TMI Blog2006 (1) TMI 650X X X X Extracts X X X X X X X X Extracts X X X X ..... -investment At that time, the paid up capital of Hotel Queen was ₹ 90 lakhs comprised in 9 lakh equity shares of ₹ 10/- each of which the Government of India (GOI) held 89.97% shares while Indian Hotels Ltd held about 10% shares and the balance shares were held by the employees of the company. GOI invited bids for sale of the shares of the company. By a Share Purchase Agreement dated 8.10.2002, the 6th respondent, a public company, being the successful bidder, acquired the shares held by GOI and Indian Hotels except those held by about 150 employee shareholders. In the 6th respondent, the 2nd respondent and his family members hold controlling interest. The 2nd respondent is the elder brother of the 2nd petitioner. The total amount involved in the acquisition was ₹ 45.03 crores which was funded by the 6th respondent through loans of about ₹ 33.25 crores from Banks, and the balance in cash which according to the 2nd petitioner was funded by ₹ 5.50 crores from the 2nd petitioner and ₹ 6.23 crores from the 2nd respondent 2. Since the 6th respondent had acquired about 99.99% equity shares in the Hotel, it became a subsidiary of the 6th respondent. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the EOGM, the 1st petitioner itself convened an EOGM on 4.8.2005 by a notice dated 8.7.05. The company filed a suit in Delhi High Court challenging the EOGM notices on the ground that the 1st petitioner was not entitled to any voting rights on the preference shares. The High Court declared that the 1st petitioner had no voting rights on the preference shares therefore held that the resolutions passed in the said EOGM which had already been held as void. The 1st petitioner has filed an appeal before the Division Bench which is pending as of date. 6. On various grounds stated in the petition, the petitioners have challenged all the allotments of equity shares and also the transfer of equity shares from 6th respondent to the 2nd respondents and consequently they have sought for cancellation of all the allotments of equity shares as also the registration of transfer of shares from the 6th respondent to the 2nd respondent. They have also sought for a declaration that the appointment of the additional directors is illegal and invalid. Alleging that there is financial mismanagement in the company, they have also sought for an investigation into the affairs of the company. 7. Shri Ch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ad filed a civil suit before Delhi High Court seeking for a decree of declaration that notices issued for convening the EOGM were illegal, null and void and also for a. declaration that the 1st petitioner was not entitled for any voting rights in respect of the preference shares held by it. Only during the proceedings in the High Court the petitioners came to know of the various allotments made to the 2nd, 3rd, 6th and the 7th respondents also the transfer of shares from 6th respondent to the 2nd respondent. 8. The learned Counsel further submitted: The sole and only purpose and motive of transfer of shares from the 6th to the 2nd respondent was to deny voting rights on the preference shares. In terms of Section 87(2) of the Act, voting rights would accrue on the preference shares if dividend is not paid for 2 consecutive years. However, in terms of Section 90(2) of the Act, Section 87(2) will apply in case of a private company only if it is a subsidiary of a public company. Admittedly, the 6th respondent is a public company and by virtue of its holding over 99.99% equity shares in the Hotel which is a private company, it was a subsidiary of the 6th respondent. By transfer of sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssed in a Board meeting without notice to a director is invalid -- Parmeshwari Prasad Gupta v. UOI , Col. Kuldeep Sing Dhillon v. Paragaon Utility Pvt. Ltd . 64 CC19 Punjab: Therefore, the approval of transfer in this Board meeting has to be declared as invalid. Transfer of shares is a contract with the company when the instruments of transfer are lodged for approval by the Board, it is also an arrangement as the company is a party to the registration of transfer. It has been held by this Board that to be a non interested director in terms o Section 300, the said director should not have any interest either as a transferor or a transferee or as a beneficial holder of shares -- Gordon Woodroffe Ltd. v. Trident Investment Ltd. 79 CC 764 CLB. Therefore, the provisions of Section 300 would also apply. Since the transfer was in favour of the 2nd respondent who was/is a director, he could not have participated in the business of approving the registration of transfer and with out him, there would have been no quorum as only the 3r respondent was the other director present in that meeting. 