TMI Blog2001 (9) TMI 1159X X X X Extracts X X X X X X X X Extracts X X X X ..... uity shares of ₹ 100 each. In 1984, the 8th petitioner transferred his shares to his HUF, sons and children including the 9th petitioner and likewise the 2nd respondent transferred his holdings to his own three companies. In 1990, the 9th petitioner, out of its 19 per cent holding, transferred 10,846 shares constituting 11 per cent to a trust known as Manisha Benefit Trust ( the trust ) of which the sole life trustee was/is the 2nd respondent and the sole beneficiary was/is the 9th petitioner. Thus, while the petitioner controlled 49 per cent voting rights, the 2nd respondent controlled 51 per cent voting rights as the 11 per cent trust shares were registered in the name of the 2nd respondent. The only allegation in the petition is that the 2nd respondent Shri Dongre, with a view to gain absolute majority control of the company, had clandestinely issued the remaining 26,400 shares of the authorized capital to the 8th respondent which is under his control and thus has acted in a manner oppressive to the petitioners notwithstanding the fact that as per section 81 of the Act, proportionate shares should have been offered to the petitioners. However, on filing of documents/replie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... over by Dr. Charat Ram the 8th petitioner in 1980 by purchasing 60 per cent shares when the company was in bad shape and he associated the 2nd respondent to purchase the balance 40 per cent shares in his own name. In 1984, when Dr. Charat Ram transferred his shares, he also resigned as a director/chairman of the company reposing full faith and confidence in the 2nd respondent. Thereafter, the company had 4 directors, three from the 2nd respondent group (Dongre group) and the 7th respondent from the petitioners group (Shriram group) . Even though the relationship between both the groups was cordial from the beginning, yet, sometime in 1998, certain differences arose between Shriram group and Dongre group in regard to certain investment proposals initiated by the company as would be evident from Annexure-3 - a letter dated 21-10-1988 written by Dr. Charat Ram to Shri Dongre. In that letter, Dr. Charat Ram had also sought for co-opting him as a director of the company in the Board meeting to be held on 23-10-1998. However, his co-option was not considered in that Board meeting nor in the subsequent Board meetings held on 6-11-1998 and 22-3-1999. Since at the relevant time, the Board ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e kept in dark about the proceedings of the Board meetings, the company abruptly stopped the long standing practice of circulation of draft minutes to the directors from May, 1999 only with the view to commit fraud and manipulation in the shareholding in the company. The practice of sending notices by UPC was also allegedly started only from May 1999 as against the long standing practice of hand delivery. 7. The learned counsel urged that the above background should be kept in mind in examining the allegations of the petitioners. By the time the decision to allot shares was allegedly taken in the Board meeting held on 12-7-1999, the petitioners were fighting to get certain positions in the Board and have also challenged the right of Shri Dongre to vote in respect of the 11 per cent shares held by the trust. This being the case, the question of Dr. Charat Ram approving issue of right shares in the Board meeting held on 3-6-1999 and later approving the allotment of the entire shares to the 9th respondent on 12-7-1999 does not stand to reason. More so, the petitioners not subscribing to the shares offered. The petitioners being seasoned businessmen knowing fully well that if they d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lso did not receive the notice for this meeting. The falsity of the claim of the respondents about these meetings is evident from the fact that in the entire history of the company, no Board meeting had taken place in Malcha Marg. Further, no Board meeting had been held after 6.00 PM on any day. Usually, Board meetings are held in Himalaya House Kasturba Marg, for which room booking requisition has to be given in writing in advance. By producing a schedule of the Board meetings of the group companies, the learned counsel pointed out that the Board meetings of the group companies are decided in advance and is circulated to all and all these meetings are scheduled to be held in Himalaya House and no meeting is shown to be held after 6.00 PM. Therefore, he contended that the change of venue was only with a view to ensure that no written record is available about holding a meeting and with the view to show the presence of whomever they liked fraudulently. The only evidence adduced by the respondents is the signatures of Dr. Charat Ram in the attendance register marking his presence in these two meetings. He pointed out that even though the signatures contained in the register are that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d out that this diary which is maintained meticulously noting down all the engagements of Dr. Charat Ram does not contain any entry in regard to these two meetings since no notice for these meetings was received by him. Further, the 7th respondent has never missed any of the Board meetings of the company during his entire tenure as a director of the company and, therefore, there was no reason as to why he did not attend these two meetings if he had received the notices for these meetings. Therefore, the decision to allot shares as well as allotment of shares has been done behind the back of the petitioners group even though they hold 49 per cent shares in the company. 9. As far as the receipt of offer for the right shares is concerned, the learned counsel pointed out that none of the petitioners received the alleged offer. Even though the company contends that offers were made through registered post, yet, the registered envelopes received by the petitioners contained only the letter dated 11-6-1999 intimating the post-ponement of the EOGM convened on 10-6-1999. According to the respondents, this letter was sent by UPC on 11-6-1999 and the registered post containing offer on 14 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the number of directors and creation of new shares to suit their purpose so as to reduce the majority into a helpless minority both on the Board and that General Meetings of the company ? The answer can only be in the negative . . . A man may no doubt behave strangely on a particular occasion, but it is impossible to believe that a number of hard boiled business people will keep themselves away from a meeting where their doom may effectually be sealed in their absence and they have only to attempt and win the day by their superiority in number and voting strength . . . If it had been the case of a particular shareholder or director not receiving the notice sent through the post, one may possibly take the view that it had gone astray but it is impossible to believe that all the notices of the Board Meeting as also those of the EOGM should have failed to reach all the addresses. The company had sixteen shareholders, those in the respondents group being four, while the number of members in the petitioners group was twelve. If any person in the petitioners came had received the notice, he or she would have undoubtedly made it known to the others and although the letter are known to l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the trust were crucial to the battle between Shriram and Dongre groups and as a matter of fact this has been recorded by the learned Judge himself in his judgment dated 24-12-1999. If the petitioners had known about the allotment, as contended by the respondents, then, the shareholding of Dongre group being 52.6 per cent shares in the company even without the 11 per cent shares of the trust, there was no meaning in the petitioners continuing their fight in the High Court regarding the 11 per cent shares. Therefore, there is absolutely no merit in the contention of the respondents that the petitioners had voluntarily decided not to accept the shares or they had known about the allotment. In this connection, he referred to the averment of Shri Dongre at page 52 of the reply wherein he has averred that no sane and right minded or rational person would refuse to subscribe to the shares offered. This itself, the learned counsel contended would indicate that the reason for not accepting the right offer is that the petitioners never received the offer. He accordingly prayed that the allotment of shares, being oppressive to the petitioners, should be declared and the shares cancelled or i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sh suit on the same cause of action could be filed. K.S. Bhoopathy v. Kokila [2000] 5 SCC 458 : Sarguja Transport Service v. State Transport Appellate Tribunal [1987] 1 SCC 5 : Rangacharya v. Guru Revti Raman Acharya AIR 1928 All. 689 and Upadhyay Co. s case (supra) . He further submitted that even in case of withdrawal of an application, as in the present case, the provisions of order XXIII, rule 1 would apply as held in S. Narain Singh v. Ram Gopal Madan Lal AIR 1981 Delhi 88 and Aftab Ahmad v. Nasiruddin AIR 1977 Delhi 121. He also relied on Central Inland Water Transport Corpn. Ltd. v. Brojo Nath Ganguly AIR 1986 SC 1571 to state public policy demands that agitating the same issue after abandoning the claim at the first instant should not be allowed. Therefore, he prayed that once the petitioners had withdrawn the application CM No. 1078 of 2000 unconditionally, this petition on the same cause of action does not survive and should be dismissed. 