TMI Blog1998 (9) TMI 680X X X X Extracts X X X X X X X X Extracts X X X X ..... he appellants and other respondents under Sections 155/397/398/399/402/403 and 406 of the Companies Act. 4. B.P. Jalan for self as Karta of a Hindu undivided family filed an application against 32 persons including Akshay Nidhi Ltd. the respondent No. 1 and its four subsidiaries, viz. respondent Nos. 2 to 5 claiming various reliefs stated in the application. 5. The matter has a chequered career. 6. One Mohanlal Jalan was the father of the applicant - B.P. Jalan (Applicant-Respondent, Mahabir Prasad Jalan (Respondent No. 1-Appellant) and one Tolaram Jalan. They held the properties left by the aforementioned Mohonlal Jalan jointly. Tolaram Jalan separated his 1/3rd share from the joint family however, remained as a result whereof a partition took place Mahabir Prasad Jalan (MPJ), and Bajrang Prasad Jalan (BPJ). The sisters of the aforementioned B.P. Jalan, Mahabir Prasad Jalan and Tolaram Jalan allegedly relinquished their right, title and interest in the properties and assets of Mohanlal Jalan. 7. Allegedly after the death of Mohanlal Jalan his sons Bajrang Prasad Jalan, (BPJ) and Mahabir Prasad Jalan (MPJ) came in control of 32 companies as set out hereunder: 1. Raig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r companies viz. 1. Lovelock Properties Pr. Ltd. 2. Balaji Development Pr. Ltd. 3. Shree Hanuman Properties Finance Ltd. 4. Dover Part Builders Pr. Ltd. 5. Mahabir Holdings Finance Ltd. 6. Nityanand Merchantile Ltd. (R-19). 7. Dee Cee Trading Finance Ltd. 8. Phool Holdings Ltd. (R. 20) 9. Juban Leasing Ltd. 10. Aarkay Mercantile Ltd. 11. Pursuant to or in furtherence of an agreement the said two groups and their family members began to control and manage in equal shares the affairs of 31 companies which allegedly are domestic companies as also other companies, as indicated hereinbefore. In middle of 1988, the Jalan family retained through Dinesh Vinyog Ltd. about 48% control of the shareholding of Oriental Gas Co. Ltd. Allegedly the shareholdings of the aforementioned companies pursuant to the family arrangement was in the following manner: (i) Directly equally between the two brothers, MPJ and BPJ and their respective family members of with the slight majority in favour of one or the other of such families. (ii) Directly in the names of MPJ and BPJ and their respective family members and by interweaving and inter-locking of shareholding ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ove companies had been resorted to by M. P. J. and his son to cause prejudice to the Applicant and his family members which led to filing of 3 proceedings under the Companies Act viz. Application under Section 397 and 398 of the Companies Act against Sandip Investment and Marut Jute Udyog Limited being Company Petition No. 493/89 (Re. Sandip Investment Pvt. Ltd.), application under Section 397/398 of the Companies Act against Debonair Agency Ltd. and its subsidiary Dinesh being Company Petition 494/89 as also the present proceedings in respect of Akshay Nidhi Ltd.... Allegedly during course of hearing of those proceedings, inspections were made resulting discovery of various others acts of omissions and commissions. The proceedings in relation to Sandip Investment Ltd. was disposed of by a learned single judge of this Court which has been affirmed by the division bench with certain modification. The matter is said to be now pending before Hon'ble the Supreme Court of India. The matter in respect of Debonair Agency Ltd. has also been disposed of by B.L. Jain, J., by a judgment and order dated 17-6-96 and an appeal there against is being disposed of. In this proceedings an interl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stay application, pursuant whereto to matter was heard again and by a dictated order dated 20th June, 1997 the said judgment was suitably modified in terms whereof Their Lordships merely directed disposal of the stay application. As against the said order a special leave petition was filed by the applicants herein and the Apex Court directed hearing of the appeal afresh without reference to the said judgment dated 19-6-97. 16. However, as stated hereinbefore, before us the counsel for both the parties prayed that the main Company Petition itself be disposed of. By a separate judgment we have disposed of the appeal in respect of that portion of the order passed by the learned trial Judge dated 6-2-97 whereby criminal proceedings under Schedule XI of the Companies Act were directed to be initiated. 17. The present application was filed on 12th September, 1990. Affidavits thereafter were exchanged. During the course of hearing written submissions have also been presented before this Court. As in the other two cases a preliminary objection had been taken as regard maintainability of the application, inter alia on the ground that as a suit having been filed, the instant applicati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Direct % Proxy % Names Direct % Names Shares % M. P. Jalan 20,000 10.23% B. P. Jalan 10.000 5.12% SHS Investments Ltd./Swagat Properties Ltd. 15,000 7.67% M.P. Jalan (HUF) 10,000 5.12% B.P Jalan (HUF) 25,000 12.80% A. Jalan 10,000 5.12% Aditya Kanoria/Nityanand Merchantile Ltd. 15,000 7.67% Pholl Holding Ltd. 20,000 10.23% Bhanu Traders Ltd. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... even if fact exists, the veil of the company cannot be lifted. Exercise of right under Sections 397 and 398 of the Companies Act comes within the purview of the equitable jurisdiction of the company Court. There can hardly be any dispute that in view of the structures of share the respondent Nos. 2 to 5 in truth and substance and subsidiary companies of Akshay Nidhi Ltd. which is thus, a holding Company and thus in such a situation, the Court cannot be a helpless spectator in looking behind the corporate veil so as to disentitle itself from considering as to whether in fact there had been mismanagement of oppression by one group or the other. There is another aspect of the matter. Provisions of Section 397 and 398 are taken recourse to in a piquant situation where two groups running the company are at logger heads so that it is impossible for them to join hands together and run the affairs of the company. The Court in such a situation would exercise its equitable jurisdiction and may grant appropriate reliefs. 23-24. In Life Insurance Corporation of India v. Escorts Ltd., the Apex Court after taking into consideration various decisions and treatises held that for certain purpose ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich were recorded. Therefore, N. Padia did not sign the meeting. The minutes of the meeting were said to have been written 30 days later. In this letter dated 1-3-90 N. Padia addressed to the Applicant denied that there had been any such resolution authorising the respondent No. 14 and respondent No. 17 to sign and execute transfer deeds and documents in connection with purchase, sell and transfer of shares in different companies. A similar letter has been addressed by him to the company. On 5-1-90 the said Sri Padia also stated that he was not the Chairman of the Board Meeting dated 20th June, 1989. 30. Although in the affidavit-in-opposition it has been stated that minutes were truly and correctly recorded but the same had been done with reference to the minutes of the meetings. Although the contents of the letter dated 6-3-90 had been denied, such denial does not inspire confidence. The learned counsel appearing on behalf of the Respondents argued that it was obligatory on the part of the said Sri Padia to show as to what had actually transpired in the said meeting. Having regard to the seriousness of the nature of allegations and having regard to the fact that two of the Di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any at the Annual General Meeting of M/s. Aarkay Mercantiles Ltd. or at any postponement or adjournment thereof. Resolved that Sri S.N. Misra or failing him Sri. K.L. Surana be and are hereby authorised severally to act as the Company's representative pursuant to provision of Section 187 of the Companies Act 1956 and to attend on behalf of the Company at the Annual General Meeting or any postponement or adjournment thereof of the following Companies :- M/s. M. P. Carbide Chemicals Limited. M/s. Kapil Agro Limited. Resolved that Sri M.P. Jalan or failing him Sri V.K. Kejriwal be and are hereby authorised severally to act as the company's representative pursuant to provision of Section 187 of Companies Act 1956 and to attend on behalf of the Company at the Annual General Meeting of M/s. Raigarh Trading Company Limited or any postponement or adjournment thereof. Resolved that Sri M.G. Lakhotia of failing him Sri. R.K. Nakhat be and are hereby authorised severally to act as the Company's representative pursuant to provision of Section 187 of Companies Act 1956 and to attend on behalf of the Company at the Annual General Meeting or any postpo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ance with law upon service of notice to all concerned. 36. The minutes of meeting dated 16-10-89 is to the following effect:- Present : 1. Sri M. G. Lakhotia : 2. Sri R. K. Nakhat Chairman : Sri M. G. Lakhotia was voted to the Chair Leave of Absence : Leave of absence was granted to Sri N. Padia and Sri P. K. Dalmia Last Minutes : Minutes of the last meeting were read, approved and signed Registers : The Statutory Registers of the Company were placed before the meeting and contents noted Transfer of Share : The Chairman placed before the meeting application received for Transfer of Shares of the Company. After discussion, the following Resolution was passed : RESOLVED THAT following Equity Shares of the Company transferred in the name of the transferee applicant : Transferor Transferee No. of Shares Nityanand Mercantile Ltd. Sri Aditya Kanoria 15,000 Swagat Properties Ltd SGS Investments. Ltd. 15,000 And that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tax Ready Reckoner to show that in the Delhi Stock Exchange the value of such share was recorded as 19.75. Apart from the fact that it was for the respondent to show that transfer of such shares were necessary and advantageous to the company as has been held in Torner v. Morrison ((1980) 50 Com Cas 296) (supra), there does not appear to be any earthly reason why the price quoted in Calcutta Stock Exchange should not hold the field particularly when the company concerned, purchaser and the buyer, are at Calcutta. Although in a proceeding under Section 397/398 of the Companies Act the actual value of the shares has to be determined upon taking into consideration various relevant factors, it may be noticed that in Commissioner of Wealth Tax v. Mahadeb Jalan, the Apex Court held that in determining the fair value of shares who had the shares would be the prevailing price on the valuation date