10. He further submitted: By acquiring these shares and with the allotments made to the 2nd res ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he minutes that leave of absence was granted to him. The admitted fact is that the 2nd and 3rd respondents hold more than 2% shares in the 6th respondent and without disclosing their interest in terms of Section 299 of the Act, shares were allotted to the 6th respondent and as such they had automatically vacated the office of director in terms of Section 283(1)(i) of the Act. Again, in a Board Meeting held on 7.1.2005, shares were allotted to the 2nd, 3rd and 6th respondents without any notice to the 2nd petitioner. The allotment of shares to the 2nd and 3rd respondents is in violation of provisions of Section 300 according to which no interested director can participate or vote on transactions in which they are interested. In the present case, both the 2nd and 3rd respondents were interested directors and as such they could not have voted for the allotment of shares. Further, since both were interested directors, there was no valid quorum in any of these meetings and therefore no Valid business could have been transacted. Similar is the position with the allotment of shares to the 7th respondent as both 2nd and 3rd respondents were interested directors as they hold more than 2% sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it was decided to remove him and the 3rd respondent as directors with a view to protect the interest of the company. The 2nd respondent had kept the alleged allotments of shares and the transfer of shares as a secret till he disclosed the same in the civil suit. Having de-subsidiarised the Hotel, apprehending that he and the 3rd respondent would be removed from the Board, he also appointed two of his dummies as additional directors just to perpetuate his control over the Hotel. The 2nd petitioner demanded inspection of statutory records Of the company even before filing of this petition, but the same was denied. Even when this Board directed the Hotel to give inspection, the same was not given. Thus, the 2nd petitioner has been completely kept in dark about the affairs of the Hotel. Therefore all the allotments impugned in the petition should be set aside as also the transfer of shares from the 6th respondent to the 2nd respondent. In addition, there should be an order for investigation into the affairs of the company. 14. Shri Tikku, Senior Advocate appearing for the 2nd petitioner submitted: The respondents have falsely contended that the 2nd petitioner was appointed as a dir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompany did not furnish the same. The contention of the respondents that oral notices over phone were given cannot be sustained as in terms of Section 286, notices must be in writing. It is a settled law that any business transacted without notices to all directors is invalid. Even for general meetings, the company is not issuing notices to all the shareholders as is evident from the affidavit filed by a shareholder (Vol III Page 393) that he had not received notices for any general meeting in the past. Therefore, all the allotments made in the impugned Board meetings as also the transfer of shares have to be cancelled as the meetings were not validly held on account of non issue of notices to the 2nd petitioner. Further the transfer of shares is a grave act of oppression, as, by this singular act, the 1st petitioner has been deprived of the voting rights statutorily accrued on the preference shares. Further, Articles of a company are binding whether it is private or public company. Therefore, Article 8 is binding and any transfer contrary to the provisions of Article 8 has to be declared as invalid. 16. Shri Sundaram, Sr. Advocate appearing for the 2nd respondent while questioni ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the company. The main challenge in the petition is regarding transfer of shares by the 6th respondent to the 2nd respondent. It is an admitted fact that the 6th respondent is controlled by the 2nd respondent and the transfers being with the same group, the 2nd petitioner is not in any way affected. As far as the 1st petitioner is concerned, there is nothing on record to substantiate its claim that the company would always be a subsidiary of the 6th respondent to allege that by transfer of the shares, the company's status as a subsidiary has been disturbed only to deny voting rights accrued on the preference shares. It is to be noted that no where in the petition, there is any averment that the 6th respondent would always continue to be the holding company of the Hotel. Only as an after thought, such an averment is found in the rejoinder. Further, in Article 4 of the Articles of Association, it is specifically stipulated that the preference shares will have no voting rights. The claim of the 1st petitioner for voting rights is not with a view to protect its investment or to gain seats in the Board but to hand over the company to the 2nd petitioner who holds only one share. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nal directors is concerned, it was done in a board meeting held on 4.7.2005 which was attended by the 2nd petitioner and the majority of the Board decided to appoint the additional directors even though the 2nd petitioner was opposed to the same. In the appointment of directors, the 1st petitioner is not in any way concerned with. The allegation of the petitioners that the hotel has not become operational due to mismanagement by the 2nd respondent is baseless. At the time when the Hotel was acquired, the hotel was in a bad shape requiring extensive repairs and renovation to make it a star hotel which also required time consuming obtaining of various approvals. Presently, most of the renovation of the hotel has been completed and it would become operational in the next few months. Since the petition has been filed for a collateral purpose, the same should be dismissed. 17. Shri Sarkar, Sr. Advocate appearing for the 1st respondent submitted: According to Para (b) at page 24 of the petition, the 1st petitioner invested in preference shares on the advice of its financial adviser viz. the 2nd petitioner. If it is so, the 2nd petitioner was fully aware that in terms of Article 4, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ioners have also complained of under valuation of the shares transferred. This complaint can legitimately voiced only by the shareholders of the 6th respondent and not by the petitioners. 18. He further submitted: The petitioners have complained that in the matter of transfer of shares, the provisions of Article 8 have hot been complied with. Article 8 would apply only if shares are transferred to an outsider and not to another member. Further, in law, as soon the transfer takes place by payment of consideration and execution of transfer instruments along with delivery of share certificates, the title to the shares passes on to the transferee. LIC v. Escorts Ltd ; Vasudev Shelat v. Pranlal . Therefore, as soon the 6th respondent had delivered the share certificates together with transfer instruments, the title to the shares became vested in the 2nd respondent and since transfer of shares from one member to another member is governed by Article 11 according to which no approval of the board is necessary in case of transfer of shares from one member to another member, the 2nd respondent automatically became a member in respect of the impugned shares. Even otherwise, since at the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecial fact that there were only 3 directors who were/are related to each other has to be taken into consideration while applying the provisions of Sections 297/299/300 of the Act failing which the Board will become non functional and even the transfer of one share to the petitioner would have to be declared as invalid. In Sangram Singh P. Gaekwad v. Shanta Devi the Supreme Court has held that when the petitioners have consented to and even benefited in the company being run in a way which would normally be regarded as unfairly prejudicial to their interest, they cannot complain later. In the present case, he got the benefit on one share by transfer approved in a meeting not attended by him and but attended only by other two interested directors. Further, these Sections would apply only in relation to any contract or arrangement with the company. The matters of allotment and transfers do not fall within contract or arrangement with the company as is evident from the fact that the provisions of Section 301 of the Act which stipulates maintenance of register of contracts does not stipulate that transfers and allotments should be incorporated in the said register. It has been hel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Hotel, no approval from the Board of the company is required when shares are transferred by a member to another member. A strict interpretation of Article 8 read with Article 11 would indicate that Article 8 providing for preemptive right would apply only in case of transfer of shares to a non member. Further the very basis of allegation that the shares were transferred only with the view to deny voting rights on the preference shares is incorrect as by May 2005, when the shares were transferred, voting rights had not accrued on the preference shares. 23. In the rejoinder, Shri Choudhary submitted: The contention of the respondents that the petitioners are prosecuting parallel proceedings is wrong. The civil suit in the High court was initiated by the Hotel and not by either of the petitioners. In the appeal, the only relief that the 1st petitioner has sought is for setting aside the order of the learned Single Judge that the 1st petitioner did not have any voting rights on the preference shares. No relief that has been sought in the present petition has been sought in the appeal. However, to avoid conflict of decision, this Board need not deal with the issue of voting rights ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that it would continue to be the holding company of the Hotel. A reading of Clause 9.5 of the Agreement with GOI would indicate that the 6th respondent being the purchaser would continue to have the controlling interest in the Hotel and if so, the Hotel has to be a subsidiary of the 6th respondent. By the transfer, the 6th respondent ceased to be the owner of the Hotel. Likewise, in terms of Clause 13.4 of the same Agreement, no benefits or obligations under the Agreement shall be assignable without the approval of