TMI Blog2005 (3) TMI 794X X X X Extracts X X X X X X X X Extracts X X X X ..... espondent-Managing Director) and his youngest son-Shaukat Khan (a consenting member in the petition - Whole Time Director). The company has a studio located in a land area of about 1,80,000 square meters. 2. This petition has been filed by Ms. Nazma M. Syed, daughter of the deceased, holding 429 equity shares of ₹ 100 each constituting 8.58 per cent of the paid up capital. 3 other shareholders, including Shaukat Khan, collectively holding 1,299 equity shares constituting 25.98 per cent shares have given their consent to the petitioner to file this petition. The main allegation in the petition relates to the decision of the Board of the company to undertake development of the property of the company jointly with one K. Raheja Universal Private Limited and the main prayer in the petition is that it should be ordered that any sale, disposal or development of the property of the company should be with the consent of the members in a general meeting by a special resolution. 3. Shri Sarkar, Sr. Advocate appearing for the petitioners submitted: Originally, the company was a one man company. Presently, there are 14 shareholders, all being the family members of the late Mehboob ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the agenda was wrong as contained proposals received only from two builders and not several builders. He had also pointed out that he himself had received certain other proposals which should also be placed before the shareholders. In deference to this letter, a meeting was held on 8-10-2003 in which a proposal obtained by Shri Shaukat from M/s. Sagar Builder was also placed before the Board meeting. In the meanwhile, around 11th/12th September, 2003, some of the shareholders lodged a requisition with the company in accordance with section 169 of the Act to convene an EOGM to pass as a special resolution the following: Resolved that any joint development project of the company s property with any builder/real estate developer should be passed by a majority of 75 per cent of the shareholders as a special resolution . Even though, this notice was considered by the Board in a Board meeting on 20th Sept., 2003, the Board declined to convene an EOGM on the ground that as per legal advice obtained by the company, the resolution proposed was not valid and lawful in terms of the Articles and the Act and advised the requisitionists to call for the said meeting if they so desired. This ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ioner and this film was a great success financially. In terms of Mohammedan Law of Succession, a daughter gets 50 per cent of what a son gets and that is why late Mehboob Khan gave to each of his daughters 1/9th share and to each son 2/9th share of the shares in the company. Presently, there are 6 groups in the company and there have been disputes among themselves in regard to the affairs of the company right from 1992. The company is a family company and the parties cannot carry on together. The business of the company has become unviable due to the fire accident in the studio. Therefore for any decision relating to the affairs of the company, all the family members should agree and the question of minority or majority does not arise. However, the two respondents holding 2/3rd of the shares in the company are planning to do whatever pleases them without the consent of the other 4 family members. Imposition of the will of two sons on 4 other family members itself is an act of grave oppression. Since entering into real estate business amounts to change in the substratum of the company, there should be a special resolu- tion. When the same was defeated, the respondents proposed ordin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. [2001] 3 CLJ 4421: In this case, the Company Law Board has recognized the power of the Board to order division of assets of a company. Benett Coleman Co. v. Union of India [1977] 47 Comp. Cas. 92 : In this case, the Bombay High Court has held that in a petition under section 397/398 of the Companies Act, 1956, the powers of the Court are limitless and unrestricted as long as there is a nexus between the order that may be passed and the objects sought to be achieved by these sections. Debi Jhora Tea Co. Ltd. v. Barendra Krishna Bhomick [1980] 50 Comp. Cas. 771 (Cal.) : In a proceeding under sections 397/398 of the Act, the Court is vested with ample powers to pass such order as it thinks fit and it can give appropriate directions which are even contrary to Articles and the provisions of the Act. K.N. Bhargava v. Trackparts of India Ltd. [2000] 104 Comp. Cas. 611 (CLB) (New Delhi): In this case, the Company Law Board ordered division of the business of the company between the petitioners and the respondents. Vijay Krishan Jaidka v. Jaidka Motor Co. Ltd. [1997] 1 CLJ 2681 : In this case, the company being a family company, the Company Law Board divided the business be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... apacity as a member. 8. Referring to the various allegations in the petition, Shri Tikku submitted: Most of the allegations in the petition relate to the period before 1999 which have all been either redressed or settled. As of date, the only dispute is whether special resolution or ordinary resolution is required for under-taking joint development of the land of the company. While according to the petitioner any decision on joint development should have the approval of the general body by a special resolution, according to the respondents, ordinary resolution is sufficient. However, in view of the opposition from the petitioner, it has now been decided not to go in for development of the property and that the respondents would mobilize funds for improving the business of the company. Once this commitment has been given, nothing survives in the petition and as such this petition should be dismissed. 