13. He further pointed out that this petition is not maintainable on another principle that a single past and concluded act cannot constitute an act of oppression since in the entire petition the only allegation relates to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 999 for restraining the company from appointing additional directors which suit was dismissed even without notice to the company/the respondents. This fact of filing of the suit and dismissal was not disclosed by the 7th respondent in the Board meeting held on 17-5-1995 when Dr. Charat Ram was appointed as an additional director. Thereafter, a second attempt was made to stall the affairs of the company when the petitioners filed IA No. 5882 of 1999 in Suit No. 911 of 1999 for staying the company from disposing of its assets including investments made in other companies, which was also dismissed. They once again filed a Suit No. 1749 of 1999 for restraining the company from disinvesting the shares held by it in various companies including Shriram Pistons Rings Ltd. This suit was also dismissed. Thereafter, they filed three more applications before the Delhi High Court without any success. Thus, the main object of filing this present application after having failed in their various attempts is to get control of the company in one way or the other by making false allegations without full particulars and such the same should be dismissed as held in Bengal Luxmi Cotton Mills Ltd., In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Chairman on 25-5-1999, a summary of the discussion with the bank in which the bank had advised to increase the capital at least to the level of the existing authorized capital was put up on which the Chairman had directed to arrange for a Board meeting. Again, in a note dated 26-5-1999, it was indicated that the bank had prepared a sanction letter on 21-5-1999 but the same was being withheld and the bank has intimated that if a Board resolution confirming increase in the share capital was not sent by 4-6-1999, it would be considered that the company had declined to have the limits renewed. On this note, the Chairman had recorded that a Board meeting will have to be convened before 4-6-1999. Accordingly, notice and agenda papers were circulated on 28-5-1999 by UPC to all the directors including Dr. Charat Ram and the 7th respondent for a meeting to be held on 3-6-1999. When the other directors assembled at 11.00 AM on that day they were informed that Dr. Charat Ram would be arriving at Delhi only in the evening and, therefore, it was decided to hold the meeting at 7.30 PM. Accordingly a message was left at his residence and also at the office of the 7th respondent about the change ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9 and 12-7-1999. By this time, the original attendance register was returned and in the Board meeting held on 29-9-1999, the second register was not available and, therefore, a third register was opened to record the attendance of the directors. Therefore, there is no mala fide intention in not continuing either the first register or the second register as alleged by the petitioners. 16. Shri Chandiok, further submitted that the very allegation of the petitioners that they had been converted from majority to minority is not borne on facts. Shri Dongre has always been in majority with 51 per cent voting rights in the company as the 11 per cent shares of the trust are held in his name. Even the High Court has permitted Shri Dongre to exercise voting rights in respect of these shares notwithstanding the objections raised by the petitioners. Therefore, these shares are not in limbo but are actively voted upon. He also pointed out that the trust is a perpetual trust and Shri Dongre is the sole life trustee and as such he can control the voting rights on the shares throughout his life. In this connection, he pointed out that on 21-2-2000, the Division Bench of the Delhi High Court gav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nconceivable that a person who demands poll does not bother to find out the number of votes polled for and against the resolution on which the poll was demanded. In this connection, he referred to section 185 of the Act to state that it is obligatory on the part of the Chairman to indicate the number of votes polled. Therefore, according to the learned counsel, the claim of the petitioners that they came to know of the further issue of shares only in July, 2000 cannot be accepted. He also pointed out that if the petitioners came to know about the further issue of shares on 7-7-2000 as claimed by them, then, they have not given any reason as to why they did not object to this in the EOGM held on 8-7-2000 when also the 8th respondent voted on the new shares. If it is so, then, the petition having been filed belatedly deserves to be dismissed. 19. As far as offers made to the petitioners is concerned, he produced the dispatch register of the company wherein entries relating to dispatch of both the UPC dated 11-7-1999 as well as the registered letters sent on 14-7-1999 are found to have been made. Therefore, he contended that there is enough proof to show that two letters were sent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 8th respondent as is evident from the signatures of Dr. Charat Ram in the attendance register. The only ground on which the petitioners challenge his attendance is that there is no entry in the diary of Dr. Charat Ram in respect of this meeting as no notice was received by him. The non-entry in the diary has to be weighed with his signature in the attendance register and if it is done so, the signature in the attendance register gets precedents over the non-entry in the diary. In this connection, he referred to the schedule of Board meetings of the Shriram Group of companies as produced by the petitioners and stated that this schedule was always subject to changes and since these two Board meetings were unscheduled, they could not have found a place when the schedule was prepared. Therefore, non-appearance of these two Board meetings in the schedule does not mean that these meetings had not taken place. As far as holding of these meetings in Malcha Marg is concerned, he pointed out that in the recent past also meetings were held in that address and, therefore, the venue of the meeting cannot be a ground to doubt the holding of these meetings. 21. As far as the claim of the pet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the controversy as to whether Dr. Charat Ram attended the Board meetings on 3-6-1999 and 12-7-1999 cannot be decided on affidavits. In the same way whether the petitioners received the offers for right shares sent by registered post or not can also not be decided on affidavits especially when there are documentary proof that the registered post had been received by them. Accordingly, he submitted that in the circumstances, oral evidence should be taken. It is more so since the petitioners have alleged fraud on the part of Shri Dongre. In this connection, he referred to Needle Industries (India) Ltd. s case (supra) wherein the Supreme Court has observed that in case allegations of fraud etc., oral evidence should be taken. 