ORDER
Balasubramanian
1. The petitioner holding 49 per cent shares in Motherson Triplex Tools (P.) Ltd. (‘the company’) has filed this petition under section 397/398 of the Companies Act, 1956 (‘the Act’) alleging acts of oppression and mismanagement in the affairs of the company.
2. The facts of the case are: The company is a joint venture between Motherson Sumi Systems Ltd. which is under the control of the 2nd respondent and Triplex India (P.) Ltd., which is under the control of the petitioner. This company was incorporated in July 1992. The petitioner and the 2nd respondent are the signatories to the memorandum of association and were also the first directors and the board consisted of only these two directors till the appointment of a third director in September 2000, which is under challenge in this petition. The petitioner holds 49 per cent shares, the 2nd respondent 10.16 per cent and the 3rd respondent 40.84 per cent. In the articles, the petitioner is styled as Triplex and the 2nd and 3rd respondents forming a single group are styled as MSSL. As per article 6, further shares arc to be issued only in the proportion of 49 per cent and 51 per cent to the petitioners and the respondents respectively. According to article ISA, there are certain items which have to be approved by 3/4th majority by shareholders in general meetings. Article 26 provides that the two groups shall be entitled to appoint directors proportionate to their shareholding, however, subject to a maximum of 12. As per article 27A, concurrence of the directors of MSSL is required in the board approving resolutions relating to the businesses indicated in that article.
3. The main complaints of the petitioner are: The 2nd respondent, without the approval of the board of directors consisting of only the petitioner and the 2nd respondent and in violation of the provisions of the article 18A which requires general body approval for issue of shares, decided to issue further shares which was later on given up in view of the objections raised by the petitioner. The 2nd respondent had allegedly held a board meeting on 24-2-2000 without the presence of the petitioner and transacted certain important businesses including the appointment of one Shri P. Srinivasan as the new President of the company with effect from 25-2-2000. When the minutes of the alleged meeting on 24-2-2000 came up for confirmation in the meeting held on 28-6-2000, the petitioner protested that no meeting could have been held without the petitioner in as much as there would have been no quorum in the absence of the petitioner and as such all the resolutions passed in the meeting were bad in law. The respondents circulated an agenda for the Board meeting to be held on 2-8-2000 in which it was proposed to fix a date for convening EOGM in respect of a requisition made by the 2nd respondent under section 169 of the Act to appoint Shri P. Srinivasan, President, as a director and also as the managing director for 3 years. The motive of appointing him as a director is only to create a new majority on the Board and with a view to oust the petitioner from the management. Further, even the salary proposed for him is twice that of the salary paid to his predecessor. Further, in terms of article 26, a director could be co-opted only with the concurrence of both the directors on the Board and the general body is not vested with the powers to appoint a director. The 2nd respondent is also guilty of financial mismanagement. On the basis of these allegations, the petitioner has sought for a declaration that all the decisions taken in the alleged Board meeting on 24-2-2000 as null and void and for a declaration that the appointment of Shri P. Srinivasan as the President as null and void and also to set aside the decisions taken there in the EOGM on 1-9-2000 to appoint him as a director/MD.
4. Shri Choudhary, Senior advocate appearing for the petitioner argued as follows: The company is in the nature of a quasi-partnership between the petitioner and the 2nd respondent. The shareholding of both of them is practically equal. The shares cannot be transferred by one without the consent of the other. There are only two directors on the Board with one representative from each group. All these facts would clearly indicate that the company is nothing but a quasi-partnership. Between 1992 and 1998, the petitioner was looking after the day-to-day affairs of the company. Only in 1998, the petitioner started looking after the marketing in as much as he is a marketing expert. Once the petitioner gave up the day-to-day management, the 2nd respondent started sidelining the petitioner. First, without consulting the petitioner, the 2nd respondent issued offer letters for right shares knowing fully well that the company was not in need of funds. The purpose was to increase his shareholding as the 2nd respondent was aware that the petitioner did not have necessary financial resources to subscribe to the shares. However, at the protest of the petitioner, the issue of further shares was abandoned. Having failed in his attempt to gain majority shares, the 2nd respondent decided to grab control of the management by proposing the appointment of Shri Srinivasan as a director. Once it is done, the petitioner having practically equal percentage of shares will lose his equal representation on the Board. Further, as an individual shareholder, the petitioner holding 49% shares is the single largest shareholder in the company. In these circumstances, a partnership firm wouldhave been dissolved onjust and equitable grounds.
