TMI Blog2002 (2) TMI 1317X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the life time of Shri R.C. Oswal (who expired on 6-1-1998), the petitioner became the Managing Director of Vardhman, while the fourth respondent was the MD/Execu-tive Director of other companies. He was also the Chairman of the company. Shri R.C. Oswal left behind a will dated 2-4-1996 in which it has been stated that an understanding had been reached between him and his two sons that the ownership and control of the Vardhman shall be with the petitioner and the ownership and control of the other two companies shall be with the first respondent. In addition to the three manufacturing companies, the group has a number of investment companies, of which the respondent-company is one. It holds about 26.2 per cent shares in Vardhman. Originally, there were only two directors in the company, viz-, the petitioner and his wife. On 13-12-1997, the third and fourth respondents were appointed as additional directors. The capital clause of the memorandum was altered in an EOGM on 31-1-1998 by which the mix of equity and preference shares were altered. The equity was enhanced from 10,000 shares of ₹ 10 each to 50,000 shares of ₹ 10 each, while the preference was reduced from 48,0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Vardhman, the fourth respondent withdrew the proposal. However, when he mooted the same proposal again on 11-8-2001, the petitioner suspected some foul play and, accordingly, took an inspection of the records of the registrar of companies from which he found that Form No. 2 indicating allotment of 10,000 shares in the company, in a Board meeting held on 6-2-1998, had been filed. Of these 10,000 shares, 1,000 shares were reportedly allotted to the second respondent who is the wife of the fourth respondent and 9,000 shares to the third respondent who is his daughter. The petitioner was never aware of any such Board meeting. The petitioner never had the opportunity of knowing that the share capital had been increased since he did not sign any annual report after 1998. Even though the petitioner signed the annual report as on 21-9-1998, he had not signed any of the enclosures to the same. In the enclosure indicating the details of shares held on that date, there are manipulations which should have been carried out after the petitioner had signed the annual report. While the complete format is computer printed, the date of the meeting is written by hand. As against 10 shares shown again ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en no Board meeting between 31-1-1998 and 6-2-1998 for the Board to take a decision to make offers to the shareholders. Even otherwise, the petitioner never received any notice for the Board meeting on 6-2-1998. Further, when the father expired on 6-1-1998, there could have been no meeting on 8-1-1998, i.e., within two days to hold a Board meeting to decide alteration in the authorized capital of the company. The minutes of this meeting in which the presence of the petitioner and his wife is noted is nothing but a fabricated document (Annexure R-10). Further, in the EOGM held on 31-1-1998, there were no resolutions to allot 10,000 shares nor there was any proposal to allot the shares on a preferential/private placement basis. Even Form No. 32 was signed only by the fourth respondent, even though as per the alleged Board resolution, the petitioner had also been authorized to do so. From this time onwards, all subsequent documents were signed by the fourth respondent only and the petitioner had not signed any document including the balance sheet. Even though, the respondents contend, on the basis of copies of attendance sheets, wherein the signatures of the petitioner are found that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase, considering the facts of the case that no one would hand over the control of a company on a platter, the CLB declined to accept the veracity of attendance of a director simply on the basis of his signature in the attendance register. In Manu Property case, applying the rule of probability, the CLB held that the petitioner therein could not have attended various Board meetings allegedly attended by him. Likewise, this Board has held in Tinplate case also. In Hathimal Pincha v. Kettela Tea Co. (P.) Ltd. [CL No. 17 of 1996] case, this Board has held that when share capital is raised Without any need for funds and if the issue creates a new majority, the same is an act of oppression. In R.N. Jalan v. Deccan Enterprises (P.) Ltd. [1992] 75 Comp. Cas. 417 (AP) and Gtuco Series (P.) Ltd., In re [1987] 61 Comp. Cas. 223 (Cal), the Courts have held that conversion of a majority into a minority is an act of oppression. Since such a conversion has continuous effect, the oppression continues even on the date of filing of the petition, as held in Tea Brokers (P.) Ltd. v. Hemmendra Prosad Barooah [1998] 5 CLJ 463. Therefore, considering the facts of the case that the main motive for issue o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... signed by the fourth respondent in his capacity as a director. Therefore, there are no minutes before this Bench which could be considered to be valid in law and as such should be ignored in addition to all being fabricated. Further, even though