TMI Blog2011 (6) TMI 666X X X X Extracts X X X X X X X X Extracts X X X X ..... n my view, there are several important question of law which arise in this company appeal. Some of the questions of law which can be formulated are as under : A. Section 111A is the only provision that talks of free transferability of shares. In view of section 111A read with section 111(14), the provisions of section 111A do not apply to a private company which had become a public company by virtue of section 43A. Accordingly, section 111A is not applicable to the present company; B. The 2000 amendment states that section 43A will not apply "on and after" its introduction. Therefore, companies that had acquired such status would continue to retain such status." C. Alternatively and assuming that the 2000 amendment is construed as a "repeal" of section 43A under section 6 of the General Clauses Act such repeal would not disturb GCL's status." 2. The questions of law that arise and which are enumerated herein above are not exhaustive. In the circumstances, company appeal is admitted." 3. Although this Court has in the order of 28-6-2010 observed that these questions of law are not exhaustive, yet, the arguments of the Senior Counsel appearing for parties revolve around ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he United States of America. The said Maharookh, Percy and the Aban amongst themselves hold and or otherwise control 8115 shares aggregating to approximately 13 per cent of the issued, subscribed and paid up share capital. The Kavasmaneck family accordingly holds and or otherwise controls 18,631 equity shares aggregating to 30 per cent approximately of the issued, subscribed and paid up share capital. In addition to the Kavasmaneck family, there is also a Rebello family that holds and or otherwise controls 2640 equity shares aggregating to 4 per cent approximately of the issued, subscribed and paid up share capital of GCL. 7. The first respondent is a closely held family company which was incorporated as a private limited company under the Companies Act, 1956. The first respondent is a family run enterprise whose continued existence has been based on mutual trust and faith amongst the Kavasmaneck/Gharda families. The second respondent is the first appellant's brother. He is the Chairman and Managing Director of first respondent company. Respondent No. 3 is second respondent's wife and a Director of first respondent. The third respondent however, does not discharge any functions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to invest their funds and join him in partnership. The late Mr. Rutton Kavasmaneck made an investment of practically all his savings as mentioned in the petition. 10. In or about April 1962, the second respondent, late Grand mother of second appellant (Bai Ratanbai Gharda), husband of first appellant and father of second appellant (Rutton Kavasmaneck) and late Mrs. Coomi Warden (maternal aunt of second appellant) entered into a partnership dated 28-4-1962 called M/s. Gharda Chemical Industries. The deed of partnership dated 28-4-1962 shows that the total capital contribution from the partners was Rs. 2,50,000 out of which Rs. 1,00,000 (40 per cent) was contributed by the late Rutton Kavasmaneck, Rs. 50,000 (20 per cent) by the late Bai Ratanbai Gharda and Rs. 50,000 (20 per cent) by late Mrs. Coomi Warden. The only financial contribution of the second respondent was Rs. 50,000 i.e., 20 per cent of the total contribution. As far as the appellants are aware, the second respondent was not even in a position to fulfil his financial contribution. In fact the second respondent was unable even to raise the "pennies" initially. Against his capital contribution of 20 per cent, the sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in introducing the second respondent to Godrej Soaps Limited through which the second respondent was able to get a contract for supply of a vital product known as G-11 used by Godrej Soaps Limited for their prestigious product Cinthol soaps. The appellants understand that the second respondent requested for financial support/assistance of an amount of Rs. 50,000 from Dr. Rebello. The second respondent persuaded Dr. Rebello to break his family investment and guaranteed far better returns. To the end and intent, the second respondent, inter alia, agreed to grant to the Rebello family an option not to accept prepayment of the loan but to invest maximum of Rs. 20,000 in a limited company that would be formed on conversion of the said firm of M/s. Gharda Chemicals Industries. 13. With the profits of the firm of M/s. Gharda Chemicals Industries subsequently escalating, the second respondent reneged from his commitment viz-a-viz the Rebello family. Appellants were informed that the second respondent attended Dr. Rebello's residence without any prior intimation and left a cheque for an amount of Rs. 51,500 on a sofa. Dr. Rebello however refused to accept the said cheque as he desi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e company is restricted in the manner hereinafter appearing; ( b )** ** ** 118. The first Directors of the Company are : ( a )Shri K.H. Gharda ( b )Shri R.M. Kavasmaneck Who are also the subscribers of the Memorandum of Association of the company; and they shall not be subject to retirement by rotation. 147. Save as otherwise expressly provided in the Act, questions arising at any time in the meeting of the Board shall be decided by a majority of votes. In case of an equity of votes the Chairman of the Board shall have a second or casting vote." 16. It is therefore, alleged that the company is a private limited company and accordingly the provisions of Companies Act and the Articles of Association are hence referred to. It is then alleged that despite formation of the company all business of partnership being taken over by the said GCL, the character and business was always treated as if it is partnership between Kavasmaneck family and second respondent's family being the dominant partners having substantial stake in GCL. To that end and intent it was also a family understanding between dominant partners that their inter se proporti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hall be bound to execute a transfer in respect of any shares so sold and in default thereof be deemed to have executed such a transfer. The company shall thereupon cause the names of the members who have purchased the shares to be entered in the Register as the holders of such shares and thereafter the validity of the proceedings shall not be questioned by any person; ( f )In case no member shall apply for any of the shares included in the transfer notice or in case any are untaken after compliance with the foregoing provisions of this Article the intending transferor shall have the right (which right shall endure for the period of one year from the date of transfer notice) to sell and dispose of his shares to any person and at any price and to apply for registration of the transfer of the same and the company shall be bound to give effect to the transfer of such shares accordingly. ( g )For the purpose of this clause the fair value of the share shall be such sum, if any, as the auditors for the time being of the Company shall certify as the fair value thereof provided that it expressly declared that the fair value shall be (1) the amount of capital paid up thereon plus (2) a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ious stratagem. Not succeeding in forcing the late Rutton Kavasmaneck to exit the first respondent, the second respondent even sought to requisition an Extra Ordinary General Meeting (EOGM) to appoint additional Directors on the board of first respondent. He along with his nominees first issued a requisition notice dated 20-6-1975 and then as one of the requisitionist, he issued a Notice dated 6-8-1975 convening an EOGM on 4-9-1975. This being the last straw, the late Ratton Kavasmaneck became constrained to institute a suit in the City Civil Court being Short Cause Suit No. 6360 of 1975, inter alia, against the respondent Nos. 1 to 3. In the said suit, the late Rutton Kavasmaneck sought a declaration that the purported Notice dated 6-8-1975 was void, illegal and of no effect and that the first respondent and the second and third respondents were not entitled to hold the said EOGM of the first respondent or to pass any resolution as mentioned in the said notice and for injunction, ad interim reliefs etc. On the institution of the above suit, an application for ad interim reliefs was made and an ad interim order was passed on 3-9-1975. On the passing of the said ad interim order, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es of the appellants, there is nothing else in the handwriting of the appellants in the said forms. The said forms appear to have been subsequently filled up by one J.P. Somaiya, the then Company Secretary of the first respondent. The said transfer forms itself would show that they had been so dated as to fit in the larger scheme of the second respondent without the knowledge of the Kavasmaneck family. Two of the forms also have the date of the form corrected from another date. It appears that the said blank transfer forms were filled in after the transfer, inasmuch as, in the form pertaining to the transfer of 25 shares of the first appellant, the entry in the form shows the entry number in the register of transfers as No. 5 and dated 4-8-1977 though in the case of transfer of the 2nd appellant's 155 shares, all the entries in the forms are shown as entered in the register of transfers as No. 6 and dated 30-7-1977. An entry purportedly earlier in point of time has a subsequent number than the purported subsequent entry. 