TMI Blog2010 (7) TMI 815X X X X Extracts X X X X X X X X Extracts X X X X ..... ioner was under an obligation to implead the company as party in the company petition and appeal then the company should not have put forward its own case before the court. The act of the company cannot be condemned to the extent of holding that the company committed wrong and for that wrong the other director and respondents are liable. - 1,2 AND 3 OF 2008 - - - Dated:- 16-7-2010 - PRAKASH TATIA, J. Sudipto Sarkar, Vibhu Bakhru, Mrinal Kanti Mandal, Rahul Sharma, Snehasish Mukherjee, Anjay Kothari and Neeraj Jain for the Appellant. S.N. Mookharjee, Arun Bhansali, M.S. Singhvi, Ramit Mehta and Vikas Balia for the Respondent. JUDGMENT 1. The petitioners, having 25 per cent shares in M/s. Lake Shore Palace Hotels (P.) Ltd., have filed present Company Petition No. 32 of 2005 Yogeshwari Kumariv. Lake Shore Palace Hotels (P.) Ltd. [2009] 147 Comp. Cas. 406 (CLB) before the Company Law Board ('CLB'), Principal Seat, New Delhi under section 397/398 of the Companies Act, 1956 and prayed that (a) the board of directors of the respondent-company be superseded and an administrator and/or receiver and/or special officer be appointed to forthwith take over the management and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpany in the year 1984 and was able to increase his shareholding in the respondent-company to 56 per cent. Respondent No. 2 also controls another 23 per cent of the shareholding in the respondent-company belonging to the Estate of Maharana Bhagwat Singh of Mewar (father of appellant No. 1 and respondent No. 2), which he controls as an executor of the trust created by Maharana Bhagwat Singh which is Maharana Mewar Institution Trust. According to the petitioners-appellants, respondent No. 2 attempted to oust the petitioners from the management and control of the respondent-company and, therefore, prayed in Company Petition No. 1 of 1991 that : "(1) A scheme be framed for management and control of the affairs of the company so that respondent No. 2 is divested of his powers to control the company so that the controlling interest in the company vests in the Maharana Mewar Institution Trust when the Will is administered; (2) An interim scheme be framed for management and control of the affairs of the company till such time the Will is administered so that the interest of the Maharana Mewar Institution Trust and that of the petitioner are secured; (3) Respondent No. 2 be removed fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... other than as prayed for in prayer (6) above; (13) An injunction restraining respondents Nos. 2 and 3 from operating the bank accounts of the company; (14) A receiver or special officer be appointed to take custody and/or possession of the books of account, directors' minute books, minute books of the meetings of shareholders, share registers and other statutory and accounting records and books of the company and to permit the petitioner to inspect and take copies of the same; and (15) Pass such other and/or further order(s) and/or direction(s) as may be deemed fit and just with a view to bringing to an end the matters complained of." 5. Company Petition No. 1 of 1991 was allowed by the learned single judge of this court vide judgment dated 23-11-1994, in the following terms : "(i)The company petition is partly allowed with costs which are assessed at Rs. 50,000 (rupees fifty thousand only) payable by respondent No. 2 only. (ii)All resolutions passed and decisions taken by the board of directors of the company in its meetings in which respondent No. 2 only was present are declared void and non est. (iii)Maharajkumar Raj Singhji son of H.H. Maharaja Laxman Singhji and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shares are purportedly offered to the existing shareholders on pro rata basis depending on their entitlement based on the existing shareholding, the petitioner-appellants' contention is that the respondent has illegally acquired control of 52 per cent of shareholding and further controls 23 per cent shares in his capacity as the executor of the estate, the proposed increase and allotment on pro rata basis (of shares) would reduce the petitioners to a helpless minority in the respondent-company. The petitioners-appellants apprehended that respondent No. 2 acting as the executor of the Will executed by late Maharana Bhagwat Singh founder of the company would refuse to accept the share offered to the estate which would then be offered to the other shareholders, i.e., the petitioners and respondent No. 2. Respondent No. 2 is well aware that the petitioners are not in favour of increasing the share capital of the company and would not accept the shares offered, giving respondent No. 2 an opportunity to corner all the shares. In sum and substance, the contention of the petitioners is that the increase of share capital by issuing 30,000 equity shares of Rs. 1,000 each and offered to exist ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ought various details regarding the assets and liabilities of the respondent-company including the financial aspect of the respondent-company so that the fair value of the shares held by the petitioner could be ascertained. In the sequence, respondent No. 2 called the petitioner to Delhi for a meeting in the month of November, 2004 wherein he offered to buy out the petitioner's group holding for Rs. 1 crore. Petitioner No. 1 refused to accept the offer stating that it was necessary that a valuation of the shares to be carried out first. Respondent No. 2 deliberately did not provide the information sought by the petitioner from time to time. The petitioner also alleged that the price offered by respondent No. 2 was not true and fair price of the shares. In sum and substance, respondent No. 2 when failed to buy the shares of the petitioners, to force them out from the company evolved this procedure of increase in share capital knowing it well that the petitioner is not in favour of increase in share capital of the company and will not invest more in the company and in that situation the respondent will be able to acquire these unsubscribed shares. 9. Respondent No. 2 issued a notic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he respondent-company, in particular, in the meeting dated 29-12-2004, convening to holding of extraordinary general meeting dated 29-1-2005 and consequently the resolution passed at the extraordinary general meeting on 29-1-2005, are also bad in law and void. The petitioner submitted her protest vide letter dated 27-1-2005, which was replied by respondent No. 2 on 7-3-2005. Petitioner No. 1 sent a letter dated 27-1-2005, to the company secretary of the respondent-company requesting him not to proceed with the proposals to increase the authorised share capital of the company in view of her letter dated 27-1-2005. In sum and substance, petitioner No. 1 objected to increase in the share capital referred to above. 11. The company petition was contested by the respondents on all counts, details of pleas are not necessary to avoid repetition as they will come in defence arguments and at relevant places. 12. The Company Law Board by its order dated 4-12-2007, after holding that the petitioners failed to establish that there is financial mismanagement in the company and the board has no jurisdiction to remove Shri Unni, the director of the company, as his appointment was on account of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ners desired to go out of the company on receipt of the fair value determined on asset basis including the assets of the Lake Palace Hotels and Motels (P.) Ltd. (The Lake Palace Hotel is a separate company registered under the Companies Act and was not a party in the company petition, and the petition was in relation to the Lake Shore Palace Hotels (P.) Ltd., which is a separate company registered under the Companies Act, 1956). The respondents were unwilling to consider the suggestions of the petitioners on the ground that neither respondent No. 2 nor the company has funds to acquire the shares on the basis of asset value. The Company Law Board opined that in closely held companies where unreconcilable differences have arisen among the parties, the Board has always directed parting of the ways. Then the Company Law Board held that the same is not possible in the present case in view of the inability expressed by the second respondent-company on the ground that they do not have sufficient funds to purchase the shares held by the petitioners. The Company Law Board held that : "certain other relief which does not require valuation of shares has to be evolved." (P. 431) 14. The Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... funds. (2) The company will go ahead with the right issue and the second respondent is at liberty to acquire the shares unsubscribed. Since it would reduce the shareholding of the petitioners substantially, the company shall pay a sum of Rs. 20 lakhs per year (including Rs. 6 lakhs now being paid) with an increase of Rs. 1 lakh every three years thereafter. This amount will include dividends, if any, declared by the company in future. The petitioners will continue to hold the shares that they currently hold and the first petitioner will continue as a director as long as the said shares are held by the petitioners. This would be more or less in line with the agreement between the parties before the High Court when the company agreed to pay Rs. 6 lakhs for the second respondent to acquire majority shares in the company. Since in the present case, the petitioners will lose their special right in respect of 25.1 per cent shares, they should be entitled for adequate compensation which I have fixed at Rs. 20 lakhs. (3) During the hearing, it appeared that the petitioners were mainly concerned with the shares held by the company in Lake Palace Hotels which is one of the main assets of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecide which itself shall be final either relief to the petitioners or dismissal of his company petition and that shall be binding upon the respondents. 