TMI Blog2001 (12) TMI 827X X X X Extracts X X X X X X X X Extracts X X X X ..... and how they are converting the Court rooms as their battle ground and fight under the attractive banners of fair play and public interest. While considering the conduct of the board of directors in LIC of India v. Escorts Ltd. AIR 1986 SC 1370. His Lordship observed as follows : 2. In the case before us, as if to be fit the might of the financial giants involved, innumerable documents were filed in the High Court, a truly mountanous record was built up running to several thousand pages and more have been added in this Court . In deed, and there was no way out, we also had the advantage findings of listening to learned and long drawn-out, intelligent and often ingenious arguments, advanced and dutifully heard by us. In the name of justice, we paid due homage to the causes of the high and mighty by devoting precious time to them, reduced, as we were, at times to the position of helpless spectators. Such is the nature of our judicial process that we do this with the knowledge that more worthy causes of lesser men who have been long waiting in the queue have been blocked thereby and the queue has consequently lengthened. . . . [Emphasis supplied] (p. 1375) I am in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tes amicably keeping the proximity of the relationship between the parties. Mr. K.V.R. Choudari (hereinafter referred to as 2nd respondent ), Managing Director of the company, happened to be the father of Chundru Manorma (Petitioner No. 7), grand-father of Chundru Padma Chaitanya (Petitioner No. 8) and Nandamuri Satya Lavanya (Petitioner No. 6) and father-in-law of Chundru Sri Hari Rao (hereinafter referred to as 9th petitioner ). When the counsel for the 2nd respondent conveyed the anguish of his client against his son-in-law i.e., the 9th petitioner in dragging the affairs of the company to the streets, may be because of the precarious situation in which he is placed, his son-in-law the 9th petitioner has gone to the extent of submitting before the Court that he is prepared to give a written apology if the company purchases the shares held by the petitioners as directed by the Board and pay the amounts that are due to them and if they are relieved of their agony to which they are subjected to for over ten years. But the offer was rejected outright and the father-in-law invited a judgment on merits in this case. Hence I am left with no option except to proceed with the case an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gg. Works and ( 5 ) Director in the main company. From the above it is seen that the 9th petitioner was looking after the affairs of most of the subsidiary companies and enjoying the powers on par with his father-in-law, i.e., the 2nd respondent in the 1st respondent-company. In and around 1993, some disputes seemed to have arisen between these two individuals. While it is the case of the 9th petitioner that disputes have arisen when he raised the issue of sale of lorries and closure of parcel offices in the board meeting held on 3-3-1993, the case of the respondents is that disputes have arisen between them as he refused to finance for his political activity, I feel that both the versions may be far from truth. The efforts made by the well-wishers of the family did not yield fruitful results. On the other hand, misunderstanding developed between the father-in-law and the son-in-law, i.e., the 2nd respondent and the 9th petitioner, reached a stage of no return. While majority of the shareholders aligned with the 2nd respondent, a few shareholders who figured as petitioner Nos. 1 to 5 in C.P. No. 15 of 1994 aligned with the 9th petitioner and his family members (Petitioner Nos. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in chief is must followed by cross-examination in view of the allegations of misconduct and fraud. Accepting the contention of the respondents counsel the petition was dismissed by observing that if the counsel for the petitioner desires to lead any evidence by petitioners it may be done through personal appearance of such petitioners. 8. After some time, petitioners filed C.A. No. 65 of 1996 on 12-1-1996 seeking appointment of an administrator for a period of five years and for production of minute books, account books along with the vouchers for the period from 1992-1995. In the said application, the petitioners have given some more instances relating to oppression of minority shareholders and mismanagement of the affairs of the company. Subsequently with the permission of the Board the petitioners filed another application, i.e., C.A. No. 115 of 1997 on 13-3-1997 seeking permission to amend C.A. No. 65 of 1996 by adding paragraphs 18A, 18B and 18C. The respondents contested these applications by contending that the petitioners cannot travel beyond the allegations made in the main petition and the subsequent events cannot be taken into consideration for considering the re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by a Division Bench of this Court in its order dated 26-8-1998 in C. Sri Hari Rao v. Sri Ramdas Motor Transport Ltd. [1999] 97 Comp. Cas. 685 . The Court held as follows: ( 1 ) None of the issues raised in the appeal can be said to be a question of law arising out of the order of the Company Law Board and as such the question of entertaining appeal under section 10F of the Act does not arise; ( 2 ) the order under challenge is an interlocutory for purpose of appointment of Administrator at the interim stage and the Company Law Board in the contextual facts have exercised discretion and the user of discretion cannot by any stretch be deemed to be so perverse in any event so as to warrant interference or intervention of the appellate court and ( 3 ) directed the Board to dispose of the matter with utmost expedition. 12. The S.L.P. No. 16705 of 1998 filed against the said order was also dismissed on 3-11-1998. 13. Since the proceedings of the Board were not stayed during the pendency of the appeal, the following docket order was passed by the Board on 1-4-1998 : Witnesses will be examined on 18th April, 1998 at 9.30 a.m. at Chennai. Petition will be heard on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... resentatives were to be brought on record. But they have not chosen to come on record. On the next date of hearing, i.e., 2-12-1998 the Board straightaway started hearing the arguments on the petition without completing the evidence of the 9th petitioner and without recording any evidence on the respondents side and without verifying the xerox copies of the documents filed by the respondents with the original records more so in the light of the allegations made by the petitioners that the 2nd and the 3rd respondents fabricated the minutes of the board meetings etc., and completed the arguments by 22-3-1999. The Board by an order dated 15-6-1999 while dismissing the petition by holding that the petitioners have not been able to establish any of the allegations meriting the grant of any of the prayers in the petition, gave a direction under section 402 of the Act to the 1st respondent-company to purchase the shares held by the petitioners by itself or the private individuals as may be decided by the respondents. Though I could not see from the attendance sheets that any one was examined in this case at any point of time both the parties agreed that the 9th petitioner (Chundru Sriha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... management of the affairs of the company apart from other powers conferred on it. 18. In the light of the overwhelming representations received from all the organizations and individuals for constitution of an independent Board without interference of the Central Government, the Central Government constituted Sachar Committee to consider those representations and suggest suitable amendments to the Act. Having considered the representations of several organizations, the committee made the following recommendations : We therefore, feel that appropriate solution would lie in statutorily constituting an independent quasi-judicial Company Law Board broadly on the lines of the Income-tax Appellate Tribunal, as provided in section 252 of the Income-tax Act. [Emphasis supplied] The Committee also recommended modifications to the existing provisions relating to the constitution and function of the Board. Under clause ( c ) it recommended that the Board including its Regional Benches shall have powers of the Court under the Code of Civil Procedure not only in respect of matters specified in the present sub-sections (4C) and (4D) of section 10E, but also in respect of the pow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to mean that even if the procedure laws prescribed in the Code need not be strictly followed, yet they have to be guided by those provisions in discharge of their functions. But as the learned counsel addressed marathon arguments justifying the procedure followed by the Board, I am forced to refer to his contentions to avoid criticism that the Court did not consider various contentions raised on behalf of the respondents. Now the question to be considered is : Whether the Board is having inherent powers ? 21. It is seen that an independent Board is established to exercise judicial and quasi-judicial functions exercised by the courts or the Central Government till then and is not subjected to control of the Central Government. Under sub-section (4C) of section 10E of the Act, the powers of the Civil Court under the Code of Civil Procedure while trying a suit were conferred on the Board to the extent indicated therein. Under sub-section (5) without prejudice to the provisions of sub-sections (4C) and (4D), the Board in discharge of its functions under the Act or any other law is to be guided by principles of natural justice and shall act in its discretion and under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lained of by them, a reading of section 398 of the Act makes it clear that even an apprehension in the minds of minority shareholders is sufficient to cloth the Board to give directions under section 402 as the provisions of sections 397, 398 and 402 are interrelated and they should not be read in isolation. A combined reading of the aforesaid three sections clearly brings out two aspects; first, the very wide nature of the power conferred on the Court and, secondly, the object sought to be achieved by the exercise of such power. The only limitation that could be impliedly read on the exercise of the power would be that nexus must exist between the order that may be passed there under and the object sought to be achieved by these sections and beyond this limitation which arises by necessary implication, it is difficult to read any other restriction or limitation on the exercise of the court s power. While sections 397 and 398 is intended to protect the minority shareholders from acts of oppression and mismanagement or preventing its affairs from being conducted in a manner prejudicial to public interest or the interests of the company while avoiding winding up of the company if pos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in my view by the dicta laid down in the following cases. 26. In Shoe Specialities Ltd. v. Standard Distilleries Breweries (P.) Ltd. [1997] 1 Comp. LJ 243 a Division Bench of Madras High Court held as follows :- Regulation 44 of the Company Law Board Regulations, 1991, saves the inherent power of the Board and it correspondents to section 151 of Civil Procedure Code. It is settled law that, under the inherent powers, the court can pass any order to prevent the abuse of process and also to meet the ends of justice. . . . When a case of oppression is made out, it is only within the power of the Company Law Board to end the matter complained of and to make such order as it thinks fit. While considering to end the matters complained of and when it is given the power to make any such order as it thinks fit to rectify the same, the Company Law Board is empowered to remove the Board of directors so that the affairs of the company can be set right. . . . (p. 244) 27. In Standard Industries Ltd. v. Mafatlal Services Ltd. [1994] 80 Comp. Cas. 764 (CLB) the Principal Bench of the Board at New Delhi held that the modus operandi adopted by the Majority sharehold ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ioners in interest of company. The said judgment was confirmed by a Division Bench of this Court reported in R. Khemka s case ( supra ). 30. In Re. H.R. Harmer Ltd. [1958] 3 All ER 689, Lord Denning in his separate judgment having observed that the object of the remedy under section 210 of the English Act, 1948 similar to that of section 397 of our Act is to bring to an end the matters complained of, i.e., oppression and one of the most useful orders mentioned in the section which will enable the Court to do justice to the injured shareholders is to order oppressor to buy their shares at fair price. 31. In Needle Industries (India) Ltd. v. Needle Industries Newey (India) Holdings Ltd. AIR 1981 SC 1298 their Lordships of the Supreme Court at paragraph No. 172 held as follows : 172. Even though the company petition fails and the appeals succeed on the finding that the Holding Company has failed to make out a case of oppression, the Court is not powerless to do substantial justice between the parties and place them, as nearly as it may, in the same position in which they would have been, if the meeting of 2nd May were held in accordance with law. . . . (p. 136 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under section 402 if the acts of mismanagement alleged against the majority shareholders creates an apprehension in the minds of the minority shareholders even if they fail to establish the allegations levelled against them. Whether the procedure followed by the board can be sustained in law 37. Now let me examine the legal position to see whether the procedure followed by the Board can be sustained in law. In the main petition as well as in C.A. No. 69 of 1994 the petitioner prayed for summoning the records but the Board did not pass orders. In fact in C.A. No. 65 of 1996 also similar prayer was made. But the counsel might have felt that he will be in a position to convince the Board without summoning the originals, he did not press for summoning the originals at that stage. That does not mean that the Board can act arbitrarily at its whims and fancies. Whether provisions of C.P.C. are applicable to the proceedings before the Board ? 