5. He further argued as follows: The 2nd respondent allegedly held a Board meeting on 24-2-2000 without notice to the petitioner, but his presence was marked in the minutes of the meeting. Normally, minutes arc signed by both the directors but these minutes were not signed by the petitioner since he was not present in that meeting. In this meeting, far reaching decisions were taken to change the bank operation, authorizing the President to deal with excise related matters and also authorizing the 2nd respondent to borrow inter-corporate loans. In this meeting, it was also recorded that Shri P. Srinivasan would take over as the President. The petitioner never knew as to how and when Shri P. Srinivasan was appointed as the President. The respondents have not produced any proof for having sent notices for this meeting. This is the starting point of excluding the petitioner from the management of the company.
6. In regard to the appointment of Shri Srinivasan as the President, the learned counsel submitted that according to the alleged minutes of 24-2-2000, Shri Srinivasan was to take over as President of 25-2-2000 but in the reply at page 12, the respondents have stated that he was appointed as the President on 17-2-2000. Since the appointment of the President is an important one, this appointment could not have taken place without consulting the petitioner who is not only the other director but also a shareholder holding 49 per cent shares in the company. Even though the respondents contend that he was selected through a placement agency, yet, the proposal to look for a new President was never in the knowledge of the petitioner. Further, neither the minutes of the Board meeting held on 24-2-2000 nor the requisition notice dated 17-7-2000 or the notice for the EOGM dated 10-8-2000 indicates this fact of his having been selected through a placement agency. Further, his remuneration has been fixed at Rs. 1 lakh per month while the earlier President Shri Gurbir Singh was paid a remuneration of only Rs. 28,000 per month. Therefore, the appointment of Shri Srinivasan as the President is not only mala fide but is also not justified.
7. Shri Choudhary contended that, having illegally appointed Shri Srinivasan as the President, the 2nd respondent had also proposed to appoint him as a director and also as the managing director in a general meeting of the company requisitioned by him. This was done only to ensure that the 2nd respondent has majority on the Board even though as per the provisions of article 26, there should be proportionate representation for both the sides. Even though the petitioner voted against the proposal to appoint Shri Srinivasan as a director/managing director in the EOGM held on 1-9-2000, by virtue of voting on 51 per cent shares held by the respondent, this resolution was carried through. This has resulted in upsetting the balance in the Board which is a clear act of oppression against the petitioners. While, as per article 26, even an additional director cannot be appointed without the consent of the petitioner being the only other (sic) in terms of article 41 and therefore, the appointment of Shri Srinivasan as the MD in the general meeting is invalid.
8. The counsel further submitted: The 2nd respondent is also guilty of siphoning of funds of the company. He has engaged the sole proprietary concern one Shri Rajiv Kapoor (Rasrak Associates) who is a close friend of the 2nd respondent as a consultant on a monthly payment of Rs. 42,500 with effect from 1-3-1999 even though no worthwhile service was rendered by him to the company. His appointment was never considered by the Board. However, at the protest of the petitioner, the remuneration payable has been reduced to Rs. 35,000 per month with effect from 1-4-2000. By this payment, the funds of the company have been diverted. The 2nd respondent has not accounted for all the commission received from Sumitomo Electric Hard Metal Asia Pacific (P.) Ltd., Singapore (SHAP). The petitioner had, by a letter dated 25-7-2000, sought for full details of the commission receivable from SHAP and also the amount actually received. He had also alleged in that letter that the 2nd respondent had directly received the commission instead of crediting the same in the accounts of the company. In the reply to this allegation, the 2nd respondent has not categorically stated that he had not received any commission directly from SHAP. As per the knowledge of the petitioner, a sum of Signaporc Dollar 137157 payable to the company for supplies to Maruti Udyog Ltd. has not been so far accounted for in the books of the company and as such it must have been directly collected by the 2nd respondent. Therefore, if an investigation into the affairs of the company is ordered, the siphoning of funds by the 2nd respondent would come to light.