17. The company petitioners being aggrieved against the order dated 4-12-2007, have preferred S.B. Company Appeal No. 3 of 2008, whereas Arvind Singh Mewar, who was respondent No. 2 before the Company Law Board, has preferred S.B. Company Appeal No. 2 of 2008. The Lake Shore Palace Hotels (P.) Ltd., which was party before the Company Law Board in Company Petition No. 32 of 2005 Yogeshwari Kumari' s case (supra), has preferred S.B. Company Appeal No. 1 of 2008. All these appeals have been heard together. 18. The appellants in Company Appeal No. 3 of 2008 Yogeshwari Kumari and others also submitted a Company Application No. 15373 of 2008 seeking permission to raise three more legal points that whether the Company Law Board under section 402 of the Companies Act, 1956, has the authority and jurisdiction to remove a director from the board of the company where the continuation of such a director is prescribed by law and whether the Company Law Board was correct in law in not setting aside the rights issue despite holding the same to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a, that the appellants shall sell their shareholding in the company to respondent No. 2 at an arbitrary price of Rs. 5 crores without directing independent valuation of the company. Learned counsel vehemently submitted that the order of the Company Law Board directing the appellants to choose from one of the four options suggested by the Board is arbitrary, vague and was incapable of any finality. It has also been submitted that the Company Law Board failed to exercise jurisdiction vested in it when it refused to remove respondent No. 3 as a director on the ground that his appointment was on account of the consent terms accepted by the High Court in an earlier proceeding. It is submitted that merely because the appointment of respondent No. 3 as director in 1999 was made in terms of the consent terms accepted by the High Court in the earlier proceeding, it does not take away the power and jurisdiction of the Company Law Board under section 402 of the Companies Act, 1956, to grant reliefs for any subsequent act of the directors, which is prejudicial to the interest of the company and its shareholders and is oppressive to some members of the company. 21. Learned counsel for the com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rily mean that there is no irregularity in the accounts of the company. The Company Law Board ought to have directed an independent audit to find out the correctness or otherwise in the averments of the appellants against respondent No. 2 regarding financial mismanagement of the company. 23. Learned counsel for the petitioners drew my attention to the gradual increase of shareholding of respondent Arvind Singh. As per the petitioners, on 26-12-1979, Smt. Yogeshwari Kumari had 25 shares out of 125; in 1980, 100 shares out of 300 and the respondent up to the year 1983 had no share in the company. In the year 1983, the petitioner had 100 shares out of 300 whereas respondent No. 2 had 75 shares on 3-11-1984. The petitioner had 200 shares out of 1,000 shares whereas the petitioner had 100 shares at the time of death of late Maharana Bhagwat Singh. On 20-1-1986, the petitioner had 400 shares out of 1,300 shares and respondent No. 2 had 200 shares; on 1-6-1987, the petitioner had 615 shares out of 2,000 shares and respondent had 685 shares and on 15-1-1990, respondent No. 2 had 1,712 shares out of 3,027 shares, whereas the petitioner had 615 shares. In the year 1999, because of right is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... port for expansion and in fact one page project summary circulated with notice agenda dated 14-3-2005, was not available on 29-12-2004, as it was circulated only with the notice of agenda dated 14-3-2005. It is also submitted that the accounts of the company would show that Rs. 10 crores was available to the company as quasi equity at the time of rights issue was proposed and the quasi-equity would have been the cheapest and best way to raise funds more so when the fund requirement according to Arvind Singh Mewar was only to the extent of Rs. 3 crores. 