38. To my mind when the Board exercises judicial functions the elementary principle of adjudicatory process is observance of rules of procedure, i.e., pleadings supported by oral, and documentary evidence and respective parties h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble Supreme Court reported in Dwarka Nath v. ITO AIR 1966 SC 81 Justice K. Subba Rao speaking for the Constitution Bench having held that the jurisdiction conferred under section 33A(2) of the Act prima facie is a judicial one and having reviewed the case law held that if an administrative body is empowered to determine questions affecting the rights of subjects and if it is having a duty to act judicially it is a clear case of judicial act and held as follows : . . . In all these cases the Government, the Examination Committee and the Board of Revenue were administrative bodies, but the acts impugned were quasi-judicial ones, for they had a duty to act judicially in regard thereto. The law on the subject may be briefly stated thus : The provisions of a statute may enjoin on an administrative authority to act administratively or judicially. If the statute expressly imposes a duty on the administrative body to act judicially, it is a clear case of a judicial act. But the duty to act judicially may not be expressly conferred but may be inferred from the provisions of the statute. It may be gathered from the cumulative effect of the nature of the rights affected the manner o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctions at worse, quasi-judicial functions. 43. Even in Prakash Timbers (P.) Ltd. s case ( supra ) Lordships of Allahabad High Court did not observe that the Board need not follow rules of procedure while discharging judicial functions. 44. Hence it cannot be said that the provisions of the Code of Civil Procedure are not altogether applicable to the proceedings of the Board. On the other hand, to the extent possible these Tribunals are guided by those principles when they are involved in the adjudicatory process. The Board can regulate its own procedure subject to observance of rules of natural justice under section 10E(5) (6) - What does it mean ? 45. The contention of the learned counsel for the respondent, that the Board is entitled to regulate its own procedure and it is not under an obligation to follow strict rules of evidence is answered by their Lordships of the Supreme Court in Industrial Credit Investment Corpn. of India Ltd. v. Grapco Industries Ltd. [1999] 4 SCC 710. Their lordships of the Supreme Court while considering the procedural powers of a Debt Recovery Tribunal under section 22 of Recovery of Debts Due to Banks and Financial Instit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... natural justice. The validity of that limitation is not questioned. If the purpose of the rules of natural justice is to prevent miscarriage of justice one fails to see why those rules should be made inapplicable to administrative enquiries. Often times it is not easy to draw the line that demarcates administrative enquiries from quasi-judicial enquiries. Enquiries which were considered administrative at one time are now being considered as quasi-judicial in character. Arriving at a just decision is the aim of both quasi-judicial enquiries as well as administrative enquiries. An unjust decision in an administrative enquiry may have more far reaching effect than a decision in a quasi-judicial enquiry. . . . (p. 156) 47. In Fort William Jute Mills Co. Ltd. v. First Labour Court 1963 (1) LLJ 734 (Cal.) the Calcutta High Court ruled that though the strict rules of law of evidence are not to be applied this does not mean that the proceedings can be held in an arbitrary manner. The rules of natural justice must be applied. Ordinarily, there must be a personal hearing. If a person is entitled to show cause he is entitled to a hearing and if he is entitled to hearing, he must b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing quasi-judicial functions and it cannot function as it wishes. Any procedure prescribed or followed should be in consonance with the law of the land. It is beyond anybody s comprehension that the Board will deliver orders even without looking into the original records when the petitioners complained that the respondents have fabricated the records, which resulted in miscarriage of justice. Observance of the principles of natural justice does not mean that the Board can pass orders on the basis of xerox copies or typed copies, which were filed before the Board even without attestation. Keeping the above principles in mind if one look at the order of the Tribunal it is evident that the order suffers from serious infirmities and the order is ab initio void. Board is following the same procedure 50. Nextly, the learned counsel for the 2nd respondent having conceded that the procedure followed by the Board is not within the parameters of the procedural laws of the land, he tried to justify the conduct of the Board by contending that the Board is following this procedure for a long time. At the same time, the Supreme Court deprecated such a practice followed even by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of which proper and necessary inferences can safely and legitimately be drawn. But in this case, the Board itself by an order dated 21-7-1995 rejected the request of the petitioners to lead affidavit evidence by observing that if the learned counsel for the petitioner desires to lead any evidence by petitioners it may be done through personal appearance of such petitioners. It is interesting to see from the order of the Board that the learned counsel for the respondents strenuously contended that Order-19 is applicable only when specific fact has to be established but cannot be used for all purposes. Examination in chief is a must followed by the cross-examination in view of the allegations of misconduct and fraud. The Board upheld the objection raised by the respondent s counsel. But before this Court the learned Counsel for the respondent-company has taken a round about turn and started pleading that the Board is justified in passing the orders without there being any oral evidence by respondents in support of their plea and without proof untested xerox copies of the documents. 52. In A.K.K. Nambiar v. Union of India AIR 1970 SC 652, their Lordships of the Supreme Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stice is to be rendered in accordance with law. Judges are not entitled to exercise discretion wearing robes of judicial discretion and pass orders based solely on their personal predilections and peculiar dispositions. Judicial discretion wherever it is required to be exercised has to be in accordance with law and set legal principles. . . . (p. 2505) While considering the duty of Mahapalika, a body corporate constituted under U.P. Municipal Corporation Adhiniyam, 1959, to construct and maintain public places, parks and plant trees, their Lordships held that Mahapalika a body corporate constituted under the act being a trustee is under an obligation and duty to maintain public places, parks and plant trees. When the nature of the park, as it existed, is destroyed it would be violative of the doctrine of public trust as expounded by this Court in Span Resort case [1997] 1 SCC 388. Public Trust doctrine is part of Indian Law. Viewed from the above angle, the Board is bound to exercise its powers in a manner known to law. But it cannot act whimsically, fancifully and arbitrarily and adopt a procedure of its own unknown to law. It is the public trust reposed in the institutio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aw a presumption with regard to the existence of any fact which it thinks likely to have happened regard being had to the common cause of natural events, human conduct and public and private business, in their relation to the fact of the particular case. As per Illustration ( g ) of section 114, the evidence, which could be, and is not produced, would, if produced, be unfavourable to the person who withholds it the Court is expected to draw an adverse inference against the person who is in possession of the information and failed to produce the evidence. 58. Coming to the provisions of the Code, under order-13, rule-1, all parties shall produce all the documentary evidence of every description in their possession or power, on which they intend to rely, and which have not already been filed in Court, and all the documents, which the Court has ordered to be produced. Under order-39, rule-4, the Court should endorse on every document, which has been admitted in evidence in the suit with the particulars contained therein. Under order-13, rule 5(3), where a copy of an entry is furnished, the Court shall, after causing the copy to be examined, compared and certify in the manner ment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ordships observed thus : . . . These documents undoubtedly should have thrown light upon the matter but they were not admissible because they were only copies. The originals were not produced at any time nor was any foundation laid for the establishment of the rights to give secondary evidence. The High Court rejected them and it was plainly right in so doing . . . . (p. 1461) 61. In Pradeep Kumar Sarkar v. Luxmi Tea Co. Ltd. [1990] 67 Comp. Cas. 491 the learned Judge of Calcutta High Court held as follows: since the audited accounts for the relevant period were not placed before the Court for its perusal and for refusing the allegations of depressing the working results of the company, prima facie the allegation of the mismanagement of working results stood un-rebutted and in such an event the Court is empowered to supersede the Board of Directors if found to have acted illegally and appoint a Receiver for a limited period and purpose. 62. In Abdul Rasheed v. Abdul Hakeem [1998] (6) ALD 682 a learned Single Judge of this Court held that the entries in the accounts book in favour of a party producing it has to be strictly proved. In a suit for specific ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se, from the extracts, it cannot be discovered whether the accounts are kept in the regular course of business or if there are any interpolations or whether the interpolations are in different ink or whether the accounts are in the form of a book with continuous page numbering. Hence, if the original books have not been produced, it is not possible to know whether the entries relating to payment of rent are entries made in the regular course of business. It is only in the case of Bankers Books Evidence Act, 1891 that certified copies are allowed or the case must come under section 65( f ) or ( g ) of the Evidence Act. Private extracts of accounts in other cases can only be secondary evidence and unless a proper foundation is laid for adducing such secondary evidence under section 65 or other provisions of the Evidence Act, the privately handwritten copies of alleged account books cannot be themselves be treated as secondly evidence. (p. 426) 65. In United India Assurance Co. Ltd. v. Satyanarayana Ghee Trading Co. [1999] (6) ALD 4, this Court held thus: merely because the accounts are kept in regular course of business and entries have been made therein they cannot ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nts retracting from the earlier affidavits given to the petitioners having held that the Board is not going to rely on the affidavit evidence in its order dated 28-11-1997. At the same time the Board did not consider the affidavits filed by the petitioners, for reasons best known to it though the respondents did not choose to rebut the same either by filing affidavits or by oral evidence. This action of the Board proves beyond doubt that it treated the parties differently and it has not acted dispassionately and good faith. In one word the scales of justice heavily swung in favour of the respondents. 69. It is not the case of the respondents that the Board has at least followed the rudiments of law by summoning the original records and verify with the documentary evidence filed by the respondents to test the veracity of the statements of the petitioners that the records were tampered by the respondents or not. As stated supra , having summoned the original records and seen them I have no hesitation to hold that the records were tampered by the respondents. Petitioners themselves gave up the prayer for summoning the records in C.A. No. 65 of 1996 70. Nextly, the lear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce Pathak, speaking for the Bench held as follows : In every application for an interim injunction in a pending suit, it is necessary for the court to enter, to some degree, into the merits of the case in order to determine whether a prima facie case exits. To what degree the court will enter will vary with the facts of each case. When the court declares that a prima facie case exists, it intends to say that the case of the plaintiff is not without merit. It is an opinion rendered on the state of the evidence then existing on the record, and it is open to the trial court to take a different view when all the evidence has been let in and the suit itself has to be decided. In some cases, a pure question of law alone may arise in the suit. In such a case when the Court expresses an opinion on the question in order to determine in an injunction application whether a prima facie case exists, an impression can conceivably be gathered that the suit itself has been disposed of. But when the matter is considered in deeper perspective, it will be evident that the impression is a false one. The finding is limited to the context in which it has been given. It is a finding on an appli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... may have been confirmed by the higher courts, never bind and do not prevent passing of the contrary order at the stage of final hearing. The learned Single Judge of the High Court appears to have lost sight of this. (p. 445) 75. In PDR.B.L. Anand v. Jaffar Hussain [1998] (6) ALD 794 (DB), a Division Bench of this Court while considering the plea whether an interlocutory order operates as res judicata held in para 7 as follows : 7. No doubt, the appellate court while considering an appeal has power to alter or modify an interlocutory order which does not decide the merits of the controversy in issue in the suit, but is only a step in reaching the decision in the dispute. In other words, all interlocutory orders will not operate as res judicata within