24. He further submitted that the relationship between Dr. Charat Ram and Shri Dongre was so cordial that Dr. Charat Ram invited Shri Dongre to shoulder the responsibility as Chairman of the company and giving him 40 per cent shares in the company. Reading through certain passages of the Biography of Dr. Charat Ram, he pointed out that the 2nd respondent was brought into the company only because of his excellent performance in other Shriram Group companies ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e company under the management of Shri Dongre but now they want to gain control of the company, which a Court of equity should not allow. In this connection, he again referred to Needle Industries (India) Ltd. s case (supra) wherein at page 809, the Court has observed that by issue of shares if the directors benefit incidentally in maintaining their control, it does not amount to an abuse of their fiduciary powers. The same observation was also reiterated at page 813 also. Therefore, he contended that by issue of additional shares which was for the benefit of the company, Shri Dongre has not abused his fiduciary position. 25. He further contended that the petitioners, other than making bald statements that the company did not need funds in view of the satisfactory reserve position, have not bothered to find out whether there was liquidity in the company and they have also not bothered to check up from the bank whether the bank had asked the company to increase the share capital. He further submitted that even otherwise, increase in share capital is a management decision and as such neither the shareholders nor the Court could question the wisdom of the management. In this connec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8th respondent submitted as follows: The petition suffers from both procedural and legal infirmities. The petitioners have not averred in the petition that circumstances exist for winding up of the company on just and equitable grounds and that such winding up is prejudicial to the interest of the shareholders. He pointed out that this averment is a condition precedent in a 397 petition. Referring to page 778 in Needle Industries (India) Ltd. s case (supra ) he pointed out that such an averment is necessary. Since there is no allegation of mismanagement to bring the petition under section 398, the non-fulfilment of the condition precedent makes the petition not maintainable under section 397. In this connection, he also referred to Shanti Prasad Jain s case (supra) . According to him the allegations in the petition relate to non-allotment of proportionate shares to the petitioners, non-compliance with the provisions of section 81(1A) , non-compliance with the articles. Further they have also alleged that the allotment of shares to the 8th respondent is fraudulent and that the same was kept as a secret. These allegations can never warrant winding up of a company on just and equitabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eting for removal of 3 directors and appointment of 3 new directors. This meeting was scheduled to be held on 22-6-2000. When Shri Dongre filed an Interim Application No. 509 of 2000 seeking permi-ssion of the Court to vote on the 11 per cent shares, the prayer was granted by an order dated 16-6-2000. The Court also appointed Justice A.K. Mehra to preside over the EOGM on 22-6-2000. All the resolutions were defeated on poll and the 8th respondent had exercised voting rights in respect of the new shares allotted to it. Thus, the petitioners fully knew that Shri Dongre was in a position to control the voting rights in respect of the new shares even on this date. Therefore, the stand of the petitioners that they came to know of the increase in the paid-up capital of the company only on 7-7-2000 is false to their knowledge and as such they cannot seek any equitable relief from the CLB. Having demanded a poll on 22-6-2000, they cannot say that they were not aware of the number of shares voted upon on the ground that the minutes do not disclose the figures. They should have taken inspection of the votes polled. 29. In regard to the allotment of shares to the 8th respondent, the learne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1999 and 12-7-1999. He pointed out that the company started sending UPCs only for the meetings from 24-5-1999 since by that time disputes had started between the parties. 32. Shri Ganesh senior advocate, appearing for the 7th respondent replying to the arguments of the counsel for the contesting respondents submitted as follows : The stand of the Shri Dongre is inconsistent. According to him, at page 24 of the reply, he has averred that the petitioners wanted to prevent the bank giving any assistance to the company. If it is so, there is absolutely no logic in Dr. Charat Ram attending the Board meeting on 3-6-1999 and agreeing for issue of right shares with a view to meet the requirement of the bank for giving further facilities. When the petitioners were willing to subscribe to the shares in August, 2000 immediately after coming to know of the issue of shares, by sending the requisite consideration, there is no reason as to why they could not have done so in July, 1999 if the offers had really been made to them by the company at that time. The whole episode has been masterminded by Shri Dongre as would be evident from the fact that all the established procedures that were in ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... account on 8-7-1999 is used for payment for the shares in the company. The sequence of these events would clearly demonstrate that allotment of shares to the 8th respondent was a pre-planned one and all the documents relating to the alleged offer having been made to the petitioners are fabricated. Even assuming that the 8th respondent had to increase its capital to ₹ 25 lakhs as per the RBI Guidelines, yet, since the said company had a reserve of ₹ 5 lakhs, there was no need to increase the share capital to ₹ 35 lakhs. It was done only because it needed money for subscription to the shares of the company. He also pointed out that the date of application with remittance expired on 4-7-1999 and since company could not have encashed the cheque for want of funds in the bank account of the 8th respondent which was only ₹ 1.7 lakhs on that day, its application should have been rejected. 34. As far as the communication between the bank and the company is concerned, he pointed out that in the hearing held on 25-8-2000 before the CLB, the company had produced only two letters from the company to the bank but no letter from the bank to the company requiring increas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t there is no evidence that the bank required the company to increase the share capital. According to Shri Ganesh, by disclosing the allotment of further shares, the 2nd respondent could have taken a stand in the High Court that the petitioners had handed over the company to him by not subscribing to the shares offered and, therefore, the entire proceedings in relation to the trust shares was infructuous. Accordingly he contended that the claim of the respondents that the share capital was increased to meet the requirement of the bank is a concocted story and the only purpose was to allot the shares to the 8th respondent. 35. Shri Ganesh further submitted : The board of the directors could not have issued further shares without the approval of the general body as articles 3 to 7 of the articles of association of the company require general body approval even for issue of shares within the authorized capital. Producing a copy of the Board resolution dated 30-7-1984 in connection with the earlier issue of shares, he pointed out that at that time, even though the Board recorded that the general body approval was necessary, yet in view of the cordial relationship between the parties ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct that the allotment was made in July, 1999 after the 9th petitioner had filed the suit would indicate that the motive of the allotment of shares to the 8th respondent was only to gain absolute majority. Referring to Needle Industries (India) Ltd. s case (supra) (pages 106-107) , he pointed out that fraudulent allotment of shares is a gross act of mismanagement. He also pointed out that the potential majority of the petitioners has been affected by the allotment of shares exclusively to the 8th respondent. In regard to the knowledge of the petitioners about the allotment of shares, he referred to Annexure-34 and pointed out that the petitioners came to know of the allotment only through affidavit filed by the 2nd respondent in the Delhi High Court on 