25. Learned counsel for the petitioners also assailed the finding of the Board wherein the Board held that there was no financial mismanagement in the company and according to the petitioner, the Board failed to take into consideration the allegations of the petitioners that fund was drained out from the company by respondent No. 2 and at the cost of the company, respondent No. 2 is inviting his personal guest from all over the world to stay free in the hotel of the company and respondent No. 2 is financially supporting some of the hotels, owned by his relatives and taken on lease by the Lake Palace Hotels and Motels (P.) Ltd. 26 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court in the case of Needle Industries (India) Ltd. v. Needle Industries Newey (India) Holding Ltd. [1981] 51 Comp. Cas. 743 the Supreme Court upheld the liberal interpretation given to provisions of section 210 of the English Act (Akin to section 397 of the Companies Act, 1956). Learned counsel for the petitioner relied upon the case of Shanti Prasad Jain v. Kalinga Tubes Ltd. [1965] 35 Comp. Cas. 351 (SC). Learned counsel for the petitioner submitted that Needle Industries (India) Ltd.' s case (supra), has been considered in the subsequent judgments and it has been approved that in case where two sets of shareholders cannot do business together and have been fighting litigation for years and there is lack of probity amongst the parties and the court is of the view that a permanent solution has to be found, then equitable orders granting reliefs can be passed by the Company Law Board. 28. Learned counsel for the petitioner also relied upon judgments : the House of Lords in Scottish Co-operative Wholesale Society Ltd. v. Meyer [1959] 29 Comp. Cas. 1 and submitted that Scottish Co-operative Wholesale Society Ltd. case (supra ) has been followed by the Supreme Court in the case of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the petitioner/appellant in Company Appeal No. 3 of 2008 are concerned, they are questions of law and, therefore, the order of the Company Law Board dated 4-12-2007, denying the relief to the petitioner, is liable to be set aside and the appropriate order in terms of the reliefs prayed for in Company Petition No. 32 of 2005 filed before the Company Law Board, Principal Bench, New Delhi be allowed to the petitioners. 31. Learned counsels for the respondents countered the submissions of learned counsel for the company-petitioners appellants and at the same time assailed the order of the Company Law Board dated 4-12-2007, in Company Appeal No. 1 of 2008 and prayed that the company petition was liable to be dismissed and after setting aside the Company Law Board's order dated 4-12-2007, the company petition be dismissed. 32. It has been vehemently submitted that the condition precedent specified in section 397(2) of the Companies Act, 1956, not having been fulfilled, therefore, the Company Law Board had no authority to grant any relief to the petitioners and learned counsel Shri M.S. Singhvi also submitted that the company petition should have been dismissed on the ground that eve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... airs of the business of the company, unless the law permits, there cannot be any interference. The Company Law Board proceeded on absolutely erroneous assumption that the petitioners are being asked to invest a substantial amount of money without any returns and are being asked to invest only to maintain their percentage of shareholding and committed serious error of law in holding that this act of the respondent is oppressive. 34. Learned counsel vehemently submitted that once the Company Law Board held that the company was in need of funds, could not have held that the rights issue was oppressive particularly for the reasons that : (1) unlike a loan funds raised by a company pursuant to a rights issue do not have to be repaid, (2) there is no requirement to make payment of interest of funds received pursuant to a rights issue, unlike a loan, and (3) increase in the share capital of a company will result in improving its debt equity ratio and permit the company to raise further funds on the basis of an improved debt equity ratio. 35. Learned counsel for the respondent-company pointed out that the Company Law Board, after hearing the parties on 26-4-2005, passed the impugned or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y when the entire holding of the respondent-company is in Lake Palace Hotels and Motels (P.) Ltd., was the subject-matter in challenge in a prior suit filed by Maharana Mahendra Singh, elder brother of the petitioner and Arvind Singh Mewar, which is pending before the court of the Additional District Judge (FT), Udaipur, being Civil Original Suit No. 242 of 2004 (3 of 1986). It is submitted that Lake Palace Hotels and Motels (P.) Ltd., was not a party before the Company Law Board and as a private company having its articles of association, wherein there is restriction against any transfer of shares to non-member unless conditions referred in said articles of association are fulfilled. Therefore, the company Lake Palace Hotels and Motels (P.) Ltd., is not bound by decision of the Company Law Board. It is submitted that in the present case, the petitioners are admittedly non-members and were thus not entitled to acquire any share in the Lake Palace Hotels and Motels (P.) Ltd., without compliance of the articles of association of the Lake Palace Hotels and Motels (P.) Ltd. 38. Learned counsel for the respondent, while assailing the ultimate directions given in the impugned order pas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndent relied