the respondents contend that in a Board meeting held on 31-1-1998, a decision was taken to allot shares, yet, the minutes of this meeting have not been disclosed and there are no details as to how was decided to make offers and to whom. Further, no details have been furnished as to when the allottees had applied for these shares and how the consideration was paid. It is also to be noted that there is a difference in the date of Form No. 2 which is dated as 4-3-1998, while the covering letter addressed to ROC is dated as 16-2-1998 (Annexure R-8). This would indicate that documents are fabricated. Therefore, even the allotment of shares had not been conclusively established and the documents have been fabricated only to show as if the allotment had taken place. Even if the actual allotment had taken place, it is highly oppressive to his client as this allotment has reduced his client's shareholding from 31 per cent to 15 per cent. Theref ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the bank. The meeting on 6-2-1998 was held exclusively for the purpose of allotting the shares and this meeting was also attended by the petitioner and his wife as is evident from the fact that both of them have signed the attendance register. One significant aspect to be noted is that on 2-2-1998, the sum of ₹ 1 lakh was deposited in the bank account of the company on which date the company had a balance of only ₹ 29,490. On 4-2-1998, the petitioner issued a cheque for ₹ 50,000 and encashed the same on 6-2-1998. But for his knowledge that the money had come from the respondents towards the equity shares, he could not have issued the cheque for this amount. 11. The learned counsel further submitted : The allegation of the petitioner that he was not aware of the allotment of shares is absolutely false. The annual return made as on 21 -9-1998 was signed by him and his claim that the Annexures to the annual report were fabricated can also not be accepted. Even the main annual report indicates the increase in the paid up capital and also the percentage holding of body corporate and directors. That is the reason why the petitioner, in the petition, has not filed th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... companies, it was decided in consultation with the first petitioner that the composition of the share capital of the company would be changed and, accordingly, the memorandum was altered. On this understanding, it was decided that the fourth respondent would have control of the company by allotment of 10,000 shares. As a package deal, the fourth respondent invested about ₹ 5.41 crores towards preference shares through his finance companies, while the petitioner subscribed about ₹ 1.72 crores towards the preference shares. Therefore, it is wrong to say that the fourth respondent had taken over the company with a mere investment of ₹ 1 lakh. If it is the contention of the petitioner that he had never seen the balance sheets from 1997-98 to 1999-2000 to claim that he was not aware of the increase in the share capital, then he cannot claim that he was in control of the company. Further, he claimed that he came to know of the increase in the capital only on inspection of the ROC records in May 2001, and he never complained of the same till he wrote a letter to the company on 23-8-2001, on the same day when this petition was filed. 14. As far as the allegations relat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that case, the Court of Appeal held that in case of a package deal of issue of shares and debentures made for the benefit of the company, issue of shares alone cannot be looked into in isolation. Further, this challenge has been made on the ground that the control of Vardhman has been taken over by the fourth respondent. The affairs of the two companies are different and this Board has held in Shankar Sundram v. Amalgamations Ltd. [2001] 2 CLJ 176 that in a petition against the holding company, the affairs of a subsidiary cannot be considered. In the present case, even the relationship of holding and subsidiary companies does not exist. Since it has been fully established that the petitioner was a party to the allotment of 10,000 shares, he is estopped from challenging the same as held in Maharani Yogeshwari Kumari v. Lake Shore Palace Hotel (P.) Ltd. [1995] 3 CLJ 418. The petitioner has claimed that he had signed the annual report without referring to the Annexures. In Saunders v. Anglia Building Society[1970] 3 AER 961, it has been held that carelessness on the part of the person signing a document would preclude him from later pleading non est factum on the principle that no man ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the violation of Section 193 in regard to minutes book is concerned, keeping minutes book in loose leaf form is permitted and the only provision is that they should be got bound every six months. The CLB has held in VLS Finance Ltd. v. Sunair Hotels Ltd. [2001] 4 CLJ 321 that a party to a decision cannot complain of the same later and that conduct of the parties is relevant in a proceeding under Section 397/398. Since the petitioner was a party to the allotment of 10000 shares, he cannot complain of the same and seek relief and as such this petition should be dismissed or else to put an end to the disputes, the shares held by the company in Vardhman may be divided in the ratio of 68 and 32 between the petitioner and the fourth respondent as these shares are the only property of the company with the stipulation that the petitioner should take over the liabilities of the company and also release the fourth respondent of all his personal guarantees. Such a relief was granted by the CLB in James Fedrick v. Minnie R. Fedrick [2000] 36 CLA 371. 