TMI Blog1993 (4) TMI 322X X X X Extracts X X X X X X X X Extracts X X X X ..... periodicals and other publications and for editing and carrying on other business as proprietor and publisher of newspapers, journals, magazines and other literary works. RDIL became a Section 43A-company on October 1, 1988, and as per the certificate issued by the Registrar of Companies, Maharashtra, it ceased to be a Section 43A-company on January 31, 1991, in terms of Notification No. G.S.R. 795(E), dated September 18, 1990. 2. The first respondent is RDIL and the second respondent is Shri Minoo H. Mody, who is the vice-chairman and director of RDIL. Respondent No. 3. Shri Anil S. Gore, is the managing director of RDIL and respondent No. 4. Shri V. L. Ukidave, is Director (Finance) of RDIL. Respondent No. 5, Shri Noshir S. Dhabhar, respondent No. 6, Shri Homi S. Ayrton, and respondent No. 8, Shri Gurpreet Seekond, are shareholders of the company either individually or jointly and are additional directors of the company appointed at a meeting of the board of directors of RDIL held on 6th April, 1992, the minutes of which are disputed by the petitioners. Respondent No. 7, Mr. Praxy Fernandas, is also a director of the company. Respondent No. 9, Shri Surendra Butala, is a shareh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5.2% in December, 1989, to 54.6% in February, 1992. The petitioners have also alleged that respondent No. 2, Sh. Mody, has misused his position as director so as to get the benefit to his family in relation to 13,200 shares of RDIL which were otherwise at the disposal of the board of directors as a trustee. It is also stated in the petition that there are series of continuous acts of omission and commission on the part of the second respondent which clearly shows that the affairs of the company are being conducted in a manner oppressive to a significant number of members of RDIL and there are sufficient facts to make out a clear case for detailed inquiry. The facts and circumstances, mentioned in the petition, would justify an order that the company should be wound up ; but to wind up the company would unfairly prejudice the members of RDIL, it is further averred. 4. On behalf of RDIL, Shri Anil Gore, managing director, has filed a reply. Respondents Nos. 2, 3 and 4 have also filed short replies denying the personal allegations made against the respondents. Respondent No. 7 has filed a reply mainly dealing with the appointment of alternate director for him at the board meeting h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no further shares shall be issued by Samrat, respondent No. 12, without our specific approval and no rights would be exercised in respect of any shares issued by Samrat to any person other than the original shareholders, i.e., RDIL. We also directed that Samrat shall not further deal with the investments/funds arising out of the sale of Titan shares except for the purpose of getting benefit of capital gains tax. In the hearing held on July 23, 1992, we directed that our interim orders issued on May 22, 1992, restraining the company from giving effect to the resolutions passed in the extraordinary general meeting held on May 28, 1992, would be continued till the disposal of the main petition, In the hearing held on September 1, 1992, we heard the advocates of the petitioners and the respondents about the issue of holding of the annual general meeting of RDIL by September 30, 1992. We noted that both the parties were of the view that finalisation of accounts of RDIL and its subsidiary Samrat and appointment/reappointment of directors may create further controversies in the board and, therefore, it would be desirable to restrain the company from holding the annual general meeting till ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs of RDIL and Samrat and respondent No. 5 is also the director of both the companies and a shareholder in the second name of the holding company. Shri Cooper pointed out that effective control of the subsidiary is with the parent company and the parent company's prosperity is affected by the fate of the subsidiary. In fact, the subsidiary in this case is nothing but in the nature of the investment department of the parent company and, thus, the link between the holding company and the subsidiary is completely established. With regard to the prayer for amendment relating to allotment of approximately 3,000 shares by Samrat, he pointed out that this amendment was being proposed, as, at the time of filing of the petition, this information was not available even though in the petition they have expressed apprehension about such likely desubsidiarisation. The facts relating to the allotment of 3,000 shares were suppressed by the respondents and the petitioners became aware of these facts only during the hearing. Shri Cooper then referred to the decision of the Delhi High Court in Inder Kumar Jain v. Osra Bottling Co. (P.) Ltd. [1977] 47 Comp Cas 194 (Delhi) and the decision of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... andes about being involved as one of the directors, in the conspiracy against the shareholders. 12. Shri Cooper then initiated arguments on the main petition and explaining the facts of the case submitted that at the time of incorporation of RDIL, the house of Tatas played a significant role inasmuch as it was responsible for influencing the composition of the members of the newly incorporated company. He pointed out that respondent No. 2 who is the director and the vice-chairman of RDIL, resigned as chief executive of Tatas in July, 1989. He then, in collusion with respondents Nos. 3 to 6 and 8 to 10, devised a conspiracy to grab control of the majority shareholding of RDIL and succeeded in his objective in March-April, 1992. The petitioners became aware of the existence of such a conspiracy to grab control of RDIL only when respondents Nos. 2 to 6 and 8 to 10 started claiming to be a group controlling 52 per cent. of shares of RDIL. According to Shri Cooper, the entire conspiracy was executed in three phases. Phase I relates to cancellation of the decision to issue convertible debentures as rights issue, replacing it by issue of non-convertible debentures ; phase II relates to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... viz., Shri Minoo H. Mody, Shri A.S. Gore, Shri V.L. Ukidave and Shri N.S. Dhabhar, for ultimately gaining control of the company. In this context, Shri Cooper drew our attention that the proposal for FCD was made at the board meeting on June 26, 1989, when respondent No. 2 was in the employment of Tatas and he changed the proposal after his resignation in July, 1989, in order to establish his own separate empire. It was also pointed out that while the issue of FCDs was approved by the shareholders, the issue of NCDs was not brought before the shareholders. Shri Cooper further pointed out that significantly although the rights issue was ex facie unattractive, being non-convertible, the said issue was made non-renunciable and discretion was given to the directors to allot the unsubscribed portion to other shareholders evidently in view of the further scheme for effecting an indirect conversion of NCD at a later date. Narrating the further events, he pointed out that although the NCD was heavily undersubscribed, respondent No. 2 mooted a proposal by a circular resolution No. 115, dated February 1, 1990, to permit the management to accept excess subscription to the extent of 25 per cen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of debentures was made on March 5, 1990, and individual letters informing the shareholders of their respective allotments were sent. Shri Cooper referred to annexures filed along with rejoinders of RDIL in which the circular resolutions passed by the special committee of the board of directors for acceptance and subscription to debentures have been annexed. There are four resolutions, all undated, which indicate the amounts received as subscription for the debentures and two of these resolutions state that the debentures shall be deemed to have been allotted with effect from February 1, 1990. He also referred to the fifth circular resolution of the same committee, which also is undated, in which details of the additional debentures applied for and allotted and the amount received are indicated. All these resolutions are signed by the chairman, the vice-chairman and the managing director. Shri Cooper argued that the undated circular resolutions signed by three directors cannot be deemed, to be approval of the board of directors as all other directors were kept in the dark. Referring to the reply of the respondent in paragraph 34 that there is no legal provision which requires that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ital was being processed, respondent No. 1 advanced to respondent No. 12, ₹ 1.4 crores and the total amount due from respondent No. 12 to RDIL as on October 4, 1990, was ₹ 3.14 crores. 