upon several judgments in support of the contention that the requirement under sub-clauses (a) and (b ) of sub-section (2) of section 397 are mandatory and without proving the above ingredients, no relief can be claimed under section 397 and further even if the Company Law Board has decided to grant relief by exercising its inherent powers which cannot be contrary to the statutory provisions of law even then the relief has been granted for purported object that it will bring an end of dispute which in fact will not and will give birth to a larger dispute as the petitioner would have the right to interfere in another company's management. Learned counsel for the petitioner also tried to distinguish the judgments wherein the issue relating to lifting of the corporate veil in family knit company has been considered and reliefs have been granted of parting with by the family members by taking shares in different companies and submitted that those authorities have no application to the facts of this case. 42. Learned counsel Shri M.S. Singhvi appearing in Company Appeal No. 2 of 2008 for appellant, Arvind Singh Mewar, in addition to the above pleadings taken by learned co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar as the valuation report given by one of the director T.N. Unni is concerned, that was only an opinion and it was given at the instance of the petitioner herself and if it is not so then also the petitioner had a right to rebut this opinion by obtaining opinion from any financial expert, which she did not choose to do and the report given by respondent No. 3, who is a financial expert, is not controverted by any evidence nor the Company Law Board rejected that report, rather say, the Company Law Board found that the valuation report was based on well known formulas which are recognised methods of calculation and, therefore, there was no misconduct of third director T. N. Unni. 43. Learned counsel also drew my attention to the fact that T.N. Unni was already attached with the affairs of the Lake Palace Hotels and Motels (P.) Ltd., before he was taken as director in the respondent-company at the instance of the petitioner herself and raising of her objection after a decade itself shows that the objection has been raised with an ulterior motive to get unnecessary sympathy from the Company Law Board/court, therefore, in fact, the company petitioner shareholder wants to take premium ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n carrying interest at 10 per cent and in this eventuality, the investment of respondent No. 2 and the estate in the shares can be treated as loans carrying the same rate of interest. The Company Law Board in this eventuality passed the order that the rights shares already issued shall stand cancelled. The Company Law Board thereby issued directions against the very specific wishes of the petitioners and respondent No. 2 as well as passed the order burdening the company with liability of interest without meeting with the objection of the respondent that loan will burden the company more than the burden of rights issue and this loan would be disadvantageous to the respondent-company's financial credibility and worth in taking loan from the financial institution which have already advanced to the respondent-company. Furthermore, it is against the wishes of the petitioners by which the petitioners' wished to part their ways looking to the continuity of the dispute and the allegations levelled by the petitioner against the remaining directors of the company. It appears that the Company Law Board was influenced from the offer made by the petitioner that the petitioner is ready to provid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... can accept offer No. 2 and it is suitable to her but award of compensation of Rs. 20 lakhs per year with increase of Rs. 1 lakh every three years thereafter, as compensation, cannot be justified as there is no reason to hold the company guilty for liability to pay damages/compensation to the petitioner and further unless it is held that the determination of the amount is just, reasonable and adequate compensation for the petitioner and is the just, reasonable and adequate penalty for the respondent-company and its members. At this juncture, it will be appropriate to mention here that in the earlier round of litigation, Rs. 6 lakhs have been determined, not as compensation but as a consideration for the services to be rendered by the petitioner to the company and, therefore, the Company Law Board virtually treated Rs. 6 lakhs which are paid to the petitioner in terms of the earlier settlement as compensation to the petitioner for reduction in her shareholding. Another aspect of the matter is that if the company will start paying more dividends due to heavy profits then all the benefits will go to respondent No. 2 only. 49. Option No. 3 involves another company which is Lake Palac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come for consideration