X X X X Extracts X X X X ..... ng any positive steps. The appellant has herself admitted the same, although she has tried to explain away by giving her own reasons and stating that she got involved in the illness of her daughter-in-law, which was of serious nature and, therefore, she could not arrange the funds. Be that as it may, fact remains that shares were offered to her in the first instance before selling it to the outsiders after waiting for three years and these shares were ultimately sold to respondents Nos. 5 to 9 in February 2000. Even respondent No. 4 joined other two sisters in selling her shareholding. This significant shift in the attitude of respondent No. 4 would signify that offer of respondents Nos. 2 and 3 to the appellant and respondent No. 4 had fizzled out. Therefore, I am of the view that sale of shares by respondents Nos. 2 to 4 to outsiders is perfectly valid and is not an act of oppression. The grievance about induction of three new directors in the board meeting held on February 10, 2000 also does not hold any water. Once new management took over the control, recast of the board was inevitable. The controlling group had the requisite power and authority to appoint its own directors. N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Mrs. Pushpa Katoch v. Manu Maharani Hotels Ltd. [2002] 110 Comp. Cas. 584 (CLB)) filed by the appellant herein whereby the appellant s petition under section 397/398 of the Companies Act (in short the "Act") alleging opression and mismanagement on behalf of the majority shareholders, was disposed of by giving certain directions; second order dated August 30, 2001 is passed by the Company Law Board in C. A. No. 93 of 2001 (since reported in Mrs. Pushpa Katoch v. Manu Maharani Hotels Ltd. [2003] 117 Comp. Cas. 315) seeking review of order dated January 12, 2001. By the impugned order the said review application of the appellant herein was dismissed. 2. It may be noted at this stage that against the order dated January 12, 2001, passed in C. P. No. 16 of 2000, the appellant herein had earlier also filed an appeal in this court being Co. A. (B) No. 4 of 2001. However, on April 25, 2001 when that appeal came up for hearing the appellant sought leave of the court to withdraw the said appeal as she was willing to seek review of the Company Law Board's order dated January 12, 2001. That appeal was accordingly dismissed as withdrawn without prejudice to the right, if any, of the appellant t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ant, as by issue of further shares on preferential basis, the appellant's rights have been affected and her shareholding has come down and, therefore, it was held to be an act of oppression ; ( iii )the induction of three new directors in the board meeting held on February 10, 2000 was found to be illegal as the appellant had not received the notice of meeting held on February 10, 2000 ; ( iv )the appellant shall continue to be a director so long as she holds 14.7 per cent shares in the company and would not be liable to retire by rotation ; ( v )since with the issue of further shares her percentage shareholding had come down below 14.7 per cent, which percentage would be restored if she accepts further shares to be offered to her which offer should be made within one month from the receipt of the impugned order and the appellant would be at liberty to accept this offer within three months from the date of this offer by remitting necessary consideration; ( vi )in case she does not accept the offer within the aforesaid period, direction in this regard would not survive after that offer ; ( vii )as and when further shares are issued, she should be offered proportionate shares; and ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ave to buy 100 per cent of the shares offered within 30 days of the offer. 6. In this meeting it was also agreed that memorandum of understanding would be signed on the aforesaid lines by the parties. It was, in these circumstances, memorandum of family agreement dated May 4, 1999, was signed by the parties. The parties even acted upon the same inasmuch as respondents Nos. 2 and 3 earlier wrote letter dated October 17, 1997, to the appellant and her sister Mrs. Saroj Jamwal (respondent No. 4) offering to sell their shares at Rs. 14.50 per share. They had even mentioned that they had received an offer from an outside party, but as they were bound by the family settlement and as per the minutes of meeting dated March 16, 1994, they would like to sell their shares within the family. Since the company was suffering losses at that time, the appellant and respondent No. 4 replied vide letter dated October 17, 1997 and objected to the sale of shares to outsiders and requested for time to attain some smooth transition. Thereafter, in the board meeting held on November 6, 1998, it was resolved that two promoter directors of the company were selling their shares to the other two promoter dir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of transfer which could be refused on specific grounds mentioned therein which were not attracted. The Company Law Board further held that it is the articles of the company which would govern the relationship of the company and the shareholders and for this proposition it referred to the judgment of the Supreme Court in the case of V.B. Rangaraj v. V.B. Gopalakrishnan [1992] 73 Comp. Cas. 201 ; AIR 1992 SC 453. Therefore, concluded the Company Law Board, sale of shares was not an act of oppression and observed (page 594 of 110 Comp. Cas.). : "Therefore, sale of shares without offering the same to the petitioner cannot be considered to be an act of oppression. An act to be construed as oppressive, has to be either burdensome or wrongful or it should involve an element of lack of probity and fair dealing to a member in matters of his/her propriety right as a shareholder. Such right could be either by virtue of the provisions of the Act or the articles and in some cases could be imputed on equitable grounds. Since the company is a public limited company, as per section 111A of the Act which is applicable to the company, there could be no fetters on the right of a shareholder to tran ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... two restrictions which are not stipulated in the article. Firstly, it imposes a restriction on a living member to transfer the shares only to the existing members and secondly the transfer has to be only to a member belonging to the same branch of family. The agreement obviously, therefore, imposes additional restrictions on the member's right to transfer his shares which are contrary to the provisions of article 13. They are, therefore, not binding either on the shareholders or on the company. . . ." 9. The Company Law Board further rightly mentioned that as per the provisions of section 111A of the Act, there could not be any fetters on the right of a shareholder to transfer his/her shares. It may be noted that the Legislature has made different provisions for transfer of shares in case of private limited company and public limited company. Section 111, which deal with power to refuse registration and appeal against refusal relate to the private limited companies. On the other hand, the provisions of section 111A dealing with "rectification of register on transfer" are attracted in the case of public limited companies. While restrictions can be stipulated in the articles of asso ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere was no legal binding of any sort in this behalf. Be that as it may, in the present case even this moral obligation was discharged by the sisters. As per the appellant s own admission, the company was incurring losses ever since its inception. Thus, it was a loss making venture. It has come on record that on account of serious financial crisis, the company had invited and allotted a part of its shareholding to two companies at two different times. In the year 1994 M/s. Holiday Inn Hotels Limited and in the year 1996 M/s. Royal Garden were invited to run the hotel. The company had also issued share equity to financial institutions from whom it had borrowed funds for construction of hotel. Therefore, it was not a case where the outsiders were going to be inducted for the first time. In any case, due to financial crisis the company was unable to repay the borrowings of the financial institutions with the result even notice under section 29 of the State Financial Corporations Act were issued. Sisters were also not having cordial relations among them. The two sisters (respondents Nos. 2 and 3), in these circumstances, decided to part with their shareholdings and in view of the family ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... petition, apart from holding that the Company Law Board did not have powers to review its own order, it still decided to consider the review application on the merits and found that none of the findings recorded in the order dated January 12, 2001 were based on the alleged non-receipt of the notice for the board meeting dated February 10, 2000. Relevant observations are contained in para. 7 and it would be apposite to reproduce the same (page 318 of 117 Comp. Cas.). : The allegations of the petitioner as indicated in para. 8 of the order of this Bench dated January 12, 2001 related to sale of shares held by her sisters to an outsider group in contravention of the memorandum of understanding, that new directors have been appointed without notice to her, that further shares had been issued to new shareholders and that she had been sidelined from the management of the affairs of the company. In respect of the first allegation relating to sale of shares in contravention of the memorandum of understanding we had held that in doing so the sisters of the petitioner had not acted in an oppressive manner. In regard to the allotment of further shares, this Bench found some substance in the a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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