7-7-2000. He pointed out that in its letter at Annexure-35, the company has not mentioned that Dr. Charat Ram had attended the Board meetings in which the decisions to increase the capital and allot further shares were taken. According to him, the petitioners came to know of the alleged Board meetings on 3-6-1999 and 12-7-1999 only from the instant proceedings. He also pointed out that even though, according to the respondents, Dr. Ch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in as much as these provisions are applicable only in case of institution of a fresh suit after withdrawal. On this proposition, he relied on Girdhari Lal Bansal v. Chairman, Bhakra Beas Management Board AIR 1985 Punj. Har. 219. Even otherwise, he pointed out that the said application was withdrawn at the instance of the respondents and as such they are estopped from raising the objection now. Even otherwise, he pointed out that the respondents opposed CMA 1078 as not maintainable. He also pointed out that even the High Court in its order dated 5-5-1999 had advised the petitioners to move the CLB. In view of this, Shri Shanti Bhushan submitted that the objections raised by the respondents on the maintainability of the petition in terms of order XXIII should be rejected. He also pointed out that when frauds are committed against the shareholders, it is a clear case of oppression warranting winding up of the company on just and equitable grounds. Further, since by the allotment of further shares, the shareholding of Shri Dongre has become 52 per cent, there has been a change in the shareholding resulting in change in the composition of the Board and as such even the provisions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0. Shri Chaudhary, in rejoinder argued as follows : The CLB or the petitioners cannot question the wisdom of sending the letter dated 11-7-1999 as it was purely a management decision to keep the members informed of the postponement of the EOGM and, therefore, petitioners cannot derive any benefit by imputing any motive to the sending of that letter. As far as the provisions of section 398 are concerned, it should be established that the change in the ownership of shares or management should be detrimental to the interest of the company or public interest. An alleged oppressive act cannot come under section 398 as this section does not deal with interest of members. There are no allegations in the petition about mismanagement in the affairs of the company nor any such allegations were made in the High Court. Further, a single isolated act which had taken place one year earlier cannot give a right under section 398. If the petitioners desire to set aside the allotment the proper course would be to move the civil court by way of a suit. In regard to the allegation that the letters relied on by the respondents as having been sent but not found in the dispatch register of the company, h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the arguments on the petition were concluded on 2-2-2001, certain applications were filed later the arguments on which were concluded only on 24-7-2001. At the outset we would like to make it abundantly clear that in this order we have not taken into consideration the written submissions given by the parties as both the sides had raised objections on the contents of the written submissions as containing fresh arguments not advanced during the hearing. Accordingly, we have taken into consideration only those arguments that were advanced during the hearings. 42. Before we deal with the merits of the case, we shall deal with certain main preliminary objections of the respondents that the petition is not maintainable in terms of order XXIII, rule 1(4) that a single and isolated act cannot constitute an act of oppression, that an act to consolidate ones present position cannot constitute an act of oppression, etc. 43. In regard to the applicability of the provisions of the Code to the proceedings before this Board, the same was examined in detail by this Board in Rajinder Kumar Malhotra v. Harbanslal Malhotra Sons Ltd . [1998] 87 Comp. Cas. 146 and the finding was that neither ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which this Board has considered the petitions before it. Further it is to be noted that the petitioners had disclosed in the petition about CM No. 1078 of 2000 and had also undertaken, in paragraph 52, that the said CM will be confined only to an interim order and direction relating to the EOGM held on 8-7-2000. In the reply also, the respondents have only sought for staying the present proceedings in terms of section 10 of the Code. Thus, in the present case, we find no bar in proceedings with the matter for various other reasons : Firstly, since the present petition had already been filed before withdrawal of the proceedings before the High Court, the provi-sions of order XXIII, rule 1 cannot be strictly applied. The case of Girdhari Lal Bansal ( supra) cited by the learned counsel for the petitioners is to this point. In Surguja Transport Service s case (supra) the provisions of this rule were applied when after withdrawing a writ petition without liberty, another writ petition was filed on the same cause of action. But in the same case, the Apex Court also observed that the petitioner had other remedies like a suit or a writ petition under article 32 before the Supreme Court. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppressive to some part of the members. To apply this dictum, one has to examine the nature of the single act. If the effect of a single act has permanent or continuous effect and if is alleged to be an act of oppression then the same can be agitated in a proceeding under section 397. As a matter of fact in both Shanti Prasad Jain s case (supra) and Needle Industries (India) Ltd. s case (supra) the only substantive allegation related to a single act of issue of further shares and the Court dealt with the allegation to find out whether the directors had misused their fiduciary power to their own advantage by issuing further shares. In Sindhri Iron Foundry (P.) Ltd. In re [1964] 34 Comp. Cas. 510 , the Calcutta High Court observed If the court is satisfied the conduct arising from a single oppressive act, that its effects will be a continuous course of oppression and there is no prospect of remedying the situation by the voluntary act of the party responsible for the oppressive act, the court is competent to interfere by appropriate order under Section 397 . Similar view has been expressed by the same Court in Tea Brokers (P.) Ltd. v. Hemendra [1998] 5 Comp. LJ 463 wherein the Cour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issue of shares the directors succeed, also incidentally, in maintaining their control over the company or in newly acquiring it, does not amount to an abuse of their fiduciary power. What is considered to be objectionable is the use of such powers merely for an extraneous purpose like the maintenance or acquisition of control over the affairs of the company.... [Emphasis supplied]. Therefore, irrespective of one s holding, if further issue shares is alleged to be in breach of fiduciary duties leading to an act of oppression, the same has to be examined to find out whether the same is oppressive in facts of that case. Even otherwise, in the present case, by the time further shares were issued, certain disputes were pending in the Delhi High Court in regard to the 11 per cent shares of the trust and as such there was uncertainty in respect of control of Shri Dongre on the 11 per cent shares. It was contended by the counsel for the contesting respondents, that, when the petitioners were trying to wrest the control of the company from Shri Dongree, he is fully justified in taking steps to maintain his control. We do agree that any lawful steps taken in this regard, may not necessaril ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... company that the renewal would be kept in abeyance if the share capital was not increased, was posted/delivered to the company. (6) In addition to the terms and conditions stipulated in the sanction letter, whether any oral directions were given, more particularly in regard to enhancing the capital of the company and if so : (i) Why the same were not incorporated in the sanction letter itself ? (ii) At what level the decision to give oral direction regarding increase in the share capital was taken - whether by the same authority who sanctioned the credit facility or by any other authority? (Furnish written decision in this regard, if any, within the bank) . (iii) Whether in respect of any other customer, without giving in writing, such directions had been given orally in the past (furnish details) . (iv) Along with the affidavit, the bank is also directed to enclose copies of all letters/communications sent to the company and received from the company in relation to the credit facility. 