9. Shri Choudhary also pointed out that notwithstanding the fact that there are only two groups of shareholders in the company, the 2nd respondent has always been taking interest for the loans given to the company while such interest was not paid to the petitioner nor provided in the books of account for the year 1997-98 and was provided only in the subsequent years after protested by the petitioner. He argued that such a discrimination is against the principle of quasi-partnership. He also pointed out that the 2nd respondent had shifted registered office from Asaf All Road, Delhi, for which no rent was payable to a smaller office at New Friends Colony by paying Rs. 1,000 per month. Actually, the business of the company is not being carried on from these premises but only rent is being paid, thus, diverting the funds of the company. In the alleged Board meeting held on 24-2-2000, the Board had decided to purchase current assets and inventory from Motherson Triplex Optic System & Technologies (P.) Ltd. (MOST) even though the petitioner had very clearly informed the company by a fax dated 17-3-2000 that for purchase of the inventory from MOST, the Board’s approval should obtained. Even though, the respondents contend that the petitioner had approved the purchase when the proposal was sent to him on 10-1-2000 (Ann-R 11) as is evident from the endorsement of the petitioner, yet, the respondents have suppressed the fax dated 17-3-2000 wherein the petitioner had stated that the approval of the Board should be taken to decide this matter. He argued to state that if the proposal had been approved by the petitioner in the alleged meeting on 24-2-2000, he would not have issued the fax on 17-3-2000 and, therefore, it is crystal clear that the petitioner had not attended the alleged Board meeting on 24-2-2000.
10. Referring to the Balance Sheet as on 31-3-2000, he pointed out that a comparison of the turnover, expenses and profits for the year ended 31-3-1999 and 31-3-2000 would indicate that there has been gross financial mismanagement of the company by the 2nd respondent. During the year, 1998-99, the petitioner was in charge of the company when the turnover was Rs. 2.66 crores and the profit before taxation was Rs. 94 lakhs. However, during 1999-2000 when the 2nd respondent was in charge of the company, even though the turnover went upto Rs. 3.92 crores, the profits came down to Rs. 31 lakhs. The expenses were much higher than the proportionate increase in the turnover, thus, indicating financial mismanagement.
11. Summing up his arguments, Shri Choudhary submitted that the principles of quasi-partnership are squarely applicable in the present case in view of the fact that the shareholding of the petitioner and the 2nd respondent is more or less equal, there had been equal and joint management of the company for nearly 8 years. Further the articles also provide for proportionate representation on the Board and also for pre-emptive rights in case of transfer of shares. He also contended that since the proportion of shares is 49 percent and 51 percent, the stipulation in article 26 that the parties will have a right to appoint directors in proportion to the shareholding should actually mean equal representation. He countered the stand of the respondents that since they hold 51 per cent shares, they would have one more director than the entitlement of the petitioner stating that if the directors are to be appointed on a proportionate basis, then, it would be 1:1.04 and .04 cannot entitle appointment of one extra director by the respondents. He submitted that in facts of this case, the term ‘proportionate’ should be interpreted to mean equal. Referring to page 13 of the reply, Shri Choudhary pointed out that the respondents themselves admit that there was a stalemate in the Board and to overcome the same, they have appointed Shri Srinivasan as a director. Once it is established that the company is in the nature of quasi-partnership and that there is a statemate/deadlock which cannot be resolved legally in the domestic forum, then, it is a fit case for winding up on just and equitable grounds. Therefore, he prayed that in the interest of the company and the shareholders, the appointment of Shri Srinivasan, being not only against the provisions of the articles but also being an act of oppression, should be declared as invalid, the proceeding of the Board meeting on 24-2-2000 should also be declared as null and void, the 2nd respondent be directed to bring back all the funds diverted/siphoned of and that an independent Chairman be appointed on the Board. He also prayed that to find out the extent of siphoning of funds, an investigation should be ordered.