15. Shri Cooper then pointed out that, while placing the matter of issue of shares before the shareholders' meeting, there was no adequate disclosure of the interest of directors, including respondents Nos. 2 to 4, in the resolution to issue rights shares to the debenture-holders and the proposals also did not bring out clearly the disproportionate offer of shares to the debenture-holders. Referring to the notice of the 12th annual general meeting of the members of RDIL held on September 10, 1990, and the explanatory statement pursuant to Section 173 of the Companies Act in respect of items 6 and 7 relating to increase in the authorised capital by ₹ 50 lakhs and item No. 8 relating to issue of allotment of further 1,80,000 shares of ₹ 10 each at.par, totalling to ₹ 18 lakhs, Shri Cooper pointed out that the language of the resolution as well as the explanatory statement were such that the shareholders were made to believe that their approval was a mere formality a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nch in which it was shown that out of 34,000 shares reserved for directors/employees of the company, only 5,000 shares went to directors other than respondents Nos. 2 to 4 and 6 and 8 and the respondent directors appropriated to themselves 29,000 shares. Referring to the surrejoinder filed on behalf of RDIL, Shri Cooper pointed out that as revealed in the annexure to the circular resolution No. 128, dated October 15, 1990, of the special committee of the board of directors, appointed by a circular resolution No. 126, dated September 26, 1990, for the allotment of shares, Mrs. Mody was given 11,000 shares from directors' quota and Shri Gore 11,000 shares, Shri Ukidave 4,000 shares and Shri Seekond who was the only employee to get shares; and who was not even a shareholder in the company till then got 3,000 shares. With the allotment of 11,650 shares as shareholders and 96,120 shares as debenture-holders and allotment of 29,000 shares from the directors'/employees' quota, respondents Nos. 2 to 6 and 8 to 10 along with their family members got 1,36,770 shares out of 1,80,000 shares which works out approximately to about 75 per cent. of the total share issue. With this, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... L had control were being frittered away by the respondent directors. In this connection, he pointed out that during April, 1990, to March, 1991, a sum of ₹ 2.13 crores was given by RDIL to its subsidiary Samrat and the total amount due from Samrat as oh March 31, 1991, was ₹ 3.14 crores. While the allotment of shares of RDIL took place on October 15, 1990, on August 22, 1990, Crown, respondent No. 10, made an offer to its shareholders offering 40 shares for every one share held by the shareholders and at this relevant time Crown was controlled by respondents Nos. 2 to 6 and 8. While the total share capital of Crown was ₹ 1.15 lakhs, the rights issue was for ₹ 46 lakhs. This offer was open only for 15 days and none of the respondents controlling the company participated in this rights issue. The purpose behind this offer, according to learned counsel, was nothing but to create a pretext for RDIL, through its subsidiary Samrat to invest money in Crown and thus enable Crown, thereafter, to make an offer to the debenture-holders of RDIL to purchase these debentures as ex right enabling respondents Nos. 2 to 6 and 8 to 10 to subscribe to the rights issue of sha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es out of unsubscribed shares which were not renunciable, got allotted 29,000 shares out of 34,000 shares reserved for directors/ employees to themselves and made available to themselves the funds of RDIL via Samrat and Crown for the purchase of these rights shares. In view of this, Shri Cooper strongly urged that the entire allotment of shares made to the debenture-holders and shares allotted out of the employees'/ directors' quota should be set aside. 19. Shri Cooper then referred to the third and final phase of conspiracy relating to desubsidiarisation of Samrat. Shri Cooper stated that in 1987 RDIL was allotted 4.25 per cent. shares of Titan Watches Ltd. out of the quota reserved for promoters as it was perceived as a Tata-friendly company. These shares were subsequently transferred by RDIL to Samrat which is a wholly-owned subsidiary and this transfer was effected after obtaining the approval of Titan Watches Ltd. In January, 1992, respondents Nos. 2 to 4 approached Tatas regarding sale of Titan shares by Samrat. Realising that the sale of Titan shares was imminent and the huge profit of nearly ₹ 13 crores would accrue to Samrat, an extraordinary general meeti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unt on which he was paying interest. He further pointed out that the minutes of the subsequent board meetings held on April 6, 7 and 8, 1992, are equally false and fabricated as none of the minutes refer to earlier payments or repayments and also while they mention about the receipt of money for allotment of shares, no money was received till April 8, 1992, as the bank book shows payments on April 11, and clearance of these cheques from April 11 to 21, 1992, as shown by the statements filed by the respondents. 21. According to Shri Cooper, the respondents had fabricated these documents as the respondents became aware that if Samrat is desubsi-diarised before March 31, its accounts cannot be part of the holding company and this will be noticed by the directors of RDIL at the time of consideration of the annual accounts and directors' report for the year ending on March 31, 1992. Another possible reason for fabrication of documents was that the respondents were aware that some of the directors of RDIL were challenging the appointment of Shri Manohar Mody as an alternate director for Shri Praxy Fernandes (respondent No. 7) and, therefore, the entire proceedings of the meeting o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it was, therefore, proposed to enter into a collaboration agreement with RDA, USA and give them up to 51 per cent. shareholding in RDIL and at the same time delink Samrat from RDIL so as to ensure that the benefit of investments of Samrat will be retained only with the original shareholders of RDIL. It is also stated in the affidavit that RDA, USA had expressed a desire that they would not like to participate in the investment activities carried on through Samrat. Shri Cooper pointed out that the respondents have claimed that in these circumstances, it was decided to desubsidiarise Samrat and to issue its shares to the shareholders of the RDIL in the same proportion as the shares they held in RDIL. The rights issue was not transferable or renunciable and the proposal was to make an offer in the ratio of one share of