the meaning of section 11 of Civil Procedure Code. For example, orders relating adjournment of the case, appointment of Receiver or Commissioner, stay of proceedings, casting of issues, summoning witnesses, calling for documents, remanding the case and many more such orders cannot operate as res judicata since they do not decide any matter in dispute arising in the suit. Even the same Court in respect of such orde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Evidence Act even if there is no evidence on the side of the plaintiff, if the defendant fails to prove the specific plea taken by him he would fail. 80. In Iswar Bhai C. Patel v. Hari Har Behera [1999] (2) ALD (SCSN) 19, their Lordships of the Supreme Court while considering the effect of section 114 ( g ) of the Evidence Act observed that if the defendant fails to appear as witness to substantiate his evidence, it can be presumed that his pleas in the written statement are not established and suit can be decreed on the basis of the evidence adduced by the plaintiff. In that case, the respondent No. 2, father of the 1st respondent, issued a cheque for a sum of ₹ 7,000 from the account of his son as a loan to the appellant. When the amount was not repaid, the son filed a suit. The trial Court dismissed the suit against the borrower, but decreed against the father. On an appeal, the High Court decreed the suit against the borrower also. Aggrieved by the said decree and judgment, the appellant (borrower) approached the Supreme Court. Their Lordships of the Supreme Court held that since the appellant did not enter into the witness box nor made any stateme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s that when no rebuttal evidence is produced by the opposite party and the version spoken by the witness remained undisturbed, the natural presumption that arises is that whatever the witness spoke should be regarded as true and an adverse inference has to be drawn against the opposite party who did not choose to go into the witness box and subject himself to the cross-examination on the documents and material relied on by him before the Court as held by the Supreme Court in Iswar Bhai C. Patel s case ( supra ). 84. While confirming the Judgment of the High Court, that the findings of the First Appellate Court were not based on proper appreciation of evidence, their Lordships of the Supreme Court in Rajappa Hanamantha Ranoji v. Mahadev Channabasappa [2000] 6 SCC 120, observed that : Though the High Court has observed that findings arrived at by the first appellate court are not based on proper appreciation of the evidence on record and the same are set aside but for all intents and purposes and in substance the conclusion of the High Court is that the decision of the first appellate court is based on no evidence and is perverse. The High Court has rightly drawn an ad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es. Here pleadings on both the sides are complete, while some evidence was let in by the petitioners apart from filing original documents in their possession, and requested the Board to call for the original record from the company the respondents simply filed xerox copies of the documents on which they are placing reliance and no one was examined on their behalf to prove their case. Hence the above Judgments cannot come to the aid of the respondents. Non-examination of respondents is not fatal as no documents were marked on behalf of the petitioners 88. The Counsel for the respondents contended that the 9th petitioner though was examined on behalf of the petitioners did not speak to a single document filed on behalf of the petitioner and as such the non-examination of the witnesses on behalf of the respondents is not fatal. It is true that the documents were not marked and it is definitely a lapse on the part of the Board as well as the counsel who are expected to know the procedural laws. I have no manner of doubt, had the counsel for the petitioners conducted the case properly; the hands of the Board would have been tied in this case. It is not known whether the counse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e applicable before the Board, which were already referred supra . In this appeal having contended that the Board need not follow the rules of procedure, now contends that non-examination of respondents is not fatal as no documents were marked on behalf of the petitioners. This conduct of the respondents is nothing but blowing hot and cold; more so in a Judicial Forum and it is nothing but abuse of process and a vexatious litigation. 90. In Lohia Properties (P.) Ltd., v. Atmaram Kumar [1993] 4 SCC 6, their Lordships of the Supreme Court considered the effect of Order-8, Rule-(5)(1), where under the defendant is duty bound to deny the plaint allegations specifically or by necessary implication, and held as follows: 13. Order 8 Rule 5(1) reads as follows: Every allegation of fact in the plaint, if not denied specifically or by necessary implication, or stated to be not admitted in the pleading of the defendant, shall be taken to be admitted except as against a person under disability : Provided that the court may in its discretion require any fact so admitted to be provided otherwise than by such admission. 14. What is stated in the above is, what amounts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... my mind, the procedure followed by the Board, completely vitiated the proceedings. ( 2 ) Nextly it is seen that in the main petition itself the petitioners prayed for summoning the original records. In fact in the notice served on the respondents, it is clearly stated that they shall appear with original records to answer the allegations but the respondents filed only xerox copies of the records. When the records have not been produced by the respondents after receiving the summons, the petitioners filed another application, ( i.e. ) C.A. No. 69 of 1994 on 11-4-1994 to summon these records. Without calling for original records, the Board passed the orders even after the petitioners brought to the notice of the Board, by filing documentary evidence, that the respondents are refusing to furnish information by stating under what law they are entitled for the information. It is yet another illegality. ( 3 ) The petitioner No. 9 went into the witness box and his cross-examination was completed on 18-10-1995. This evidence is complete on all aspects on the allegations made in the main petition. The Board started hearing the case without completing his evidence. ( 4 ) Be that as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... extly, the learned counsel for the respondents strenuously contended that under section 10F, the High Court can entertain an appeal only on a question of law arising out of the order and this provision is more stringent than that of section 100 of the Code where under the High Court can entertain the second appeals only on questions of law. It is further contended that even if the Board failed to follow the procedure known to law, it cannot be said that any question of law will arise for consideration in the appeals before the Court and they are liable to be dismissed. In support of his contention, he cited plethora of decisions on this aspect. ( 1 ) In CIT v. Scindia Steam Navigation Co. Ltd. [1961] 42 ITR 589 (SC), wherein their Lordships of the Supreme Court while considering section 66(1) of the Act, which is in para materia the same as section 10F to find out whether a question of law has arisen out of the order or not summarized the discussion in the Judgment at page 611 as hereunder : The result of the facts and circumstances of the case ( 1 ) When a question of law is raised before the Tribunal, is dealt with, it is clearly one arising out of its order. ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t to grant stay is judicial, made the following observations : . . . If the discretion has been exercised by the trial court reasonably and in a judicial manner the fact that the appellate court would have taken a different view may not justify interference with the trial court s exercise of discretion. As is often said, it is ordinarily not open to the appellate court to substitute its own exercise of discretion for that of the trial judge; but if it appears to the appellate court that in exercising its discretion the trial court has acted unreasonably or capriciously or has ignored relevant facts and has adopted an unjudicial approach then it would certainly be open to the appellate court - and in many cases it many be its duty - to interfere with the trial court s exercise of discretion . In cases falling under this class the exercise of discretion by the trial court is in law wrongful and improper and that would certainly justify and call for interference from the appellate court. These principles are well established... [Emphasis supplied] (p. 1159). The Supreme Court has taken a similar view with regard to the observance of principles of natural justice by Tribunals ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ( 1 ) finding on a question of fact is open to attack as erroneous in law only if it is not supported by any evidence or if it is unreasonable and perverse; ( 2 ) when a conclusion has been reached on an appreciation of a number of facts established by the evidence, whether that is sound or not must be determined not by considering the weight to be attached to each single fact in isolation, but by assessing the cumulative effect of all the facts in their setting in the picture as a whole . [Emphasis supplied] 99. Lastly their Lordships observed inference from the facts would be a question of fact or of law according as the point for determination is one of pure fact or mixed question of law and fact... Under section 66(1) of the Act is it only a question of law that can be referred for decision of the Court and it is impossible to argue that the conclusion of the Tribunal is nothing but one of a fact, it has been held on the corresponding provisions in English Income-tax statutes that finding on a question of fact is open to attack as erroneous in law only if it is not supported by any evidence or if it is unreasonable and perverse. 100. In Kondiba Dagadu Kadam v. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... atter to the High Court because a further remand would lead to delay and perhaps one more special leave petition to this Court. (p. 164) 102. In the light of the preponderant view of the Supreme Court, I have no hesitation to hold that the order passed by the Board is neither in accordance with the rules of procedure prescribed under the provisions of Civil Procedure Code nor based on the principles of natural justice. The Board passed the impugned order in a manner unknown to law and in an arbitrary manner apart from the fact that the findings recorded by it on merits of the case are not only perverse but unknown to adjudicatory process of the land as discussed below. There being an error apparent on the face of the orders of the Board, as pointed supra , definitely a question of law has arisen from out of the order of the Board to be decided by this Court under section 10F. Whether matter to be remitted back for fresh disposal in accordance with law 103. In the normal course, the matter has to go back to the Board for fresh disposal in accordance with law. If I adopt such a course, a dispute pending for over a decade will be in the Courts for another decade or t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which are a manifestation of human frailty. The Courts should be loath to entertain a plea in a case like the present which would have the effect of condemning succeeding generation of families to spend major part of their lives in protracted litigation.... (p. 869) 106. In Ashwani Kumar v. Upender J. Patel AIR 1996 SC 1125, their Lordships of the Supreme Court held as follows : that the High Court should not ordinarily remand a case under Order-41, Rule-23 CPC to the lower court merely because it considered that the reasoning of the lower Courts in some respects was wrong. Such remand orders lead to unnecessary delays and cause prejudice to the parties to the case. When the matter was available before the High Court; it should have itself decided the appeal one-way or other. It could have considered the various aspects of the case mentioned in the order of the trial court, ought to be confirmed or reversed or modified. It could have easily considered the documents and affidavits and decide about the prime facie case on the basis of the material available on record. 107. In Shri Bhagwan Sharma s case ( supra ), their Lordships of the Supreme Court held as fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hough formally an issue not framed but if parties went to trial and adduced evidence keeping that issue in mind and drew attention of Court in that regard, appeal need not be remanded for a finding on that question. 111. In Thamma Ramachandra Rao v. The Madras State [1956] ALT 24 (NRC), it is held that an Appellate Court is not bound to remand the case for trial of an issue on which no finding was recorded but is entitled to give its own decision, if the evidence on record is sufficient. 112. I am satisfied that even with the scant evidence that is available on record in this case, whether admissible or inadmissible, the dispute can be adjudicated without remanding the matter for fresh disposal by the Board by verifying the xerox copies of the records by summoning the originals, more so in the light of the submission of 9th petitioner that their group is satisfied with the direction given by the Board. But, the counsel for the respondents contended that if the Court feels that the order of the Board is cryptic, it has to remand the matter. In support of his plea, he placed reliance on Shree Consultations Services Pvt. Ltd. v. K.N. Sankaranarayanan [1995] 84 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ounsel for the respondents nextly contended that the Court must confine itself to the case as made out in the petition and the subsequent events, if any, brought to the notice of the Court cannot be looked into. In support of his plea, he relied on a Judgment of the Supreme Court in Venkataramana Devaru v. State of Mysore AIR 1958 SC 255. In that case the counsel for the appellants raised a new plea stating that the subject temple was originally found for the benefit of five families of Gowd Saraswth Brahmins and it cannot be treated as a public institution by contending that it is purely a question of law. Rejecting the contention of the counsel their Lordships of the Supreme Court held that we are unable to agree with the submission. The object of requiring a party to put forward his pleas in the pleadings is to enable the opposite party to controvert them and to adduce evidence in support of his case. And it would be neither legal nor just to refer to evidence adduced with reference to a matter, which was actually in issue and on the basis of that evidence, come to a finding on a matter which was not in issue and decide the rights of parties on the basis of that finding. ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it cannot blink at it or be blind to events which stultify or render inept the decretal remedy. Equity justifies bending the rules of procedure, where no specific provision or fairplay is violated, with a view to promote substantial justice-subject, of course, to the absence of other disentitling factors or just circumstances. Nor can we contemplate any limitation on this power to take note of updated facts to confine it to the trial court. If the litigation pends, the power exists, absent other special circumstances repelling resort to that course in law or justice. Rulings on this point are legion, even as situations for applications of this equitable rule are myriad. We affirm the proposition that for making the right or remedy claimed by the party just and meaningful as also legally and factually in accord with the current realities, the court can, and in many cases must, take cautious cognisance of events and developments subsequent to the institution of the proceedings provided the rules of fairness to both sides are scrupulously obeyed. On both occasions the High Court, in revision, correctly took this view. The later recovery of another accommodation by the landlord, during ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t entitle a person to ask the court to embark upon an investigation into the affairs of a company in the hope that, in consequence of such investigation, something will turn up which will enable the court to grant relief to the petitioner and the petitioner must prove prima facie , at any rate that an investigation is called for. 119. In R. Khemka s case ( supra ) at para 93 after considering the case law, a learned Judge of this Court observed that ...it is now beyond controversy that in a petition under sections 397 and 398, it is to be specifically pleaded and established by the party not only the existence of circumstances warranting winding up of the company under the just and equitable clause, but also it should be further established that winding up order if passed would act adverse to the interest of the shareholders. Further, when this clause is invoked, there must be material to show that it is just and equitable not only for the persons applying for winding up but also to the company and all its shareholders. Even in certain cases, violation of statutory provisions was held to be not oppressive act warranting interference under section 402 of the Companies Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on to set aside concurrent finding of facts. 124. In Mir Niyamath Ali Khan v. Commercial Industrial Bank Ltd. AIR 1969 AP 294, a Division Bench of this Court held that normally the Court will not grant the relief to the plaintiff on a case for which there was no foundation laid in the pleadings and which the defendant was not called upon to met. But when the alternative case which the plaintiff could have made was admitted by the defendant either in his written statement or in his evidence and the parties adduced evidence relating to such an alternative claim, there would be nothing improper in giving the plaintiff a decree upon such alternative plea. 125. In Kalka Prasad Ram Charan v. Harish Chandra AIR 1957 All. 25, the Allahabad High Court held that even though no issue was framed on certain point by the court below when both parties adduced evidence relating to it, each party known what its case is and avails of the opportunity of producing evidence on the point, High Court can, in an appeal from the decision, record a finding on the point under Order 41 Rule 24 of C.P.C. I have seen the order of the Board, evidence and the written arguments submitte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lief granted under section 397 or 398 of the Act unless the case can be brought by the petitioner within the ambit of section 397 or 398 of the Act. His Lordship further held that relief under section 398 of the Act can be obtained only if (1) the affairs of the company are being conducted in a manner prejudicial to public interest or the interests of the Company, or ( 2 ) if there is a material change which has taken place in the management or control of the Company in the manner set out in the said section, and that by reason of such change it is likely that the affairs of the company will be conducted in a manner prejudicial to public interest or in a manner prejudicial to the interest of the company. Section 397 of the Act would be applicable only in the case of oppression by the majority shareholders on the minority shareholders. Section 397 of the Act does not come into play in the case of wrongful acts being done by the management. That may be a ground for winding up. One of the pre-requisites of the applicability of section 398 of the Act is that the complaint of oppression has to be by the minority shareholders. If an action of the directors is illegal or invalid then the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mill run by the company having entered into an adat agreement with a firm for supply of working capital for running the mill and to purchase yarn for the company on commission basis. The mill run by the company started incurring losses and the majority of the shareholders sold the mill both on the ground of losses incurred by the company and also on the ground that machinery of the mill became old and obsolete. After the sale was concluded, a minority of shareholders of the company applied to the court under sections 397 and 398 alleging that the termination of the adat agreement and sale of the mill were oppressive acts, prejudicial to the interests of the company and claimed that the sale should be set aside. His Lordship justice Bhagawati, as he then was, ruled neither the termination of adat agreement nor sale of assets of the mill are prejudicial to the interests of the company and it could not be said to be a continuing wrong, hence, a petition to set aside the sale under sections 397 and 398 of the Act is not maintainable. In this case the minority shareholders complained against a solitary act of mismanagement, that too selling the mill as it is continuously incurring ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is against the company as such there can be no variation in the number of shares. Even assuming that the unmarried daughter of the 1st respondent is entitled to any shares, the estate of the deceased 1st respondent is amply represented by respondent Nos. 2 to 4 who are already on record, and hence I hold that the interests of the 1st respondent are amply safeguarded. As such, the decision of the Allahabad High Court in J.K. Investment Trust Ltd. v. Muir Mills Co. Ltd. [1962] 32 Comp. Cas. 893 , has no application because, the alleged acts of oppression and mismanagement are directed not merely against the 1st respondent but against respondent Nos. 2 to 4 also. In as much as respondent Nos. 2 to 4 were already on record in the company petition, I hold that their can be no objection to continuing the proceedings against them. I, therefore, hold that this objection cannot be sustained. (p. 310) 130. In Malleswara Finance Investment Co. (P.) Ltd. s case ( supra ), the question that fell for consideration before the Madras High Court was whether the order of the Board passed on an application filed by respondents 4 to 7 under sections 397 and 398 was violative of principles ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... PC, therefore, provides that in a suit by or against a corporation the Secretary or any Director or other principal Officer of the corporation who is able to depose to the facts of the case might sign and verify on behalf of the company, Reading Order 6, Rule 14 together with Order 29, Rule 1 of the Code of Civil Procedure would appear that even in the absence of any formal letter of authority or power of attorney having been executed a person referred to in Rule 1 of Order 29 can, by virtue of the office which he holds, sign and verify the pleadings on behalf or the corporation. In addition thereto and de hors Order 29, Rule 1, as a company is a juristic entity, it can duly authorize any person to sign the plaint or the written statement on its behalf and this would be regarded as sufficient compliance with the provisions of Order 6 Rule 14...... (p. 4) From the above it is seen that the 1st respondent-company having been incorporated under the provisions of the Companies Act and being the corporate body it can sue and be sued in its name and it can duly authorize any person to sign the plaint or written statement on its behalf and it should be regarded as sufficient complia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... de party respondents either before the Board or in the appeal filed by them in this Court. Even then I permitted the counsel to raise the issue and answered the same. 133. I am fortified in my view by a Judgment of the Honourable Supreme Court in Kondiba Dagadu Kadam s case ( supra ), wherein there Lordships of the Supreme Court : 3. After the amendment a second appeal can be filed only if a substantial question of law is involved in the case. The memorandum of appeal must precisely state the substantial question of law involved and the High Court is obliged to satisfy itself regarding the existence of such a question. If satisfied, the High Court has to formulate the substantial question of law involved in the case. The appeal is required to be heard on the question so formulated. However, the respondent at the time of the hearing of the appeal has a right to argue that the case in the court did not involve any substantial question of law. The proviso to the section acknowledges the powers of the High Court to hear the appeal on a substantial point of law, though not formulated by it with the object of ensuring that no injustice is done to the litigant where such a ques ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wn merits. (p. 213) This contention was not pressed by the counsel, though he raised the same initially. Accordingly this contention is also rejected. Issues in controversy 136. Now coming to the controversy apart from seeking the relief of winding up of the company for its mismanagement, under Chapter-VI, the minority shareholders are given the right to complain to the Board that the affairs of the company are being conducted in a manner prejudicial to public interest or in a manner oppressive to any member or members provided they hold not less than one tenth of the total number of the shares and if the Board is of the opinion that the affairs of the company are being conducted, as aforesaid. Under section 402 without prejudice to the generality of the powers of the Board, the order to be passed under section 397 or 398 may grant one or more reliefs mentioned in this section including the purchase of the shares or interests of any members of the company by other members thereof or by the company itself with a view to bring to an end or prevent the matters complained or apprehended. The other reliefs that can be granted under section 402 are not being referred to, as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... raised in the pleadings and 9th petitioner spoke about the fabrication of the minutes of the meeting dated 7-8-1992 for reasons best known to the Board, it has given a clean chit by stating that we are not in a position to doubt the genuineness of the resolution in as much as in the next Board meeting held on 29-9-1992 which the petitioner attended, the minutes of the meeting held on 7-8-1992 were reportedly confirmed without taking into consideration the explanation offered by the petitioner that generally such a resolution will be adopted without reading out the details of the resolutions adopted in the previous meeting, in his oral evidence. The fallacy of the reasoning is exploded from the replies given by the company to the letters of the petitioners stating that it was a managerial act, during day to day business. If the parcel offices were closed under a resolution of the Board nothing prevented them from stating so while giving reply to the 1st petitioner. For the first time the respondents came up with this plea in the counter filed before the Board. 140. Firstly from the agenda for the Board meeting it is seen that closure of parcel offices was not included in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... note said to have been submitted by the Chairman to the Board has not seen the light either before the Board or this Court. Likewise, no information was placed before the Board when each of the parcel office was opened, the extent of losses the company suffered, more so, when 20 per cent of the parcel offices relating to one of the main activities of the company are sought to be closed. 141. As per the version of 9th petitioner in the Annual General Body meeting held on 25-11-1993 himself and late K. Suryanarayana raised the issue and sought for the list of parcel offices that were closed. Further, it is not in dispute that late K. Suryanarayana as well as 9th petitioner in their letters dated 2-11-1993 and 10-11-1993 specifically addressed letters to the company as well as the other board of directors to furnish the list of places where the offices were closed with full reasons for closing the parcel offices and from which date they were closed. The reply of the Company Secretary dated 3-12-1993 sent to K. Suryanarayana is interesting and it will be useful to extract the same. Dear Sir, we have received your letter dated 2-11-1993 and the contents have been noted. The mat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the minutes of the Board meeting dated 7-8-1992 are fabricated with a view to take shelter under the Board resolution and to see that the Board may not hold against the respondents by rejecting their contention that closure of parcel offices cannot be termed as managerial function in the day to day business of the company as contended by the respondents. (B)Whether the board meeting was held or 3-3-1993 on 27-2-1993? 