12. Shri Ramachandran, advocate for the respondents argued : It is the 2nd respondent who was responsible for incorporation of the company. The 2nd respondent controls a number of companies with which Sumitomo Group of Japan is a joint venture partner. Therefore, the respondent-company was incorporated as the Marketing company for cutting tools products of Sumitomo Group. Since the petitioner is a marketing expert, the 2nd respondent associated the petitioner as a shareholder. Because of the association of the 2nd respondent with Sumitomo, it was consciously agreed that the respondents group would have majority shares in the company at 51 per cent. At no time, either in the shareholding or in the Board equality had either been agreed formally or informally or provided in thearticles. The foundation of the petition is that the company is aquasi-partnership with equal rights, which in facts of this case is baseless. There was no prior partnership nor there is any agreement to that effect. The company is not a family company wherein sometime, the principles of partnership could be applied. On the basis of the articles, the petitioner claims quasi-partnership and equality, but a proper appreciation of the terms of the articles would reveal that the company was never envisaged to be a quasi-parlnership with equality. The present shareholding of the petitioner is 49 per cent and as per article 6, he would continue to hold only 49 per cent as against 51 per cent of the respondents. Therefore, there is no equality as far as shareholding is concerned. Likewise, the primacy of the respondents’ group is recognized by article 27A according to which the matters specified in that article require concurrence of the directors of the respondent group. Even in respect of general body meetings, only in respect of 10 items, 75 per cent voting is required and all other matters could be approved by the respondents holding 51 per cent shares. Therefore, the question of equality in the management docs not arise. In regard to the contention of the petitioner that proportionate directors as envisaged in article 26 means equal number of directors cannot be accepted. The term ‘proportionate’ cannot and does not mean ‘equal’. Therefore, the basic foundation of the petitioner of equality in the shareholding and directorship has no basis.
13. In regard to the provisions of article 26, Shri Ramachandran pointed out that as per this article, only for appointment of an additional director, the Board’s approval is necessary which would mean that both the directors would have to approve. However, for appointment of a regular director, as per the provisions of the Act, it is the general body which has the power to do so. Since article 18A does not stipulate that 75 per cent votes are required for appointment of directors in the general body meetings, the respondents having the majority of 51 per cent shares can approve the appointment of any one as a director. Further, this article provides that both the groups shall have the right to appoint directors in proportion to their holdings. Since the respondents hold 51 per cent shares, their proportion of shares is higher than that of the petitioner holding 49 per cent shares. Since the maximum number of directors in the company is 12 as specified in article 9, on the basis of the shareholding of both the groups, the respondents are entitled to appoint one director more than that of the petitioner. In that case, the respondents could appoint 6 directors while the petitioner 5 directors. Taking this aspect into consideration, the allegation of the petitioner regarding appointment of Shri P. Srinivasan has to be considered.
14. He further pointed out that Shri P. Srinivasan, as is evident from his bio-data at Anncxure-C has wide experience in both manufacturing and marketing. His appointment was made through a placement agency after 3 stage interviews including an interview by one of the Japanese director of Sumitomo. Neither the respondents nor the any of the companies under their control has any association with Shri P. Srinivasan and he is an independent person. He was appointed as the President in place of Shri Gurbir Singh, who had resigned, the resignation of which was to (he knowledge of the petitioner. The petitioner was fully aware of the appointment of Shri P. Srinivasan as the President andhe never raised any objection till June, 2000 when the proposal to appoint him as a director/ managing director was initiated. As far as the remuneration payable to Shri P. Srinivasan is concerned, the same was based on his qualification and previous experience. Therefore, there is no merit in the various allegations made against the appointment of Shri P. Srinivasan as the President.
15. In so far as the appointment of Shri P. Srinivasan as a director/ managing director is concerned, he submitted that the same was done in the interest of the company and in exercise of the shareholders right to appoint directors. By appointment of a new director, who does not owe allegiance to any of the parlies, the deadlock/stalemate in the Board has also been resolved in the domestic forum itself. He pointed out the petitioner’s complaint about this appointment is based on his claim of equal representation on the Board which claim has no basis.
16. As far as the Board meeting on 24-2-2000 is concerned, the learned counsel argued that it was a quarterly meeting required to be held in terms of section 285 of the Act and the petitioner did attend this meeting. The petitioner knew very well that Mr. Gurbir Singh had expressed his desire to resign from the company and, therefore, it was necessary to appoint/ designate another Chief Executive in his place. Shri P. Srinivasan was selected and appointed in place of Shri Gurbir Singh. It was necessary to pass necessary resolutions giving authority to Shri P. Srinivasan. The resolutions passed at the meeting on 24-2-2000 (Pages 85 to 92) were usual resolutions to be passed regarding authorization to deal with sales tax and excise matters, operation of bank accounts and other related matters. None of these resolutions, in any manner affected the petitioner. The resolutions concerning the authorisation to operate bank accounts were similar to one which was in existence before.