Samrat for every 25 shares held in RDIL to persons who are registered as shareholders on the record date to be determined by the directors. These decisions were taken in the meeting of the board of directors of Samrat held on March 23, 1992. Out of the increased capital of 17,600 shares proposed to be allotted, the entitlement of respondents Nos. 2, 3 and 4 would have b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... interest or dividends was received. Shri Cooper referred to para 88 of the affidavit dated June 30, 1992, of Shri Gore filed on behalf of RDIL to point out that while the reply of Shri Gore refers to the huge sum of ₹ 38,70,000 being invested in debentures of Aryagene earning interest and only ₹ 1,30,000 invested in equity shares, in fact, no interest was received by Samrat on these debentures. Shri Cooper also referred to the statement made in the affidavit. If the company so preferred, these debentures could be converted into shares at par or at a value well below their true worth. If it did not, the company would retain the debentures and reduce its exposure and pointed out that the vague statement made by Shri Gore does not disclose whether these debentures are convertible or non-convertible. Shri Cooper referred to copies of seven letters, i.e., letters of August 27, 1990, June 1, 1991, November 25, 1991, and two letters each dated March 22, 1991, and March 26, 1991, from Aryagene filed by Samrat relating to allotment of shares and debentures and pointed out that contrary to the statement made in the affidavit, the debentures are unsecured and non-convertible. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o letters on March 26, 1991, in which it is stated that Aryagene had up to that date received a sum of ₹ 40 lakhs from Samrat which is quite contrary to the fact revealed in the cash book. These two letters also state that ₹ 40 lakhs were to be appropriated towards allotment of shares and debentures while as per the cash book, this money was advanced only for shares. (2) The respondents have stated that Samrat has been allotted 17 per cent. debentures of the face value of ₹ 38.70 lakhs and in support of this, they have produced a certificate of debentures which is dated March 28, 1992, and is signed by Shri Mody and Shri Ayrton on behalf of Aryagene. Shri Cooper pointed out that neither of the two letters dated March 26, 1991, written by Shri Mody to Samrat tallies with this certificate. One of the two letters dated March 26, 1991, purports to allot 17 per cent. secured debentures of ₹ 100 each of value of ₹ 35 lakhs while the other letter purports to allot 15 per cent. secured debentures of value of ₹ 38.50 lakhs . The only letter produced by the respondents which tallies with the debenture certificate is the letter dated June 1, 1991, sign ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as on March 31, 1991, Samrat had paid to Aryagene only ₹ 25 lakhs and not ₹ 40 lakhs. The balance-sheet of Samrat for the year ending on March 31, 1991, also shows that as on March 31, 1991, only 23,700 debentures were held by Samrat. This clearly establishes according to Shri Cooper that the entries are fabricated. 25. Shri Cooper argued that all the facts have been deliberately hidden from the board of RDIL when a question was asked regarding this investment in the meeting and these facts are also not mentioned in the reply affidavit. Shri Cooper argued that copies of letters filed at the specific direction given by the Bench are clearly fabricated documents to justify entries made in the investment register and necessary action must be taken against the directors and the companies which have produced these documents. 26. Shri Cooper then pointed out about the attempts made by Shri Mody to pack the board of directors of RDIL with his own nominees. Shri Cooper stated that Shri Mody did not have majority in the board of directors of RDIL and, therefore, he attempted to force the appointment of Shri Dhabhar Shri Ayrton and Shri Gurpreet Seekond who are also direct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s letter dated April 3, 1992, sent to the company secretary, being contrary to the provisions of Section 313 of the Companies Act, 1956. Shri Cooper also referred to paras 12 and 13 of the affidavit dated June 23, 1992, filed by Shri Fernandes. Shri Cooper pointed out that as per this affidavit it is clear that Shri Mody suggested to Shri Fernandes that the latter was empowered to nominate an alternate director under Clause 128 of the articles of association, read with Section 313 of the Companies Act. Shri Fernandes did not have any of these two documents to verify the same and he had no reason to doubt what Shri Mody had suggested. Accordingly, he nominated Sh. Manhar Mody as his alternate director. This was against the provisions of Section 313 of the Companies Act. Therefore, noting the intention for appointment by circular resolution it cannot be treated as a valid appointment. In this connection, he also pointed out that the chairman, respondent No. 11, also wrote a letter dated April 16, 1992, to the qpmpany secretary withdrawing his signature from circular resolution No. 142 as the authority to appoint an alternate director vests in the board only. 29. As per the minute ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... neral meeting was called by Shri Mody himself, Shri Cooper alleged that respondents Nos. 2 to 4 adopted these dubious and dishonest methods to secure illegitimate majority at the board level and to reward these three persons with the plums of office in the form of directorship of RDIL for their help in achieving the majority control of the company. 30. Shri Cooper then referred to the siphoning off of money by payment of a sum of ₹ 4,000 per month to Mrs. Dhabhar, wife of respondent No. 5, from March, 1991, to March 31, 1992. In the affidavit dated August 12, 1992, filed by Shri A.S. Gore, managing director of the company, this fact has been admitted. However, no explanation has been given as to why such a payment was made, though the respondents have stated that the company has ceased making payment from April 1, 1992. In this context Shri Cooper also referred to the letter dated February 25, 1992, sighed by Shri Gore to Mrs. Dhabhar and pointed out the letter does not disclose the department in which she was supposed to work, nor the description of duties assigned to her. Shri Cooper also pointed out that in the information filed by the company in reply to the queries of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of property in favour of Crown Holdings was forwarded by Miss K.F. Captain, secretary of RDIL to Shri H.D. Vakil on April 13, 1989, before its execution on April 26, 1989, and contended that Shri Vakil never received such a letter. He further questioned the authority of Miss K. F. Captain to sign the covering letter dated April 13, 1989, as she is not an employee of Crown and alleged that this letter is fabricated. He also pointed out that the agreement dated April 26, 1989, between Crown and original assignors with regard to the property purchased by the respondents is a clear manipulation since there is no change in the original draft approved except that the word Samrat was substituted by the word Crown wherever the name Samrat occurred. There is a clear rubbing out in the signature clause also. These changes have been carried out surreptitiously without the knowledge of Shri H. P. Vakil who was originally authorised by the board of Samrat, in the same stamp paper which was purchased on October 6, 1988, for the execution of the documents on behalf of Samrat . According to him this was practicable since all the current directors of Samrat, namely, S/Shri Ukidave, Mody, Go ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... records. He pointed out that it is on record that Miss