22. After setting out the details of the transfer in paras 6.17 to 6.20, it is alleged that the appellants were wrongfully and illegally deprived of their bonu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ter the formation of the company, the business was continued as a glorified partnership essentially of the family. As the business had been started and taken over/continued on partnership principles and on the basis of funds got in by the family, the family members/shareholders shares in the business and profits of the company by substantial amounts ranging from 20 per cent to 45 per cent of the net profits of the company being distributed to the family members/partners/shareholders as and by way of dividend as only Dr. Gharda received remuneration/commission. Such distribution of profits by way of dividend was the only manner in which the other partners who had contributed funds could receive benefits/returns. To that intent, profits were further distributed to the partners/shareholders by way of bonus issues of capital by the company in the ratio mentioned in petition. 25 . During 1982 to 1987 the first respondent however continued to duly distribute profits/benefits to the partners/shareholders in accordance with partnership principles. Except for 1982 and 1983 when the first respondent made only marginal profits, the first respondent distributed substantial proportions of it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs. 7.56 Crores in 1988 to Rs. 16.93 crores. The percentage of net profits distributed by way of dividend was only 1.14 per cent. An amount of Rs. 16.73 crores was transferred to reserves and the book value of the shares consequently increased from Rs. 1787 to Rs. 4382 per share. This resulted in a steep increase in the wealth tax liability and the dividend received by the appellants was not even sufficient to meet the wealth tax liability on the shares. The amount distributed by way of dividend to all the partners/shareholders was Rs. 19.35 lakhs. As against that first respondent invested Rs. 634 lakhs on units of UTI, received Rs. 79.72 lakhs as and by way of donation. In fact in some years the amount paid by the first respondent/Dr. Gharda by way of donation has exceeded the amount distributed/paid to the partners/shareholders by way of dividends. Between the period 1-4-1988 and 31-3-1992, the wealth tax payable by appellant No. 2 alone for his shareholding in the 1st respondent aggregated to Rs. 13,89,376. However, the dividend received by appellant No. 2 in respect of the said shareholding was only Rs. 4,34,000 for the same period. 28. During the period 1989-90 whilst com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d "as soon as it is ready". Thereafter, appellant No. 2 by his letter dated 5-2-1990 addressed to respondent No. 2, inter alia pointed out that the delay in transmitting the shares, was to be viewed in the context of the scheduled EGM where respondent No. 2 was proposing to make far reaching changes which would be destructive of the appellant's right of preemption. The appellant No. 2 pointed out that Dr.Gharda was apparently seeking to oust the appellants although the first respondent was a closely held family concern. The appellant No. 2 called on Dr. Gharda to defer the EGM and threatened action. Thereafter, on 6-2-1990 Dr. Gharda and the Company Secretary of first respondent agreed to transmit the shares on receipt of the certificates and on the appellants agreeing to send an indemnity bond subsequently. By its letter dated 9-2-1990 the first respondent forwarded the said shares duly transmitted. 29. After narrating the events of 1989-90 leading up to filing of company petition No. 77 of 1990 in this Court invoking sections 397 and 398 of the Companies Act and referring to the reliefs claimed therein, what has been alleged is that after the petition was filed, the oppress ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ices under Article 57. 33. Whilst these events transpired, the second respondent's unfairly prejudicial stratagems continued to be unleashed from time to time. The objective of the second respondent is to squeeze out the appellants in any manner possible so as to force and/or compel the minority shareholders to sell their shares to the 2nd respondent at a very negligible value and to oust them from the first respondent. The second respondent being at the helm of the control and management of the affairs of the first respondent is only ensuring that he gains and enjoys the benefits which other shareholders cannot and which he would receive having regard to his status and position as the Managing Director of the first respondent through excessive remuneration, increased commission and grant of huge donations to Trusts/ entities owned/controlled by the second respondent and his wife. For the year ended March 2004, the second respondent also siphoned a huge amount of approximately Rs. 4 crores in the guise of alleged compensation for alternative accommodation. Further it is alleged that in or around August 2004, the second appellant received a notice dated 27-7-2004 by which the fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that no details of any nature whatsoever with regard to the proposed educational institution was given even at the time of the meeting. After the said meeting and after the resolution was already passed, by its letter dated 7-9-2004, the first respondent replied to the second appellant's letter dated 26-8-2004 in an attempt to reply to the various queries contained in the second appellant's letter dated 26-8-2004. This letter further demonstrates that first and/or second respondents' intention was to keep the appellants in dark and deny them any information. 36. The second appellant also addressed a letter dated 30-8-2004 to the second respondent. By the said letter it was pointed out by the second appellant that notwithstanding the encouraging performance of the first respondent, the company at the behest of second respondent was continuing with its policy of unfairly and/or inadequate distribution of its wealth especially to the minority shareholders. It was pointed out that whilst the minority is deprived from sharing the profits through dividend, the majority shareholders who were controlling the first respondent sought to take away huge and disproportionate sums of money ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at which it was decided to enhance the payment of compensation. The appellants by their letter dated 4-9-2004 addressed to the Chairman for the 38th AGM, once again objected to the payment of such huge commission and recorded that the same was clearly reflective of the discriminate policy of the majority shareholders and in particular the second respondent of self aggrandizement at the cost of minority shareholders and the company. It was further pointed out that this self aggrandizement constituted to a further act of oppression. By its letter dated 7-9-2004 the first respondent declined to furnish copies of the minutes of the said Board meeting on the ground that shareholders are not entitled to the same. 39. It is stated that the decision to enhance payment of commission to the second respondent is retrospective inasmuch as the first respondent has in its letter dated 7-9-2004 clarified that the remuneration paid to the second respondent for the year ended March 2004 is Rs. 410 lakhs comprising of commission of Rs. 398 lakhs @ 4 per cent of the net profits for the said year. The aforesaid figures demonstrate that the total amount paid by the first respondent to the second re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re is also a reference to the correspondence in that behalf. It is alleged that the first respondent addressed a letter dated 16-3-2005 to the appellants and to the other members of the Kavasmaneck family and the Rebello family purportedly under Article 59( c ) of the Articles of Association of the first respondent. By the said notice, the first respondent sought to contend that the appellants, inter alia, had been found to be working and or doing activities against the interest of the first respondent and accordingly the appellants were called upon to serve a Transfer Notice under Article 57 of the Articles of Association of the first respondent. One of the reasons cited by the first respondent as an act against the interest of the first respondent was quoted as under:- "You have attempted to induct persons in allied fields knowing that the research of the company is a precious and invaluable asset and the involvement of outsiders/persons from associated fields will affect the confidentiality and value of the company's research and adversely affect the company." 