47. The above information was to be furnished by the bank by 25-3-2001. However, the bank sought for extension of the time to get the information from the concerned persons. There ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... want of personal knowledge. If so, there is absolutely no meaning in calling him to give oral evidence on matters of which he would have no personal knowledge. Further, we feel that in view of the averment of the respondents that there had been regular interaction between the officers of the bank and the officers of the company in relation to the credit facilities, it would have been more appropriate for the company to have identified the person with whom interaction was had and called him to either file an affidavit or give oral evidence rather than asking someone who does not have the personal knowledge to give oral evidence. Since as recorded in the office note dated 26-5-1999 at page 59 of the reply of the 1st respondent The concerned manager felt bad that just because he had agreed not to put this condition in writing and had been able to seek approval from the authorities on the basis of our assurance we were now putting him into trouble by finding excuses the right person who should have been asked by the company to file an affidavit or give oral evidence is the concerned manager. Further, we also feel that in view of the stand of the company itself in its affidavit dated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... management of the affairs of the company, then the other group is justified in alleging oppression. In this connection, we may beneficially refer to the case of Smt. Shantidevi Pratapsinh Gaekwad (supra) cited by Shri Shanti Bhusan, wherein at paragraph 13.6, the Gujarat High Court has indicated the circumstances in which a Court can interfere in the issue of shares in a company. It observed Self interest is the commonest instance of improper motive leading to abuse of power. Where the question is one of abuse of powers, the state of mind of those who exercised power as reflected from the surrounding circumstances and the materials which throw light upon that aspect so as to show whether they were honestly acting in discharge of the powers in the interest of the company or were acting for their own advantage of improperly favouring themselves or one section of the shareholders against another is to be examined. Where directors have acted in what they believe to be an interest which they were entitled to serve, their exercise of power can only be set aside, if it be found that the interest they were serving was an inadmissible or corrupting interest, such as self interest. The pow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e issue of further shares is an admitted fact, we have to examine whether the same was at the behest of the bank, whether the petitioners group consented to the issue of right shares and whether they were offered the right shares. If the answer to all these issues is in the affirmative, then the petitioners have of cause of action. 50. The stand of the respondents is that in view of the company incurring losses during the 3 previous years due to which the net worth of the company had eroded, the bank had insisted on increasing the capital of the company before it could renew the credit facilities. At the time when the petition was mentioned on 25-8-2000, the respondents had produced the following documents to establish that the bank had required the company to increase the capital and all these notes and the letters are signed by one Shri Vinod Singhania. (a) A copy of a letter dated 6-5-1999 written by the company to the bank inter alia, stating: We do not think that in the circumstances it would be fair to put a condition that the company should immediately increase its capital to reach the level of net worth as at 31-3-1995 before renewal of our limits and consideration o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and for the sake of continuing our limits without any margin/collateral security,/and personal guarantee, we should increase the paid up capital to the full extent of authorized capital on immediate basis. Once we do this, it is likely that the Bank may not follow up/insist for further increase . On this note, the 2nd respondent had recorded: - You should have taken this up in the yesterday Board meeting - Send to Dubey to arrange another meeting very early. 51. In the reply to the petition, the 1st respondent has annexed at page 59, another office note dated 26-5-1999 stating I refer to your notings on my note dated 25-5-1999. I may submit that I had been trying to persuade the Bank people not to insist for the condition of owners putting additional funds into the company. Yesterday, when I visited the Bank, I was told that while taking approval from the sanctioning authorities, our Bank had assured them that it will make us agree for the condition and would release the sanction letter only after our accepting the condition. As a matter of fact, the Bank has already prepared a letter on 21-5-1999 communicating to us the renewal of our limits but is withholding the same for wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to submit your Board of Directors confirmation to the above in writing so that we release the sanction letter. Please note that in case we do not receive four confirmation within a week, we would be constrained to review the terms and conditions of the sanction and keep the limits and renewal in abeyance. This letter which is in the letter head of the bank is unsigned and bears only an initial of an unidentified person, that too below the designation Chief Manager . According to the respondents, the original letter has been misplaced and, therefore, a copy of the office copy was obtained from the bank. This office copy is not in the records of the bank as per the affidavits filed by the parties after the joint inspection. 53. The admitted position is that the bank had sanctioned the limits by a letter dated 21-5-2000 but according to the company, it was handed over to the company only on 4-6-1999. To substantiate that the sanction dated 21-5-1999 was handed over on 4th June, the respondents have relied on an alleged copy of the office copy of the sanction letter in the records of the bank wherein someone has initiated the same with a note received and dated as 4-6-1999. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns. First it states that while taking approval from the higher authorities the bank had assured that it would make the company agree for the condition and that the sanction would be released only after the company agreeing to the condition. It further records that the bank had already prepared the sanction letter on 21-5-1999 but was withholding it for want of confirmation from the company. If the withholding was only for getting confirmation of acceptance of the condition, on the same breath the bank could not have asked the company to increase the capital by 4-6-1999. Further it is also recorded in that note that I am of the view that raising our paid up capital just to the authorised limit as I have told the bank in my letter dated 19-5-1999 and the bank agreeing to release the renewal letter on that basis would be the best bargain in the circumstances . The letter of 19th May, on the other hand, contains reasons for not insisting on increase in the capital and requests for release of the sanction without any additional condition. For the first time the suggestion to increase the paid-up capital upto the authorized capital is found in the note dated 25-5-1999 and the 2nd respon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... there should have been two notes on the same day, one to seek ratification from the Board and another regarding the demand of the bank for increasing the share capital. If the contents of the note were correct and genuine, this must have been brought to the notice of the Board as ratification of the application is of no use without the share capital being increased. At least, at the time of ratification, the Board should have been informed of the requirements of the bank. However, in that meeting, as seen from the minutes produced by Shri Ganesh, there is not even a whisper about the same even though the Board considered matters relating to the bank and credit facilities. Further, even without an agenda item, in that meeting, the Board also constituted a committee to explore the possibility of mobilizing funds by sale of securities etc., but no reference is there about mobilizing funds by way of issue of shares inspites of these notings. If the notings are genuine, the 2nd respondent being aware of the requirement of the bank would have definitely made a mention of the same. From the agenda items for the meeting on 24-9-1999, we find that credit facilities from the bank was the onl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... edit limits. 