TMI Blog1989 (5) TMI 274X X X X Extracts X X X X X X X X Extracts X X X X ..... ernment as required under section 400 of the Act, but it was stated by the representatives of the Central Government that the Central Government had no representation to make. There are three groups involved in the company. These can be appropriately called as ( i ) Bindra, ( ii ) Bhasin, and ( iii ) Sahni groups. Bindra and Bhasin are on one side and they are in fact the petitioners. The company, i.e. , the first respondent, was incorporated in 1966 and its registered office is situated within the Union Territory of Delhi. The company is principally engaged in the manufacture of high tensile industrial fasteners (nuts and bolts) used in tractors, motor vehicles, tanks, earth-moving equipment, etc. The company has its factory at Nasik in the State of Maharashtra. The authorised share capital of the company is Rs. 30 lakhs and paid-up capital is Rs. 29,78,400. If reference is wade to the balance-sheet of the company as on December 31, 1979, the company has issued 4,784 cumulative preference shares of the face value of Rs. 100 each and has also issued 25,000 equity shares of Rs. 100 each. The petitioners are disputing the correctness of the balance-sheet as, according to them, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 166 ? If so, to what effect ? 7.Whether Shri Somair Singh resigned from his office as director of the company by his letter of resignation dated November 14, 1979 ? 8.Whether the respondents or any of them have diverted the funds, assets and services of the company to their own advantage or have misused their position or authority to the detriment of the company? 9.Whether the managing directors, Shri Somair Singh and/or Shri Harpal Singh and/or any of the other directors of the company have been responsible for mismanaging the affairs of the company? 10.Whether the management of the company by Somair Singh and Harpal Singh as alleged by the petitioner prevented them from effectively participating in the management ? 11.Whether the registered office of the company has been shifted from the premises 99, Sunder Nagar, New Delhi to No. 602, Gagan Deep Building, New Delhi, according to law ? 12.Whether the company maintained statutory books and account books according to the requirement of company law ? 13.What books were in fact maintained by the Company ? 14.What books of the company are not available and who is responsible ? 15.Whether Shri Harpal Singh is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... id fraudulently ? If so, how and by whom ? 4.Whether 55 shares were allotted to petitioner No. 2 and/or his family in lieu of his giving his telephone bearing No. 352658 to the company, which he subsequently took back and did not return the consideration? If so, is he a fit person to be appointed/act as a director ? 5.Whether petitioner No. 1 and respondent No. 5 opened illegally an account in the name of the company in the United Bank of India, New Delhi, and misappropriated the amount deposited therein by cheques collected from customers ? If so, are they fit persons to be appointed/act as directors ?" Yet another issue was framed on April 14, 1982, and it is as under : "Whether petitioner No. 1 is not a director of the company ?" Evidence in the case, which is quite voluminous, is both oral and documentary. Before I proceed to discuss the case, I may note that with the petition, five annexures were filed and were marked as annexures 'A' to 'E'. By order dated October 16, 1981, these were exhibited and marked as exhibits P-l to P-5, respectively. This was on the statement of counsel for the respondents and he had said that as regards their contents he would make his own ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Mr. Verma also referred to a decision of the Calcutta High Court in Hungerford Investment Trust Ltd. v. Turner Morrison and Co. Ltd. [1972] ILR 1 Cal 286. In this case also, the court took the view that article 137 would apply to a petition under section 397 or section 398 of the Act and it further held that if the events that had been complained of happened more than three years before the date of filing of the petition, those would not be looked into. This is how the court observed : "As at present advised, I would hold that article 137 of the new Limitation Act, 1963, applies to an application under section 397 or section 398 of the Companies Act. I would, therefore, hold that events that happened prior to November 28, 1964, will be barred by the application of article 137 of the Limitation Act of 1963, being more than three years before the date of the filing of this petition on November 28, 1967, but others are within the limitation". Before I proceed further to discuss the preliminary objection as to limitation, let me set out the scope of the provisions of section 397 and section 398 of the Act. Section 397 gives a right to members of a company who comply with the co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 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 part of the members. The conduct must be burdensome, harsh and wrongful and mere lack of confidence between the majority shareholders and the minority shareholders would not be enough unless the lack of confidence springs from oppression of a minority by a majority in the management of the company's affairs, and such oppression must involve 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 ( India ) Ltd. v. Needle Industries Ne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... am in respectful disagreement with the view expressed by the aforesaid Calcutta High Court decision that the events prior to the period of three years of the date of filing of the petition cannot be looked into. These can be looked into if they form part of a continuous process continuing up to the date of petition showing that the affairs of a company are being conducted in a manner stipulated in sections 397 and 398 of the Act. This, in fact, is the requirement of these provisions. Further, if the acts complained of form part of the same transaction constituting oppression or mismanagement, these acts can also be looked into even if they occurred three years prior to the institution of the petition. Same will be the case if the conduct arising from even a single wrongful act in a given case is such that its effect will be a continuous course of oppression or mismanagement though the wrongful act occurred three years earlier to the date of filing of the petition. It is