17. In regard to the right issue, Shri Ramachandran submitted that the decision to issue right shares was taken in a Board Meeting held on 18-1-1999. When the shares arc issued on right basis and when the articles provide that the petitioner would continue to hold 49 per cent shares, the question of the respondents acquiring more shares than 51 per cent does not arise and the statement of the petitioner that he did not have funds is also not correct since the amount required of Rs. 24.45 lakhs was available as loans to the company which could have been converted into share capital. However, since the petitioner objected the issue of further shares, the proposal was dropped which would establish the bona fides of the 2nd respondent. In view of this, there is absolutely no meaning in raising this issue in the petition as the petitioner has not been prejudiced in any manner.
18. In regard to the allegation on the performance of the company during 1999-2000, Shri Ramachandran pointed out that mere comparison of the turnover, expenses and the profit without analyzing the same cannot reveal the correct picture. He pointed out that the turnover of the company during 1991 to 98, 1997-98 when the petitioner was in charge of the company ranged between Rs. 1.37 to 1.83 crores. But after the respondents assumed the responsibilities in 1998, the turnover for the year 1998-99 was Rs. 2.66 crores and in 1999-2000 it was 3.95 crores. While in the year 1998-99, other income was of the order of Rs. 1.05 crores, the same was only Rs. 35.7 lakhs in the year 1999-2000 as the company had consciously decided to reduce its other activities. Thus, if the expenditure is compared with the turnover after deducting the other income, then it would reveal that the performance had improved in 1999-2000 over 1998-99. Therefore, he submitted that there is no substance in the allegation that there was financial mismanagement in the company.
19. In regard to the allegation of diversion/siphoning of funds of the company, Shri Ramachandran pointed out that other than making bald allegations, the petitioner has not furnished any particulars. He was fully aware of the appointment of Shri Rajiv Kapoor (Rasrak Associates) as a retainer for consultancy in various fields with effect from 1-3-1999 and he never raised any objection to the appointment till the petition was filed. This allegation that Shri Kapoor is a friend of the 2nd respondent has been made only to prejudice this Bench. Even though, initially this firm was paid Rs. 42,500 per month, the same was reduced to Rs. 35,000 per month with effect from 1-4-2000, The contract of service entered into by the firm as at Annexurc-I would indicate that this firm has to render consultancy in various areas of the operation of the company and as such its appointment is beneficial to the company.
20. As far as the allegation relating to siphoning of funds of the company by the 2nd respondent by way of collecting commission payable by Sumitomo, he submitted that all the commission due to the company has been credited to the accounts of the company as the same is being received only through banking channel and the 2nd respondent has not diverted the commission to his personal account. He also pointed out that the petitioner has not furnished any evidence to substantiate this allegation.
21. He also pointed out the petitioner had made false and reckless allegations knowing the same to be false in respect of change of registered office, non-payment of interest on the loans given by the petitioner, guest house charges, purchase of inventory from MOST etc. and prayed that these allegations, in view of the explanation given in the reply and rejoinder be ignored.
22. Summing up his arguments, Shri Ramachandran contended that the claim of the petitioner that the company is in the nature of quasi-partnership has no basis in as much as the ingredients of treating a company as a partnership as stipulated in various Court decisions are not satisfied in this case. Particularly, he referred to Kilpest (P.) Ltd v. Shekhar Mehra JT 1996 (9) SC 152 wherein the Apex Court has held, after referring to various other cases, that the claim of quasi-partnership should not be easily accepted. He further submitted that even though the petitioner has made allegations relating to siphoning of funds etc. and has sought for an investigation, yet, no details or particulars have been given to substantiate the same and as such as held in Mohta Bros. (P.) Lid. v. Calcutta Land & Shipping Co. Ltd. [1969] 11 CLJ 157, this allegation should be ignored.
23. We have considered the pleadings and the arguments of the counsel. Extensive arguments were advanced by both the counsel on the applicability of partnership principles, which we arc of the view has no relevance in deciding the allegations made in this petition and as such we are not examining this issue in this order. The main allegation of the petitioner revolves around the appointment of Shri P. Srinivasan as the President and as a director/managing director. While the respondents attribute to the petitioner the knowledge of the appointment of Shri Srinivasan as the President, yet, they have not furnished any details as to whether before appointment of Shri Srinivasan, the consent of the petitioner director was taken. However, we do not propose to examine this issue in detail in as much as the petitioner has not made any allegations against Shri Srinivasan and that in the fight between the shareholders, a professional manager should not be affected. Further, he is also not a parly before us and, therefore, we cannot pass any order affecting his interests as the President.