9. The learned counsel further submitted: The allegation of the petitioner that the business of the company is going down due to mismanagement is absolutely wrong to her own knowledge. In the year 2000, there was a fire in the studios due to which the studio was extensively damage ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... usiness. The property, assets and money of the company have to be applied for the purposes of the company s business to earn income from such activities . Again, in the same paragraph, it is stated The land in question is an asset of the company to be utilized to carry on its business for generation of revenue. It is not the business of the company to sell land or construct premises . Having thus averred, now the petitioner cannot seek for division of the land which would be, in her own words in the petition, against the interest of the company. Therefore, the prayer for division of the land should not be granted as in a proceeding under section 397/398 of the Act, the foremost consideration should be to protect the interests of the company. Since the petitioner has not made out any case of oppression or mismanagement in the affairs of the company, the petition should be dismissed. However, if the petitioner feels that she cannot get on together with the majority shareholders, either the company or the other shareholders are willing to purchase the shares held by her and her group at a fair value to be determined by this Board. 11. The learned counsel relied on the following ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , even such acts affect the interest of shareholders, no one can claim of oppression. KRS Mani v. Anugraha Jewellers Ltd. [2004] 61 CLA 52 (Mad.) : The petitioners should come to court with clean hands and if they do not do so, they are not entitled to any relief against oppression and mismanagement. It is the duty of the courts to recognize the corporate democracy in managing its affairs by the company and the court should not restrict the powers of the Board of Directors. K.S. Motilal v. Kasimaris Ceramique (P.) Ltd. [2003] 54 CLA 311 (Mad.) : It is well-settled legal position that there is nothing to warrant the assumption that a shareholder has any interest in the property of the company. It is a juristic person and is entirely distinct from the shareholders. Therefore, the petitioners cannot claim proportionate share in the land of the company. EIH Ltd. v. Mashobra Resort Ltd. [2003] 53 CLA 155 2 CLB: No shareholder can claim any right over the property of the company and cannot appropriate the assets of the company and the only manner in which a shareholder can share the assets of the company in the case of winding of the company and the surplus, if any, remaining af ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se of the petitioner is to obtain payment of a debt owed by the company or to force the directors to accept his views as to the ways in which the company business should be managed . Similar principle has been stressed in Nurcombe v. Nurcombe [1985] 3 CLJ 163-CA by obsereving that it is pertinent to remember that minority shareholders action in for is nothing more than a procedural device enabling the court to do justice to a company controlled by miscreant directors or shareholders. Since the procedural device is evolved so that justice can be done for the benefit of the company, whoever comes forward to start the proceedings, must be doing so for the benefit of the company and not for any other purpose. Relief sought for in a subsequent affi- davit cannot go beyond the main relief sought in the petition. It is on record that the petitioner was not objected to the development of the land but is only questioning the choice of the developer. The respon- dents proposed development of the land only for the benefit of the company. It has been held in Jermyn Street Turkish Baths Ltd. [1971] 3 AER that any legitimate act done in good faith in the interest of the company cannot be conside ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ioner that the land should be divided, it is clear that she does not want to continue with the company and since she had already decided to sell her shares, she should accept the offer of the respondents that they would buy her shares instead of demanding a portion of the land. The only reason she wants division is to hand over the land to Mr. Maradia which is not acceptable to the respondents. Further, if the land is divided, its economic value will come down and will also be beset with various regulatory restrictions. The main object of filing the petition, as is evident from the arguments of the learned counsel for the petitioner, is to seek division of the land and not for the purposes of redressal of any of the grievances. As a matter of fact, the main objection/grievance of the petitioner relating to the development of land no longer survives as the respondents have undertaken not to proceed with the development of the land. However, with the view to bring peace, the respondents are willing to purchase the shares held by her group. It is on record that she had already decided to sell the shares to an outsider and if it is so, there can be no objection as to why she should not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e interest of the company is unfounded. The petitioner is suggesting division of the land only with a view to put an end to the dispute once for all. Once the division takes place, the respondents would be free to not only carry on the business of the company but also develop the balance land. Valuation of shares is not only time consuming, the value arrived at could also be challenged. The division is not only quick and fast, it also cannot be challenged. The petitioner gives an undertaking that she would live in the area of the land given to her so that the apprehension of the respondents that the land would be handed over to an outsider is taken care of. It is incorrect to say that there has been no case of division of properties of the company in a proceeding under section 397/398 of the Act. In T. Ramesh U Pai v. The Canara Land Investments Ltd. [2004] 55 SCL 616 and in T.O. Aleyas v. Cent Merry s Hotels (P.) Ltd. (Manu/CL/0034/2004), the Company Law Board itself had directed division of assets of the company. 