57. As far as the bank letter of 27th May is concerned, the same deserved to be rejected straightaway for various reasons. Firstly, it was neither referred to nor enclosed with the reply. This letter being the Trump Card should have been disclosed or mentioned at the first instance but was disclosed only on 14-1-2001 by which time many hearings had taken place. Even assuming that since the original copy received by the company was misplaced and as such could not be produced earlier, at least a reference to the same should have been made to this. We also note that even the note of 26-5-1999 indicating the cut of date at 4-6-1999 was not disclosed on 25-8-2000 when other notes including the note of the previous day 25-5-1999 were disclosed. Secondly, the claim of the respondents that it is a copy of the office copy of the bank also does not inspire confidence. It is unsigned and the identity of the person whose initial is found below Chief Manager is not known. One of the basic principles of maintenance of office records is that the office copy is always initialed, if not fully signed, by the officer signing the original without which there can be no authenticity. A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sions of the respondents. The reason for not producing this letter, which should have been in the possession of the company, during the hearing, raises a doubt about its genuineness especially after Shri Ganesh pointed out that there was nothing on record to show that the company had intimated the bank about the resolution of the Board on 3-6-1999. If this letter had been genuine and since it refers to the alleged letter of 27th May from the bank, the same should have been produced at least along with the copy of the 27th May letter. To substantiate that the sanction letter was received only on 4th, the respondents have produced an unsigned copy of the sanction alleged to be a copy of the sanction in the records of the bank. All the observations that we have made in respect of the copy of the letter of 27-5-1999 are applicable in this case also. If so, then no reliance can be placed on this document to come to the conclusion that the sanction was received by the company only on 4th June. Further, in the records of the bank, there is another copy with the signature of Shri Singhania with Received with thanks . No date is mentioned. It has been argued by the respondents that it is t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... into account the absence of the letter of 27th May in the records of the bank. We have already pointed out that the respondents themselves had complained that there had been tampering with the records of the bank and we had already indicated that we would not be relying on the records of the bank. We have considered these documents on their own merits in the circumstances of this case. However, after the joint inspection of the records of the bank, the petitioners filed an affidavit dated 9-5-1999. In this affidavit, it is stated that an inspection of the correspondence between the Branch and the Zonal Office revealed that neither the Branch nor the Zonal Office had referred anything about the requirement relating to increase in the capital of the company. In its reply to this affidavit, the company has not denied this averment but has only stated that the conclusion drawn by the petitioners from the correspondence between the Branch and the Zonal Office was wrong and misconceived and they have not alleged manipulation of these correspondence. 59. Thus on an overall assessment of the claim of the respondents that the share capital was increased to meet the requirement of the ba ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the new shares. Any offer made under this clause shall be made by notice specifying the number of shares offered and limiting and the time within which the offer, if not accepted, will be deemed to be declined. After the expiration of the time; or on the receipt of an intimation from the person to whom the offer is made that he declines to accept the shares offered, the Board may dispose of the same in such manner as they think fit. The Board may likewise so dispose of any new shares, which, by reason of the ration which the new shares bear to shares held by persons entitled to an offer of new shares, cannot in the option of the Board be conveniently offered under this article. 61. These articles talk of new shares. Article 5 deals with creation of new shares, article 6 with issue of new shares with differential rights and article 7 with offer of new shares on a proportionate basis. A reading of articles 5 and 6 would indicate that the general body approval is necessary only when authorized capital is increased by creation of new shares and shares are proposed to be issued with differential rights. (In terms of section 88 of the Act, the provisions contained in article 6 are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the respondents had fabricated the minutes showing the presence of Dr. Charat Ram. However, when we permitted the petitioners to inspect the records of the company, they were shown the minutes containing the time of the meeting as 7.30 PM. The counsel for the respondents contended that the minutes showing the time at 11 AM were draft minutes and were inadvertently included in the compilation of documents and that the meeting which was convened at 11 AM was adjourned to 7.30 PM to enable Dr. Charat Ram to attend the same. They also pointed out that in the morning of 25-8-2000, the respondents had filed with the High Court, a copy of the minutes indicating the time of the meeting at 7.30 PM and as such there was no fabrication. The minutes on 25th August starts These are the minutes of the Board of Directors meeting of the company held on 3-6-1999 at 11.00 AM at Commercial Complex, Malcha Marg, Chanakyapuri, New Delhi . The one relied on by the respondents, starts These are the minutes of the Board of Directors meeting of the company held on 3-6-1999 at 7.30 PM as adjourned from 11.00 AM at Commercial Complex, Malcha Marg Chanakyapuri, New Delhi . Except for the addition of the w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fully justified in claiming that the meeting, if at all held, must have been held at 11 AM and the presence of Dr. Charat Ram in that meeting had been fabricated and that he was not a party to the decision to issue right shares. 63. According to the company, the notices with the agenda for the meeting at 11 AM on 3-6-1999, were sent on 28-5-1999 by UPC to all directors. On this day, as we have seen from the passport of Dr. Charat Ram, he was in Japan. It is an admitted position that he returned to Delhi only on 3-6-1999 at about 5 PM. According to the petitioners, the alleged letter containing the notice was not received and they have relied on the personal diary maintained by the personal secretary of Dr. Charat Ram to substantiate this by pointing out that there is no entry in the register in respect of this meeting. According to the respondents, a message was left at his residence about holding the meeting at 7.30 PM and accordingly he attended the meeting at 7.30 PM. Inspite of our repeated query as to the mode and manner of communicated, no satisfactory reply was given. Assuming that some message was left about the meeting at 7.30 PM and that he had the agenda sent by UPC, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ting. Therefore, the irresistible conclusion that we have to arrive at is that he did not attend the meeting on 3-6-1999. Our view is strengthened by the fact that Shri Jain also did not attend the meeting, which according to him, was on account of non receipt of the notice for the meeting at 11.00 AM and the alleged message for the meeting