as quoted in the concerned Stock Exchange. Again in this connection reference may be made to letters of one of the Directors dated 1 -3-90 and 6-3-90 which are in the following terms :- Mr. B.P. Jalan Executive Director, Raigarh Jute and Textile Mills Ltd. 36, Chowringhee Road, Calc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... antile Ltd. to Mr. Aditya Kanoria and from Swagat Properties Ltd. to S.G.S. Investments Ltd. and the sale of shares of Raigarh Trading Co. Ltd. are void and cannot be acted upon. In this connection, please note that I am a director of both Nityanand Merchantile Ltd. and Swagat Properties Ltd. and these companies have never decided to sell their holdings in Akshay Nidhi Ltd. at any point of time. Also, the Company has never decided to sell its holdings in Raigarh Trading Co. Ltd. Vide my letter dated 2nd January, 1990, I had sought inspection of the various statutory books and records of the Company and fixed up appointment on 9th Jan. '90 at 10.30 a.m. On visiting the Registered Office of the Company the same had been denied to me. I have also put the same on record vide my letter No. NP/5 dt. 15-1-90, copies of both these letters are enclosed herewith for your perusal. Without Prejudice March 6, 1990. Akshaya Nidhi Ltd. 36, Chowringhee Road, Calcutta-700071. Dear Sir, Recently I met Mr. B.P. Jalan who showed me extracts of various meetings of the Board of Directors and the Shareholders. There are a lot of irregularities in the same which I would like to p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (5) I understand that the Board Meeting of the Company has been purportedly shown on 16th October '89 at 2.30 p.m. wherein Mr. M.G. Lakhotia and Mr. R.K. Nakhat have been shown present. Once again, I was not given any notice of the said meeting either in writing or otherwise and, therefore, the said meeting is illegal, irregular, null and void and not binding upon me or the company. The resolutions passed at this alleged Board Meeting inter alia of transfer of shares from Nityanand Merchantile Ltd. to Mr. Aditya Kanoria and from Swagat Properties Ltd. to S.G.S. Investments Ltd. and the sale of shares of Raigarh Trading Co. Ltd. are therefore void and cannot be acted upon. In this connection, please note that I am a director of both Nityanand Merchantile Ltd. and Swagat Properties Ltd. and these companies have never decided to self their holdings in Akshay Nidhi Ltd. at any point of time. Also, the Company has never decided to sell its holdings in Raigarh Trading Co. Ltd. Those letters speak for themselves. 40. It is also idle to contend that only because M. P. J. and his group were majority shareholders, it was not necessary for them to make any manipulation to tilt t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eeting have been detected. 43. There are allegations and counter allegations as what had actually happened in the said meeting and as to who actually attended the same. Further if the respondents Nos. 8, 12 and 13 were not present and an improper authorisation has been given by respondent No. 16, there cannot be any doubt that the said resolution was illegal. It further appears that respondent No. 17 has signed the meeting on 5-10-89 although he was not a shareholder. He has proposed the resolution relating to accounts. The auditors also could not have been validly appointed as respondent No. 13 was in New Delhi. It is evident that in this case also allegations of grave nature have been proved to a substantial extent. 44. In the Annual General Meeting dated 28th September, 1989 the following resolution was passed : Resolved that M/s. M. L. Choudhury and Co. Chartered Accountants who are retiring and being eligible for reappointment be and are hereby reappointed as Auditors of the Company to hold the office until the conclusion of the Next Annual General Meeting of the Company at a remuneration to be decided by the Board of the Directors of the Company. The allegatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... proceeding of Debonair Agencies Ltd. wherein similar allegations had been made and similar contentions have been raised as hearing but the same had been rejected and, thus it is not necessary to reiterate the same. However, in our opinion it may not be necessary to go into such allegations and counter allegations in great details in view of the fact that it appears from the said judgments that the persons who had shown to have attended in the meeting but not actually attended as there was no quorum. 46. The question as to whether any prejudice has been caused to the applicants or not is a matter which has to be considered keeping in view the cumulative effect of the acts of omission and commission on the part of the alleged oppressor. It may be true that violation of any provision of the Companies Act by itself may give rise to a cause of action but we may note that the said question has been considered by the Apex Court in Needle Industries (India) Ltd. v. Needle Industries Newey (India) Holding Ltd., . Reference in this connection may also be made to the decision of the Gujarat High Court in Sheth Mohanlal Ganpatram v. Shri Sayaji Jubilee Cotton and Jute Mills Co., and Elder ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... quitable. As a weapon in the shareholder's armoury it has often proved effective, particularly in the case of small companies, when brandished with a threat to strike. Unfortunately, it has proved less efficacious when the threat has not induced those in control of the company to behave more reasonably; indeed, there are only two reported cases in the United Kingdom where petitioners have ultimately succeeded - a disappointing record when compared with the just and equitable ground for winding up. In part this is due to defects in drafting and in part to the restrictive attitude generally adopted by the Courts, despite the example of those two decisions. 