only when the order of the Company Law Board is found justified. However, broader aspect can be considered. Clause 81 of the articles of association of Lake Palace Hotels and Motels (P.) Ltd., provides that "shares may be transferred by member or other persons entitled to transfer to any member or members selected by the transferor or transferors but no share shall be transferred to a person who is not a member unless the proposed transfer or transfers is/are approved by the company either by a resolution passed at a general meeting or by consent of all the shareholders expressed in writing". Learned counsel for the petitioners submitted that the respondent is in control of the affairs of the Lake Palace Hotels and Motels (P.) Ltd., therefore, for taking a resolution in terms of clause 81 of the above articles of association, there is no difficulty and otherwise also, the petitioners are successors in interest of the shareholders, became members automatically with the death of late Maharana Bhagwat Singh and since they may not be registered as the shareholders in the company, therefore, as per clause 94 of the articles of association, they may not have the ri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mention here that if the petitioner can be treated to be a member in the definition given for members in the Lake Palace Hotels and Motels (P.) Ltd., as they are descendants or successors of the original shareholder and resolution can be carried on by respondent No. 2 in the Lake Palace Hotels and Motels (P.) Ltd., even then there cannot be any justification for ouster of the petitioner from the present company and her induction in another company upon which the petitioner(s) has/have her/their eyes, as observed by the Company Law Board in option No. 3. On this ground also, option No. 3 cannot be justified. 51. By option No. 4, the Company Law Board again opined that other ways for parting may be by giving adequate share value to the petitioners by taking into consideration the assets of the company as also that of Lake Palace Hotel. The respondent objected to the inclusion of the Lake Palace Hotel in the value as well as expressed inability to mobilise funds to purchase the shares of the petitioners on a real estate price basis. The Company Law Board observed that considering the fact that the company is a family company and that after a full round of litigation, the second rou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om the third option, there cannot be an end of dispute and there is likelihood of more disputes and this fact has already been taken note of in option No. 4 itself that this is the second round of litigation then giving shares of Lake Palace Hotels and Motels (P.) Ltd., to the petitioners certainly will not achieve the object of parting of ways of the parties nor it will serve the purpose to end the litigation. Option No. 4, on the face of it, is based on arbitrary decision of determination of the value of the shares of the petitioners. 53. In view of the above reasons, the order passed by the Company Law Board deserves to be set aside. 54. Now coming to the merit in the claim of the petitioners independent of the options given by the Company Law Board to the petitioners. The present company petition before the Company Law Board was submitted on 12-4-2005. Before that and after the death of Maharana Bhagwat Singh, father of petitioner No. 1 and respondent No. 2 on 3-11-1984, for the first time a dispute between the petitioner and respondent came before this court by filing Company Petition No. 1 of 1991 under sections 397 and 398 of the Companies Act, 1956, which was decided in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... serted with the help of any sort of plea/pleadings because of the reason that it is settled law that if the language in the deed is clear and unambiguous then nothing can be added or subtracted from the language of the deed. Therefore, the petitioner's contention that from the settlement dated 25-8-1999, an inference can be drawn that 145 shares were transferred to Smt. Yogeshwari Kumari, was with the condition that the shareholding percentage shall be maintained by respondent No. 2, cannot be accepted. 55. Even if the above legal position is liberally construed then we may look into the facts leading to the present dispute, which as stated above, came before the Company Law Board in the month of April, 2005. If we dilute the above legal position and look into the facts of this case, then after 25-8-1999, the petitioner had 25.1 per cent shares and rest were with respondent No. 2 and the trust/estate, etc. The petitioners in their company petition, after narrating the facts, leading up to signing of the agreement dated 25-8-1999, straightaway stated in paragraph 23 of the petition that respondent No. 2 in collusion with Shri T.N. Unni, the third director of the respondent-company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dent without material particulars cannot be a reason for grievance of the petitioners. Same benefits if are taken by directors of the company because of their position in the company are normal wear and tear for the company and cannot be avoided. 