at 7.30 PM. It is on record that in no earlier meetings, the issue relating to increase in share capital had been discussed. Therefore, if Shri Jain had received the notice for the meeting at 11.00 AM, he would have definitely advised the company to adjourn the meeting to enable Dr. Charat Ram to attend the meeting since he is the only other shareholder Director besides Shri Dongre. Or else he would have at least ascertained the reasons for increase in the share capital. It is on record that in the Board meeting on 17-5-1999, he had sent a letter expressing his dissent on some of the items and the same had been recorded in the minutes. Therefore, if he had received the notice for the meeting at 11 AM, knowing that Dr. Charat Ram was not in station, he would have certainly taken some action in this regard. Therefore, we have to only conclude that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e at the right side that there are difference in the shades between the right and left page and that there are signs of re-stitching of the register, the manner in which the right side page contains the signature of Dr. Charat Ram along with other directors, yet, we cannot categorically and conclusively give a finding on these discrepancies. However, the use of the 3rd register from the immediate next Board meeting does raise a doubt in our mind that the 2nd register was abandoned only to ensure that Dr. Charat Ram does not notice his signatures in the meetings on 3-6-1999 and 12-7-1999. While the respondents have given some jurisdiction for bringing the 2nd register into use, the justification given for bringing the 3rd register that the Secretary of the company had brought the 1st register and not the 2nd register for the meeting on 29-9-1999 is not convincing as the Company Secretary being a professional should have been aware that having started the 2nd register and having recorded the signatures for four Board meetings has to be used for subsequent meetings and the 1st register cannot be used. Thus, the probability of his signatures obtained for some other purpose having been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... spatch register, the acknowledgement cards signed by the petitioners and also certificates obtained from the post office of delivery, to prove that not only the registered letters were sent on 14-6-1999 but they were also received by the petitioners. While the petitioners do admit that they had received the registered envelopes posted on 14-6-1999, they deny that these envelopes contained the letters of offer. According to them, the registered envelopes contained only a letter dated 11-6-1999 intimating the postponement of the EOGM convened on 10-6-1999. This is a peculiar case wherein not only the respondents have produced ample evidence for posting as well as delivery of the registered letters, the petitioners also admit the receipt of the same. The issue relates to the contents of the registered envelope. This not the first time that this Board has come across disputes relating to the contents of registered envelopes. In Ajit Singh v. DSS (P.) Ltd . (yet to be reported) , a registered envelope alleged to be containing a notice for a general body meeting was opened in the presence of this Bench and it was found that it did not contain the notice for the general body meeting, but ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the venue of the meeting on 10th June, since the company had exhibited a notice regarding the order of the High Court and postponement of the meeting, he would have been aware of the postponement of the meeting. Therefore, we do not find any logic in the company sending a letter on 11th regarding postponement of the meeting convened on 10th to the shareholders. Shri Choudhary argued to state that sending of the letter of 11th was a managerial decision, which cannot be questioned either by the petitioners or by the CLB. When the action of a party is found to be irrational or belies any logic, then the motive or the purpose of the action can definitely be examined, especially when in the present case, as the petitioners have alleged that the letter of 11th was a pre-planned one to be enclosed with the registered envelope in place of the offer for rights shares. In this connection, it is also pertinent to note that the petitioners had, in paragraph 31 of the petition, averred that the registered envelopes received by them contained the letter dated 11th June and they had also enclosed a copy of the same at page 151 of the petition. This was done even before the respondents had disclos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he could not have borrowed money for investment in these shares, considering the fact that the ninth petitioner was fighting for the trust shares, he should have at least approached the ninth petitioner for suitable instructions in this regard which we find he has not done. Rather these shares have also been allotted to the 8th respondent. Thus we have no hesitation to come to the conclusion that no offer for rights shares was made to the petitioners. 68. The manner in which the 8th respondent acquired the shares also strengthens the case of the petitioners that the motive of the issue of shares was only to benefit Shri Dongre. There are too many coincidences as far as the 8th respondent is concerned which do not seem to be accidental but pre-planned. First the share capital of the company was increased in May, 1999 to ₹ 35 lakhs as against the existing share capital of ₹ 5 lakhs. The 8th respondent has contended that it was done with the view to comply with the RBI requirements. In its letter dated 12-12-1998, the RBI had advised the 8th respondent that since its net owned funds were below 25 lakhs, it should not accept public deposits and that if it had public depo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stand of the respondents is that the petitioners had also not applied for right shares in full in Usha Sriram Furnishing Industries (P.) Ltd. for their own reasons and, therefore, they must have had their own reasons for not having applied for the shares in the company also. This analogy may not be appropriate as the petitioners have already initiated certain proceedings in respect of the company while no such proceedings have been initiated in respect of Sriram Furnishing. In regard to the contention of the learned counsel for the petitioners that the real worth of the shares is over ₹ 2,000 and as such the petitioners would not have refused the offer, we do not find much substance in this argument in as much as in a going concern the real value has no meaning. Further, since the proposal was for right issue of shares, the benefit would have been passed on to all the shareholders if every one had applied for the right shares. On the other hand, if the petitioners had raised the issue of loss of dividend on account of non subscribing to the right shares, there would have been some merit as according to the respondents, in 10 years time, the company had declared dividend of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... meeting on 3-6-1999. 71. It was contended before us by the learned counsel for the respondents that since the petitioners never questioned the allotment of shares to the 8th respondent till July 2000, it is apparent that they were fully in the knowledge of the said allotment. According to the respondents in the EOGMs held on 28-12-1999 and also on 8-7-2000, poll was demanded by the petitioners and the results were announced, wherein the voting of the 8th respondent in respect of 26,400 shares was recorded but at they never raised any objection in this regard as they were aware of the allotment of the shares to the 8th respondent, since they had not applied for the shares. According to the respondents, the petitioners have raised this issue of allotment of shares in this petition only in view of the High Court making certain observations in their favour in respect of the trust shares in its order dated 21-2-2000. According to the petitioners, as far as the December meeting was concerned, since one of the petitioners had not exercised his voting rights and that Shri Dongre had exercised the voting rights in respect of the trust shares, they knew that all the result of the poll wou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not, we are of the view that the same is irrelevant in as much as immediately thereafter they filed CM No. 1078 of 2000 in the High Court on 20-7-2000 and the present petition on 20-8-2000. It is