Captain has signed documents as the authorised signatory of Samrat and Crown. He also pointed out that the letter dated April 13, 1989, signed by Miss Captain on the letter-head of Crown bears no designation under her signature. As admitted by her, she has signed this letter at the request of Shri Ukidave, a director of Crown. It is on record that Crown had authorised Miss Captain to act as its constituted attorney and has given her the general power of attorney dated March 22, 1990. While acting under such general power of attorney, Shri Cooper pointed out that she had acted for the companies which had conflicting interests with the company, its subsidiary, for which Miss Captain was the company secretary. It clearly shows that she has acted in connivance with respondents Nos. 2 to 5 and has played an active role in the conspiracy which resulted in the defrauding of the shareholders of RDIL. He also pointed out that in her statement she has submitted that she has, on occasion at the request of directors of the respondents of Samrat/Crown also assisted in preparation of minutes of board meetings. However, she denied having re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tricky or misleading and does not disclose or suppresses facts which are material for decision, the resolution passed on such subject will have to be set aside. Shri Cooper pointed out that the powers under Section 402 are wide enough for the Bench to grant any relief to regulate the company's affairs in future including setting aside the issue of shares to debenture-holders and shares allotted to directors/employees from the reserved quota and reduce the share capital as a consequence thereof. Referring to the decision in Syed Mahomed Ali v. R. Sundaramurthy [1958] 28 Comp Cas 554 (Mad) ; AIR 1958 Mad 587, Shri Cooper also pointed out that the Bench can even order an investigation and enquiry into the affairs of the company, if it comes to a conclusion that such an enquiry is necessary, even if such an enquiry is not specifically prayed for in the petition. 35. Concluding his arguments, Shri Cooper pointed out that the respondent directors belonging to the Mody group have misused their position as directors in RDIL/Samrat in order to convert their 34 per cent. minority shareholding into a 52 per cent. majority, shareholding which has resulted in the oppression of the petit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n as share application money and ₹ 20 lakhs outstanding intercorporate deposit with Crown together with interest, (iii) reimbursement by the director responsible for the unauthorised and illegal payment of ₹ 52,000 to Mrs. Dhabhar as remuneration, and (iv) order immediate repayment of outstanding loans made by RDIL/Samrat to Sh. Mody and Mrs. Mody along with interest. Referring to the illegal steps taken by respondents Nos. 2 to 5 for desubsidiarisation of Samrat, Shri Cooper requested for setting aside the allotment of 2,998 shares in Samrat to respondents Nos. 2 to 5 and order consequential reduction of capital. Shri Cooper also pleaded that respondent directors Nos. 2 to 6 and 8 have utilised the funds of the company for defending the present petition and the Bench should not allow it as the cause of action for the petition is the fraud practised by them on the minority shareholders and mismanagement of the affairs of the company on account of the various acts of omission and commission by respondents Nos. 2 to 6 and 8. He requested that such a cost for defending the litigation should not be a burden on the resources of the company and if any amount has been paid in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2, and, thereafter, a number of hearings have taken place. At no stage, either the petitioners or the respondents made any request for trial on evidence. The request of the respondents, at this stage of final arguments, for oral evidence on the ground that the allegations in the petition, pleadings and various affidavits leave certain issues unexplained, cannot convince us that this entitles the respondents to cross-examine the petitioners to find out which allegations are true. Most of the allegations in the petition are based on the documents which are part of the statutory records of the company or its subsidiary and the respondents are aware of these documents. The observations made by the Supreme Court in Needle Industries' case [1981] 51 Comp Cas 743 were in respect of affording an opportunity to the person accused of wrongful conduct to controvert the inference said to arise from the documents. No doubt, in this case, the allegations have been made about the probity and the fairness of conduct against the respondents but we find that the respondents at no stage even during the last 10-12 hearings and even on the hearings held on November 2 and 3, 1992, when the dates of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed. 39. Shri Kapadia began his arguments by challenging the maintainability of the petition on the ground that the present petition is nothing but an attempt by the directors/shareholders having close links with the Tatas to misuse the facility of obtaining discretionary relief under Section 397/398 for their ultimate objective of obtaining the control of the company and resources garnered through sale of Titan shares. Shri Kapadia then dealt at length with the court cases filed by the respondent directors S/Shri Bhabha, Mahadevan and Johri and pointed out that as they were unable to prove anything against the present management of RDIL, they with drew the suits filed. In all these cases including the present petition, Shri Kapadia argued, the supervisory and supportive role of the Tatas is crystal clear and the filing of the present petition is mala fide and for oblique motives. He narrated the events right from February, 1984, when the agreement between Questor Investment Limited and Tamil Nadu Industrial Development Corporation Limited was signed under which the Tatas were to hold 24 per cent. of the equity capital of Titan Watches Limited, till the filing of the petition an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing to various reports about this dispute appearing in the newspapers, Shri Kapadia pointed out that the public perceives the present proceeding as a tussle between the Tata group and the Mody group for retention of control of RDIL. Shri Kapadia concluded that these events clearly point out that the Tatas who are rivals of the present management are the main moving spirit behind the present litigation and the petition has been filed for oblique and collateral purposes of destablising the management and, therefore, the petition is not maintainable. In support of this argument, Shri Kapadia referred to Company Law by Palmer, 24th edition, page 978, and pointed out that the nature of the action under Section 397/398 is that of a derivative action which is subject to the doctrine of clean hands . In the commentary it is observed as an equitable invention, the derivative action cannot be used to do injustice. This principle has been applied in cases of acquiescence by the plaintiff shareholder in the wrong doing of which he later complains and in cases where the plaintiff has been regarded as a puppet of outsiders whose interests are opposed to those of the company . He also referred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n against those directors. 