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TMI Blog1995 (9) TMI 269X X X X Extracts X X X X X X X X Extracts X X X X ..... ciate the controversy involved in the appeal it will be necessary to recapitulate some material facts. Uberoi Ltd., respondent No. 1, was incorporated sometime in the year 1913 with a nominal capital of Rs. 10 lakhs divided into 10,000 equity shares of Rs. 100 each. The issued and paid-up capital of the company was Rs. 5 lakhs and all the 5,000 shares were exclusively held by members of the Uberoi Group. It appears that on account of certain difficulties in the management of the affairs of the company and lack of interest in the enterprise or financial inability to provide the working capital, in March 1972 Uberoi Group transferred 3,695 shares in favour of Jaggi Group for a consideration of Rs. 4 lakhs and on the basis of an arrangement, inter alia, providing that Uberoi Group would have the majority on the Board of Directors of the company notwithstanding the transfer and would provide a sum of Rs. 4 lakhs by way of working capital. Thereafter Uberoi Group continued to dominate the Board even though representative of the Jaggi Group was the Managing Director of the company. In the year 1978 a petition being CP No. 115 of 1978 as filed by the Uberoi Group under sections 397 and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o directed that if the Chairman or the nominee Director Sh. Saxena took exception to any decision of the Board, such a decision would not be implemented for a week to enable the aggrieved party to seek necessary directions from the Court. On 24-10-1979, CA No. 318 of 1979 was disposed of by H.L. Anand, J. and the following directions, insofar as they are relevant for the purpose of the present controversy, were given : *(b) Transfer of shar es by Jaggi Group in favour of Jain be registered in accordance with law. The transfer and registration would, however, be subject to the outcome of the present proceedings and the suit of the minors and to any directions that may be made in these proceedings. The interim order made by this Court in the present proceedings and in the aforesaid suit are accordingly modified. (c )Jaggi Group would deposit in this Court within two weeks the consideration received by them from Jain for the transfer of the shares. (d)Jain would make available to the company working capital, as may be required by the company, from time to time not exceeding Rs. 5 lakhs. (e)Parties are restrained from transferring any share without the prior concurrence of this Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n. Feeling aggrieved by the decision of this Court dated 21-2-1992, the Jaggi Group preferred an appeal to the Supreme Court of India. While allowing the appeal, vide order dated 28-5-1992, the Supreme Court made the following order: "The grievance made by the appellant is that while the High Court was right that a factual error had crept in insofar as the percentage of the holding of the Jain Group is concerned, the High Court erred in omitting to take note of the fact that the review order was founded on several other grounds which had not been effectively dealt with by the High Court. The High Court merely said that it had perused both the orders dated 24th October, 1979 and 18th February, 1981 carefully and has found that the various aspects which were considered in the first order were not dealt with in review. That by itself, however, was not sufficient to set aside the order of 18th February, 1981, because the various events that had since , passed by had also to be considered. I, therefore, put it to the learned counsel for the parties if it would not be proper to remit the matter to the High Court for a fresh consideration in view of the changed situation so that the Hig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sfer and registration of 2,551 shares of Jaggi Group to Jain Group and the Court, inter alia, directing registration of shares in the name of Jain; the filing of appeal and thereafter the review application, being CA 647 of 1979, for quashing and/or modification of the order dated 24-10-1979; the Court modifying the said order by suspending operation of some of the directions, including that of registration of 2,551 shares in the name of Jain Group have been noticed above. Suffice it to say that while making the first order the Court found that there had been no audit of the accounts of the company since 1973 and the account books were incomplete; there was tug of war between Jaggi and Jain on the one side and the Uberoi Group and Taneja on the other; that the Jaggi Group and Jain Group were majority shareholders having 74 per cent holding as against 25 per cent holding of Uberoi Group and Taneja and the latter Group with only 25 per cent shareholding was controlling the company, which was mismanaged. Holding that the transfer of shares was incidence of ownership and on transfer of shares registration of transfer is the rule and refusal an exception which could be resorted to only ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o. 37 of 1980 had been filed by R.P. Jaggi against Rattan Chand Jain for scrapping the transfer of snares by them to Jain Group on the plea of breach of terms of agreement by the latter under which the shares are alleged to have been transferred to Jain Group, (it) there has been re-alignment in group shareholding - formerly Jaggi Group and Jain Group had 74 per cent while Uberoi Group and Taneja had 25 per cent of the total share capital only but now Jaggi Group having patched up with Uberoi and Taneja, the total shareholding of these had risen to 60 per cent (in fact 48 per cent), (Hi ) Jaggi Group had failed to deposit sale consideration of shares as directed in the first order on the plea that transfer by Jaggi Group to Jain Group being in question, the amount needed being secured, (iv ) the cash liquidity problem remains unsolved as Jain Group had failed to provide Rs. 5 lakhs as working capital, and (v) induction of Jain in the Board of Directors, in the circumstances, is likely to cause complications and disturb normal functioning of the company. It was on these grounds that the first order was reviewed/modified, as stated above. It would appear that the main controvers y r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... asis of wrong assumptions. The argument is plausible but its strength and weight has to be examined in the light of other factors and events taking place after making of the first order dated 24-10-1979 and the review order dated 18-2-1981. In support of cause of Jain Group to show that he holds sound and stable majority shareholding, reliance has been placed on two factors: (i) a consent decree passed on 8-11-1988 in Suit No. 169 of 1980 (filed by Jain Group against Uberoi and Taneja) in which the latter group consented by way of support to Jain, suffered a decree, it is urged that three of them thus, had a shareholding of 76 per cent (13 per cent Uberoi; 12 per cent Taneja and 51 per cent Jain), and (ii) in the year 1988, these three groups, ie., Jain Group, Uberoi Group and Taneja filed CA No. 1209 of 1988 and CA No. 643 of 1988 (mentioned in the written submissions filed on behalf of the appellant) for removal of Jaggi Group from the Board of Directors of the company, registration of shares purchased by the Jain Group and reconstitution of the Board of Directors with Rattan Chand Jain as the Managing Director with his two nominees and Pradeep Uberoi as Director of the company. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sked, to register the transfer of shares, cannot refuse to register the transfer except for a bona fide reason, neither arbitrarily nor for any collateral purpose. The paramount consideration for refusal to register the transfer is the interest of the company and the general interest of the shareholder! In the instant case, from the peru sal of the resolutions dated 15-11-1979 and 6-12-1979, which have been placed before us by learned counsel for the company, it appears that in the matter of transfer and registration of shares in favour of Jain Group there was difference of opinion between the Board of Directors and in particular any resolution on the issue was objected to by the nominee Director, Shri M.P. Saxena, and ultimately the resolution passed on 15-11-1979, approving registration of shares, was revoked on 6-12-1979 and it was decided that the matter shall be considered after final orders are made by the Court. As noticed above, Jaggi Group has filed Suit No. 37 of 1980 for mandatory injunction, etc., against Rattan Chand Jain seeking invalidation of the entire transaction under agreement dated 9-5-1979. The proceedings in the suit are at an advanced stage. Obviously, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... up during the pendency of Suit No. 37 of 1980, in what manner the interest of Jain Group, who, if ultimately succeeds in this litigation and in the suit filed by Jaggi (would undoubtedly be holding shares to the extent of 51 per cent) is to be protected and, meanwhile, further complications avoided. It appears from the record that after the impugned order dated 18-2-1981, suspending some of the directions contained in order dated 24-10-1979, particularly restraining transfer of shares in favour of Jain Group, was made, an application (CA No. 498 of 1981) was filed by R.C. Jain on" 16-9-19.81, inter alia, praying that the directions contained in the order dated 18-2-1981 having not been complied with, the shares may be directed to be registered in his name, subject to the outcome of Suit Nos. 1096 of 1979 and 37 of 1980. Declining this request, but noticing the laxity in the administration of the company, vide order dated 2-12-1981, the learned Company Judge, apart from giving certain other directions, reconstituted the Board of Directors with a view to giving representation to all the majority groups and to make the Board more effective. The Board, so constituted, was to be headed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , (d) and (/) of para 7 of the order made on 24-10-1979 shall remain suspended till the disposal of Suit No. 37 of 1980 by the Trial Court. Other directions in that order, viz, ( e) restraining parties from making further transfer of shares and directions (b), (c) and (d) in the review order dated 18-2-1981, respectively requiring Jaggi to deposit amount received from Jain, etc.; authorising Jain to withdraw the amount that may have been deposited or may be deposited and for provision of working capital shall, however, remain in operation. ( ii) The Board of Directors shall consist of the following : (a)Justice P.N. Khanna, Chairman. (b)Shri R.P. Jaggi, Managing Director. (c)A nominee of the Jaggi Group. (d)A nominee of the Uberoi Group. A nominee of the Taneja Group. Justice P.N. Khanna will look after the interest of the Jain group and shall have the power to give any direction(s) for the day-to-day running of all the branches of the company at various places, which he may consider to be necessary in the interest of the company. Justice Khanna shall have the power to veto any decision taken by the Board and the party aggrieved will be at liberty to approach the Court for a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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