56. At this juncture, it will be worthwhile to mention here that the petitioner in paragraph 26 of the company petition stated that in the month of September, 2004, respondent No. 2 approached petitioner No. 1 and offered to buy the shareholding of the petitioner in the respondent-company at a price suitable to respondent No. 2. The petitioner expressed her willingness to consider selling of her interest in the company at fair price and thus sought various details regarding the assets and liabilities of the respondent-company including finances of the respondent-company so that the petitioner may assess fair value of her shareholding. The petitioner, thereafter, did not disclose what effort she made for getting the value of shareholding by her and how much she assessed the value of her shares but pleaded that respondent No. 2 called the petitioner to Delhi for meeting in the month of November, 2004 and he offered to buy out the petitione ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd out the real nature and constitution of the company for granting equitable relief. This court is also conscious of the fact that the founder of the company was the father of petitioner No. 1 and respondent No. 2. The Company Law Board was right in holding that initially none of the party invested money to acquire the shares in the company. There is increase of shareholding of respondent No. 2 gradually in the knowledge of the petitioner up to the time of filing of Company Petition No. 1 of 1991. Increase in the shareholding of respondent No. 2 up to the year 1999 was accepted by petitioner No. 1 by signing the memorandum of understanding dated 25-8-1999 until the company did not declare its dividend, the petitioner did not raise any objection that the company is financially mismanaged by respondent No. 2 and respondent No. 3 for a long period of almost six years and raised dispute when the company decided to offer shares in proportion to the shareholding of the shareholders. These are relevant facts for the purpose of finding out whether the act of the respondent in offering the shares on rights basis, has some other object than generating the funds of the company. The Company L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of the case, it is too remote to connect the rights issue with respondent No. 2's endeavour to purchase the share of the petitioner's group. 58. Once the Company Law Board held that there was no financial mismanagement in the company then the Company Law Board should have been more conscious in reaching the conclusion that present action of the respondent-company of offering rights share to the shareholders, that its solitary act was with a view to corner the petitioner's group to disinvest their shares on throw away price or with the only object to reduce the shareholding of petitioner's group. The company and respondent No. 2 when do not mismanage the company financially for six years then all of a sudden, how such serious allegations can be accepted that they decided to increase the share capital of the company, only with an object to oppress the petitioners ? 59. The observation of the Company Law Board that the face value of the shareholding by the petitioner is about Rs. 7.6 lakhs and to subscribe to the right shares with the view to maintain their existing percentage and protect their special rights, they have to invest over about Rs. 75 lakhs, i.e., nearly 10 times of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er settlement between the parties on 25-8-1999, the respondent-company was managed by respondent No. 2 without there being any financial mismanagement as held by the Company Law Board and approved by this court and the company's fixed assets increased in the years 2002-03 and 2003-04 and the company was in need of the funds and financial institutions advised improving the debt equity ratio and because of the action of the respondent of issuing shares on rights basis incredibility increased for getting financial support from the banks. When need of funds could have been met by the company appropriately by issuing the rights shares, then the petitioners' grievance only, basically on this ground, is not founded on valid facts nor legally justifiable. 