24. As far as his appointment as a Director/Managing Director, Shri Ramachandran fairly admitted that this appointment was made only with a view to avoid stalemate/deadlock in the Board. The appointment of a director will have to be in conformity to the provisions of the articles. Article 19 fixes the maximum number of directors as 12. Article 18A specifics ten items of businesses which cannot be transacted in the Board without the consent of at least 3/4th of the voles in general meeting. Article 27A indicates 8 businesses for which the concurrence of the nominees of MSSL is required. A reading of all these articles would reveal that there is in-built checks on both the groups and neither of them would be able to transact these businesses independently on its own and without the support of the other group. Article 26 reads “Each of the persons named in article 6(A) and (B) hereof shall be entitled to appoint directors proportionate to their respective shareholdings. The board of directors shall have the powers from time to lime to appoint any other persons to be an additional director with the consent of both the parties viz. TRIPLEX and MSSL, however, the total number of directors shall not at ‘any time exceed the maximum number fixed as above. Any such additional director shall holding office up to the date of next annual general meeting. Consent of the parties is not required in case of nominee directors of banks and financial institutions”. A reading of article 26 would also reveal that in case of appointment of additional directors, the principle of proportionate representation need not be followed once the approval is given by the Board for such appointment. However, in respect of regular directors, even though it is not a business requiring 3/4th majority votes in terms of article 18A, yet, the principle of proportionate appointment has to be followed in terms of article 26. When the articles prescribe proportionate representation, as long as the appointments are made accordingly, the general body cannot defeat any resolution in this case the respondents who are holding 51 percent. Thus, by virtue of 51 per cent shareholding, the respondents cannot appoint directors in violation of article 26. Keeping the provisions of the articles we have to examine the validity of the appointment of Shri Srinivasan as a director.
25. According to Shri Chaudhary, in view of the shareholding being 49:51, the term ‘proportionate’ has to be construed as ‘equal’ while Shri Ramachandran negatives this suggestion. Shri Ramachandran contends that since the shareholding is not equal, out of the 12 permissible number of directors, the respondents could appoint six directors and the petitioner 5 directors. Even though Shri Ramachandran vehemently contended that ‘proportion’ does not mean ‘equal’, this argument has no relevance when we examine the appointment of Shri Srinivasan as a director, as in the EOGM held on 1 -9-2000 only one director was appointed, which was not in line with article 26. By this appointment, the proportion of directors for the respondents has become 2/3 while that of the petitioner reduced the 1/3. Further, section 258 of the Act stipulates that a company, may, by ordinary resolution increase or reduce the number of directors within the limits fixed in that behalf by its articles. We are of the view, that, in terms of this section, only the Board has the power to propose to the general body any increase or reduction in the number of directors. If so, a shareholder cannot propose the same through a requisition. The rationale for this view is that it is the Board which would be in a position to decide on the number of directors, taking into consideration the business needs. In the present case, by proposing the appointment of Shri Srinivasan as a director, the 2nd respondent, being a shareholder, has sought to increase the number of directors from the existing two to three. Therefore, in appointing Shri Srinivasan as a director, not only ihe provisions of article 26 was breached but also the provisions of section 258. Therefore, the petitioner is right in challenging this appointment. When the provisions of an article/Act is infringed resulting in upsetting the existing balance in the Board, the same could be considered to be an act of oppression in a company having only two groups of shareholders having equal representation on the Board for over 8 years. Considering the nature of the company, such change in the parity of representation on the Board would merit winding up of the company on just and equitable grounds. One other aspect we would like to examine is the contention of Shri Ramachandran that by applying the provision relating to proportionate appointment, the respondents could appoint 6 directors as against 5 by the petitioners. First, as we have already stated, any increase in the number of existing directors has to be proposed by the company to the general body and for that the Board has to approve the same. Secondly, we are of the view that by having 2 per cent excess shares, the respondents cannot claim 9 per cent excess in the number of directors (54 per cent and 45 per cent). Therefore, in facts of this case, notwithstanding the provision for appointment of directors on a proportionate basis, yet, this provision is incapable of being implemented. When the provisions of an article are incapable of implementation, an equitable and workable interpretation has to be given, taking into consideration the facts of the case. In the present case the parties had followed equality in the Board for over 8 years notwithstanding a difference in the shareholding. Therefore, this equality has to be maintained. Even though, in our order dated 30-8-2000 we had stipulated that the appointment of Shri P. Srinivasan as a director/ managing director will be subject to our final order on the petition, yet, we do not propose to cancel his appointment for the reason that he is not a party before us. Therefore, in line with the provisions of article 26, the grievance of the petitioner could be redressed by giving him an option to appoint one of his nominees as a director on the Board without recourse to the general body. We could also stipulate, to avoid any future controversy, that any increase in the number of directors in future, the same shall be shared equally by both the groups. However, we do not propose to do so for the reasons stated hereinafter.