142. While the case of the petitioners is that the meeting of board of directors was held on 3-3-1993 and the minutes of the Board meeting held on 3-3-1993 were replaced with new minutes and the case of respondents is that the meeting slated to 3-3-1993 is pre-poned and it was held on 27-2-1993 and no meeting took place on 3-3-1993 as contended by the petitioners. The Board held that the meeting was held on 27-2-1993 and 9th petitioner applied for leave. 143. Under section 286 of the Act notice of every meeting of the Board shall be given in writing to every director at his usual address. 144. The company seemed to be not in the practice of sending notices by registered post or maintaining notice register to prove that the notices were served on th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... portion are of the same size. 9th petitioner in his evidence categorically stated that the leave letter was fabricated. In the absence of any rebuttal, the Board ought to have held that the leave letter is a fabricated one. 146. Having entertained a doubt whether the minutes of the meeting dated 3-3-1993 were replaced with the minutes of the meeting said to have been held on 27-2-1993, wherein 9th petitioner has not participated in the meeting, I have verified the minutes book maintained by the company from 29-9-1992 to 23-2-1994 and it does not infuse much confidence and the authenticity of the proceedings could have been tested with oral evidence. The notices for both the meetings, i.e., 3-3-1993 and 27-2-1993 emanated from R1 office on the same day and there seems to be not much difference in the agenda. Further the notice for 27-2-1993 meeting did not say that in supersession of earlier notice convening the Board meeting on 3-3-1993 that notice was issued. At the same time the notice dated 22-12-1993 for the Board meeting held on 27-12-1993 to consider the requisition resolution for removal of 9th petitioner as director, a note is seen as hereunder: Note : The meeti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all his expense and may subject to the provisions of section 314 of the Act, pay to such Director such special remuneration as they may think fit, which remuneration may be in the form of either salary, commission or profits and may be either in addition to or in substitution of the remuneration specified in the articles. In the light of the above resolution the question of payment of sitting fee to the directors prior to that date does not arise. 147. Further, it is the case of 9th petitioner through out that he attended the meeting on 3-3-1993 along with some other directors. In the answer to Q. No. 38 in the cross-examination he stated that five directors including himself, R2, R3, Ananda Rao and another director whose name he could not remember attended the meeting. Neither the managing director nor any of the directors came to the witness box to disprove the statement of 9th petitioner. In the absence of any proof to show that the notice for the board meeting dated 27-2-1993 was served on 9th petitioner and the notice is not in cancellation of the earlier notice convening the Board meeting on 3-3-1993 and the fabricated letter of leave of absence alleged to have been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... people participated in the auctions held on different dates. In support of his case he filed affidavits of some of the purchasers of the vehicles and also hire purchase agreements entered into by them with Lakshmi Devi Finance Co. to show that the vehicles fetched much more higher amounts than the price shown in the auction slips. It is also his case that if the auction slips are carefully analyzed, the same party signed differently at different points of time apart from the fact that only one person written all the auction slips. The auction slips do not contain any serial number, though the word Srl. No. is shown therein. All these facts will prove that no auctions of lorries have taken place. The respondents admit that the lorries sold were of ten to eleven years old and the company was in the habit of selling old and unserviceable vehicles in order to maintain good fleet. The company is to make additions and deletions to its fleet and the same is in the normal course of business. Hence it is not correct to contend that large-scale misappropriation in sale of lorries has taken place. The Board accepted the plea of the respondents by placing reliance on the retracted affidavit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Second Highest Bidder as ₹ 29,900 2. ATP 1122 1981 4th Rank English (S.K. Ahmed) 26,000 First Highest Bidder 3. MEK 8343 1983 9th Rank 29,000 4. ABP 1202 1983 10th Rank English (S.K. Ahmed) 30,000 Second Highest Bidder ₹ 29,500 5. AP 5T 3354 1988 8th Rank English (S.K. Ahmed) 60,000 Second Highest Bidder Rs, 59,000 6. ABP 1194 1983 5th Rank English 25,000 Second Highest Bidder ₹ 24,900 7. ADI 9969 1981 4th Rank English 22,000 Second Highest Bidder &# ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1981 7th Rank 27,000 4. ATP 6979 1982 5th Rank 29,000 5. AP 5T 1988 6th Rank 60,000 6. ATP 1221 1981 4th Rank 22,000 7. ATP 7566 1982 6th Rank 27,500 8. ADI 9969 1981 3rd Rank 22,000 9. AP 5T 2928 1983 1st Rank English (M.D. Gouse) 28,000 First Highest Bidder 10. ABP 6286 1983 8th Rank English 25,000 Second Highest Bidder ₹ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Vehicle Number Model Rank How he signed Value In Rs. Comments 1. ATP 969 1981 3rd Rank 25,000 2. MEK 8343 1983 3rd Rank 29,000 3. ABP 1202 1983 7th Rank 30,000 4. ABP 1194 1983 3rd Rank 25,000 Sl. No. Vehicle Number Model Rank How he signed Value In Rs. Comments 5. ADI 9969 1981 6th Rank Telugu 22,000 First Highest Bidder 6. A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ₹ 24,899 9. ABP 1983 3rd 25,000 6286 Rank 10. ABP 1983 5th 30,000 1256 Rank 11. AP 5T 1983 7th Telugu 22,000 Second Highest 2612 Rank Bidder ₹ 21,900 12. AP 5T 1982 3rd 29,000 2220 Rank 13. AIQ 1988 1st Telugu 18,000 Second Highest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1202 Rank 6. ABP 1983 7th 25,000 6286 Rank 7. ABP 1983 6th 26,000 1220 Rank 8. AP 5T 1982 5th 29,000 2220 Rank 9. AP 5T 1981 1st English 25,000 Second Highest 2360 Rank Bidder 24,900 10. AP 5T 1982 7th 29,000 2620 Rank 11. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 10. AP 5T 1982 6th 24,000 2802 Rank 11. AP 5H 2nd 2,70,000 2552 Rank ANNEXURE - IX S.K. ANWAR Sl. Vehicle Model Rank How he Value Comments No. Number signed In Rs. 1. ATP 1981 6th 39,000 3245 Rank 2. AP 5T 1983 2nd 30,000 2683 Rank 3. ADP 1984 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 18,000 Rank 14. AP 5T 1982 4th 30,000 2230 Rank 15. AP 5T 1982 4th 29,500 2801 Rank 16. AP 5H 3rd 2,70,000 2552 Rank ANNEXURE - X K. SATYANARAYANA RAJU Sl. Vehicle Model Rank How he Value Comments No. Number signed In Rs. 1. ATP 1981 5th English 25,000 Second Highes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ank 11. AP 5T 1983 6th 28,000 2928 Rank 12. ABP 1983 2nd 25,000 6286 Rank 13. ABP 1983 3rd 30,000 1256 Rank 14. AP 5T 1982 2nd 24,000 2802 Rank 15. AP 5T 1982 2nd 29,000 2620 Rank 16. AIQ 5524 1988 3rd 18,000 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... how all these people could know of the auction dates though the company never notified the auctions in any manner. Secondly from the dates of auction, it is seen that the company was auctioning one lorry at a time in selling about forty lorries in a span of two years as per the version of respondents a procedure unknown to corporate sales. From the above it is seen that there is some truth in the contention of the petitioners that the auction slips were brought into existence to meet the case of the petitioners. After differences arose, both late Suryanarayana and the 9th petitioner in their letters dated 2-11-1993 and 10-11-1993 in respect of sale of lorries sought full particulars of the vehicles sold like make of the vehicle, model and year of purchase, to whom they were sold and at what price they were sold, the nature of sale whether it is by public auction or private sale. While a reply was sent to Suryanarayana stating that the matters referred to by him are the matters to be dealt with, by the management during day to day business, the company produced xerox copy of an acknowledgement dated 27-12-1993 for the alleged registered letter sent on 4-12-1993. This aspect was a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... notice to convene annual general body meeting to remove the 9th petitioner as director of the company. In fact he was not only removed as director at the annual general body meeting dated 21-1-1994, but also from all the positions held by him in subsidiary companies. It is also elicited that he signed one transfer form relating to one of the vehicles that were sold. 155. Coming to the affidavits, initially the petitioners filed the affidavits of Adigarala Raghava, Desetti Narayana Rao and J.V., Raghavulu, to prove that they purchased the vehicles at much higher price and also the hire purchase agreements entered into by them with the third parties. But later they gave affidavits stating that they purchased the vehicles for the value shown in the auction slips and they have raised these loans for effecting massive repairs to the vehicles. Firstly, the Board having rejected the prayer of the petitioners to lead evidence by affidavits, it is not known how it can rely on these retracted affidavits filed by the respondents. Secondly the Board committed grave illegality in giving credence to the affidavits filed by the respondents when there are two affidavits of one and the same in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ying about the roadworthiness of the vehicles and then a paper advertisement will be given to secure higher price. Both the things were not done in this case. Nextly, it is to be seen that the company is having automobile workshop and involved in manufacturing spare parts for over a number of years apart from being a dealer in spares for TATA vehicles. In this background have we to presume that the vehicles became so un-roadworthy even before their life span as fixed under M.V. Act expired though no iota of evidence on the condition of the vehicles is produced by the respondent-company? Further if the Board takes judicial note of market trends, even second hand two wheelers are fetching much more higher price then the lorries sold by the company. I am sure that even if the lorries were sold as a scrap, they would have fetched much more higher price. Can it be said that the company maintained the vehicles in such a worse condition and they are not able to fetch reasonable price when they were sold in an auction ? If we keep the market trend in mind though book value of the vehicles comes down year after year on account of depreciation in reality their value in the market will be m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... demands. The Board adverted to these contentions of both the parties on this issue under Other acts of mismanagement . But without giving a finding on the issue expressed its satisfaction over the payment of increased dividends and recorded the following finding: An analysis of the allegations would show, as rightly pointed out by Sri Raghavan, that other than the allegation relating to issue of right shares, no other acts of oppression qua shareholders has been agitated in this petition. This finding runs counter to the record and the oral evidence of the 9th petitioner who spoke on this issue. More, so, when the respondent contended that it is a common trade practice in transport business to engage outside vehicles as and when required in addition to own vehicles without producing the original records and also without reference to the letter of the Company Secretary dated 5-3-1999 that the contracts register to be maintained statutorily under section 301 of the Act for the years 1989 to 1992-93 are not traceable. Here we should keep in mind that the company is engaged in parcel lorry service for transportation of goods in and closed lorries. Closed lorries will not be owned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cles is intended to maintain good fleet. The reason is obvious. Engaging private vehicles and paying hire charges in cash, serves the interests of the 2nd respondent. Hence the finding recorded by the Board that no other issue except rights issues was raised by the petitioners having extracted the contentions of both the parties is nothing but arbitrary exercise of powers. In the light of foregoing discussion, I find sufficient justification in the complaint of the petitioners that the respondents were obtaining receipts for higher amounts from the owners of the vehicles and the income derived there from is being misappropriated by respondents 2 and 3. Diversion of funds 161. The specific case of the petitioners is that the 2nd respondent is in the habit of diverting the funds by way of payment of exorbitant commis- sions with kick back arrangements and in a raid conducted in the year 1988 by the Income-tax Department it was noticed that certain firms in the benami names of these respondents have been paid substantial commission and as such all this expenditure was disallowed. Subse- quently those firms were dissolved and the company appointed Hastina Auto Dealers (P.) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts will be paid as commission to the companies whose share capital is only in few lakhs of rupees. The real issue before the Board is whether the two agencies are benami agencies of respondents 2 and 3 and whether there is transparency required in selecting the agencies and whether such an action would be prejudicial to public interest. From that angle I would like to examine the issue in controversy. Agency for South India 164. V.K. Automotive (P.) Ltd., was appointed as the sole selling agent of the company for southern region 28-3-1989. The case of the respondents is that an advertisement was given in Hindu on 21-12-1998 inviting applications for dealership and Ram Associates was appointed as a consultant to select the agent. 