61. At this juncture, it will be appropriate to mention here that serious allegations have been levelled against one of the director respondent No. 3, Shri T.N. Unni. Shri T.N. Unni was a known person to petitioner No. 1 even before his induction in the present company. He is a chartered accountant and could have given a valuation report as he was qualified to give the valuation report. From the report, it is clear that he valued the sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... I do not find sufficient material from the evidence available on record on the basis of which the finding can be recorded against Shri T.N. Unni that he wrongly projected that report has been prepared at the behest of the petitioner. I am holding so by strictly following the principle that case is to fall if the party alleging fails to prove the allegations. At the cost of repetition, we may recapitulate that Shri T.N. Unni whose conduct was not questioned by the petitioner for decades, gave his valuation report by calculating the valuation from various methods and gave reasons for adopting the methods recommended by law and the principles which have been adopted, are not in challenged and further if the valuation was not acceptable to the petitioner, she also could have obtained another valuation report as the opinion of even expert is only an opinion and to prove that opinion wrong, she could have obtained another opinion of another expert. Therefore, looking to the facts of the case, this court is of the view that the petitioner failed to make out any case of misconduct by Shri T.N. Unni which may be less than the misconduct of the chartered accountant. In view of this finding a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the Will fairly and virtually ousted the petitioners from that company and getting the profit of that Lake Palace Hotels and Motels (P.) Ltd., indirectly as well as directly, therefore, while passing the appropriate order, the shareholding of the Lake Palace Hotels and Motels (P.) Ltd., also can be taken into account which has rightly been taken note of by the Company Law Board. It is submitted that respondent No. 2 was willing to purchase the petitioners' group's share and the petitioner to give an end to the dispute also wished to sell the shares to respondent No. 2. The petitioner is, therefore, entitled to fair price of her interest in the company. The valuation of the petitioners' share/interest in the company is condition precedent. The valuation given by one of the directors is not acceptable to the petitioners. Therefore, the court may pass appropriate order and obtain fair and impartial valuation report from competent person and may direct the respondent and/or to the company to purchase the petitioners' shares/interest in the company. According to learned counsels for the petitioners, the real nature of the dispute and constitution of the respondent-company is similar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nds are not in existence. The shareholders in company in minority are protected by law and their interest cannot be compromised but, at the same time, while granting equitable relief, the conduct is relevant for both the parties and when dispute raised by the person complaining appears to be a dispute non-existent or is not bona fide or raised because of a trivial act then the court may refuse to grant any relief even in a family company. Otherwise it will be premium to the minority shareholders who may ask for money for their minority shareholding which may not be suitable to the majority shareholding and may not be in the interest of the member, company and other shareholders. For seeking relief on equitable ground it is not sufficient to prove that the company is a family company. It is true that for seeking relief in a family company it is not necessary that the person complaining should prove his/her case to the full extent as required under section 397 as that would entitle the person complaining to obtain appropriate order under section 397 itself of the Companies Act, 1956. The language as used in section 397 is used purposefully so that companies may work without unnecessa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mode and manner by which it should raise funds and in this case the respondents successfully demonstrated that raising of funds by other ways would not be in the interest of the company than, in the facts. Therefore, the company petition for equitable relief is also liable to be dismissed. 66. The petitioner moved Company Application No. 15707 of 2008 in S.B. Company Appeal No. 3 of 2008 and Company Application No. 11604 of 2008 in Company Appeal No. 1 of 2008 substantially praying that the statement of accounts in respect of all expenses incurred by the respondent-company towards the cost of litigation before the Company Law Board during the pendency of Company Petition No. 32 of 2005 - Yogeshwari Kumari' s case (supra ) as well as before this court since the filing of the S.B. Company Appeal Nos. 1, 2 and 3 of 2008 be called from respondent No. 2, obviously so that the cost incurred by the company be recovered from the other respondent other than the company. The contention of learned counsel for the petitioner is that it was a dispute between the petitioner and respondent No. 2 and substantial relief was not against the company and looking to the nature of the dispute, the co ..... X X X X Extracts X X X X X X X X Extracts X X X X
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