41. Shri Kapadia then referred to the decision of the Karnataka High Court in Srikanta Datta Narasimharaja Wadiyar v. Sri Venkateswara Real Estate Enterprises Pvt. Ltd. [1991] 72 Comp Cas 211 (Kar) in which it was held that the relief under Sections 397 and 398 of the Companies Act, 1956, is an equitable relief which is entirely left to the discretion of the company court's jurisdiction and the requirement of good faith on the part of the petitioner is necessary. It was also observed the question of good faith has to be tested by the conduct of the petitioner as reflected not only in the proceedings before the company court but in a parallel proceedings in civil courts and in other litigations. A mere proof of the allegations of oppression and mismanagement does not entitle the petitioners to the reliefs sought for when the reliefs are discretionary reliefs ; they will be available only to persons who approach the court with a clean record. Referring to all these decisions, Shri Kapadia submitted that considering the chain of events and the facts that the shares of RDIL were allotted in 1990, after following due procedure prescribed under the Com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... petitioners. Serious allegations like fraud, fabrication of documents or conspiracy cannot be established purely on the basis of inferences, which only exist in the mind of the petitioners. Shri Kapadia also pointed out that it is the case of the petitioners that the main purpose of such a conspiracy was to obtain the majority control of RDIL and its subsidiary, Samrat, which had substantial investment in Titan Watches and that they became aware of the existence of such a conspiracy only in March, 1992, when the Mody group claimed a majority of 52 per cent. and attempted to appoint alternate additional directors on the board of directors of RDIL. Referring to the correspondence filed along with the affidavit of Shri Xerxes Desai, Shri Kapadia pointed out that the contention of the petitioners that the conspiracy had started sometime in June, 1989, after Shri Mody resigned as the chief executive of the Tatas and they became aware of this conspiracy in March, ' 1992, is quite contrary to what is revealed in the correspondence filed along with Shri Xerxes Desai's affidavit and it is clear that the Tata group was aware of Mody's desire to deal with investment in Titan shar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e questioning the need for issue of shares. Counsel also justified the offer of an incentive of a possible rights share issue for the debenture-holders due to poor response from the shareholders and pointed out that the offer of incentive was approved by the board of directors and circular resolution passed on February 2, 1990, after considering the detailed note submitted to the board members on February 1, 1990. To a query from the Bench regarding the mention of poor response to the debenture issue and simultaneously certain shareholders requesting for additional debentures mentioned in circular resolution No. 115, dated February 1, 1990, counsel agreed to file information as to the applications for debentures received up to February 1, 1990, and also requests for additional debentures received on that day. 44. With regard to the allegations about the tricky and misleading nature of the notice given to the shareholders of RDIL at the time of the annual general meeting held on September 10, 1990, in respect of the issue of further shares to shareholders, debenture-holders and directors/employees, Shri Kapadia pointed out that proper disclosure is available in the explanator ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d not explain how in the absence of any scheme for allotment of these shares, the shareholders' resolution which contemplated lapse of shares not taken by the employees could be implemented. 46. Regarding the allegation of modus operandi used for utilising the funds of RDIL through Samrat and Crown for the purchase of shares by the respondent, Shri Kapadia referred to various approvals given by the board of directors, investment committee and pointed out that no illegality has been committed and no case has been made out supporting the allegations on the basis of documents filed before the Company Law Board. Regarding the specific allegation that the purchase of shares of RDIL by respondents Nos. 2 to 6 and 9 was made out of the money supplied by RDIL itself, Shri Kapadia pointed out that money has no identity and there is no evidence produced, either documentary or oral, to prove a nexus between the purchase of shares and the money received by the respondents from the company. He also pointed out that the loans availed of by Shri Mody are like any other loan availed of by the other directors and he was repaying the same regularly along with the interest due thereon. Shri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f of funds, Shri Kapadia first dealt with the payment of ₹ 4,000 per month for 13 months made by RDIL to Mrs. Kamal Dhabhar, wife of respondent No. 5. He admitted the fact that such a payment was made and produced a copy of the letter dated February 26, 1991, of Shri Gore regarding her appointment as an executive in RDIL. Regarding the allegation of siphoning off of funds by way of investment in Aryagene, Shri Kapadia pointed out that investment in Aryagene was a business decision and Samrat considered it worthwhile to make investment by way of venture capital as this company was going into new areas of technology. He also pointed out that in the context of substantial funds available with Samrat, an investment of ₹ 38.70 lakhs in debentures cannot be considered as a huge investment and considering the assets of Aryagene, the investment was safe. Shri Kapadia, while admitting non-disclosure of interest by the concerned director, contended that the investment cannot be considered as bad or objectionable only on that ground. He pointed out that the investments were made after obtaining the approval of the board of directors/investment committee and these investments made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dvances made through Samrat and in support of this, he referred to the correspondence between Shri Xerxes Desai, Shri Mody and Shri Gore. He also pointed out that the supporters of the petition had also received benefits from the acts complained about. He further pointed out that when Samrat wanted to pledge the shares to City Bank for raising a loan, request for the transfer of Titan shares in the joint name of Samrat and City Bank was not conceded by Titan Watches Ltd. (TWL). In this connection, he pointed out that earlier when the shares were transferred from RDIL to Samrat, TWL had approved the transfer of shares. Shri Mukhi then elaborated the three strategies adopted by the Tatas to gain control over RDIL/Samrat. According to Shri Mukhi, the first strategy was to win over the shareholders of RDIL as revealed in Shri Desai's letter. The second strategy was to destablise the management of the company by resorting to legal proceedings and the third strategy was to directly negotiate with RDA, USA for setting up a separate company to take away the business of RDIL. Explaining the rationale behind the desubsidiarisation of Samrat, Shri Mukhi pointed out that it was essentially ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ated, particularly as he held a very high position in the Tata hierarchy at that time, in recommending original shareholders. He then referred to the next facet of the Tata connection in the year 1987 when Titan Watches Limited was formed jointly by the House of Tatas and the State of Tamil Nadu and the agreement between the Tatas and the State of Tamil Nadu provided for the retention of 24 per cent. equity in the hands of the Tata group. Although RDIL was not a Tata company, it was, however, rightly or wrongly considered as a Tata-friendly company and the equity allotted to this company was considered as part of the 24 per cent. which the Tata group had to hold. It is significant that at this point of time Shri Mody who was the vice-president of Tata Sons was to a considerable extent responsible for the allotment of these shares to the various companies in the Tata group. However, these shares which were originally allotted to RDIL were then transferred to Samrat, its wholly owned subsidiary. Shri Cooper stated that although it appears that the management of Titan Watches protested against the disposal of these shares in any manner, RDIL/Samrat were probably right that they were n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he well-established principles which were enunciated by learned counsel, these principles are not relevant in this case as the respondents have not established any facts regarding collusiveness on the part of the petitioners except to state that one of the petitioners was an employee of the Tatas and one of them is the wife of a respondent director who has filed affidavit in support of the petition. 