42. In the meanwhile, on 17-3-2005, the first/ second respondents filed Suit No. 1170 of 2005 in this Court, inte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Limited filed a petition before the CLB being aggrieved by the first respondent's refusal to split the said 100 equity shares that were lodged by them on 17-1-2005. In the petition, the first respondent sought to justify its refusal, inter alia , on the ground that:- "paragraph 10.4 Ground ( d ) of letter dated 10th March, 2005 of GCL .... you Godrej Industries Ltd. Being engaged in the allied field of activity, such application for splitting the share certificates of GCL to thereafter get these shares transferred to its name in the circumstances would be prejudicial to the economic interest and the well being of GCL .... With reference to para 10.4 of the said petition, I reiterate all that is stated hereinabove and deny all that is contrary thereto and inconsistent therewith in the said para 10.4. I submit that the Godrej Group of companies is into allied business." 45. It is further stated that by an order dated 31-7-2008, the CLB has dismissed the petition filed by Godrej Industries Ltd. Against the aforesaid dismissal, the said Godrej Industries Ltd., have preferred an appeal in this Court under section 10F of the Companies Act, 1956. The aforesaid appeal is admitted a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ingly offered to the appellants that if the appellants desire to avail of second respondent's offer as above, they should withdraw from the pending litigation. 49. In these circumstances, the appellants relying and trusting the second respondent agreed to withdraw from the company petition. Accordingly, the appellants made statement before this Court that they were not interested in prosecuting the company petition No. 77 of 1990 and requested for withdrawal from the same. The said request was accepted by this Court. After withdrawing from company petition the relationship between the appellants and second respondent started improving. The appellants and the second respondent who were earlier litigating with one another started socialising and meeting often with the second respondent inviting the appellants and particularly appellant No. 2 to his office. The second respondent also as assured declared a dividend of Rs. 400 for the year ended March 2005 and March 2006. 50. It is further stated that sometime in the year 2007 at a meeting held between the second respondent and second appellant, the second respondent confided in the second appellant that for the year ended March ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owledgment of the appellants aforesaid cooperativeness, and in the course of the improved relationship between the parties, some time towards middle of 2008, the second respondent informed the second appellant that as assured, he wanted to involve the second appellant in the affairs of the 1st respondent. 53. It is also stated that the second respondent informed second appellant that in so far as the 1st respondent's factory at Dombivali was concerned, it had constructed in excess of the construction permissible under the MIDC Rules. The second respondent informed the second appellant that he wanted to involve the second appellant in the aforesaid matter and for that purpose the second appellant could not represent the 1st respondent, interact with the 1st respondent's staff and also interact with the 1st respondent's lawyers. 54. It is further stated that, accordingly, the second appellant started visiting the office of the 1st respondent. At the request of the second respondent, one Mr. V. Satheesh of the 1st respondent addressed an email dated 20-6-2008 to the second appellant giving out details of the factory and built up area, the excess construction etc. By the said e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... surance of the second respondent to declare a dividend of Rs. 500 per share, it was noticed that the 1st respondent had proposed the dividend of Rs. 400 per share. The second appellant by his letter dated 10-11-2008 recorded some of the aforesaid facts and requested the second respondent that in all fairness they shall abide by his assurance of declaring a dividend of Rs. 500 per share. It is stated that there is no reply to the said letter dated 10-11-2008. 62. It stated that by a further letter dated 24-11-2008 the second appellant informed the second respondent that he and the said Dr. Rebello would be unable to attend the proposed AGM. There were a few questions on the accounts which, the second appellant requested the second respondent to answer. The second appellant also informed the second respondent that he would meet the second respondent latter in the day and if convenient to the second respondent have lunch with him as usual. 63. The second appellant thereafter met the second respondent on several occasions and reminded the second respondent of having failed to declare the assured dividend of at Rs. 500 per share. The second respondent ultimately assured the seco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rees were stated to be either United Phosphorous or the Blackstone Group or Makhteshim Agam. It is significant that United Phosphorous and Makhteshim Agam are direct competitors of the 1st respondent. The Blackstone Group is only a venture capitalist/private equity investor who would ultimately sell the company to another competitor of the 1st respondent. 67. It is also stated that after publication of the aforesaid news reports, the second respondent has turned a complete blind eye to the appellants. The second appellant has made several attempts to contact the second respondent to seek a dialogue with him, but the appellants efforts have been unsuccessful. The intentions of the second respondent became quite clear, when the appellants (who believed to have improved their relation with the second respondent) were not even invited for the 80th birthday celebration of the second respondent on 26-9-2009. 68. It is stated that report of the second respondent selling his share privately have also appeared in Business India December 2009 Edition. The appellants now understand that the second respondent is at a very advanced stage of divesting his shareholding in the 1st responde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... )Consequently on and from 5th May, 2001 respondent No. 1 has become and continued to be a public limited company. Thus, for all practical purposes respondent No. 1 functions as and the affairs of respondent No. 1 are conducted as a public company. All the statutory filings of respondent No. 1 are also made on the basis of the fact that it is a public company. Respondent No. 1 has more than 50 members. Respondent No. 1 has more than three directors as mandated by the said Act. Respondent No. 1 has accepted deposits in the form of fixed deposits from public and hence cannot be a private limited company. The appointment of the Managing Director of respondent No. 2 was after following the provisions of section 269 of the Act as applicable to public limited companies. The approval of the Central Government has also been sought and obtained. Such approvals are not required for private limited companies. The appointment of the directors of respondent No. 1 has also been in consonance with section 257 of the said Act, which is not applicable to private companies. It is pertinent to note that even appellant No. 2 has followed the provisions of section 257 of the said Act whilst nominating ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ondent No. 1 under Article 57 of the Articles of Association. ( b )In view of what is stated above, the Appellants are estopped from denying that respondent No. 1 is a public limited company and from contending that Article 57 has any effect or is binding as alleged; ( c )Further and in any event, it was submitted that as a result of transfers applied for by appellant No. 2, the strength of members of respondent No. 1 has increased to 54, which is inconsistent with respondent No. 1 being a private limited company." 