26. The petitioner has voiced his grievance in regard to the Board meeting held on 24-2-2000 on the ground that he did not attained this meeting for want of notice but his attendance has been marked. According to the respondents, this was the last quarterly meeting for the year and the petitioner attended this meeting. In the absence of any evidence of his attendance by way of signature in the attendance register or proof of sending notice for this meeting, it is difficult to decide the veracity of the statement of the respondents. In Ms. Pushpa Prabhudas Vora v. Voras Exclusive Tools (P.) Ltd, [2000] 36 CLA 377′ this Board has held that decision taken in a Board meeting without notice to a director are not valid. However, in the present case, we find that in the Board meeting allegedly held on 24-2-2000, no decision which could be considered to be cither detrimental to the interest of the company or oppressive to the petitioner had been taken except that in this meeting the appointment of Shri P. Srinivasan as the President was approved, about which appointment, we have already held in the earlier paragraph that we would not interfere in this matter.
27. In regard to the complaint of offer of right shares, in view of the fact that the proposal has been dropped, there is nothing to be adjudicated. In regard to the allegations relating to siphoning of funds by way of collecting the commission receivable from Sumitomo etc. in the absence of full particulars, we cannot adjudicate on the basis of suspicion and surmises nor order an investigation as sought for by the petitioner Mohta Bros. (P.) Ltd. ‘s case (supra). In regard to the appointment of Rasrak Associates as a Consultant, the complaint of the petitioner are three fold. One is that the Board had not approved this appointment, the second is that no useful services are rendered by this firm and the third is that exorbitant remuneration is being paid which has affected the profitability of the company. As we have held in respect of Shri Srinivasan, since Rasrak Associates are not before us we are not examining this issue in detail other than directing the board of directors to review this appointment afresh within a period of two months from the date of receipt of this order.
28. Yet another allegation is in respect of the performance of the company during 1999-2000. According to the petitioner, the proportion of profit to the turnover is less than that of the previous year and, therefore, there is mismanagement in the affairs of the company. As pointed out by Shri Ramachandran this allegation is not found in the pleadings and was made during the argument. We are generally satisfied with the reply given by the learned counsel for the respondents in this regard as recorded as a part of his arguments. In regard to all other allegations relating to nonpayment of interest on loans, purchase of inventory from MOST etc. we find they are very trivial, which by themselves can neither be considered to be acts of mismanagement or oppression and as such we are not dealing with the same in detail.
29. Being given our findings on the allegations, we shall deal with the reliefs sought for. We have already held that the petitioner should have equal number of directors on the Board but had not given any directions in this regard because we are conscious of the fact that the parity in the Board is likely to create deadlock/stalemate in view of the ill blood between the parties arising out of these proceedings and the same would not be in the interest of the company. Therefore, considering the fact that it is the respondents who have extensive business contacts with Sumitomo and that the petitioner is a minority in the shareholding, we are of the view, as we have held in many similar cases that the petitioner should go out of the company on receipt of proper consideration for his investment. While his loans to the company will be repaid along with the agreed rate of interest, his shares will be valued on the basis of the balance sheet as on 31-3-2000, being the proximate to the date of this petition. The company should get the valuation of the shares done by the statutory auditors of the company within 3 months from the date of this order. On the basis of the valuation, the consideration worked out for the shares held by the petitioner shall be paid either by the respondents or by the company. In case the respondents desire to purchase the shares, the petitioner will execute blank transfer forms and handover the same to the respondents on receipt of the consideration. In case the company desires to purchase the shares, the same shall be cancelled on payment of consideration and the share capital of the company shall be reduced to that extent. The whole exercise should be completed within six weeks from the date of receipt of the valuation report.
30. The petition is disposed of in the above terms with no order as to costs.