17. Shri Choudhary in rejoinder submitted : Probity means honesty, integrity and fairness. Even in respect of lawful acts, if the same lack pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... group does not mean that he had handed over the company to them. At that point of time, the petitioner was controlling 68 per cent in the company and, therefore, the appointment of these directors was never a threat to him. But these directors in breach of their fiduciary duties have issued shares to themselves. If there was any bona fide need of funds, the petitioner should also have been allotted proportionate shares as was done in the case of preference shares. It is crystal clear that the respondents got 10,000 shares allotted to them only with a view to gain control of the company. The only evidence produced by the respondents about the attendance of the petitioner is his signatures in the attendance register which was signed by the petitioner in good faith. If the petitioner had consented to the allotment of shares, there was no reason why the respondents did not take his signature on the balance sheet for the year ended 31-3-1998. They did not do so only with a view of hide the fact of the allotment of shares from the petitioner. If the petitioner had been present in the meeting, he would have definitely protested as it would affect his interest. When he came to know of his ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... opinion of the handwriting expert should be taken. 23. We have considered the pleadings and arguments of the counsel. At the out set, it may be mentioned that this Bench tried to resolve the disputes amicably not only in relation to this company but also of Vardhman by interacting with the petitioner and the fourth respondent. Even though, both of them were inclined to settle the disputes amicably, yet, they could not arrive at mutually acceptable terms of settlement. Thus, the efforts of amicable settlement failed. 24. The petition contains certain allegations in regard to the affairs of Vardhman on which extensive arguments took palace. Since all these allegations have been covered in CP 48 of 2001 and since they are not relevant in adjudicating the allegations in the present petition, we are not dealing with the same in this order. First we shall deal with the issue as to whether the complaint on allotment of 10,000 shares is time-barred and whether such a single act could give cause of action to file this petition. Since the complaint of the petitioner is that his group has been converted from a majority to a minority by the allotment of these shares, the same will have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es of any private company, Article 6 provides for absolute discretion with the Board in regard to allotment of shares. Further, the second petitioner is a company under the control of the first petitioner and he seems to be representing that company in the general meetings as is evident from his signature in the attendance register for the EOGM held on 31-1-1998. Therefore, wherever findings are given on his allegations, the same will apply to the second petitioner also. Shri Sawhncy also alleged that none of the minutes could be considered to be valid as they do not comply with the provisions of Sections 193, 194 and 195. We agree with the submissions of Shri Sarkar in this regard as recorder in paragraph 16 ante. Further, we also note that it is not the case of the petitioner that the respondents had started a different practice in maintaining and signing of minutes book than what was in vogue when the Board consisted of only the petitioner and his wife. 27. The complaint of the petitioner is that his group has been reduced from a majority to a minority by allotment of 10,000 shares. According to the respondent, the petitioners' group was not in majority since the fourth r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... whether the majority was converted into a minority, etc., become irrelevant as also the cases cited by the learned counsel in this regard, viz., Hathimal Pincha's case (supra) R.N. Jalan's case (supra) Gluco Series Private Limited case (supra). Since, the respondents claim that the allotment was made with the consent and knowledge of the petitioner, we have to only examine, in view of the denial of the petitioner, as to whether the circumstances establish that the allotment had been done with the knowledge and consent of the petitioner. 