72. Thereafter, it is alleged that there is no cause of action for filing the petition. How the petition is barred by virtue of Order XXIII Rule 1 of C.P.C., read with Rule 88(2) of Company Court Rules, 1959 and principles outlined thereunder is mentioned. Thereafter it is stated that the petition is barred by res judicata . In any event, therefore, it is argued that the petition should be dismissed because there is suppression of material facts. The Appellants are, therefore, not entitled to any relief. Their conduct has been highlighted and then it is stated thus:- "( a )On 13th February, 1990 the appellants along with five others (Kavasmaneck/ Rebello group ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aid petition dated February 1991 and 3rd February, 2005 in reply to Company Petition No. 77 of 1990 which are incorporated as a part of this affidavit and I adopt, reiterate and affirm what is stated therein as a part of this my affidavit as a reply to each and every allegations including instances of alleged oppression and mismanagement raised in the present petition. ( c )I say that the present petitioners, especially petitioner No. 2 herein has/have contested the petition and have filed several company applications starting with Company Application No. 41 of 1990 and the last being Company Application No. 403 of 2005. By the last Company Application taken out on 18th March, 2005, the petitioners inter alia sought to further amend the petition further to incorporate the following issues which also find mention in the present petition:- ( i )Status of the said Company ( ii )Dividend issue ( iii )Donations ( iv )Remuneration of respondent No. 2 ( v )Tenancy Compensation ( d )I say that respondent No. 1 has filed an affidavit in reply of Mr. J.P. Somaiya, erstwhile Director of Respondent No. 1 dated 13th July, 2005 to the last amendment application filed by petitione ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e said suit when produced. ( j )As stated hereinabove, on 18th March, 2005 the petitioners came to file Company Application (L) No. 327 of 2005 which was subsequently numbered as C.A. 403 of 2005. The Hon'ble High Court, Bombay vide its order dated 16th June, 2005 inter alia directed the petition to be listed for hearing on 14th July, 2005. I crave leave to refer to the said amendment application when produced. ( k )In the affidavit of Mr. J.P. Somaniya dated 13th July, 2005 filed on behalf of respondent No. 1 it disclosed the contemptuous conduct of the petitioners, inter alia , setting out the contents of the said MOU dated 3rd June, 1992 and the fact that the same had been suppressed from respondent No. 1 and had infact used the said earlier company petition as a subterfuge and to acquire shares for and on behalf of Godrej. Petitioner No. 2 in his affidavit in rejoinder dated 3rd August, 2005 categorically stated "The amendment in paragraph 1 only seeks to correctly describe the status of respondent No. 1 and nothing more." I crave leave to refer to the said affidavit when produced. ( l )By its order dated 4th August, 2005 the Hon'ble Bombay High Court, inter alia , ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dismissed. Although it was stated that this was a reply to the interim application, but, there are detailed affidavits not only of respondent No. 1 but of respondent No. 2 also. 74. There are then rejoinders filed by Darius R. Kavasmaneck and there is also an affidavit filed in reply by respondent No. 2 dated 24-2-2010. 75. It is on this material that the company petition was placed before CLB and heard accordingly. The CLB firstly held that the first respondent is a public company. Once it is held to be a public company, then, its shares are freely transferable and the issue was to whether any pre-emption clause/article restraining transferability of shares in public company is valid. The Board held that the Article 57 does contain such restriction but, the Board relying upon a judgment of this Court in the case of Western Maharashtra Development Corpn. Ltd. v. Bajaj Auto Ltd. [2010] 154 Comp. Cas. 593/ 102 SCL 239 (Bom.) held that such an clause in the Articles of Association will not be applicable to 1st respondent company. Once it is held to be a public company, its shares are freely transferable and the Articles would not hold good as they are contrary to the stat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the consent of the other partners and forms the fundamental understanding on the basis on which the families got together to constitute and continue GCL. 81. It is further submitted that breach of Articles would be ultra vires and breach of the right of pre-emption constitutes an act of oppression. To that effect, taking away or cancelling a right of pre-emption will also amount to oppression and will be actionable. What cannot be done directly cannot be permitted to be done indirectly. The right of pre-emption is a vested right of a shareholder and cannot be taken away or cancelled without his consent. The power to amend articles cannot be used to oppress the minority and or take away their vested rights. 82. Further it is submitted by Mr. Samdani that the notice and explanatory statement dated 16-10-2010 are misleading and are not in conformity with section 173 of the Companies Act, 1956. The material facts of ( i ) the pendency of the Appeal No. 24 of 2010, ( ii ) the said appeal having been admitted, ( iii ) this Court having granted an injunction not to violate Article 57, ( iv ) the questions formulated have all been omitted-giving a totally misleading picture. It ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amount to oppression and will be actionable. 84. Mr. Samdani submits that if the judgment of the Company Law Board is perused carefully, it would be apparent that there is no finding rendered on sections 111A(1) read with section 111A(14), although a specific contention is raised by the appellants and which is recorded. The preemptive right is recognised. In these circumstances, the finding recorded is vitiated by non-application of mind. The conclusion that there cannot be any reversal of Status from public limited to private limited company and, therefore, Article 57 must yield and give way to section 111A of the Companies Act is not accurate, because assuming that if GCL is a public limited company it is a unlisted public company. The shares are not listed on the stock exchange. Such a company can always have a right of preemption. Upon this vital issue and question, no finding is rendered by the Board. There is no finding on question of oppression as well. Mr. Samdani submits that it is also to be borne in mind that the dispute is between family members. The principles of partnership apply to a family concern/company. It cannot also be forgotten that initial partnership an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... India [1977] 47 Comp. Cas. 92 (Bom.); 10. Debi Jhora Tea Co. Ltd. v. Barendra Krishna Bhowmick [1980] 50 Comp. Cas. 771 (Cal.); 11. Smt. Claude-Lila Parulekar v. Sakal Papers (P.) Ltd. [2005] 11 SCC 73/ 59 SCL 414 (SC); 12. Bhubaneshwar Singh v. Kanthal India Ltd. [1986] 59 Comp. Cas. 46 (Cal.); 13. Delhi Administration v. Gurdip Singh Uban [2000] 7 SCC 296; 14. Nevella Casady v. Modern Metal Spg. Mfrg. Co. (188) Cal. App. 2d 728; 15. Bechtold et al v. Coleman Realty Co. et al 367 Pa. 208, 79 A.2d 661; 16. Maltida P. Cowles v. Cowles Realty Co. 201 A.D. 460 194 N.Y.S. 546 17. Bajaj Auto Ltd.'s case ( supra ); 18. Messer Holdings Ltd. v. Shyam Madanmohan Ruia [2010] 98 CLA 325/ 104 SCL 293 /7 taxmann.com 57; 19. Smt. Nirmala v. Hari Singh AIR 2001 HP 1 20. Albert Judah Judah v. Rampada Gupta AIR 1959 Cal. 715/[1960] 30 Comp. Cas. 582 (Cal.); 21. Abdul Majid Kha v. Mahmudabi AIR (36) 1949 Nagpur 366; 22. N.R. Narayan Swamy v. B. Francis Jagan AIR 2001 SC 2469; 23. Satrucharla Vijaya Rama Raju v. Nimmaka Jaya Raju [2006] 1 SCC 212; 24. Tata Memorial Hospital v. Ayub Mohamed Ishaq Sheikh [2007] AIHC 899 (Bom.); ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e proceedings on 8-9-2005. Mr. Bobde invites my attention to Order XXIII of CPC and submits that this provision must be read into the Companies Act, 1956 and the Company Court Rules, 1959 and in that behalf relies upon Rules 6 and 88 of the said Rules. In these circumstances and when those petitioners who did not withdraw from proceedings gave up ground of mismanagement and confined their arguments to the ground of oppression alone, then all the more that issue now cannot be raised and agitated by the appellants. Mr. Bobde invites my attention to the findings of the learned Single Judge in the order dated 14-11-2008. 87. Mr. Bobde then submits that the main issue is about free transferability of shares. That issue, for being answered must necessarily require a finding and conclusion as to what is the Status of GCL i.e., Respondent No. 1. Mr. Bobde submits that this Court has held that as a result of special resolution moved in EOGM dated 5-5-2001 having been defeated, GCL has become a public limited company. Once it acquires that status the restriction on the right of transfer of shares applicable to a private limited company would not apply and it would be open to the presen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion is altered/enhanced is also illegal and violative of section 268 of the Companies Act, 1956." It is clear that section 268 applies only to public companies. Hence, the appellants herein had, in effect, admitted that the company is a public company. 90. It is submitted that the second event was that appellant No. 2 applied on 30-10-2001 for transfer of five shares held by him. The company registered the transfer on 31-12-2001 as a result of which the number of members became 54. Section 3(1)( iii )( b ) requires that a private company cannot have more than 50 members. Hence, on 31-12-2001, yet another requirement of the law for being a private company disappeared. 