GOI. Therefore, from these clauses of the Agreement, the 1st petitioner understood that the Hotel would continue to be a subsidiary of the 6th respondent and invested its funds in the company. Further, at the time of communicating the allotment of preference shares to the 1st petitioner, the Hotel itself has sent a communication that the investment was subject to different laws and rules as prevailing in India and it is also applicable to the 1st petitioner as an investor. If so, the 1st petitioner was made to understand that in case dividend was not paid for two years, the company being a subsidiary of the 6th respondent, the preference shares would have voting rights i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed during the hearing except by way of a passing reference. In the reply to the petition by the 2nd respondent, I find that he has given satisfactory explanation in respect of every allegation in detail and in the rejoinder, the petitioners have not challenged the explanation given in the reply. I also find that in the annual report for 2004-2005, the Auditor has not repeated most of the earlier qualified remarks, signifying the fact that the earlier lapses pointed out by the auditor have been rectified subsequently. In the written submission also, the petitioners have not referred to any instance of financial mismanagement. This is inspite of the fact that the claim of the 1st petitioner that it sought to remove the 2nd and 3rd respondents due to their mismanaging the affairs of the company. Thus, this petition appears to be essentially a petition under Section 397 relating to oppression. 28. This petition has been filed jointly by a shareholder holding redeemable preference shares and an equity shareholder under Sections 397 and 398 of the Act alleging oppression and mismanagement in the affairs of the company. Even though the 2nd petitioner contends that it was he who was ins ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etitioner had desired to invest in the equity share capital of the company, whether the respondents would have agreed as the control of the Hotel would have passed on to the 1st petitioner immediately thereafter. Even though, in the rejoinder to the reply filed by the respondents and during arguments by the counsel for the petitioners, it was urged that there was an understanding that the 6th respondent would continue to be the holding company of the company and that the 1st petitioner would be entitled to voting on the preference shares if dividend were not paid for two years, the petitioners could not furnish any proof of such an understanding. It was also not explained as to with whom the alleged understanding was arrived at - whether with the 2nd petitioner, 2nd respondent, the company or the 6th respondent. However, at paragraph 7 of page 25 of the rejoinder, is stated In fact the Petitioner No2 is the only, witness for the understanding arrived by the Respondent No 1 and Petitioner No 1 at the time of allotment of Cumulative Preference shares . Who represented the Hotel during the understanding is not stated and it is also not stated as to how an understanding between the H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o a public company with the view that being a public company it would be in a better position to mobilize more bank finances. Thereafter, some disputes arose between Jain and the other two. In December, 1957, the company obtained an approval from the Controller of Capital for further issue of equity shares to the tune of ₹ 39 lakhs. Since the company had become a public company, the provisions of Section 81(1) of the Act became applicable by which shares had to be issued proportionately to the existing shareholders. Patnaik and Loganathan, did not have sufficient funds to subscribe to the shares if offered proportionately. Therefore, they apprehended that Jain would corner the shares not subscribed by them. Therefore, they convened a general meeting and with their majority equity holding passed a resolution in terms of Section 81(1 A) to enable the company to issue the shares to outsiders without offering the same to the existing shareholders proportionately. Thereafter, Shares were issued to 7 outsiders. After some subsequent events which are not relevant to cite, Jain filed a petition under Sections 397/398 before Orissa High Court. . While the Learned Single Judge decided ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and Loganathan groups did take advantage of the help given by the appellant when the company was in a difficult situation, the fact that when new issue was made can be said to be oppressive of the then minority shareholders, namely the appellant when the company was in a difficult situation, the fact that when new issue was made on behalf of the public company, they decided to make it more broad base and issue the shares to others and not to the existing shareholders cannot be said to be oppressive of the them minority shareholders cannot be said to be oppressive of the then minority shareholders, namely, the appellant's group. We have already pointed out that it cannot be said to have been proved in this case that the appellant suffered in his proprietary rights as a shareholder and these circumstances it cannot be said that the action taken in March and July 1958 in the allotment of shares amounted to such oppression of the appellant as would justify an order under Section 397. 