also to be noted that notwithstanding the issue of further shares by which Shri Dongre could have defeated all the resolutions, yet he applied for permission of the High Court to exercise voting in respect of the trust shares by an application dated 24-5-2000. This also indicates that Shri Dongre had tried to keep the issue of further shares as a secret as long as possible. Further, the petitioners are right in pointing out that issue of shares made during the period from the close of the accounting year and the holding of the AGM for that year, the same should have been disclosed in the Directors report as enjoined in section 217. Section 217(d) requires disclosure of any material changes affecting the financial position of the company in the Directors report. In the present case, even though the quantum of the increase in the capital is only ₹ 26.4 lakhs, yet, it constituted more than 25 per cent of the then existing paid up capital and therefore, the same is a material change and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ares, in that case, the Court found that when many shareholders had not applied for shares, the Board extended the time for applying for shares and some of the shareholders expressly declined the offer in writing. Therefore, it held that the petitioners should have received the offers but had not accepted the offers. In the present case, even on 2nd July, even though the last date was 4th July, according to Shri Choudhary, Shri Dongre had advised the 8th respondent to apply for all the shares. Therefore, the findings in that case cannot be straightaway be applied in the present case. Further there is another significant difference between the two cases. In that case, there were no proceedings pending between the parties in relation to the control of the company as against the present case, wherein all acts complained in the petition took place during a period of just about 45 days before and during which there were certain proceedings pending before the High Court relating to control over the shares as well as the Board. Normally, in examining the allegations in a petition, the facts and circumstances of the case have also to be kept in mind. Therefore, the decision of R. Kemka s c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tempted to be kept as a secret for as much time as possible so that the same is not challenged. It is on record that after the shares were issued there were a number of proceedings before the High Court and except in one affidavit dated 20-8-1999, wherein the company had denied the shareholding position, however, without disclosing the issue of further shares and the real shareholding position. As a matter of fact in the order dated 24-12-1999 the learned single Judge had made an observation that the control of 11 per cent shares would decide the control of management. By this time, further shares have been issued by which the 11 per cent shares would have had no bearing on the control of the company. 75. It is also to be noted that the learned counsel for the respondents repeatedly pointed out that the petitioners having failed in their various attempts to gain control of the company before the High Court, have now filed this petition for the same purpose and as such, this petition is a mala fide one and, therefore, should not be entertained. It is true that the petitioners had failed in their attempts in the High Court but not in the matter that is before us. Further, their cl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ven though he was a party to the decision to issue right shares and also to the allotment of all the shares to the 8th respondent, he has changed his stand only in view of the protest by the other petitioners afterwards. While it is a fact that Dr. Charat Ram voluntarily transferred 11 per cent shares to the trust and made Shri Dongre as the sole trustee by which Shri Dongre could control 51 per cent shares in the company, there would have been no reason for him to approve issue of rights shares which ultimately went completely to Shri Dongre, thus raising his control to nearly 62 per cent. Therefore, we do not believe that Dr. Charat Ram has filed a false affidavit denying his attendance in the meetings on 3-6-1999 and 12-7-1999, after having really attending the same. In this connection, we may also mention that even though it was argued that the determination of the issues in the petition warranted cross examination of some of the parties, yet no formal application was made by any one in this regard except relating to Shri Rao about which we have given our decision at para 49 ante. 77. To sum up, our findings on the various issues raised in the proceeding are as follows : ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it, the sequence of events appears absurd and illogical. Common sense should never be made a casualty of in a litigation. The crystal clear object of the issue was only to benefit Shri Dongre group and a colour had been given as if it was a right issue. The mode and manner of issue of shares in this case prompt us observe as was done by the learned Shri Bijayesh Mukherji J in Ramashankar Prosad s case (supra) at paragraph 78, that the claim of the respondents that the bank had required the company to increase the capital is a sham, that the claim that Dr. Charat Ram attended the meetings on 3-6-1999 and 12-7-1999 is a sham, that the purported offer of shares to the petitioners is a sham and that the manner of allotment to the 8th respondent is also a sham. Production of fabricated documents to establish the case of the respondents is all the more a sham. 79. Therefore, the only issue now for consideration is whether our findings above could be considered to be acts of oppression against the petitioners warranting winding up of the company on just and equitable consideration. Shri Choudhary contended that, in the absence of the averment relating to winding up on just and equita ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ditional documents filed by the petitioners, we also find that no major decision in the company is taken without consulting Dr. Charat Ram and as a matter of fact we also note that even after the disputes had started and even during the year 2000, his advice is being sought as is seen from the additional documents. Now he has also been appointed as a regular director. In addition, the petitioners group is also represented by the seventh respondent on the Board. Thus, there is active participation of the petitioners group in the management of the affairs of the company. As indicated by us earlier, the understanding between the two groups that Shri Dongre would have control over 51 per cent shares and Shri Charat Ram over 49 per cent shares had continued for over a period of 10 years. By issue of further shares, this parity in the shareholding has been affected, which, in a company of this nature, having only two groups of shareholders, could be considered to be an act of oppression meriting winding up of the company on just and equitable consideration. The learned counsel from the company citing Rights Issues Investment Trust Ltd. s case (supra) contended that maintaining one s c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... titioners, the said issue/allotment of the shares has to be held to be invalid and has to be cancelled, especially when we have held that the increase in capital was not required by the bank. However, since the petitioners have sought for an alternate prayer of directing the 8th respondent to transfer proportionate shares to the petitioners, we are inclined to order so. In this connection, it is necessary to consider the argument of Shri Choudhary that the 8th respondent being a bona fide allottee of the share, not concerned with the internal management of the respondent-company, cannot be subjected to any order of this Bench. This argument has to be rejected straightaway. Shri Dongre is the Chairman of the company as well as the 8th respondent. During the arguments, Shri Choudhary pointed out that Shri Dongre being Chairman of the 8th respondent knew that as on 2-7-1999, the other petitioners had not applied for the shares and as such the 8th respondent applied for all the shares. This argument alone is sufficient to establish that there is no separate identity between Shri Dongre and 8th respondent and, therefore, the 8th respondent cannot claim the immunity on the principle of i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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