TMI Blog2015 (8) TMI 189X X X X Extracts X X X X X X X X Extracts X X X X ..... eld that:- Whether or not Appellants hold over 46% shareholding in Respondent company, was matter of serious dispute between parties – If 536 shares of Respondent company was treated as correctly transferred, total shareholding of Appellants comes to about 26.46% – Therefore direction that adequate representation should be given to Appellants was clearly impermissible and cannot be sustained – Cross-objections allowed – Impugned order giving adequate representation to Appellants set-aside – Decided against appellant. - Company Appeal No. 10 of 2009, CLB Company Petition No. 17 of 2007 - - - Dated:- 28-7-2015 - S. C. Gupte, J. For the Appellants : Mr. V.P. Sawant, i/b. Mr.,P.M. Jadhav,. For the Respondent : Mr. Sean Wassodew with Mr. Rupesh Mandhare, for Respondent Nos.1 to Mr. Inderprakash Tripathi with Ms. Bhagyashri Gawas, i/b. Mr. Akhilesh Singh ORDER P. C. The appeal challenges an order passed by Company Law Board ('CLB') rejecting a petition of the Appellants under Sections 397 and 398 of the Companies Act, 1956 ( the Act ). 2. The Appellants between them claim to hold about 46.71% share of the first Respondent company. The first Resp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es by the first Respondent company to SICOM. On the basis of these submissions, it is the Appellants' case that the affairs of the first Respondent company have been conducted by the Respondents in a manner oppressive to the Appellants and also in a manner prejudicial to public interest and to the interests of the company. The petition is filed on 10 February 2007. The Appellants pray for various reliefs in the petition. They inter alia seek cancellation of the transfers registered on 25 March 2003 in respect of 536 shares of late Shankarrao and rectification of the register by restoring the name of Shankarrao in the first instance and then by registering the names of Appellant Nos.3 to 7 as legal heirs of late Shankarrao. They also seek reliefs for cancellation of decisions taken in AGMs and board meetings of the first Respondent company including decisions for appointment of Respondent Nos.5 and 6 as directors. 3. The CLB, in the impugned order, rejected the Appellants' contention insofar as the application for rectification of the register of members was concerned. The CLB noted that there was no application made for rectification of register under Section 111 of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of the management of the first Respondent company, which clearly negates the case of quasipartnership. It is submitted that none of the principles of quasipartnership as discussed in the case of Synchron Machine Tools Pvt. Ltd. vs. U.M. Suresh Rao 1994(079)-COMPCAS-0868-KAR are made out in the present case. The Respondents, accordingly, object to the direction regarding giving of an adequate representation to the Appellants in the management of the first Respondent company. 5. It is seen from the record of the case that the transfer of 536 shares was made purportedly as part of a family arrangement between the late Shankarrao and his brothers; it was made during the lifetime of Shankarrao; it was backed by transfer deeds purportedly executed by the late Shankarrao in favour of his four brothers Respondent Nos. 6 to 9; there is a board resolution as of 25 March 2003 duly recorded in the Minute Book maintained by the first Respondent company accepting such transfer and providing for its registration; the transfer is recorded in the original share certificates; the Annual Report of the first Respondent company of the year 20032004 reflects this transfer and shows the names of all ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re is prescribed for seeking rectification of the register of members does not come in the way of a company court granting relief in respect of such transfer in a petition under Sections 397 and 398. That is undoubtedly so. But the point is that a case of oppression and mismanagement must still be made out for grating of such relief. It is not simply sufficient to make out a case only for rectification under Section 111 for claiming such relief under Sections 397 and 398. In Mannalal Khetan vs. Kedar Nath Khetan AIR 1977 Supreme Court 536, the Supreme Court held the provisions of Section 108 to be mandatory. That case again has no bearing on the present controversy, which is specifically raised in the context of a grievance under Sections 397 and 398 of the Act. 7. Learned Counsel for the Appellants further submitted that the transfer was in contravention with Article 11 of the Articles of Association of the first Respondent company. Article 11 provides for the right of preemption of existing shareholders of the company in the case of a proposed transfer of shares. It is submitted that the transfer of 536 shares of the late Shankarrao was in contravention of this provision. Arti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 26 February 1975 and it took over the business of a partnership firm of Sanjay Founders upon its incorporation. It is submitted that Appellant No.1, Respondent No.3 and Appellant No.4, who was at that time a minor, were partners of Sanjay Founders. It is submitted that, accordingly, Appellant No.1, Respondent No.3 and the late Shankarrao, on behalf of this minor son, were given shares in the first Respondent company. These three persons were the original subscribers, who were allotted one share each at the date of incorporation. It is submitted that this shareholding was continued for sometime and thereafter the paid up capital was increased by allotting shares to close friends of the promoters from time to time upto 1978. It is submitted that the share capital of the Respondent company has remained constant since 1978. It is submitted that all these facts go to show that Respondent No.1 was really in the nature of a quasi-partnership. As against this, the Respondents, in their reply, dispute these averments. It is submitted by the Respondents that at the very first board meeting held three days after the incorporation of Respondent No.1, i.e. on 1 March 1975, two additional shar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... maintained between the shareholders. The board of directors of the first Respondent company was changed from time to time and new persons, who had nothing to do with the family of the original subscribers, were made directors. In the light of these facts, which are all borne out by the record of the case and do not admit of any serious controversy, the characteristics of a quasipartnership are not to be found with respect to the Respondent company. The manner in which the CLB has proceeded to deal with the subject of quasipartnership also leaves much to be desired. In the first place, in the original order the CLB has observed that the fact that the first Respondent company was in the nature of a quasi-partnership was not a matter of dispute between the parties. After the pleadings in this behalf were pointed out to the CLB, after it passed the original order, the CLB simply substituted the sentence There is no dispute that Respondent No.1 is a quasipartnership ...... by the sentence The Respondent No.1 company is undoubtedly a quasipartnership....... The conclusion of the CLB, thus, in respect of the quasipartnership nature of the company does not bear scrutiny and cannot ..... X X X X Extracts X X X X X X X X Extracts X X X X
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