32. In the present case, the alleged understanding is not substantiated, leave alone the absence of any thing about the understanding in the Articles of the Hotel respondent. Secondly, the 1st peti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... successors by reason of amalgamation and merger of any party) and permitted assigns . In the agreement certain clauses have been inserted under the heading of Post closing date obligations of the purchaser . There is no specific clause under this heading stipulating that the purchaser would continue to be the holding company. Under that heading Clause 9.5 finds a place and the wording of this clause only indicates that even after the closing date, the hotel properties cannot be used for any other purpose other than the hotel. No one can, by any stretch of imagination, come to understand that this clause conveys the meaning that the 6 respondent would continue as the holding company. Since Clause 13.4 does not appear under the above heading and appears under the heading Miscellaneous , it is quite clear that the prohibition of assignment would continue only up to the date of Working out the agreement. Therefore, from this clause also the 1st petitioner could not have understood that the 6th respondent would continue to be the holding company. In the agreement, the 6th respondent has been referred to as the Purchaser (which expression shall include its successors and permitted as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oppression alleged by the 1st petitioner relates to transfer shares by the 6th respondent to the 2nd respondent: the act is oppressive as by this transfer, the 1st petitioner has been deprived of its voting rights on the preference shares. As regards the other three aspects, the stand of the petitioners is not clear. There is no specific averment as to who committed the act of oppression and how the company is a party to the oppression. If it is the 6th respondent which has committed the act of oppression, the petitioners have no locus standi as this petition is essentially in the affairs of the company. If: their allegation is that since the 2nd respondent controls both the companies and therefore he has acted in an oppressive manner then the petitioners cannot complain, as the transfer is within the same group. Further, a transaction of transfer of shares by a member can never be considered to be in the affairs of a company. In deciding a matter under Section 397, the conduct of the parties is relevant. As per the petition, the 1st petitioner was dis-satisfied with the performance of the company and as such it desired to have the management changed. Not even a single document ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n and brother in law were proposed to be appointed as directors on removal of the 2nd and 3rd respondents as directors. Thus, it appears that the 2nd petitioner, being a minority shareholder, is trying to oppress the majority. Therefore, any action taken legally to prevent such an occurrence by the majority cannot be considered to be oppressive. 35. Since the petitioners have alleged that the transfer was not in accordance with the provisions of the Act and the Articles, I have to only examine whether the transfer suffers from any legal infirmity. The petitioners have challenged the transfer on three legal grounds: that the transfer is in violation of Article 8, registered in a board meeting held without notice to the 2nd petitioner (Section 286), approved by interested directors (Sections 299/300) and without a valid quorum(Section 287). In Needles Industries case, the Supreme Court has held that an isolated illegal act need not lead to the conclusion that it was committed with the view to oppress, but a series of illegal acts could lead to that presumption. Therefore, whether the allege illegal acts could lead to the presumption has to be examined. 36. As far as violation o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, the fair value and the name of the proposed transferee. The board shall, within 7 days from the date of such notice, notify the non transferring shareholders about the proposed transaction. In case, any of the non transferring shareholders are willing to purchase the shares at the same price or at a higher price, that shareholder shall notify the board of his willingness within 21 days from the date of the notice. Upon receipt of such notice, the transferring shareholder shall transfer the shares to that non transferee shareholders. In case no such notification is received by the board from a non transferring shareholder, within 30 days from the notice by the transferring shareholder, the transferring shareholding shall be at liberty to sell and transfer the shares to any person at the same or at a higher price . Article 11 reads Subject to Section 3 of the Act, no transfer of shares shall be made or registered without the previous sanction of the board except when the transfer is made by any member of the company to another member or to members (spouse, child or children or heirs)or the board may decline to give such sanction without assigning any reasons. 