something akin to the terminology "continuing cause of action". Whether events complained of form part of continuous acts or not or form part of the same transaction constituting oppression or mismanagement or ef ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his personality as well as his status as the promoter of the company and the fact that his family members were the majority shareholders". It is in this background that various acts of oppression and mismanagement alleged by the petitioners and the fifth respondent have to be viewed. As noted above, there are numerous issues and a voluminous record. I do not think that in proceedings under sections 397 and 398 of the Act, the court is required to return a finding on each and every issue. It is even otherwise not appropriate. It was contended that the share capital of the company was unautho-risedly increased from Rs. 25 lakhs to Rs. 30 lakhs in an alleged annual general meeting of the company on June 30, 1971, which, in fact, was never held. Various documents have been brought on record by the petitioners to show that even after June 30, 1971, Somair Singh Sahni had, in various correspondence, stated that the share capital of the company was Rs. 25 lakhs and further that the annual general meeting could not have been held on June 30, 1971. For the purpose of the present petition, I do not think it is necessary for me to go into the question specifically if any annual general me ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ever, it was mentioned that acting in violation of law and contrary to the company's articles of association and without any resolution having been passed by the board, Somair Singh Sahni, increased the share capital from Rs. 25 lakhs to Rs. 30 lakhs and issued shares to his family members without any consideration with a view to illegally gain control over the company's affairs. No other particulars were given. Rather in the rejoinder filed by the petitioners in the earlier petition, it was reaffirmed that the authorised capital of the company was Rs. 30 lakhs and the subscribed capital Rs. 29.82 lakhs. Then, in answer to a question as to why the increase in the share capital was not challenged in the earlier petition, Bindra replied :"In that petition, I had not challenged the increase in the capital (volunteers to say) : This was because I did not know of the increase in the capital at that time". The respondents have brought on record documents from the record of the company in the office of the Registrar of Companies to show that the first petitioner himself filed Form No. 6 (exhibit PW-1/11) and Form No. 23 (exhibit PW-1/12) showing respectively the meeting of the board of di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reliance can be placed on these letters. The question, however, arises as to why these letters were at all written particularly when Somair Singh Sahni was in control of the affairs of the company and well versed with the increase in the authorised share capital of the company. I have not been shown the notice calling the meeting of the shareholders for increasing the share capital of the company, which meeting is said to have been held on June 30, 1971, at Delhi. No minutes or other records of the company have also been produced to show even the allotment of shares after the increase in the share capital. It was, however, submitted that any shareholder could subscribe to the increased share capital but that the petitioners did not do so because investment in the company was not a profitable proposition though now they are raising objection both to the increase in the share capital and the allotment of shares. Though I have held that increase in the share capital as alleged by the petitioners did not constitute an act of oppression, the absence of the record of the company and the letters of Somair Singh Sahni would go a long way to show that he had been acting as if the running of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... petition (C.P. No. 83 of 1977) was dismissed on October 16, 1979. Similarly, it is trite to say that Somair Singh Sahni resigned only as a managing director of the company. The effect of his letter to the Registrar of Companies with a copy to the company is that he resigned as a director of the company. The company has not declared any dividend so far. Members have been deprived of their rights as shareholders of the company in the conduct of the affairs of the company. Parties have made allegations and counter-allegations against each other. The frame of issues on these allegations would, in any case, show malaise afflicting the company and serious differences existing between various groups. There is lack of probity and fair dealing on the part of the Sahni group in the conduct of the affairs of the company to the prejudice of some of its members. My task has been much simplified and I need not discuss the issues in any further detail as Mr. K.D. Verma, learned counsel for the respondents, conceded that it was a case for allowing the petition under sections 397 and 398 of the Act though he said he did not agree with all the allegations made by the petitioners. He also said th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... adjournments. The upshot of this whole discussion is that the parties cannot reasonably settle unless the petitioner has a proper insight into the present financial status of the company....".. I may note here that in this context Surinder Singh Bindra was appointed as an additional director on the board till further orders. Mr. Arun Jetley, learned counsel for the petitioners, suggested that the best course would be that the two principal warring groups bid each other and buy the other group. I do not think that I should adopt this course. From the record, it would appear that it is the Sahni group which had been the promoter of the company and throughout had been at the helm of affairs and controlling the company. It appears, therefore, appropriate that Sahni group should buy the shares of Bhasin and Bindra groups and indemnify them as aforementioned and in this view of the matter, I am further of the opinion that the petitioners must be held bound to their stand as to the authorised and subscribed share capital of the company and the shareholding of various groups as mentioned in the earlier petition (C.P. No. 83 of 1977). I order accordingly. Then the question arises as to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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