14. I have considered the pleadings and arguments of the counsel. Even though, the petition contains a lot of allegations pertaining to events from 1990 onwards, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it was in the best interest of every shareholder to allow discussion on the proposed resolution. He further stated that even the Memorandum of Association of the company allowed the development and improvement of the company s land . From these minutes it is evident that the petitioner and the consenting member wanted development of the land while the respondents were opposed to it. However, in 2003, when the respondents proposed joint development, the petitioner and the consenting member opposed the same as is evident from the fact that they demanded a special resolution. The reason for demanding a special resolution is not that they opposed joint development but they were opposed to choosing a particular developer as is evident from the averment of the petitioner in paragraph 7.5 of the petition, wherein she has averred The minority members and the director were never against the proposal to consider develop-ment of the property by the company jointly with a builder. However, they insisted that firstly any such decision by the Board should be taken after due consideration of various proposals by comparing pros and cons thereof and the benefits that would accrue to the company a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f company and as such any relief granted by this Board should be in the interest of the company. According to the learned counsel for the petitioner, since there is no mutual truth and confidence between the parties and to put to an end to the disputes, the land should be divided and petitioner s group being a portion of the land in proportion to its shareholding. To the proposition that this Board has the power to do so, he relied on Trackpart of India (supra), Jedka Motor (supra) and James Fredrick, Canara Land (supra) and St. Mary s case ( supra). The facts of these cases are different from the present case and, therefore, none of these cases has any relevance to the present case. In all these cases, the allegations in the petitions were manifold and the Board came to the conclusion that mere redressal of the grievances would only lead to either deadlock in the management or would be of only a temporary nature. In the present case, there is only one substantive allegation, which too has become a non-issue after the respondents undertook not to proceed with the development of the land. Further, in all these cases, they were either equality in the shareholding or equal representat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ragraph 13 of the petition, there seems to be differences between them also. From paragraph 8.5 of the petition, I also find that there are certain disputes regarding 233 shares held in the joint names of the 2nd respondent and 6th/7th respondents and the matter is pending before Bombay High Court. One sister is not represented at all. Thus, it is evident that there are no two identifiable groups in the company to seek division on the basis of the cases cited by the learned counsel for the petitioner. In such a circumstance, as rightly pointed out by the learned counsel for the respondents, the likelihood of other shareholders demanding similar division cannot be ruled out, which would result in fragmentation of the valuable asset of the company. Therefore, the facts of the present case are distinct from the cases relied on by the learned counsel for the petitioner, except that all these cases indicate that a suitable order for parting of ways can be made in a proceeding under section 397/398. Another important aspect to be noted is that in all these cases, this Board decided the method of parting of ways, unlike the present case, wherein the petitioner desires a particular method ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eholders. However, I do not find that the circumstances in the present case warrant such a division. First at no time before she filed the affidavit dated 19-4-2004, she had raised this issue nor had indicated that she was against the development of the land by the company. Her support to the development of the land is evident from the minutes of the EOGM and also from her averment in the petition as quoted earlier. Secondly, as late as in October, 2003, the consenting member holding himself also forwarded a proposal to the Board from M/s. Sagar Builders for joint development of the property. Even during the hearing, not a single argument was advanced as to how and why the development of the land by the company would be against the interest of the company. It appears that the main objection of the petitioner related to selection of M/s. Raheja to develop the land as proposed in the AGM. Anyway once the respondents have given an undertaking that they will not proceed with the proposal for joint development of the property, the main grievance of the petitioner stood redressed and to ensure that the respondents do not initiate such a proposal in future, the petitioner could have asked ..... X X X X Extracts X X X X X X X X Extracts X X X X
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