38. If one were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t at the time when the 6th respondent transferred on share to the 2nd petitioner, no records reveal that Article 8 was compiled with even though there were about 150 employee shareholders at that time. The learned Counsel for the respondents urged than in terms of Article 11, even the approval of the Board is not necessary and the title of shares passes on the transferee as soon the share certificates are delivered (sic) with transfer instruments. A scrutiny of Article 11 would show (sic) only exempts prior approval of the Board and not approval for registration of transfers , which, by law has to be approved by the Board. 39. According the allegation that the meeting on 10.5.2005 in which the registration of transfer was approved was held without notice to the 2nd petitioner, the company has not adduced any proof that written notices were ever sent to the petitioner for any Board meeting and as such I (sic) to draw an adverse inference that no notice was sent for this (sic) also. The counsel for the petitioners rightly cited a number of decisions to the effect that any board meeting held without notice to all directors is invalid. Whether these decisions can be applied in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oodroffe case (supra). In that case, the interpretation of interested directors arose with reference to Section 22A(3)(c) of SCRA and this Board observed As long as the Board of directors who participate in a voting not have any pecuniary interest either as a transferor or transferee or as a beneficial holder, as in the present case, the decision cannot fall within the ambit of either contract or arrangement as contemplated under Section 299/300 of the Act . If as contended by Shri Chaudhary that Section 300 is applicable in the matter of transfer, as rightly pointed out by Shri Sarkar, registration of transfer in favour of a brother of a director would also come within the purview of this Section as a brother of a director is a relative in terms of Section 6 of the Act. Since transfer of one share in favour of the 2st petitioner was approved in the Board Meeting held on 21.12.2002 by the 2nd and 3rd respondents, this transfer has also to be declared as invalid. Shri Chaudhary tried to differentiate between a transfer to a director and to a relative and contended that Section 300 would apply only in case of transfer to and from a director. I am unable to accept this contentio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ade to benefit the directors and their group companies in breach of directors' fiduciary obligations only with the view to defeat the voting rights on the preference shares and to increase the holdings of the respondents; that the shares were allotted at par without proper valuation; that provisions of Section 300 would apply and that no notice was issued to the 2nd petitioners for any of the Board meetings in which shares were allotted. 43. It is a settled law, as decided in the cases cited by the learned Counsel for the petitioners and also decided in many other cases, that directors cannot use their power to issue/allot shares with the sole object of enhancing their own holdings or with the view to convert a majority into a minority. In this case, the respondents group, even at the time of acquiring the Hotel, held more than 99% shares in the equity capital of the company and even after the impugned allotments, the same group holds practically the same percentage of the shares. Therefore, the cases cited by the petitioners have no application in the present case, in so far as the illegality in the issue/allotment of shares, it is a settled law as propounded by the Supreme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ative that the company should be a party to any agreement relating to allotment of shares. I find that this case has been quoted out of context as in that case, the provisions of Section 300 were not examined. The issue examined was whether an agreement relating to allotment of shares without the company being a party to the agreement could be enforced against the company and the Court held that to enforce the agreement against a company, the company should be a party to it. 45. The applicability of Section 300 in allotment of shares to directors has been examined by this Board in Kadri Mills case. This Board has observed In regard to legal infirmities, his submission has been that before a quorum of non interested directors, the board decided to issue convertible warrants and also issued shares against the warrant. As far as the presence of dis-interested directors is concerned, we are in full agreement with the submissions made by the counsel of the respondents. As rightly pointed out by him, as long as the board takes the decision which is subject to general body approval, the