29. A lot of arguments took place as to whether a meeting of the board of directors could have been held on 8-1-1998, i.e,, within two days of the demise of Shri R.C. Oswal. Normally, when the head of the promoters group expires, the Boards of the companies with which he was associated, meet and pass a condolence resolution. In the present case, we find from the minutes of the meeting on 8-1-1998, that such a resolution had been passed. In case there had been no such meeting on that day, noting has been produced before us that in any subsequent meeting, such a resolution had been passed. Therefore, we do not doubt the holding of that mee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... corroborated by the blank statement, the credit balance of the company in the bank on 1-2-1998 was only about ₹ 30,000 and the petitioner has issued a cheque for ₹ 50,000 on 4-2-1998. But for this amount of ₹ 1 lakh remitted by the respondent on 2-2-1998, there would not have been sufficient credit in that account for issue of a cheque for ₹ 50,000 on 4-2-1998. When a person, that too, a director, signed a cheque, he should have verified the balance available in the bank account and should have known about the source of the immediate previous credit, especially when without such a credit, there would not have been sufficient balance to cover the amount of the cheque. It would indicate that the petitioner was aware that the money had come from the respondents. When he knew that the money had come from the respondents, he would have also been aware of the purpose of the remittance. Therefore, the knowledge of the petitioner regarding the allotment cannot be ruled out, especially when the stand of the respondents of this issue has not been countered by the petitioner. Further, Shri Mookerjee rightly pointed out that there was no reason to change the mix of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inion was produced at the fag end of the hearings, that too, after the learned counsel for the respondents had cited the cases on non est factum . As far as his allegation that the Annexures had been signed only by the fourth respondent, we find that the Annexures to the . annual reports as on 28-9-1996 and 12-9-1997 had also been signed only by one director even though the main reports had been signed by two directors. Further, being a director, he must have been aware that the annual report has to reflect the status of the company as on the date of ihe annual general meeting. It is on record that the petitioner had signed the annual report as on 21-9-1998, being the date of the AGM. As per law, it is in the AGMs, that accounts are adopted by the general body. Even though he has alleged that he had not signed the annual accounts, we are sure, he would not have signed the annual report if no AGM had been held on that day in which the annual accounts should also have been adopted. The balance sheet as on 31-3-1998 indicates the paid up equity capital as ₹ 1,79,950 comprised in 17,995 shares. Therefore, it is difficult for us to believe that the petitioner came to know of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be as claimed by him, he had complete faith and confidence in the fourth respondent and as such he never took the pain to look into the affairs of the company, yet, it would not establish that he has been completely excluded from the affairs of the company and if at all he had been excluded, it must have been at his own will. 34. On an overall assessment of the facts of this case, more particularly the appointment of the third and fourth respondents as directors of the company during the lifetime of the father, the silence of the petitioner for nearly 3 years in challenging the allotment of shares, even though the circumstances establish that he must have known of the same much earlier, his contribution of funds of over ₹ 1.5 crores for subscription towards preference shares, a substantial portion of which was made in August 1999, etc., it appears to us that there is substance in the contention of the fourth respondent that the petitioner willingly allowed the allotment of 10,000 shares to the respondents' group. In spite of this, from his filing of this petition challenging, the allotment and the circumstances under which this petition has been filed, we get a distin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the respondents, yet, in facts of this family company, equitable consideration will have to over weigh legal considerations. In facts of this case, that the company is a family company with two brothers, equity demands that the control of the company should go to the petitioner, which proposition is not opposed by the respondents also as revealed during the hearing. The only stipulation by the respondents for handing over the control of the company to the petitioner is that, the shares of Vardhman held by the company should be divided between the petitioner and the fourth respondent in the ratio of 68:32. We would have supported this view, as this Board had done in James Fredric's case (supra) but for the fact that with the conversion of warrants in Vardhman, the shareholding of the respondents' group in that company would go up considerably and in such a situation, the distribution of the shares as suggested by the respondents would be prejudicial to the interest of the petitioner. Therefore, notwithstanding the merits of the case, purely on equitable grounds, we feel that the control of the company should go to the petitioner along with all assets and liabilities of the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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