91. He further submitted that in the light of the above indisputable factual and legal position that the company was no more a private company which became a deemed public company under section 43A, after 13-12-2000 and this position being reinforced and made permanent from 5-5-2001 when the resolution to make the company a private company was defeated, sections 3(1)( iv ) and 111A(2) have operated with full force and made the shares of the respondent No. 1 public company freely transferable. 92. It is st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... les as a private company as provided in section 3(1)( iii ). This type of public company was not a truly public company for all purposes; it retained characteristics of a private company and did not fall under section 3(1)( iv ). The respondent company became a deemed public company when its turnover exceeded Rs. 1 crore. It applied to the Registrar of Companies who issued a certificate of incorporation with effect from 17-8-1988 which deleted the word "private" in the company's name as required by sub-section (2). 97. It is submitted that by the amendment of 2000, with effect from 13-12-2000, sub-section (2A) was inserted alongwith sub-section (11), sub-section 2A contemplates if such a public company 'becomes a private company on or after the commencement of the Companies (Amendment) Act, 2000, the company shall inform the Registrar and he shall substitute the words 'private company' for the words 'public company'. Sub-section (11) made inapplicable the entirety of section 43A except sub-section (2A) 'on and after the commencement of the Companies (Amendment) Act, 2000'. Thus, the third 'hybrid' category of deemed public companies under section 43A ceased to exist after 13-12 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Kuari 11 Ind. App. 37 (PC); 4. Jacob Cherian v. K.N. Cherian [1973] 43 Comp. Cas. 235 (Mad.); 5. Smt. Pushpa Katoch v. Manu Maharani Hotels Ltd. [2006] 131 Comp. Cas. 42 (Delhi); 6. Kinetic Engineering Ltd. v. Sadhana Gadia [1992] 74 Comp. Cas. 82 (CLB - WB); 7. Halsbury's Laws of England, 4th Edn. Reissue, Vol. 16(2) pp. 426-27; 8. Srikanta Datta Narasimharaja Wadiyar v. Sri Vekateswara Real Estate Enterprises (P.) Ltd. [1991] 72 Comp. Cas. 211 (Kar.); 9. Parma Nand v. Kalyan Dass AIR 1959 Punjab 610. 101. Mr. Subramaniam, learned Senior Counsel appearing for respondent No. 3 while adopting the submissions of Mr. Bobde, learned Senior Counsel, relied upon the Security Contracts Regulation Act, 1956 and omission of section 22A therefrom. He submits that the appellants should not be permitted to canvass the abovenoted submissions because the appellants have not advanced any argument on mismanagement except to urge that respondent No. 2 allegedly unjustly enriched himself. He submits that there is no act of oppression inasmuch as reliance is placed on newspaper reports and that cannot be termed as proof of act of oppression. He submits that the petiti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s Amendment Act of 2000. This resolution was not passed. This however would not alter GCL's basic and fundamental characteristic on the basis of which it was formed. Further, the amendment states that section 43A will apply "on and after" the year 2000. Therefore, it was submitted that the companies that had acquired such status prior thereto would continue to retain the same. 105. Assuming that this amendment is considered as repeal of section 43A, yet in the light of section 6 of General Clauses Act, 1897, such repeal would not disturb essential private character of the 1st respondent. Thus, the thrust of the submissions of the appellants is that the company incorporated as private company, if, by fiction of law is treated as public company it does not lose its character/fabric of a private company. In such circumstances the right of preemption provided by the Articles of Association of the 1st respondent would continue to hold the field. Once it continues to hold the field and there is no free transferability of shares of the 1st respondent, then, the attempt to defeat the pre-emptive rights by issuing notice dated 16-10-2010 cannot be countenanced in law. Therefore, such an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ied below : ( i )... ( ii )..... ( iii )"Private company" means a company which has a minimum paid up capital of one lakh rupees or such higher paid up capital as may be prescribed, and by its articles, ( a )restricts the right to transfer its shares, if any, ( b )limits the number of its members to fifty not including - ( i )persons who are in the employment of the company; and ( ii )persons who, having been formerly in the employment of the company, were members of the company while in that employment and have continued to be members after the employment ceased;" and ( c )prohibits any invitations to the public to subscribe for any shares in, or debentures of, the company; ( d )prohibits any invitation or acceptance of deposits from to persons other than its members, directors or their relatives: Provided that where two or more persons hold one or more shares in a company jointly, they shall, for the purposes of this definition, be treated as a single member; ( iv )"Public Company" means a company which ( a )is not a private company; ( b )has a minimum paid up capital of five lakh rupees or such higher paid up capital, as may be prescribed; ( c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (1C) Where, after the commencement of the Companies (Amendment) Act, 1988 a private company accepts, after an invitation is made by an advertisement, or renews, deposits from the public, other than its members, directors or their relatives, such private company shall, on and from the date on which such acceptance or renewal as the case may be, is first made after such commencement, become a public company and thereupon all the provisions of this section shall apply thereto: Provided that even after the private company has so become a public company, its articles of association may include provisions relating to the matters specified in clause ( iii ) of sub-section (1) of section 3 and the number of its members may be, or may at any time be, reduced below seven; Within three months from the date on which a private company becomes a public company by virtue of this section, the company shall inform the Registrar that it has become a public company as aforesaid, and thereupon the Registrar shall delete the word "Private" before the word "Limited" in the name of the company upon the register and shall also make the necessary alterations in the certificate of incorporation is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e public company in certain cases. This provision was inserted by Act 65 of 1960 with effect from 28-12-1960. Thereafter, there have been certain amendments inasmuch as by Act 91 of 1974 change was effected from 1-2-1975 and sub-section (1A) was inserted in section 43A. Thereafter, an Explanation below sub-section (1) of 43A came to be inserted and at the same time sub-section (1A) which was inserted in 1974 had to be amended. 112. By 1988 Act so also prior thereto by 1974 Act, sub-sections (1B) and (1C) were inserted in section 43A and in 2000 by Act 53 of 2000, with effect from 13-12-2000 sub-section (2A) was inserted. That dealt with the situation of a public company becoming a private company. In other words, this section permitted a private company to become a public company in certain cases and once the word private is deleted it becomes a public company. However, there was nothing which permitted such public company to again become private company and that is achieved by insertion of section 43(2A). Section 43A(11) which also was inserted by Act 53 of 2000 from 13-12-2000, clarified that nothing contained in section 43A, save and except sub-section 2A shall apply on an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... status from a public company to a private company. In other words if sub-clause ( d ) was inserted to provide for a prohibition against inviting or accepting deposits from persons other than the members of a private company, its Directors or their relatives in addition to the prohibition from inviting the public to subscribe for any shares or debentures of a private company, then, the demarcation and distinction ought to be clear and specific. If the broad definition of the term "public company" is that it means a company which is not a private company and further requires minimum paid up capital, but importantly the term "public company" also means a company which is a private company but is a subsidiary of company which is not a private company, then, this only shows that the Legislature wanted to include within the term "public company" a private company which is a subsidiary of a company which is not private. If the holding company is not a private company but its subsidiary is a private company such subsidiary also becomes a public company now. If all this is read together and seen as a whole, it becomes at once clear that the Legislature did not desire to continue any concept ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll not affect the underlying character of the first respondent as a family concern or glorified partnership. 