TMI Blog1981 (11) TMI 156X X X X Extracts X X X X X X X X Extracts X X X X ..... a miracle will happen and the disputes between the parties would be amicably settled. As already noted this is a petition filed by a minority shareholder of the respondent-company. The company was incorporated on August 12, 1973. It had five shareholders, namely, Bal Kishan Dass (respondent No. 2), Brij Krishan Gupta (respondent No. 3), Gopal Krishan Gupta (since deceased), Chander Krishan Gupta (petitioner) and Avtar Krishan Gupta (respondent No. 4). The main business of the company was manufacture of zari goods and copper wire. This was in fact a family business which had been started, I am told, about 65 years ago by the father, respondent No. 2. That business was being carried on in a partnership, amongst the members of the family, and, with respect to which partnership, another litigation on the original side of this court is pending. According to the petitioner, the company has taken over the entire assets and liabilities of the said family firm, Pannalal Girdharilal. According to the articles of association of the company, all the five shareholders became the first directors of the company. The articles further provided that they shall be permanent directors who will no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... spondent has finally submitted that the company should not be wound up and it would not be in the interests of the company to give any responsibility to "respondent No. 3 or to respondent No. 5. At this stage, it will not be out of place to mention that respondent No. 2 is over 80 years of age. This is a relevant fact, which will have to be taken into consideration, while deciding what relief, if any, is to be granted in this petition. The parties were directed to lead evidence by way of affidavits. No affidavit was filed by the petitioner. Respondent No. 3, however, filed his affidavit and the affidavit of one Shri Nanak Chand. On the request of the parties the two deponents, namely, respondent No. 3 and Nanak Chand, were cross-examined by the petitioner and the petitioner was cross-examined by the respondents. The petitioner has not filed any affidavit by way of evidence because, according to the petitioner, the petition itself is supported by an affidavit and that tantamounts to evidence by way of affidavit especially as all the documents on which the petitioner seeks to rely have been placed on record along with the petition. Before dealing with the submissions of the learn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... H. R. Harmer Ltd. [1958] 3 All ER 689; [1959] 29 Comp. Cas. 305 , the Supreme Court in the case of Shanti Prasad Jain v. Kalinga Tubes Ltd. [1965] 35 Comp. Cas. 351, at page 366, observed as follows : "These observations from the four cases referred to above apply to section 397 also which is almost in the same words as section 210 of the English Act, and the question in each case is whether the conduct of the affairs of a company by the majority shareholders was oppressive to the minority shareholders and that depends upon the facts proved in a particular case. As has already been indicated, it is not enough to show that there is just and equitable cause for winding up the company, though that must be shown as preliminary to the application of section 397. It must further be shown that the conduct of the majority shareholders was oppressive to the minority as members and this requires that events have to be considered not in isolation but as a part of a consecutive story. There must be continuous acts on the part of the majority shareholders, continuing up to the date of petition, showing that the affairs of the company were being conducted in a manner oppressive to some p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... relief under that section. The person complaining of oppression must show that he has been constrained to submit to a conduct which lacks in probity, conduct which is unfair to him and which causes prejudice to him in the exercise of his legal and proprietary rights as a shareholder. It may be mentioned that the Jenkins Committee on Company Law Reform had suggested the substitution of the word 'oppression' in section 210 of the English Act by the words ' unfairly prejudicial' in order to make it clear that it is not necessary to show that the act complained of is illegal or that it constitutes an invasion of legal rights (see Gower's Company Law, 4th Edn., page 668). But that recommendation was not accepted and the English law remains the same as in Meyer [1959] 29 Comp. Cas. I (HL) and in H. R. Harmer Ltd., In re [1959] 1 WLR 62; 29 Comp. Cas. 305 (CA), as modified In re, Jermyn St. Turkish Baths Ltd. [1971] 3 All ER 184; 41 Comp. Cas. 989 (CA). We have not adopted that modification in India". It is in the light of the aforesaid decisions that I have to consider whether in this particular case the majority has committed series of illegal acts which could possibly lead m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 5 had been appointed as a non-retiring director. Whether the appointment of respondent No. 5 as a non-retiring director is in accordance with the provisions of the Companies Act or in conformity with the articles of association of the company is not relevant. What is relevant, however, is that the petitioner was a party to the continuance of respondent No. 5 as