52. Referring to the arguments of Shri Kapadia about acquiescence, laches and delay, Shri Cooper pointed out that the decision of Firestone's case [1971] 41 Comp Cas 377 (Bom) clearly establishes that if there is no knowledge, there cannot be any acquiescence. He listed out various matters which either the directors or the shareholders did not know and which have resulted in oppression of shareholders. In this connection, he pointed out that the detailed break-up of allotment of debentures, allotment of shares from the directors'/employees' quota or to debenture-holders or allotment of shares in Samr.at, use of RDIL resources for purchasing shares of RDIL, etc., were never brought before the directors or shareholders of RDIL. Shri Cooper emphasised the clandestine manner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... given by the Company Law Board on November 3, 1992, that these companies became subsidiaries in July, 1992, by purchase of shares of ₹ 2,000 each. In this connection, Shri John filed copies of the bills submitted by P.R. Gandhi and Associates, auditors of Samrat who rendered services for floating of these companies and the directions given by Miss Captain, secretary of RDIL, for payment of these bills from RDIL funds. 54. With regard to ₹ 28 lakhs deposited with Crown, Shri Johri pointed out that on an examination of the general ledger of RDIL for the year 1991-92, he discovered that the opening balance in the account head Crown Holdings Private Limited on April 1, 1991, was ₹ 25,70,534 and this was the balance out of an intercorporate loan of ₹ 28 lakhs given to Crown after adjusting the dues of ₹ 2,29,466 owed by RDIL to Crown. The balance-sheet of Crown Holdings Private Limited filed on September 1, 1992, discloses a sum of ₹ 28 lakhs as intercorporate deposit as on March 51, 1991. He pointed out that out of the total funds of ₹ 57.83 lakhs of Crown as on March 31, 1991, as much as ₹ 50 lakhs originated from RDIL itself, i.e., ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ith Crown on September 29, 1988, and ₹ 8 lakhs on May 11, 1990, as RDIL had surplus funds to lend on a temporary basis and at present the outstanding deposit is only ₹ 20 lakhs. With reference to the other allegations about payment to two Bombay based companies/firms, it is stated that payments are made by crossed cheques and receipts obtained but there is no reply to the allegation that payment was made without getting any material. Regarding payment to directors for travelling conveyance, etc., detailed explanation is given which is disputed in the rejoinder filed by Shri Johri on January 14, 1993. In his counter-reply, Shri Johri had reiterated the allegations regarding suppression of facts from the Company Law Board and from the directors of RDIL about incorporation of the subsidiaries though respondents Nos. 2 to 5 and Miss Captain, company secretary, were aware of the same since long and suppression of the fact of giving loan/deposit of ₹ 28 lakhs to Crown in the statement of November 2, 1992, filed by Shri Gore, in which a categorical statement with reference to non-inclusion of ₹ 22 lakhs invested in Crown in the list of investments of Samrat placed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the agreement between Questar Investment Private Limited and TIDCO which requires Questar to obtain letters from its associates stating that such associates would be bound by the terms of the agreement and he has pointed out that no such letter was asked for from or given by RDIL. He also referred to the share retention agreement entered into with International Finance Corporation, in which the name of RDIL is not included in the schedule attached to the agreement relating to the list of associated companies. Shri Gore also denies that RDIL had obtained prior approval of Questar Investment for transfer of Titan shares to Samrat. It is thus clear that RDIL was never treated either by RDIL or the House of Tatas as an associated company. On the basis of the facts which have come before us, it is clear that the petitioners have referred to and filed along with the petition, copies of resolutions of the board of directors and other correspondence/documents which are available only to the directors of the company. It is quite possible that these documents were made available to them by respondent-directors Nos. 13, 14 and 16, who have filed affidavits supporting the petition. While in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... approached RDA, USA to revive the idea of joint participation between RDA, USA and Tata in the equity of the joint venture and this may affect the future of the company. Considering all these facts, it is clear that representatives of the Tatas are discussing directly with RDA, USA, a proposal for joint participation for publishing Reader's Digest which is the main activity of RDIL undertaken under a licence from RDA, USA. Thus, it is clear that the House of Tatas is a rival of RDIL so far as the business of publishing Reader's Digest is concerned and both of them are independently negotiating this matter with RDA, USA. It is also clear that the directors of RDIL unanimously supported the stand of the present management for negotiation with RDA, USA and in fact had suggested taking action against Shri Xerxes Desai, a shareholder of RDIL, who had attempted to propagate the case of the House of Tatas and misrepresented various facts in the letter addressed to Shri Grune of RDA, USA. However, all these matters do not establish that the present petition filed before us is going to strengthen the case of the House of Tatas in their negotiation with RDA, USA. Neither do the issue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... control and which are prejudicial to the interests of the company and the shareholders. In the case of corporate bodies, frequently one comes across attempts made by a group of persons to improve its voting strength and if such acts are transparent and through lawful means after following the prescribed procedure and are not unfair or oppressive to others or do not involve any breach of fiduciary duties of directors, they cannot be considered as prejudicial to the interests of the company or to those of the shareholders. No doubt the concept of free transferability of shares in a public limited company listed on a stock exchange is not applicable in all respects to share transfers in a private limited company even if it becomes a Section 43A-com-pany. However, every company is required to follow the statutory provisions contained in the Companies Act and other relevant Acts and the provisions of its articles of association in relation to increase in paid-up capital, issue and allotment of shares and transfer of shares in order to ensure fairness and transparency in all actions by which a person or group of persons can still increase their shareholding in a company. The company is a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f shareholders obtained in the annual general meeting held on September 10, 1990, without disclosing the interest of the directors, for a disproportionate entitlement to debenture-holders