116. Mr. Samdani is not right on both counts. The amendment to section 43A was brought into effect on 13-12-2000. The amendment to the Articles of Association was proposed and it was to be considered at a meeting held on 5-5-2001. That amendment was to alter the status of the company by insertion of sub-clause ( d ) in the Articles of Association. That amendment was not carried. Therefore, sub-section 11 of section 43A and the entire amendment of 2000 as far as section 43A is concerned, is operative and is applicable to respondent No. 1. The appellants and others proposed the change in the status of GCL after the amendment had come into force. In such circumstances, emphasis on the words "on and after" as appearing in section 43A(11) will not be of any assistance to the appellants. 117. In any event, as far as the principles of statutory interpretation are concerned, long back in a decision Bhagatram Sharma v. Union of India AIR 1988 SC 740 the Supreme Court held that it is a matter of legislative practice to provide, while enacting and amending a law, that an ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the company, send notice of the refusal to the transferee and the transferor or to the person giving intimation of such transmission, as the case may be giving reasons for such refusal. The transferer or transferee, or the person who gave intimation of the transmission by operation of law, as the case may be, may appeal to the Tribunal against any refusal of the company to register the transfer or transmission, or against any failure on its part within the period referred to in sub-section (1) either to register the transfer or transmission or to send notice of its refusal to register the same. (3) An appeal under sub-section (2) shall be made within two months of the receipt of the notice of such refusal or where no notice has been sent by the company, within four months from the date on which the instrument of transfer, or the intimation of transmission as the case may be, was delivered to the company. (4) If ( a )the name of any person - ( i )is, without sufficient cause, entered in the register of members of a company; or ( ii )after having been entered in the register, is, without sufficient cause, omitted therefrom; or ( b )default is made, or unnecessary ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ares or interest of a member in or debentures of, the company is transmitted by a sale thereof held by a court or other public authority, the provisions of sub-sections (4) to (7) shall apply as if the company were a public company; Provided that the tribunal may, in lieu of an order under sub-section (5) pass an order directing the company to register the transmission of the right unless any member or members of the company specified in the order acquire the right aforesaid within such time as may be allowed for the purpose by order, on payment to the purchaser of the price paid by him therefore or such other sum as the Tribunal may determine to be a reasonable compensation for the right in all the circumstances of the case (12) If default is made in complying with any of the provisions of this section, the company and every officer of the company who is in default, shall be punishable with fine which may extend to five hundred rupees for every day during which the default continues; (13) Nothing in this section and section 108, 109 or 110 shall prejudice any power of a private company under its articles to enforce the restrictions contained therein against the right to tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... standing anything to the contrary contained in the Articles of Association of such company. The over-riding effect given to the Act by section 9 cannot be ignored and brushed aside as desired by the appellants. Their alternate argument that assuming that GCL is public company, its shares being non-listed, there can be a right of preemption, is equally unsound and not tenable. There is no distinction made in the Act of this nature. That argument is canvassed only by relying on the definition of the term "listed public companies" appearing in section 2(23A). The definition itself clarifies that a public company which has any of its securities listed in any of the recognised stock exchange will be termed as listed public company. Nonetheless it remains a public company and merely because its shares are not listed in any recognised stock exchange does not mean that there is any restriction on their transfer. They are and continue to be freely transferable as they are shares of a public company. The broad distinction as noticed above, between the term 'Private" and "Public" company, is enough to turn down this alternate argument. 122. Considerable time was taken by the Counsel to po ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of management of the defendant No. 4. In other words, it is the Goyal Group who is in control of the defendant No. 4 company. The circular transactions have been graphically explained by a pictorial sketch at Exhibit A to the written submissions filed on behalf of defendant no. 1. In view of the stand taken by the defendant No. 1 on affidavit, there is no manner of doubt that the defendant No. 4 was never intended to be and cannot be treated as Hoechst Group Company. If so, transfer of disputed shares in favour of defendant No. 4 would be clearly in breach of clause 6.1 of the said SPA dated 23rd June, 1997. (45) Besides the quantum of shares held by the subsidiary company of defendant No. 3, as per the arrangement agreed between defendant No. 3 and defendant No. 1, the nominee of Goyal Group would be in the control of management of defendant No. 4 company. That arrangement is also indicative of the fact that it is the Goyal Group who is in complete control of defendant No. 4 company. If it were to be otherwise, there is no reason why defendant No. 4 should toe the line of defendant No. 3 and resist grant of any relief to the plaintiffs. Moreso when the defendant No. 1 has ente ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (47) We shall first refer to the decision in the case of Western Maharashtra Development Corpn. ( supra ). In that case, the parties had incorporated clause 7 in the Protocol Agreement which provided that right of pre-emption is created between the petitioner and the respondent in the event that either of them seeks to part with or transfer its shareholding in the joint venture company formed by them. In view of certain disputes the matter was referred to the Arbitrator. The contention was that clause 7 of the Protocol Agreement provides for right of preemption. That was against section 111A of the Companies Act. For, the joint venture being a public company, the shares or debentures of such a company and any interest therein ought to be freely transferable. The decisions of the Apex Court both in the case of Rangaraj and Madhusoodhanan ( supra ) have been considered. The Learned Single Judge of this Court has taken the view that the dictum in the said decisions were of no avail as the case on hand was in relation to a public company. It is held that in case of public company, section 111A provides that the shares or debentures and any interest therein of the company shall b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he law provides for free transferability. It is thus held that free transferability of shares is the norm in the case of shares in a public company. The Learned Single Judge has then held that provision contained in the law for the free transferability of shares in a public company is founded on the principle that the members of the public/every shareholder must have the freedom to purchase and every shareholder the freedom to transfer. We would think it apposite to reproduce the relevant extract of the opinion of the Learned Single Judge in support of this conclusion that clause 7 (which is similar to clause 6.1 of the SPA) is void. The same read thus : "60. ... A situation involving the restriction on the transferability of shares in a private Company has to be contrasted with cases involving public Companies where the law provides for free transferability. Free transferability of shares is the norm in the case of shares in a public Company. 61. The provision contained in the law for the free transferability of shares in a public Company is founded on the principle that members of the public must have the freedom to purchase and, every shareholder, the freedom to transfer. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tter in any resolution of the Company in general meeting or of its Board of Directors. A provision contained in the Memorandum, Articles, Agreement or Resolution is to the extent to which it is repugnant to the provisions of the Act, regarded as void. 65. Counsel appearing on behalf of the Respondent submitted that section 111A has no application to contracts for the transfer of particular shares between particular shareholders when incorporated in the Articles of Association. The submission is that restrictions which bind third parties are bad. Section 111A was intended to curb the power of the Board of Directors to obstruct transfers and clearer words would be required to destabilize bargains which are the heart of commerce. 