question of approval of directors being interested in a particular subject may hot be of much relev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erest to buy equity shares now proposed to be offered by the company. As Section 81A stipulates approval of existing shareholders before allotting shares to persons other than existing members, the above resolution is thus recommended for your kind approval . (emphasis supplied). On the basis of this explanatory statement disclosing the directors' interest to acquire shares, the general body authorized the Board to issue/allot preference shares to the 1st petitioner and equity shares to the directors and their relatives as also to the 6th respondent, even without proportionate shares to the existing shareholders. Thus when the shares had been allotted to the directors with the approval of the general body, as decided in Kadri Mills case,.the same cannot be impugned to be in violation of Section 300. The 2nd petitioner could have justifiably alleged oppression that when the general body had approved issue/allotment of shares to the directors, he also should have been allotted shares, but he only seeks to cancel the allotments. Admittedly, the respondents have not justified exclusion of the 2nd petitioner, who was/is a director, from allotment of shares. However, during the heari ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . This stand of the respondents has not been rebutted by the 2nd petitioner. If he was a party to the confirmation of the minutes, he cannot now complain. Even if there was no confirmation contrary to the claim by the respondents, in the earlier paragraphs, I have already held that the allotments and the transfer were done lawfully and with the view to protect the interests of the promoters of the company. Therefore, I do not find that the respondents are guilty of any fraud. The counsel for the petitioners also contended that by the allotments and transfer of shares, only the 2nd respondent was benefited and not the company. As far as the allotments are concerned, it is an admitted fact that the company needed funds and to that extent the company was benefited by induction of funds. In so far as transfer of shares is concerned, in no case any company could be expected to benefit as it is a transaction between a buyer and a seller. 48. The petitioners have also challenged the appointment of additional directors appointed in the Board meeting held on 4.7.2005. The challenge is mainly on the ground that it was done with a view to perpetuate the control of the company by the 2nd an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be careful and astute enough to prevent a misuse of the provisions of sections 397/398 by a party, lest a remedy proposed and granted to overcome an alleged mischief becomes a source of greater oppression than the one sought to be removed or prevented . This observation squarely applies in this case. 50. In view of the foregoing findings that the petitioners have not been able to establish any act of oppression or mismanagement in the affairs of the company and that this petition has been filed with the oblique object of taking control of the company, the petition deserves to be dismissed. However, as far as the 2nd petitioner is concerned, I find some distinguishing features which prompt me to grant some appropriate reliefs taking into consideration the observation of the Supreme Court in Needles Industries case (para 172) and reiterated in Gaekwad's case (para 207) that even when oppression has not been established, the court may grant such relief so as to do substantial justice between the parties. Even though the respondents repeatedly contended that the 2nd petitioner holds only one share, it is to be noted that even the 2nd respondent held only two shares shares and t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd petitioner should be offered 1/6th of the total shares of 15,60,000 shares allotted to these respondents- that is 2,60,000 shares should be offered to the 2nd petitioner at par. In case he accepts the same along with consideration, each of these respondents should transfer 1/6th of the shares allotted to each of them. Since it is the stand of the 2nd petitioner that at the time of acquiring the Hotel, he had given a loan of ₹ 5.5 crores to the 6th respondent, which stand has not been rebutted, I am of the view that he should get benefit for the same. Therefore, when the 2nd respondent acquired shares from the 6th respondent against the loan given by him of ₹ 6.23 crores, it is just and proper that the 2nd petitioner should also get shares against his loan. Of the total loan of ₹ 11.73 crores given by both, the loan of ₹ 5.5 crores given by the 2 petitioner constitutes 46.9%. Therefore, I am of the view that the 2nd respondent should transfer 46.9% of 32,88,181 shares transferred to him by the 6th respondent. Accordingly, I direct so. The number of shares required to be so transferred works out to 15,42,156 shares. The consideration for the transfers will ..... X X X X Extracts X X X X X X X X Extracts X X X X
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