165. It is not in dispute that the managing director of V.K. Automotive (P.) Ltd., Madras, Vijaya Kumar was earlier an employee of the company. From the record it is seen that while the authorized share capital of V.K. Automotive is ₹ 1,30,200 it was paid a commission of ₹ 38,23,000 for the financial year 1992-93. I have gone through the report of Ram Associates filed in the court. In their report they did not say how many appli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ting to corporation, present business, intensity of interest, over all presentation are shown as nil. As per the balance sheet of that company that its capital is ₹ 1,30,000 but he was able to earn ₹ 38,23,000 as commission. It is not known how the consultant felt that the amount which he is going to invest ( i.e., ₹ 5 lakhs would be sufficient to market about 400 spare parts of the company in whole of South India. Be that as it may 3 years after its establishment, the share capital of the company is only ₹ 1,30,200. It is not known whether he established any shops of his own or appointed dealers all over south for marketing the spare parts. To my mind the capital invested by him is not sufficient even to establish one wholesale shop at Madras leave about other places. In the light of the above factual position, the question that falls for consideration of the court would be, whether the company with the meager money at its disposal can earn such a huge commission to a tune of ₹ 38,23,000 ( i.e. ), practically 36 times more than the capital invested by it. He did not even mobilize ₹ 5 lakhs as undertaken by him before the consultant. In respon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rporated on the ground that the promoters are well experienced in auto parts technically as well as marketing wise ignoring the well experienced firms and this company earned a commission of ₹ 45,56,000 in the financial year 1992-93 as seen from its balance sheet. While the petitioners filed some letters from the dealers, who according to the respondents, have responded to the notifications inviting applications both for South India and North India stating that they never applied for the agency, the respondents got letters from those dealers saying that they have not given such letters to the petitioners. I need not go into that controversy. 167. Now it is evident that this company appointed as the sole selling agent for North India with paid-up capital is ₹ 4,55,000 received a commission of ₹ 45,56,000, i.e., ten times more than it s share capital while the V.K. Automotive (P.) Ltd., sole selling agent for South India earned commission 36 times more than its share capital investment ( i.e. ), ₹ 38,23,000. In all the commission paid to these two companies is ₹ 85 lakhs during 1992-93. To my mind unless the turn over of these companies is in cror ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... would not have gone in this manner to the detriment of the interest of the other share holders apart from causing loss to the exchequer by avoiding payment of sales tax, excise duty, income-tax, etc. When the acts of mismanagement brought to the notice of the Court are ignored, it amounts to giving a seal of approval for the mismanagement of the affairs that are being conducted by the company which are prejudicial to public interest. Persons of confidence 169. Coming to the other contention of the respondents that they can appoint only those on whom they have confidence, I can only observe that if the respondents want to appoint people of their confidence, without undertaking any such process they would have straight away appointed these companies as their sole agents. I have no manner of doubt in holding that the respondents introduced this make believe process of selection by inviting applications and appointing consulting agencies to justify their action in paying huge amounts, before the Income-tax authorities by taking a stand that they are independent agencies and they have nothing to do with the company and to save themselves from any criticism from the Income-tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Board recorded a finding that the application filed under sections 397 and 398 of the Act has to stand on the allegations contained in the petition and subsequent events brought on record alone cannot entail any person to a relief in case the main petition fails. In other words in case the allegations in the main petition are held proved then the subsequent events may be taken into consideration by the Board in moulding relief suitably. In the normal course as the 2nd respondent being the managing trustee of the trust, the Board would have directed him to produce the original records of the trust to see which of the resolutions produced by the parties are true and genuine. From the material available on record and as per the version of the petitioners that the trustees passed a resolution on 30-5-1992 to wind up the trust and he also filed copy of the resolution. On the other hand, the case of the respondent is that the trust resolved to transfer the assets of the Trust to Srinivasa Educational Society but not to wind up the Trust. It is useful to extract the resolutions filed by the parties. Copy of the resolution filed by the petitioners True copy of the resolution pass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Sri Srinivasa Educational Society . In this regard he brought to the notice of members the resolution passed on 20-4-1992 a copy of which is also placed before the meeting. After discussion the following resolution is unanimously passed: Resolved that Sri K.V.R. Choudary, Managing Trustee be and is hereby authorised to take all steps to become a sponsor patron in M/s Sri Srinivasa Educational Society and for which purpose, do all such things that are necessary such as advancing/transferring movable and immovable properties to Sri Srinivasa Educational Society Resolved that Sri K.V.R. Choudary, Managing Trustee be and is hereby authorised to take necessary permission from the Income-tax authorities and do all acts that are necessary for finally transferring the properties of our trust to Sri Srinivasa Educational Society The meeting terminated with a vote of thanks to Chairman [Emphasis supplied] From these resolutions, it is seen that while preamble of both the resolutions are one and the same the resolutions said to have been adopted are different as per the version of the parties. The Board did not feel the necessity of summoning minutes book of the trust t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the activities of the Trust. In fact they have not shown utilization of this amount in the income tax return. Nextly it is to be seen that normally the donee will be approaching the donar for donation by specifying the purpose. There is absolute silence on the part of the respondents, as to who approached the company for donation or at least how this donation was utilized by the Trust belonging to the family of the 2nd respondent. By diverting the funds in this manner to a non-functioning Trust if not non-existent Trust belonging to the 2nd respondent family, the company avoided payment of income tax and claimed exemption. The Board has not applied its mind to the crux of the matter and simply washed of its hands by saying that the contribution is to an existing Trust. Hence its cannot be said that the affairs of the company are being run not in a manner prejudicial to the public interest. Discrepancies in the stock of finished products 172. This issue was not raised in the company petition. But it was raised by filing C.A. No. 65 of 1996 and C.A. No. 115 of 1997 seeking amendment to the main petition. The allegation of the petitioners is that the respon-dents 2 and 3 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts Officers the black money that is being generated in the industrial circles of this country is 3 to 4 fold than the real currency, which is expected to be in circulation as per the version of Reserve Bank of India. If the members of the Board properly analysed this issue in a manner known to law and not carried away by extraneous reasons, the result of the company petition would have been otherwise. 177. The book that was produced before the Board was produced before this Court also. To my surprise it is nothing but a compilation prepared by the company. But the original RJI register was not produced before the Board to prove that the Central Excise Authorities have verified and signed in the register. Further the Board did not summon the original RJI register to find out whether the entries in the compilation book tally with the original register or not. In fact no central excise officer was examined to prove that the entries in RJI register are being periodically checked and signed by the Department Officials. As stated supra none of the entries in the compilation was proved by the respondent in a manner known to law by examining themselves or their representatives or th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1989-90 (1) King Pins (2) Tirod ends (3) U.J. Cross (4) Piston Total value Production 18,19,083 1,58,315 1,00,666 3,77,958 Sale 4,02,824 ... ... 1,71,588 Closing 3,76,565 ... ... 36,336 Stock Discrepancy 12,73,672 1,58,315 1,00,666 1,92,054 (Amount Rs.) 12,73,67,200 3,16,63,000 3,01,99,800 96,02,700 1988 1991-92 Opening 3,76,565 ... ... 36,336 Stock ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Stock Discrepancy 20,63,800 1,44,537 1,55,651 1,31,650 (Amount Rs.) 20,63,80,000 2,89,07,400 4,66,95,300 65,82,500 2885 1994-95 Opening 72,048 ... ... 3,942 Stock Production 24,90,943 1,83,966 1,44,055 2,42,725 Sales 4,88,413 ... ... 1,49,166 1989-90 (1) King Pins (2) Tirod ends (3) U.J. Cross (4) Piston Total value Closing 1,24,385 ... ... 5,394 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he sets sold are 24,861. The closing stock of the sets should be 16,250. But the closing balance was shown as 899 and the missing sets are 15,357 whose value works out to ₹ 70,76,811 at the rate of ₹ 461 per set as per the price list of the respondent-company. To prove the falsity of the case of the respondents, the petitioners furnished the account of piston pins for the year 1980, 1994-95 and 1996-97. The table is extracted hereunder : STOCK POSITION OF PISTON PINS IN THE BALANCE SHEETS OF S.R.M.T. Piston Pins 1980 1994-95 1996-97 Sets Produc- Sets Produc- Sets Produc- tion in tion in tion in Nos. Nos. Nos. Opening Stock 293 657 2612 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s per Produc- Sale Closing As per Stock Balance tion Stock Balance Sheet Sheet Piston Pins 657 657 25,103 24,861 899 899 King Pins 32,052 4,11,862 3,77,374 66,540 King Pin 2,392 1,10,751 1,11,039 2,105 Units Other 32,555 19,68,329 21,71,780 46,726 1,24,385 M.V. Parts Engine Part 72,048 2,17,622 U.J. Crosses 2,876 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have not given any explanation how the sale proceeds on other engine parts are being shown in the balance sheets. Nextly the production of piston pins for the year 1994-95 was shown as 2,42,225 (40,454 sets) in the annual report. But in the reconciliation statement the production was shown as 25,103 sets. It is not known from where he got this figure. From the figures given in the balance sheet the difference is 15351 sets as explained in the Table. This difference is sought to be explained by stating that the production includes other Engine Part Nos. 2,17,622, this figure is shown separately along with other parts whose production, sale and closing stocks were shown group-wise and though the so-called other engine parts have nothing to do with either the piston pins account or other parts shown group-wise in the annual reports. Assuming for a moment that the reconciliation is true, the respondents have shown other M.V. parts and engine parts under different head and how they can add these parts to piston pins accounts. The fallacy of this argument can be exposed from another angle also. The mischief played by the respondents which missed the eye of the Board, is as follows. The p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... exposes the falsity of the plea of the respondents that the production figure of piston pins includes other Engine Parts. The Board did not even advert to the discrepancies in the stock position from 1989-90 to 1995-96 with regard to ( 1 ) King Pins, ( 2 ) Tirod ends, ( 3 ) U.J. Crosses and ( 4 ) Piston Pins whose value seems to be ₹ 186.49 crores as per the price list of the respondent-company. 184. The learned counsel for the petitioners strenuously contended that as the company is involved in manufacture of spare parts, the accounts of the company has to be audited under the Cost Audit (Report) Rules, 1968. On the other hand, the counsel for the respondents contended that these rules are not applicable to this company. I am not going into that controversy. From the statement of discrepancies extracted supra , it is seen that large number of spare parts that were produced by the company were not brought to the books of account. In fact the respondents did not dispute seriously on the discrepancies. They simply tried to get over by saying incomplete information . At least there is a prima facie evidence to show that there is large scale embezzlement of funds of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 49, Lord Keith while considering the word oppression observed that it is not lack of confidence between shareholders per se that brings section 210 into play, but lack of confidence springing from oppression of a minority by a majority in the management of the company s affairs, and oppression involves, I think, 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 Scottish Co-operative Wholesale Society Ltd. v. Meyer 1958 (3) All. ER 66, Lord Viscount Simonde speaking for the majority of the House of Lords observed, Oppression under section 210 may take various forms. It suggests, to my mind, as I said in Elder s case ( supra ), a lack of probity and fair dealing in the affairs of a company to the prejudice of some portion of its members. The section introduces a wide power to the court to deal with such a situation in an equitable manner which it did not have in the case of a company prior to the passing of the Act of 1948 . Lord Denning in a separate Judgment held that the object of the remedy is to bring to an end the matters complained of, that is, the oppression, and this can be done even ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ession, and the affairs of the company are managed in a manner derogatory to the company s interest, sections 397 and 398 of the Companies Act can be invoked and the court has unfettered discretion in such a case to impose upon the parties whatever settlement it considers just and equitable to remove the oppression. (p. 745) On facts of the case, His Lordship held that the action of the directors in withholding transfer of shares in favour of the petitioners, in accordance with the terms of the will, while at the same time transferring some other shares in the managing agency firm, under the same will, was vindictive and harsh and unreasonable and amounted to oppression. (p. 745) 193. In Needle Industries (India) Ltd. s case ( supra ), their Lordships of the Supreme Court in para 52 of the Judgment held that the person com-plaining 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 shareholder. If this act is proved, the power of the Company Law Board to invoked section 397 of the Companies Act will be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and 398. In the above Judgment it was further held that the action of the directors in not offering shares to all the shareholders, but to one shareholder, such allotment had the effect of converting majority share holding of the petitioner into minority share holding and the same amounts to acts of oppression and mismanagement. The company further held that the directors cannot utilise the fiduciary powers over the shares purely for the purpose of destroying an existing majority or creating a new majority and exercise of power to issue further shares for the purpose of consolidating and improving voting power to the exclusion of the existing majority shareholder cannot be allowed. 