66. The submission that section 111A would not interdict "an agreement between particular shareholders relating to the transfer of specified shares" is based on the judgment of the Supreme Court in Madhusoodhanan ( supra ). In that case, as already noted earlier, the Supreme Court noted that the Karar was an agreement between "particular shareholders relating to the transfer of the specified shares". What is significant is that the Company in that case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the case of Western Maharashtra Development Corporation Ltd. ( supra ) does not lay down the correct law. For, it is founded on misreading of the Judgment of the Apex Court in Madhusoodhanan's case ( supra ). According to the plaintiffs, the Apex Court in Madhusoodhanan's case has distinguished the dictum in Rangaraj's case on the finding that in Rangaraj's case there was a blanket restriction on all the shareholders present and future. Therefore, in that case the Court held that agreement imposed a restriction on shareholders right to transfer shares present as well as future. Whereas, in Madhusoodhanan's case, the Supreme Court pointed out that, in agreement between particular shareholders relating to the transfer of specified shares did not impose a restriction on the transferability of shares and it was unnecessary for the company or any other shareholders to be a party to the agreement. It is contended that this crucial distinction drawn by the Apex Court in Madhusoodhanan's case has been glossed over by the Learned Single Judge of this Court. In other words, an agreement by a particular shareholder or between two shareholders relating only to their own shares ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Companies Act, 1956 was introduced, which declares the shares of a company to be freely transferable. Section 111A(3) simultaneously restricted the right of a company to seek rectification of a transfer of shares, only on specified grounds. Our attention was also invited to clause-14 of the notes on clauses of the Companies Amendment Bill, 2001. In addition, reliance was placed on the decision of the Apex Court in that case of Dove Investments (P.) Ltd. v. Gujarat Industrial Investment Corpn. (2006) 2 SCC 619 wherein the Apex Court has held that the company may refuse to register shares for various reasons. In that case, the shares were freely transferable. It was held that refusal for transfer of such shares can be made only on limited grounds such as section 22A(3) of the Securities Contracts (Regulation) Act, 1956. According to the plaintiffs when a shareholder deals with a share or enters upon a contract to pledge, sale or principle of first refusal, he does so in exercise of his right of free transferability of shares. He does that in the same manner as in the case of any other movable or immovable property in India which is also freely transferable. That right would ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lief in respect of a transfer/transmission of shares in public or private company. They could apply for rectification of register of members under section 155. With effect from January 17, 1986, section 22A was inserted in the Securities Contracts (Regulation) Act, 1956. It provided that the shares of the registered company to be freely transferable. However, the company could refuse transfer only on four specified grounds. The said provision was introduced in the backdrop of series of complaints regarding arbitrary powers exercised by the Board of Directors in refusing or non-consideration of request for transfer/transmission of shares in favour of the transferee. It thus follows that the provision of section 22A of the Act of the Securities Contracts (Regulation) Act 1956 was intended to regulate the right of the Board of Directors of the company to refuse transfer of members shares. That was not a provision to restrict the right of shareholders to deal with their shares or to enter into consensual arrangement/arrangement regarding their shares (by way of pledge, pre-emption, sale or otherwise). Suffice it to observe that the intention behind introducing section 22A in 1986 was t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l be entitled to voting rights unless the voting rights have been suspended by an order of the Company Law Board. (6) Notwithstanding anything contained in this section, any further transfer, during the pendency of the application with the Company Law Board, of shares or debentures shall entitle the transferee to voting rights unless the voting rights in respect of such transferee have also been suspended. (7) The provisions of sub-sections (5), (7), (9), (10) and (12) of section 111 shall, so far as may be, apply to the proceedings before the Company Law Board under this section as they apply to the proceedings under that section." Even the sweep of section 111A is the same as section 22A of the Securities Contracts Act. In that, it is a provision regarding rectification of register on transfer. Sub-section (2) opens with the expression "subject to the provisions of this section". In other words, it is a provision restating that the shares or debentures and any interest therein of a company shall be freely transferable subject, however, to the stipulation provided in the other part of section 111A of the Act. The proviso to sub-section (2) reinforces the position that section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f first purchase (pre-emption) at the prevailing market price at the relevant time. So long as the member agrees to pay such prevailing market price and abides by other stipulations in the Act, Rules and Articles of Association there can be no violation. For the sake of free transferability both the seller and purchaser must agree to the terms of sale. Freedom to purchase cannot mean obligation on the shareholder to sell his shares. The shareholder has freedom to transfer his shares on terms defined by him, such as right of first refusal, provided the terms are consistent with other regulations including to repurchase the shares at the prevailing market price when such offer is made. The fact that shares of public company can be subscribed and there is no prohibition for invitation to the public to subscribe to shares, unlike in the case of private company, does not whittle down the right of the shareholder of a public company to arrive at consensual agreement which is otherwise in conformity with the extant regulations and the governing laws. 52. In the case of Madhusoodhanan ( supra ) no doubt the Apex Court was dealing with the case of a private company. However, at the same ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al agreements between particular shareholders relating to their specific shares do not impose restriction on the transferability of shares. Further, such consensual agreements between particular shareholders relating to their shares can be enforced like any other agreements. It is not required to be embodied in the Articles of Association. 54. We shall now turn to the opinion of the Learned Single Judge in the case of Western Maharashtra Development Corporation Ltd. ( supra ). The Learned Single Judge after adverting to the Supreme Court decision in Madhusoodhanan's case in the first place noted that the said case dealt with a private company. In case of private companies, the Articles of Association restrict shareholders' right to transfer the shares and prohibit invitation to the public to subscribe shares or debentures of the company. He has held that the scheme relating to transfer of shares of a private company and in contradistinction a public company, is different. The Learned Single Judge went only by the expression "freely transferable" occurring in section 111A(2) of the Act. It is held that principle of free transferability must be given a broad dimension in order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s an agreement between particular shareholders relating to the transfer of the specified shares. It is noted that in that case the company was a private company and restriction on the right of the shareholders to transfer shares and prohibit invitation to the public to subscribe for shares and debentures of the company is materially different. The main thrust is that in case of public company there can be no restriction whatsoever and if any other argument was to be accepted, it would mean that section 111A is being read as being subject to a contract to the contrary. The notification dated June 27, 1961 has been discarded on the opinion that, that cannot have any bearing in relation to section 111A of the Companies Act as it is issued in exercise of powers under Depositories Act, 1996. With utmost humility at our command, we do not agree with this reasoning of the Learned Single Judge in the case of WMD Corporation Ltd. ( supra ) for the reasons recorded hitherto." 