a non-retiring director. This being so, he cannot now be heard to complain that treating respondent No. 5 as a non-retiring director after December 30, 1976, amounts to an oppression on him. It was next contended that respondent No. 3 had tampered with the share scrips which were held in the name of Bal Kishan Dass. According to the petitioner, respondent No. 3, interpolated or got interpolated, un-authorisedly, in the said shares the names of the remaining four directors added to the name of Bal Kishan Dass so as to show that Bal Kishan Dass held shares jointly with each of these four directors. According to the petitioner, respondent No. 3 thought that by adding the said names the said respondent would increase his shareholding by 4 per cent. Respondent No. 2 in his reply has stated that the share scrips were in the cu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tention. It was then contended that the accounts of the company were being manipulated. The only instance in this connection which is set out in the petition is that the company was required to switch over from D.C. installation to A.C. installation. According to the petitioner, purchases were made in June, 1977, for a total amount of Rs. 57,83580. It is further alleged that the actual conversion took place in the year 1977-78 and no expenditure was incurred in the year 1976-77 although the expenditure was shown to have been incurred in that year. The fact that the aforesaid amount was spent has not been seriously contested. Merely because the expenditure may have been booked in the wrong year in the books of account of the company would not amount to an act of oppression. According to respondent No. 3, the work started in 1976-77 and that is why the expenditure was shown in the books of account of the company in the year 1976-77. The petitioner is right to the extent that the expenses should have been shown in the year in which the expenses were actually incurred or the liability arose. In the present case, the bill for Rs. 57,835-80 appears to be dated June 10, 1977. It is at t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gations made by the petitioner, in this "behalf, is extremely vague and is not substantiated by any evidence on record. It has not been explained or shown as to what are the internal control procedures and in what way the said procedures which exist are inadequate or prejudicial to the interests of the company. Another set of allegations concerns the shares and the resignation of late Gopal Krishan Gupta. According to the petitioner, Gopal Krishan Gupta resigned as a permanent director with effect from April 16, 1975. It is further alleged that this resignation was withdrawn and he was re-appointed with effect from September 1, 1975. Thereafter, according to the petitioner, in 1978, Gopal Krishan Gupta executed transfer deeds in favour of the petitioner. It is further alleged that Gopal Krishan Gupta informed the company about the said transfer and further he nominated the petitioner's son, Sanjay Gupta, as a permanent director under article 36 of the articles of association of the company. It is also contended that the dividend on these shares should be paid to the petitioner. The aforesaid allegations have, of course, been denied by respondents Nos. 3 and 5. Two questions which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ess at that time it is specifically stated that he is not being appointed permanently, Gopal Krishan Gupta, who was a permanent director under article 35 of the articles of association, would be the permanent director whenever appointed. In fact, even the company regarded him as a permanent director after September 1,1975. After the appointment of Gopal Krishan Gupta and Shiv Raj Krishan Gupta, Form 32 was filed with the Registrar of Companies. Whereas with regard to Gopal Krishan Gupta it was stated that he was co-opted as an additional director, with regard to Shiv Raj Krishan Gupta it was stated that he was appointed as an additional director under section 260 of the Companies Act. The non-mentioning of section 260 with regard to Gopal Krishan Gupta, to my mind, shows that the company itself regarded Gopal Krishan Gupta as being a permanent director and it is for this reason that at the subsequent annual general meetings of the company the question of his reappointment was never raised but he was still continuing as a director of the company. To my mind the implication of article 35 is that as long as they are on the board, the five persons mentioned in article 35 shall always b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nues to remain a director of the company. In fact there is nothing on the record to show that during all this period the petitioner ever protested to the managing director or to the company that his son was not being treated as a permanent director of the company. It was then contended that meetings of the board of directors have not been held. The minute book has not been produced in court. The same is admittedly not available at the registered office of the company. Each side accuses the other for having removed the same. Be that as it may, and even assuming that the meetings of the board of directors were not held, that would not mean that the non-holding of the meetings would amount to an oppression of the minority shareholders. The rights of the petitioner as a director might have been adversely affected but his rights as a minority shareholder have not been affected. In any event, the petitioner, to my mind, has not been able to prove that no meetings of the board of directors have been held. On the other hand, the testimony on behalf of the respondents is that meetings were held and the fee for attending the meetings was paid to all the directors including the petitioner. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of the company. A letter dated November 29, 1978, was received by the petitioner from M/s. Agal Partners. In the said letter it was stated that "the accounts of the above said company have not been signed by us so far". The allegation of the petitioner is that in fact no meeting was held and the balance-sheet was never approved as on June 30, 1977. In the reply it has been stated on behalf of respondent No. 3 that the balance-sheet had been signed by all the directors except the petitioner. It was further stated that Shri N. S. Agal, the statutory auditor had also signed the balance-sheet on behalf of his firm later on. The balance-sheet bearing the signatures of the five directors excluding the petitioner is on the record as Ex. RW-3/1. It would thus appear that with regard to the same year ending June 30, 1977, there are two balance-sheets in existence. The one filed with the Registrar of Companies bears the signatures of three directors, including the managing director, whereas the other balance-sheet, Ex. RW-3/1, bears the signatures of five directors. The further case of the respondents is that the balance-sheet for the year ending June 30, 1977, had been returned by the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder section 398 of the Act if the affairs of the company are being conducted in a manner prejudicial to the interest of the company or a material change has taken place in the management and control of the company and it is likely that the affairs of the company will be conducted in a manner prejudicial to the interests of the company then in such a case the court would be entitled to pass such an order which would bring to an end the matters complained of. The affairs of a company ought to be conducted in a manner which would help the company to prosper. The directors should see to it that no illegal acts are committed which may make the company or its directors liable for penal action. To my mind section 398 has two facets. The first is that positive acts are done by the management which results in prejudice being caused to the company. Secondly, section 398 may be attracted even where no action at all is taken by the management and such non-action results in prejudice being caused to the company. In other words, the expression "the affairs of the company are being conducted in a manner prejudicial...to the interest of the company" in section 398(1)( a ) will take within its amb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er section 397 of the Act, the effect of the decision of the Supreme Court in the Needles' case would be that technicalities cannot be permitted to defeat the exercise of the equitable jurisdiction conferred by the Companies Act. In that case the Supreme Court had specifically come to the conclusion that the petitioner had failed to make out a case of oppression. In the exercise of its equitable jurisdiction the Supreme Court nevertheless did grant relief. Similar is the case here. I cannot lose sight of the fact, and this is an admitted case of the parties, that the two sets of shareholders, namely, respondents Nos. 3 and 5 on the one side and the others on the other, cannot do business together. They have been fighting litigation for years. There is a complete lack of probity amongst the parties. The dismissal of the petition will not solve the problems and, therefore, as far as possible, a permanent solution has to be found which would enable the company, thereafter, to function smoothly. A number of suggestions are mooted as to how the deadlock in the company could be resolved. It was suggested that the factory of the company be given on lease. Another suggestion was that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5 are now being given an opportunity to buy not only the shares of the father but of the other shareholders also. In order to be able to acquire all the shares of the company it will be fair and proper that the price of the shares is fixed at Rs. 225 per share. I may notice that even the respondents had valued the share price at Rs. 200 per share. It is only because of the special circumstances of the case, namely, that complete control of the company is being given to one group of the shareholders to the exclusion of others, that a higher price is being fixed at Rs. 225 per share. For the aforesaid reasons, the petition is disposed of with the following directions: ( a )Respondent Nos. 3 and 5 shall have the first option to buy the shares of all the other shares holders by paying Rs. 225 per share. This option should be exercised by them by depositing the full sale consideration in court within two weeks from today with notice to the other share holders. ( b )On the aforesaid sale consideration being deposited, the other shareholders shall file in court the share scrips along with blank transfer deeds duly signed within ten days of the deposit of the said amount. ( c )The ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