196. In R. Khemka s case ( supra ), this Court observed that the word oppression is a chameleonic word and it changes its colour, content and from time to time, place to place, event to event, depending on circumstances of the case. His Lordship also observed while section 397 is intended to protect the interest of minority shareholders, section 398 intended for maintaining public interest and interest of the company. From the above it is seen that if the company with the support of the m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the petitioners having received the offer of rights on 31-4-1994 applied for shares on 8-3-1994 but the shares were not allotted to the petitioner for a long time on the ground that the form was not signed by one Aruna Devi who was holding shares jointly along with the petitioner who died in the year 1980, though the death certificate of Aruna Devi was sent to the company on 25-5-1994. The case of the respondents is that the additional share capital was sought to be raised for purpose of expansion and modernization and replacement through rights issue as per the resolution of the board in its meeting held on 29-7-1993. The company has not allotted the shares to the petitioner, as the petitioner did not attach the death certificate of the joint shareholder along with the application. It is only in 1997 the shares were allotted to the 9th petitioner. 201. Rejecting the contention of the petitioners, the Board held that it is beyond their comprehension as to how the rights issue as long as the offer is accepted would reduce one s share holding forgetting the fact that the shares were not allotted to the 9th petitioner till 1997, i.e., 3 years after the company petition was fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ard meeting held on 29-7-1993 and the resolution adopted under this item is extracted hereunder : Resolved that approval of the company be and is hereby given in principle to take up replacement cum modernization of machinery and expansion of the plant. Resolved further that the scheme of funding and other details be considered at the next board meeting which shall be made available by the Managing Director. From the above resolution it is seen that the Board did not decide to raise additional amounts through rights issue. 203. Secondly, if the rights issue was made for the purpose of expansion etc., the respondents did not state how the additional share capital raised was utilized even at the time when the case was heard at the fag end of 1998. Further the case of the respondent is that about ₹ 1.5 crores was raised through rights issue and it is not known whether the company is not in a position to raise that amount if it is really needed from other sources. On the other hand, the specific case of the petitioner is that the company made rights issue only to see that his shareholdings is reduced to less than 10 per cent thereby preempting him from approaching ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation of the petitioner that he has not furnished the death certificate on 25-5-1994. If there is no mala fide intention on the part of the respondents 2 and 3 it is not known how the shares remained un-allotted to the petitioner for long three years, more so in the light of the observation of the Board that we are not in a position to appreciate the stand of the company that the death of the family member was not known to the persons in management . 205. Mr. Raghavan in his marathon arguments did not attack this finding of the Board. Be that as it may, the very finding of the Board that personal differences should not come in the way of discharging the statutory responsibilities and awarding of payment of interest at the rate at which the dividends were declared to compensate the petitioner , is sufficient to hold that the respondents 2 and 3 pitched upon the rights issue and withheld the allotment of shares to 9th petitioner with a view to see that the shareholdings of the petitioner will be less than 10 per cent. Had the other shareholders not joined him, he would not have on his own approached the Board under section 397 of the Act. 206. In Malleswara Finance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 173 and as such the proceedings of the meeting have to be declared as null and void. 210. The case of the respondents is that the company received a requisition notice for removal of the petitioner as director of the company. After the court litigation initiated by the petitioner on the requisition notice came to an end, in the extraordinary general body meeting held on 21-1-1994 it was unanimously decided to remove the petitioner as director. Their case is that the telegraphic representation sent by the petitioner for the Board Meeting held on 27-12-1993 was circulated to the members, as the petitioner did not choose to attend the meeting to make oral representation. The general body decided to remove him after considering the telegraphic representation and as such the provisions of section 284 were complied with. 211. With regard to issuance of special notice under section 190 the case of the respondent is that the requisition notice received by the company was a composite one both under section 169 as well as under section 190. Hence, the removal of the petitioner was in consonance with the above provisions of law and had the support of all the shareholders who at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) Chairman of Bhavani Castings. From this it is clear that the petitioner was holding important positions at least in four subsidiary companies apart from the post of director in the respondent-company. After the disputes have arisen between the father-in-law and son-in-law, i.e., R2 and 9th petitioner, he was stripped of the positions held by him one after the other except the post of Managing Director for K.V.R. Forgings which he seemed to have resigned after he became Member of Parliament in 1984. No explanation whatsoever is forthcoming as to why he was removed from various positions held by him for nearly 2 decades. From the events that have taken place, it is obvious that he was stripped of all his positions as he has fallen from the grace of his father-in-law and he started raising his voice against the mismanagement of the affairs of the company by R. 2. Nextly, as a director of the company he will be having access to all the records and account books of the company and as director he is entitled to have the information as a matter of right unlike a shareholder who has no right to have the information with regard to the day to day affairs of the company. This is evident ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it may be treated as special notice under section 190 of the Act. 214. Section 284 deals with removal of directors. Under sub-section 1, a company may, by ordinary resolution, remove a director before the expiry of his period of office. Under sub-section 2, a special notice has to be given for passing a resolution for removal of a director or appoint some one in his place. Under sub-section 3, on receipt of such a notice, the company shall forthwith send a copy thereof to the director concerned, and the director shall be entitled to be heard on the resolution at the meeting. Under sub-section 4, the director concerned after receipt of the meeting notice may make a representation in writing to the company and request its notification to members of the company. While giving notice for general body meeting, the company has to send a copy of the representation to every member of the company, and if a copy of the representation is not sent for the reasons stated therein, the director may without prejudice to his right to be heard orally, require that the representation shall be read out at the meeting. From the language employed in sub-sections 3 and 4, I feel that there is some ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o. 65 in chief-examination. This statement of the petitioner stood unrebutted. But the Board accepted the version of the company and held that the removal of the petitioner as Director does not suffer from any legal infirmity. 218. Firstly, I have gone through the order as well as the material papers filed by the respondents in this regard. From sub-clause (4) of section 284 it is seen that even if the representation is not circulated to the members of the company, the director may, without prejudice to his right to be heard, orally require that the representation shall be read out at the meeting. From this, it is evident that even if the representation is circulated with the notice, the right of the director sought to be removed, of being heard is preserved. As the deposition of the petitioner that he was not allowed to enter the meeting hall to explain his stand and he gave a press statement to that effect which was published on 27-12-1993, stood unrebutted, I have no option except to hold that the resolution adopted by the General Body at its meeting held on 21-4-1994 is in contravention of section 284 of the Act. 219. The counsel for the respondent strenuously contend ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wn by the Honourable Supreme Court. But the facts and circumstances of that case are altogether different from the facts and circumstances of this case. Here, the Board is considering whether the action of the shareholders in calling for an Extraordinary General Body Meeting to move a resolution for removal of petitioner No. 9 is bona fide one or tainted with bad faith at the instance of Respondent No. 2. Though the resolutions are not subject to judicial review, the Court should not close its eyes to the time and the manner in which the resolution is sought to be moved by the shareholders, more so, when the shareholders who have given the notice for convening of the Extraordinary General Body Meeting are no other than the kith and kin of Respondent No. 2, apart from the fact that 9th petitioner was stripped of all his positions in the subsidiary companies which he was holding for more than 2 decades at the same time. In fact, in Standard Industries Ltd. s case ( supra ) while considering the action of the majority shareholders fully subscribing rights issue to the detriment of the petitioners observed that it was not the legality of the rights issue but the modus operand ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etitioner No. 9 as a director under section 284 is followed as such the finding of the Board that section 169 has to be read independently from section 284 and no explanatory statement need be enclosed in case of meetings convened on requisition and that the provisions of section 190 are applicable only in connection with the Annual General Body Meeting and not in respect of a requisition for the extraordinary general body meeting, runs counter to the provisions of the Act and I have no manner of doubt to hold that the findings of the Board are not in consonance with the provisions of the Act. Other acts of oppression not adverted to by the Board, by not considering the voluminous record : 1. ASSAULT BY KRISHNA MOHAN : 222. While giving answer to Qs. 77 and 78 in Chief, categorically stated that R. 2 sent one Krishna Mohan working as manager in S.R.M.T. to his cabin to assault him and in the assault he received bleeding injuries. With the result he was treated in the Government Hospital at Kakinada and he also filed a Criminal Case against the said Krishna Mohan. It seems the case is still pending. On the other hand, the case of the respondent company is that on a comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f these cases, as the counsel for respondents did not deny the fact of filing so many criminal cases against 9th petitioner. 4. CRIMINAL CASES FILED BY K.V.V. PRASADA RAO, ANOTHER SON-IN-LAW OF R.2: 225. Another co-son-in-law Mr. K.V.V. Prasada Rao filed three Criminal Cases against him viz., C.C. Nos. 705 of 1999, 706 of 1999 and 707 of 1999. Again though these cases are subsequent to filing of Company Petitions, I have taken judicial notice for the reasons given below : These cases filed by both the co-brothers of the 9th petitioner against him are all pending in the Criminal Courts, Kakinada. 5. CRIMINAL CASE AGAINST E. SATYANARAYANA MURTY - LIST WITNESS UNDER 3(1)(E) OF S.C., S.T., ATTROCITIES ACT, 1989. 