124. Mr. Bobde, learned senior counsel appearing for respondent No. 2 and Mr. Sen appearing for respondent Nos. 1, 4 and 5 urge that any wider question or controversy need not be gone into because the essential di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the definition of the term "private company" as appearing in the Companies Act, 1956, the character and nature of such a company is never lost upon it becoming a public company or losing its status and identity as a private company. He has relied upon the requirements that are stipulated in the Articles of Association of a private company in this behalf. 126. On the other hand, Mr. Bobde, learned Senior Counsel has emphasised that there can be only two categories of companies, a public company and private company. I have in the foregoing paragraphs dealt with this aspect in great details and accepted Mr. Bobde's arguments that there cannot be any third category viz., "deemed public company". The arguments of Mr. Bobde are accepted because on noticing the amendments made to the Companies Act, 1956 and particularly in the year 2000, the third category as projected (deemed public company), cannot be carved out or if existing earlier, cannot be held to be continuing any further. The arguments of Mr. Samdani that despite this amendment, the character and fabric of GCL is not altered or changed and it remains a glorified partnership or a private company or a family concern, essenti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... smiss the same. While dealing with self same allegations, the learned Single Judge has observed thus : "49. On the other hand, the respondents have not only denied material grounds and would submit that proper compliance has been observed. In addition, the respondents would contend that the petitioners should be non-suited for having approached this Court with unclean hands. In that the fact that the petitioners have already entered into a memorandum of understanding with Godrej Soaps Ltd., to acquire shares in respondent No. 1 company was kept a secret arrangement till it became known for the first time to the respondent in February 2005. It is common ground that even the present petitioners are signatories to the said memorandum of understanding. In fact, even the present petitioners have sold 27 and 66 shares respectively to Godrej Soaps Ltd., without following the regime of Article 57. On the one hand, the petitioners were questioning the intention of the 2nd respondent but at the same time, the petitioners were themselves indulging in act which was not only illegal but against the interests of the company. According to the respondents, the petitioners group was bent upon se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also out of necessity. Even the explanation offered by the respondent company to increase the authorised capital of the company can, by no standards, be said to be oppression against the minority shareholders. No tangible material has been produced to substantiate that position. Even the amendments suggested to the AOA were not to favour only the majority shareholders but would apply across the board and every member would be benefited by the said amendment. The controversy regarding deletion of Article 123 as raised is also without any substance. Besides, it is common ground that the company has now become a public limited company. Even on account of this change, it has become redundant to entertain the grievance of the present petitioners in relation to the issues concerning extraordinary general meeting dated 15th February, 1990. More so, when the stand taken by the present petitioners at the time of arguments plainly suggests that they are interested in walking out of the company and sell their shares at a fair price." 129. In the earlier part of his judgment in para 47 the learned Judge has dealt with the argument regarding declaration of low dividend and found no substan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have already referred to and dealt with. Suffice it to note that in the latest decision of the Supreme Court in the case of V.S. Krishnan ( supra ) the Supreme Court has held that whether an Act is oppressive or not is fundamentally and basically a question of fact. Its answer must depend upon circumstances in each case. However, the broad tests have been indicated by the Hon'ble Supreme Court and they have been summarised in para 14 of this decision. 133. After carefully perusing this paragraph and earlier authorities, I am of the view that the judgment rendered by the Hon'ble Single Judge, Justice A.M. Khanwilkar, J., dated 14-11-2008 in Company Petition No. 77 of 1990 applies to the appellants as well. I have indicated the reasons for this conclusion in the foregoing paragraphs. Therefore, it is not necessary for me to decide any wider controversy and particularly whether the judgment of the learned Single Judge (Khanwilkar, J) could be said to be a judgment in rem and or whether the Civil Procedure Code and particularly Order XXIII of the same applies to the present proceedings or not. The submission of Mr. Samdani is that this judgment cannot be a judgment in rem . A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... giving preferential or preemptive rights as claimed by the appellants. However, upon the status of the company, undergoing a change as noted above, this clause could not have been invoked. 135. It is in the light of this view that I have not entered into the controversy as to whether the view taken by the learned Single Judge in WMDC Ltd.'s case ( supra ) is correct and whether the overruling of that view by the Division Bench was called for at all. I have carefully perused both judgments with the able assistance of Mr. Samdani and Mr. Bobde. In WMDC Ltd.'s case ( supra ), the challenge was to an arbitration award rendered by a sole arbitrator. The arbitration covered a dispute between two public companies. The WMDC, a Government of Maharashtra undertaking held 27 per cent of shares of Maharashtra Scooters Ltd. (MSL), a public limited company whereas the respondent - Bajaj Auto held 24 per cent shares. The balance 49 per cent is held by public. The dispute as noted by the learned Single Judge between the parties was whether clause 7 of the agreement could form a valid basis for the conclusion of the arbitrator or not. The learned Judge held that the shares in question are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd complete reading of this para would reveal that the Division Bench proceeded to reverse the view taken by the learned Single Judge essentially because of the conclusion reached by it and noted above. Additionally, it reversed it because an agreement of preemption even if willingly and consensually entered into by a shareholder and third party or between shareholders, imposes a restriction on the free transferability of shares. Before me reliance is placed only on article 57 of the articles of Association of GCL when it was a private company and the wording thereof to urge that the respondent No. 2 cannot transfer the shareholding to any third party and the shares must be first offered to the appellants in terms of this Article. Whether this article and the right of preemption recognised therein is itself applicable after the status of the company has been altered and changed is the only issue before me. Therefore, the controversy with regard to the judgment rendered by the learned Single Judge in WMDC Ltd.'s case ( supra ) and whether it is rightly over-ruled or not cannot be taken note of in the peculiar facts of this case. However, it must be immediately noted that the Agre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pearing on behalf of the appellants submits that there is an interim order which is made by this Court in Company Application No. 25 of 2010 which has been in force from 11-12-2009. That order has been continued on 28-6-2010 by learned Single Judge of this Court. Therefore, the interim order in terms of prayer clause ( iii ) be continued till the appellants impugn this order in Appeal. His request is that the order may be continued for a reasonable period so as to enable the appellants to adopt appropriate proceedings. 141. This request is opposed by Mr. Sen who appears for respondent Nos. 1, 5 and 6 and Mr. Tulzapurkar and Mr. Subramanian, learned Senior Counsel appearing for respondent Nos. 2 and 3. 142. After having heard the learned Counsel at some length on this issue, I am of the opinion that interest of justice will be served if this interim order in terms of prayer clause ( iii ), is continued for a period of six weeks from today, save and except, the bracketed portion. The grant and continuation of interim order is without prejudice to the rights and contentions of all parties. The prayer clause ( iii ) after deleting bracketing portion reads as under : "( iii ) ..... X X X X Extracts X X X X X X X X Extracts X X X X
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