50. In any event, on the date of presentation of the application the respondents Nos. 3 to 5 were subsidiary of respondent No. 2 and respondent No. 5 in held 80% shareholder of respondent No. 6 it would be subsidiary of respondent No. 5 and consequently a subsidiary of respondent No. 2 also. This aspect of the matter has been considered in Life Insurance of India v. Hari Das Mundhra, reported in (1966) 36 Com Cas 371, as also the decisions rendered by this Court in other company applications inter parties. 51. In R. v. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a' the validity and/or illegality of 5 Board Meetings and one Annual General Meeting in question had to be considered. In the Board meeting dated 10th June, 1989 only general affairs of the company was discussed. No prejudice, therefore, was caused to the applicants. However, the said meeting cannot be said to be legal for the reasons that no notice was served on Padia and M.C. Baid. Similar allegation had been made in respect of the Board Meeting dated 1st September, 1989. In this case also, although M. Padia allegedly did not attend the meeting but he signed the balance sheet. The accounts of the said meeting has not been challenged. 57. So far as the Board Meeting dated 3rd October, 1989 is concerned the minutes of meetings thereof is in the following term :- The chairman proposed to appoint Sri P.K. Dalmia and Sri J.K. Modi as an additional director of the company to broad base the Board of the Company. Sri P.K. Dalmia and Sri J.K. Modi who were present on invitation accorded consents to be directors of the Company, if appointed. The matter was discussed by the Board and following resolution was passed unanimously. Resolved that Shri P.K. Dalmia be and is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s duly sent by registered post and placed the R/C No. 128 dated 12-6-90 relating to the posting. The Directors present were unanimous of the view that the compliance of sending proper notice has been made and as such the holding of the meeting was in order. However, leave of absence as requested by him was granted. Leave of absence was also granted to Sri P.K. Dalmia. Last minutes: Minutes of the last meeting of the Board of Directors of the Company were read approved and signed by the Chairman Mr. Padia's dissent was noted. Suit No. 849 of 1989: The chairman informed the present status of the suit No. 849 of 1989 pending before the Hon'ble High Court at Calcutta. The hearing of an application made by the company in the said suit has been concluded and judgment is wanted. Circular Resolution: The Chairman informed the Board that due to mistake this item was taken on agenda. The Board noted the same. Purported letter dated 30th September, 1989:- The Chairman informed that vide letters dated 8-5-90 and 17-5-90 Mr. B.P. Jalan has drawn reference to the purported letter of the company dated 30-9-1989 by which as alleged the company had surrendered the tenanc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he final meeting. Annual General Meeting has its own importance. Such a meeting cannot be held without complying with the provisions of the Companies Act. The appellants have merely made a bare denial and alleged that the said charges are based on surmises and conjecture but they have not come forward to show by filing documents and affidavits affirmed by competent person including Directors as to how and in what manner such meeting had been held which can be termed to be valid and legal. Even there was no quorum and copies of accounts had not been forwarded to the shareholders. Another allegations has been made by the applicants as regard resignation of P.R. Sodhani from the Board of Ultra. It has been alleged that the respondent No. 6 had caused Sri Sodhani to resign from the Board of Director of Ultra by issuing the aforementioned letter of resignation dated 10-1-90. A bare denial has been made to the aforementioned allegation. It is important to note that no affidavit has been filed by the respondent No. 6. Only respondent No. 7 has sworn the affidavit making a bare denial. 64. As regard Board Meeting of Shree Trading Ltd. it may be noticed that respondents Nos. 12, 20, 21 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s Act 1950 and to attend and vote on behalf of the company at the Annual General Meeting or any adjournment and postponement thereof of the following companies :- (1) Free India Dry Accumulators Ltd. (2) Aarkay Mercantile Ltd. 69. In this case again no notice was issued, no actual Board Meeting was held but in reply thereto only bare a denial has been made. It appears that the purchase of the shares of FIDA was shown on 18-8-89. It has been pointed out that minutes of meetings have not been held initially by the special officer appointed in the suit filed by B.P., which evidently suggests fabrication. Similar allegations had been made in respect of Board Meeting dated 30-12-89 and 19-2-90. In that case the resignation of Hemant Shah in terms of his letter dated 3-1-90 was accepted. It has been stated that letters had been procured by the respondents Nos. 6 and 7. 