226. It is his further case that ( a ) at the instance of R. 2 a criminal complaint was given by one Peter Bala against one E. Satyanarayana Murthy, who worked in various capacities in the respondent-company, on a suspicion that he is giving information to petitioner No. 9, stating that he scolded him by his caste name on 8-8-1995 and the same was registered as Crime No. 55 of 1995 under section 3(1)(E) of S.C., S.T., Attrocities Act, 1989. He was detain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion on 17-2-1994 and on a complaint given by his men, as he is leaving for Hyderabad, the Railway Police arrested and handed over him to regular Police and the said George Babu gave a statement before the Police. As per his version, while he was in A shift from 6.00 a.m. on the fateful day the Security Officer by name Ch. S.V.S.N. Murthy sent for him at about 2 p.m. in the noon and he was asked to go in plain dress on the Kinetic Honda bearing No. AP-5-8656 belonging to the Security Officer and asked him to trace the whereabouts of petitioner No. 9 and also to see who are the others accompanying him including Y.D. Rama Rao and he admitted that Shri Hari Rao having seen him asked Mr. E. Satyanarayana Murthy and Tallapudi Subba Rao who are with him to hand over him to the Railway Police who in turn handed him over to the local Police before whom he gave the above statement. No information is forthcoming whether the police registered a crime or not against George Babu and at what stage the investigation is. But the receipt given by the Police in proof of receipt of the complaint given by E. Satyanarayana Murthy and the statement given by the said George Babu before the Police were f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 231. We should also keep in mind that Petitioner No. 9 was member of Parliament when he was in the good looks of his father-in-law and when the petitioner No. 9 fell from the grace of his father-in-law, another son-in-law by name Mr. Ravinder is now Member of Parliament. 232. Hence, all the above incidents clinchingly establish that as the majority of directors and majority of the shareholders in the respondent- company hail from the family of R. 2 and they will go to any extent to silence the minority shareholders by using their brute majority in the company and also by using the political clout and physical force at their command to suppress any dissent voice against his illegal activities. Compromise Proposals 233. After the petitioners filed C.A. No. 65 of 1997 seeking appointment of interim administrator, as the petitioners offered to sell their shares to the respondent-company at a value determined by an independent Chartered Accountant, the Board suggested that the matter should be settled amicably in its meeting held on 5-9-1997 not only relating to the respondent-company-Gopal Automatic Ltd. but also other four group of companies, in which the petitioner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be invested as aforesaid shall not exceed the sum of Rs. two crores (Rupees two crores only) at any one time until otherwise decided in this regard. Further, even according to respondents an amount of ₹ 1.5 crores were raised through rights issue in 1993 and how this amount was invested was not explained by the company. Further, in the Extraordinary General Body Meeting held on 6-12-2000 the shareholders with a view to diversify the activities of the company and to carry on the business of generating, selling, transmitting, distributing, supplying electric power and host of other activities including floriculture, horticulture, not only amended the objects clause, but also authorised the board of directors to borrow any sum or sums of money exceeding the aggregate of the paid up capital of the company and its free reserves, provided, however the total amount so borrowed shall not exceed ₹ 100 crores at any time. Can it be said that a company of this magnitude is not having financial resources at its command and is not in a position to purchase the shareholdings of the minority shareholders whose shareholding is less than 10 per cent as on today. To my mind, such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the said registers as he is no more director by that date. (3) Again in the month of September 1997 when the petitioner No. 9 sought for several details with regard to the financial transactions of the company through registered letter as well as telegram dated 24-9-1997, R.3 - Joint Managing Director raised the same query please let us know under what provisions of the Companies Act a member is entitled to several details which you sought for . (4) Again on 27-2-1999 petitioner No. 9 addressed a letter to furnish Photostat copies of the ( 1 ) Balance sheets of the company for the years 1983-84 to 1986-87; ( 2 ) copies of contract Registers for the years 1989-90 to 1992-93; ( 3 ) list of bad debts with all particulars for the years 1991-92 to 1996-97; and ( 4 ) particulars of the passenger cars possessed by SRMT Ltd. as on the date with full particulars relating to company make, model and its registered numbers as they are required for arguments before the board. The Company Secretary in his letter dated 6-3-1999 taken the stand in the 1st para that the submissions on both the parties have completed before the Company Law Board and the matter is posted to 22-3-1999 for rep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all disclose the nature of his concerned or interest in the meeting of the board of directors and obtain prior approval of the Board and the same should find a place in the register. This being a vital register containing the information whether any director or his relative has entered into contract or arrangement with the company with or without disclosing the same to the board of directors, the Company Secretary simply stated that the Register of Contracts for the period 1989-90 to 1992-93 are not traceable. (5) Petitioner No. 9 again addressed a letter on 12-9-2000 having seen that huge amounts were written off as bad debts in the annual reports of the company, seeking full and accurate information regarding bad debts that were written of during those five years, and the reply given by R. 2 on 19-9-2000 is that please let us know under what provisions of the Act a shareholder is entitled for such elaborate information and any clarification/explanation will certainly be given at the Annual General Meeting, if sought for, by the shareholders. When the petitioner No. 9 is not being allowed to enter the premises and there is every threat of attacking his person or implicating h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to permit the member to inspect the records or furnishing of the copies, the company is liable to be punished with a fine, which may extend up to ₹ 50 for every day. Under sub-section 5( b ) the Board may also, by order, compel an immediate inspection of the document, or direct that the extract required shall forthwith be allowed to be taken by the person requiring it and did not move its little finger in the matter. 239. Under section 209 every company shall keep at its registered office proper books of account with respect to the aspects enumerated therein and under section 209( a ) the books of account, other books and papers of every company shall be open for inspection during business hours. 240. Under section 219 the members of the company are entitled to have a copy of the balance sheet including profit and loss account, auditors report and every other document required by law to be annexed or attached as the case may be to the balance sheet, which is to be laid before the company in the general meeting at least 21 days before the date of the meeting. Under sub-section (2), any member of the company on demand is entitled to have a copy of the last balance s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to have copies of the documents sought for, to prove their case. Otherwise, the right to seek relief against acts of oppression and mismanagement given to the minority shareholders under the statute will be a futile exercise, if the required information sought for is neither provided by the company nor called for by the Board. 243. The whole misfortune in this case is that the Board has not chosen to summon the original record and provided an opportunity to the petitioners to go through the records of the company by summoning the records. The Board did not choose to pass any orders to that effect in spite of their specific prayer in the main petition as well as in C.A. No. 69 of 1994. When they approached the company, it was refusing to furnish information required to prove their allegations by questioning them under what provision a shareholder is entitled to that information having removed R. 2 as director of the company. 244. To my mind while the action of the Board is wholly unsustainable in law, the action of the respondent-company is intended not only to oppress the minority shareholders, but also intended to withhold the information to prove their case and the Boar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ioners also approved the actions of mismanagement as well as the acts of oppression, the question of granting any relief to the petitioners in this case does not arise. This issue was answered by the Supreme Court in B.R. Kapoor s case ( supra ), their Lordships while repelling the arguments of the counsel for the respondents that the members of the political party commanding majority in the legislative Assembly are having an unfettered right to elect a person who does not possess the qualifications enumerated under article 173 or who incurs the disqualifications enumerated in article 191 held as follows : a person convicted for a criminal offence and sentenced to imprisonment for a period of not less than two years cannot be appointed as a Chief Minister under Article 164(1), read with (4) and continue to function as such. Their Lordships further observed that such an action on the part of the legislative members would be subversive of the constitution and would be repugnant to the theory of good governance and would be contrary to the constitution itself, which constitution has been adopted, enacted and given to the people of India by the people of India. Their Lor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he company might have not dared to open their mouth against the illegal actions of respondent No. 2 having burnt their fingers once in 1978 and having seen the plight of the petitioner, who is no other than the son-in- law of the 2nd respondent and brother-in-law of the 3rd respondent, on that ground the respondents cannot contend that if their actions are clearly in violation of the laws of the land like the Companies Act, Income-tax Act, so on and so forth, their decisions will prevail over the law of the land. Further under Chapter VI of the Act, a right is conferred on the minority shareholders seeking relief against not only acts of oppression but also on the actions of majority shareholders that are prejudicial to public interest apart from acts of mismanagement of the affairs of the company. Hence, the respondents cannot take shelter, if the actions of the company are not in accordance with law, by contending that such an action is having the approval of majority shareholders. 248. In the light of the foregoing discussion on various issues in controversy I have no manner of doubt in holding that the petitioners were able to prove the acts of mismanagement as well as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rse both before the Board as well as this Court, but the respondents 2 and 3 contended that the financial position of the company does not permit the purchase of the share held by the minority shareholders. As far as the financial position of the company is concerned, I have clearly taken a view that the financial position of the company is very sound and it is in a position to purchase the shares of the minority shareholders. At that stage, I brought to the notice of the counsel for the respondents Article VI of the Articles of Association where under any member of the company can transfer his shares to an outside person, only with prior approval of the board of directors and suggested that in the light of bad blood flowing between the parties as no one will come forward to purchase the shareholdings of minority shareholders who incurred the wrath of the second respondent, that the company itself may select the purchaser of their choice for transfer of shares of the minority shareholders. Even for this suggestion also the respondents are not willing. 249. I am fortified in my view by the following decisions : In Shanti Prasad Jain s case ( supra ), their Lordships of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and crush them ruthlessly by dragging the proceedings to the Apex Court level by availing the services of corporate lawyers with the riches at their command; so that no one can dare to raise his voice, in future on administration of the affairs of the company by Respondent Nos. 2 and 3, as they have already tasted success once in 1978. Of course, at that time the 9th petitioner was with his father-in-law. Even assuming that the findings recorded by this Court are not sound in law on the facts of case will, as I have taken the view that the Board is empowered to exercise the inherent powers under Regulation 9 of the Boards Regulations to give directions in equity for doing substantial justice between the parties and pull down the curtain on the acts complained of by the minority shareholders. I hold that the directions given by the Board are proper and just in the circumstances of the case. Hence, though I did not agree with the findings of the Board on the merits of the case, I am in full agreement with the end result in the case, vide Yashovardhan Saboo s case ( supra ). Accordingly, C.A. No. 4 of 1999 is dismissed as devoid of merits and C.A. No. 5 of 1999 is allowed t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o leave Hyderabad. He is given liberty to move this Court if the above remuneration is not adequate for the work done by him. As far as the Chartered Accountants nominated by the parties are concerned, both the parties shall bear the remuneration and travelling expenses payable to their respective Chartered Accountants. Both the parties are given liberty to make their representation before the Committee of Chartered Accountants; and the Committee of Chartered Accountants shall submit its report to this Court within three months from the date of receipt of this communication. 255. Before parting with the case, I feel that it is my bounden duty to bring to the notice of the authorities concerned, that grave miscarriage of justice has taken place in this case as the Board failed to observe fundamental principles of procedural laws. But the counsel appearing for respondents submitted that the Board is following the same procedure from its inception. I am afraid, that if the Board is allowed to function in this manner, grave injustice will be done to the litigant public. Since the Board is vested with discharge of judicial functions and being an institution of public trust, it i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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