as compared to shareholders by giving a tricky explanatory statement implying that the shareholders' approval is being sought as a mere formality ; (vi) allotment of shares in October, 1990, in which respondents Nos. 2 to 6 and 8 and 9 along with their family members got 1,36,770 shares out of 1,80,000 shares approximately about 75 per cent. of the total shares issued which they got allotted to themselves by misusing their position as directors and in violation of the resolution passed by the annual general meeting in respect of the directors'/employees' quota, and allotment of unsubscribed shares which were not renunciable. (vii) directors belonging to the Mody group misutilising the funds of RDIL to the extent of ₹ 22 lakhs through the channel of Samrat, a subsidiary of RDIL and Crown which is controlled by directors belonging to the Mody group ; for the purchase of debentures of RDIL ex-rights, so that they were able to subscribe to the shares of RDIL which enabled them ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tures and only one shareholder had asked for additional debentures at that time. (iii) Seeking approval of the shareholders for rights issue of ₹ 18 lakhs by making a tricky explanatory statement by which shareholders were made to believe that as per legal advice such approval was a mere formality when no such legal advice was given to or obtained by the company. 65. So far as non-disclosure is concerned, the areas are : (i) non-disclosure of details of allotment of debentures either to the board of directors or to the committee of directors as is evident from the circular resolutions of the committee ; (ii) non-disclosure to the shareholders about the holding of debentures by directors as interested parties when disproportionate shares were being proposed for issue to debenture-holders in the resolution on rights shares ; (iii) non-disclosure to directors or shareholders about allotment of debentures/shares in violation of the terms and conditions of issue and allotment, especially relating to the directors'/employees' quota shares and unsubscribed shares. 66. Apart from the above established facts, Shri Cooper had vehemently argued that RDIL an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctors ought to have disclosed how many debentures were held by them and their family members in view of the fact that disproportionate shares were being offered to debenture-holders and that all the shareholders had not taken the debentures. Similarly, in case of the special quota of shares reserved for directors/employees, it was necessary to formulate a scheme of allotment of the shares to directors and employees so that offers could be made to them for subscription. In the absence of such a scheme and offer letters, there would be no unsubscribed shares and the question of lapse of such shares would not arise as contemplated in the shareholders' resolution. Therefore, it should be presumed that the mandate given by the shareholders requires preparation of such a scheme in which all the employees would be entitled to participate. Looking at the actual allotment out of these reserved shares for the directors/employees, substantial shares out of a total 34,000 shares available have been taken by the directors, only one employee belonging to the Mody group has received shares and about 33 per cent. shares have been allotted to Mrs. Mody, wife of the vice-chairman who is neither ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eposed in them by the shareholders. 68. In addition to the above facts, it is also noted that in the issue of NCDs/shares, the directors and shareholders have failed to protect the interests of the company and obtained pecuniary benefits for themselves. While approving the issue of FCDs in July, 1989, for ₹ 32.76 lakhs, the conversion of debentures into equity shares was planned at a premium of ₹ 20. This means, on conversion, the equity of the- company would have gone up by ₹ 10.92 lakhs and the reserves by ₹ 21.84 lakhs which would have been cost free funds available to the company. In the issue of NCD/shares, the total resources raised were ₹ 18 lakhs as equity and ₹ 30 lakhs as debentures for a period of seven years. The shares were issued at par and no premium was charged. Considering the financial position of the company in August, 1990, as compared to the position in July, 1989, the shares ought to have been issued at a premium of ₹ 20 at least, if not, higher. However, when the proposal for the rights issue was placed before the shareholders in August, 1990, there is no explanation given to the shareholders that while proposin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncial resources to achieve majority control. It is a well established principle that when directors decide upon a course of action which is advantageous to themselves but injurious to the company and even if the majority of the shareholders also support them, in such a case the directors are not acting as directors but are wronging the company as third persons and are liable for such actions. This brings us to that final event in the chain of acts about the allegation of misutilisation of RDIL funds. The sequence and dates of the various decisions which are relevant in this event are : -8-1990 RDIL board approves issue of rights shares. -8-1990 Sixth annual general meeting of Crown approves increase in equity and issue of rights shares. Meeting is attended by Mody, Gore, Dhabhar, Ukidave and Seekond as shareholders. Proposal for increase in capital is moved by Mody and seconded by Seekond and for the issue of rights shares proposal is made by Dhabhar and seconded by Gore. -8-1990 Dhabhar as director of Crown sends offer letters to shareholders of Crown, last date of subscr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d them about the efforts made to get the shares allotted. When Crown offered rights shares to Mody, Gore, Ukidave, Dhabhar and their family members or friends/ relatives none of them found it attractive enough to put in their personal money, though Crown had in the annual general meeting of August 21, 1990, declared ₹ 10 as dividend on a share of ₹ 10, but they were quite generous with the funds at their disposal in Samrat of ₹ 22 lakhs for subscribing to the same equity to which not a single shareholder of Crown subscribed. The decision to invest in the equity of Crown was taken by Mody, Gore and Ukidave and they were all interested parties, as together they controlled Crown, and, therefore, it was necessary for them to declare their interest and seek the permission of the holding company to make this investment. By failing to do so, they have acted in breach of their fiduciary duty and even their bona fides can be doubted as they themselves have not taken the rights issue offered to them when Crown had declared a 100 per cent. dividend. This clearly establishes the role of the directors belonging to the Mody group in misusing RDIL funds and in this they have a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rom ₹ 5 lakhs to ₹ 25 lakhs. Both these extraordinary general meetings were attended only by Shri Gore representing RDIL under Section 187 of the Companies Act, Shri Ukidave, nominee shareholder of RDIL and Shri Mody and Shri Dhabhar as directors of Samrat. Considering all these aspects, it is clear that respondents Nos. 2 to 5 indulged in these acts without keeping the board of directors or shareholders of RDIL informed, in order to gain control of the amount of ₹ 14 crores which Samrat received by sale of Titan shares on March, 10, 1992. While the respondents have claimed that the shares of Samrat were allotted in the meetings of the board of directors held on April 7 and 8, 1992, from the entries in the bank statements of these four individuals, and entries in the cash book of Samrat, it is clear that the statements made in the minutes of the board meeting held in April, 1992, about receipt of allotment money are incorrect and payments were received by Samrat after the date of the board meeting. In view of the fact that payments made by respondents Nos. 2 to 5 to Samrat around March 12 and 13, 1992, and refund by Samrat around March 30, 1992, have remained unex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and desubsidiarisation of Samrat and the conduct of respondents Nos. 2 to 5 in respect of these acts, were for the purpose of illegally gaining control of the company and converting a minority into a majority by wrongful and illegal means involving breach of fiduciary duties of directors, lack of transparency, probity and fairness in their conduct. 