70. However, it is not possible for this Court to decide the question as to whether Sri Shah resigned on his own volition or not. The annual general meeting of Bhanu had been questioned on the same ground which were the subject-matter of the allegation in respect of the other companies and thus, it may no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sbury's Laws of England, 4th Edn. Vol. 7(3) and it is not necessary to reiterate the same. Suffice it to say that the words 'just and equitable' are of wide import as has been judicially construed. 79. In the instant case the contention of the parties are not much at variance with regard to the background in which they came to hold shares in different companies. The principles of partnership is applicable even a Public Limited Company see Loch v. John Blackward Ltd., reported in 1924 AC 783, Ebrahimi v. Westhourne Galleries Ltd, reported in 1972 (2) all ER 492. 80. In Hind Overseas Private Ltd. v. Raghunath Prasad Jhunjhunwalla, reported in AIR 1976 SC 865, wherein an application had been filed by one group of shareholders for winding up of the company under Section 433(f) of the Companies Act, the business was originally conceived as a partnership although the said business did not start, keeping in view the fact that the share pattern in the company was approximately in the same ratio. The Court, was held to be entitled to direct winding up of the company as in the case of the dissolution of partnership in terms of Section 44(g) of the Indian Partnership Act. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rn of the parties have been stated hereinbefore. The respondents hold a majority share although the actions on the part of the respondents were taken in a calculated manner so as to cause injury to the other group but it is also evident that even after several interim orders had been passed by this Court from time to time, there had been no allegation of mismanagement on the part of the group who is incharge of the company during pendency of this appeal. The charges of commission of fraud and forgery cannot be dealt with in the manner laid down under Section 340 of the Code of Criminal Procedure as such forgery had not committed in course of the proceedings in this Court. They may have to be dealt with in appropriate proceedings. 86. But there cannot be any doubt whatsoever that even if the said words are not used in technical sense or in restricted sense, there exists an intention to cause damage or injury. As in the instant case prejudices had been caused to a particular shareholder and the interest of the company has been affected, the decisions reported in (1962) 32 Com Cas 307, N.I. (India) Ltd. v. Newey (India) Holding Ltd. reported in 51 Company Cases 743 and Shanti Prasa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ses for consideration as to what relief should be granted in the matter. 92. In Re a company ex parte Shooter Re a company ex parte Broadhurst reported in 1990 BCLC 384 upon which strong reliance had been placed by the respondents it has been directed that the majority should sell their shares in favour of the minority shareholders. 93. However, the said decision did not and has not laid down any broad proposition nor can the said rule be applied in all situations. The Court there directed the oppressor to sell their shares to the oppressed in the special facts and circumstances of that case. The Court appeared to have been prompted to give such unusal direction in view of continued and repeated mismanagement of the company in question and that the company too was a football company whose activities are far from similar to those of the company in the instant case. In the matter of management of a football company the competence of the persons at the helm of the affairs of such a company was held to be crucial for the purpose of running the same. The Court in that case held that the majority by reason of their continued and repeated misconduct and mismanagement was wholly unfi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uate at 36, Chowringhee Road. It does not have any other business nor does run any industry and, thus, the question as to who manages the company takes a back seat. It is in this situation the question has to be considered as to whether a direction to sell shares by minority shareholders to the majority shareholders would serve the purpose. The best course in the facts and circumstances of this case might have been that a partition be effected amongst the two groups but that is not possible keeping in view the fact that one of the matters viz. In Re. Sandip Investment Co. Ltd. arising out of a Company Petition No. 439/89 is pending before the Supreme Court of India. The said decision arises out of a judgment passed by a learned single Judge of this Court directing sale of the shares by B.P.J. group to M.P.J. group. The said decision has been upheld by a Division Bench of this Court with slight modification by appointing of Hon'ble Mr. Justice K.M. Ganguly, a retired Judge, as a special officer to hold a meeting of the respondents therein for the purpose of finding out as to which group has the majority share. 98. In Scotish Co-operative Wholesale Society Ltd. v. Mayer report ..... X X X X Extracts X X X X X X X X Extracts X X X X
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