71. Regarding mismanagement by respondents Nos. 2 to 4 of the affairs of RDIL and Samrat, the allegations relate to : (i) investment made by Samrat of about ₹ 40 lakhs in Aryagene and about ₹ 50 lakhs in Crown on which at present there is no return and decision to invest these amounts was taken by S/Shri Mody, Gore and Ukidave though they and their family members together had substantial controlling interest in these companies and non-disclosure of these investments to the board of directors of RDIL ; (ii) inconsistencies in the debenture certificate of Aryagene, in respect of the nature of security, amount and rate of interest and date of allotment of debentures as revealed in the documents filed before us and wrong entries in the investment register of Samrat establishing attempts to fabricate documents of various ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rely under the control of the Mody group. Similarly, in Aryagene, the Mody group had invested ₹ 40 lakhs and Aryagene is controlled again by persons belonging to the Mody group. In respect of these investments, it is clear from the documents placed before us that respondents Nos. 2 to 5 have misused their position as directors in Samrat and gave pecuniary benefits to the companies controlled by them disregarding the interest of Samrat and the holding company RDIL. Aryagene had received between June, 1990, and October, 1990, ₹ 25 lakhs from Samrat and at that time Shri Mody was a director of Aryagene and no disclosure was made in this respect to Samrat and RDIL. The various provisions in the Companies Act relating to fiduciary duties of directors are based on the principle that a director is precluded from dealing on behalf of the company and from entering into arrangements in which he has a personal interest conflicting, or which possibly may conflict, with the interest of those whom he is bound by fiduciary duty to protect. The object underlying these provisions is that when a director is directly or indirectly interested in any arrangement, the other directors must ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , in his letter dated April 16, 1992, pointed out that the company had failed to point out the correct legal position about the provisions of Section 313 of the Companies Act. We do not think it necessary to further deal with this matter as it is clear that the appointment of Shri Manohar Mody as alternate director by using a circular resolution of April 3, 1992, was in complete violation of the provisions of Section 313 of the Companies Act. 75. Regarding the matter of appointment of S/Shri Dhabhar, Seekond and Ayerton as alternate directors, as these minutes are disputed and two contradictory versions are available before us, it is very difficult to come to a conclusion about what happened at the meetings. In any case, even as per the Mody group's version, such appointments were possible only after the appointment of Shri Manohar Mody as alternate director, by the use of the casting vote of the chairman, which shows that every attempt was made to gain a majority in the board of directors once the disputes surfaced between the Mody group and the other directors. 76. Regarding the payment to Mrs. Dhabhar for 13 months without her doing any work, no explanation has been gi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d statutory books and other material documents are such as would justify the making of a winding-up order on the ground that it is just and equitable that the company should be wound up ; but to make an order for winding up would be unfair and prejudicial to the petitioners. We also hold that the affairs of the company are being conducted in a manner prejudicial to the interests of the company. In our opinion, S/Shri Mody, Gore, Ukidave, who are directors of RDIL/Samrat and Shri Dhabhar, who is a director of Samrat, have acted in breach of fiduciary duties of directors and are responsible for the various acts of mismanagement. In our opinion, the petitioners are entitled for reliefs to bring the state of things that exists today to an end as early as possible. 80. While considering the various reliefs that have been asked for by the petitioners, we have noted that all the debenture-holders who participated in the rights issue are not before us but both the Mody group and the petitioners' group and other respondents to the petition have got more than 98 per cent. of the shares allotted to debenture-holders. We also note that all those who have received shares from the reserve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... RDIL and its subsidiaries are superseded and a committee of administrators is appointed to take charge of the affairs and conduct of the business of the company and its subsidiaries. The committee of administrators will have all the powers of the board of directors of RDIL and its subsidiaries. Only the committee of administrators or a person authorised by the committee will be entitled to operate the company's and its subsidiaries' banks accounts. Each member of the committee of administrators will be paid a monthly honorarium of ₹ 15,000 by RDIL. The company will also place at each of their disposal a company car with a driver for company's work. Justice Bhaktawar Lentin, retired High Court Judge of the Bombay High Court, will be the chairman of the committee of administrators and Shri D.M. Sukthankar, retired chief secretary to the Government of Maharashtra will be the other member of the committee of administrators. The chairman of the committee of administrators is authorised to appoint one more person as member of the committee of administrators if he so considers it necessary for carrying out the duties assigned to the committee of administrators under the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he pendency of the petition, since final orders are being passed, the application has become inffuctuous and stands disposed of. The petitioners have also filed another Application No. 48 of 1992 for commencing action against the directors and the company secretary for falsification of books of account and minutes books with intent to defraud the shareholders/creditors. Since we have already given directions as in (v) and (vi) above to the committee of administrators to further investigate certain allegations, it is now for RDIL to decide whether to commence action against the directors and the company secretary based on our observations and conclusions in this order or to wait till the above investigations are complete. In view of this, Application No. 48 of 1992 is also disposed of. (xii) Regarding payment of litigation costs, we have considered the points agitated by Shri Cooper and we find that RDIL will be unjustifiably burdened it required to pay the legal costs for defending these proceedings by the directors and, therefore, no director will be entitled to get any reimbursement of the legal or any other cost in connection of this petition and if any payment has already be ..... X X X X Extracts X X X X X X X X Extracts X X X X
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