JUDGMENT
S.B. Sinha, J.
1. This appeal arose out of interim order dated 6th February, 1997 passed by a learned single Judge of this Court. However, both, the parties have prayed before us that the main application itself be disposed of by this bench, pursuant whereto we have heard the parties.
2. The order dated 6-2-97 under appeal is in two parts, viz. initiation of a criminal proceeding and interlocutory order issuing certain directions. As the criminal aspect and civil aspect of the matter have nothing to do with each other, intend to pronounce a separate judgment in respect of Criminal aspect of the matter.
3. Furthermore, the learned counsel for the parties jointly made a prayer that the main petition filed by the Applicants/respondents under the Companies Act be heard by this Bench, pursuant whereto we have heard the parties and in this judgment, dispose of the main application filed by Sri Bajrang Prasad Jalan against the —appellants and other respondents under Sections 155/397/398/399/402/403 and 406 of the Companies Act.
4. B.P. Jalan for self as Karta of a Hindu undivided family filed an application against 32 persons including Akshay Nidhi Ltd. the respondent No. 1 and its four subsidiaries, viz. respondent Nos. 2 to 5 claiming various reliefs stated in the application.
5. The matter has a chequered career.
6. One Mohanlal Jalan was the father of the applicant — B.P. Jalan (Applicant-Respondent, Mahabir Prasad Jalan (Respondent No. 1-Appellant) and one Tolaram Jalan. They held the properties left by the aforementioned Mohonlal Jalan jointly. Tolaram Jalan separated his 1/3rd share from the joint family however, remained as a result whereof a partition took place Mahabir Prasad Jalan (MPJ), and Bajrang Prasad Jalan (BPJ). The sisters of the aforementioned B.P. Jalan, Mahabir Prasad Jalan and Tolaram Jalan
allegedly relinquished their right, title and interest in the properties and assets of Mohanlal Jalan.
7. Allegedly after the death of Mohanlal Jalan his sons Bajrang Prasad Jalan, (BPJ) and Mahabir Prasad Jalan (MPJ) came in control of 32 companies as set out hereunder:
1. Raigarh Trading Co. Ltd. (Raigarh).
2. Raigarh Jute & Textile Mills Ltd. (Subsidiary of Raigarh).
3. Kapil Agro Ltd.
4. Free India Dray Accumulators Ltd, (R 6).
5. Oriential Gas Co. Ltd.
6. Shree Hanuman Jute Mills Ltd.
7. M. P. Carbide & Chemicals.
8. Varanashi Hotels & Estates Ltd. (subsidiary of Raigarh).
9. Swagat Properties Ltd. (subsidiary of Raigarh) (R. 21)
10. Amritsar Estates Ltd. (subsidiary of Raigarh)
11. Amshya Nidhi Ltd. (R. 2)
12. Shree Credit Co. Pr. Ltd. (R. 4) (now a subsidiary of R. 2)
13. Bhanu Traders Pr. Ltd. (R. 5) (now a subsidiary of R. 2)
14. Ultra Holdings Pr. Ltd. (R. 3) (now a subsidiary of R. 2)
15. Shree Gopal Co. Ltd.
16. S.N. Trades Services Pr. Ltd.
17. Dhemo Main Collieries & Industries Ltd.
18. Debonair Agencies Ltd.
19. Dinesh Vinyog Ltd. (now a subsidiary of Debonair Agencies Ltd.)
20. Sandeep Investments Ltd. (Sandeep).
21. Marut Jute Udyog Ltd. (R. 29) (now a subsidiary of Sandeep).
22. India Jute Co. Ltd. (Subsequently known as India Jute & Industries Ltd.)
23. Hindusthan Mercantile Bank Ltd.
24. Soorya Investments Ltd.
25. Calcutta Vyapar Prathisthan Ltd.
26. Collieries (India) Pr. Ltd.
27. Teesta Valley Corporation.
28. A. D. Investments Pr. Ltd.
29. B. K. Investments Pr. Ltd.
30. T. M. Investments Pr. Ltd.
31. Crown Investments Pr. Ltd.
32. Kunj Commercial Corporation Ltd.
8. Allegedly all those aforementioned companies were family and domestic concern of the Jalan.
9. However, after Tolaram Jalan separated himself, he was allotted the control of following companies :
1. India Jute Co. Ltd. (subsequently known as India Jute & Industries Ltd.)
2. Hindusthan Mercantile Bank Ltd.
3. Soorya Investments (P) Ltd.
4. Calcutta Vyapar Prathisthan Ltd.
5. Collieries (India) Pr. Ltd.
6. Teesta Valley Corporation Ltd.
7. S. D. Investments (P) Ltd.
8. B. K. Investments (P) Ltd.
9. T M. Investments (P) Ltd.
10. Crown Investments (P) Ltd.
11. Kunj Commercial Corporation Ltd.
10. All other companies including Akshay Nidhi, respondent No. 2, Sree Credit Company Private Ltd., Bhanu Traders Pvt. Ltd. respondent Nos. 4 and 5, Ultra Holdings Pvt. Ltd. respondent No. 3, Fee India Dry Accumulators Ltd., respondent No. 6 Subsequently M. P. Jalan Group and B. P. Jalan Group acquired and/or floated several other companies viz.
1. Lovelock Properties Pr. Ltd.
2. Balaji Development Pr. Ltd.
3. Shree Hanuman Properties & Finance Ltd.
4. Dover Part Builders Pr. Ltd.
5. Mahabir Holdings & Finance Ltd.
6. Nityanand Merchantile Ltd. (R-19).
7. Dee Cee Trading & Finance Ltd.
8. Phool Holdings Ltd. (R. 20)
9. Juban Leasing Ltd.
10. Aarkay Mercantile Ltd.
11. Pursuant to or in furtherence of an agreement the said two groups and their family members began to control and manage in equal shares the affairs of 31 companies which allegedly are domestic companies as also other companies, as indicated hereinbefore. In middle of 1988, the Jalan family retained through Dinesh Vinyog
Ltd. about 48% control of the shareholding of Oriental Gas Co. Ltd. Allegedly the shareholdings of the aforementioned companies pursuant to the family arrangement was in the following manner:
(i) Directly equally between the two brothers, MPJ and BPJ and their respective family members of with the slight majority in favour of one or the other of such families.
(ii) Directly in the names of MPJ and BPJ and their respective family members and by interweaving and inter-locking of shareholding amongst the other companies referred to above and also in the names of nominees of both MPJ and BPJ so that a change in the share-holding pattern in any one of the said companies which formed part of the complex pattern of shareholding would have an impact on the — ultimate control of all the other inter-locked companies.
(iii) All the abovementioned companies, the shareholding in Lovelock Properties Ltd., Balaji Development Pr. Ltd., Shree Hanuman Properties & Finance Ltd., Dover Park Builders Pr. Ltd., and Mahabir Holdings & Finance Ltd., and equally divided between BPJ and/or his family members on the one hand and MPJ and his family members on the other and/or BPJ and/or his family members at a slight age in the distribution in the shareholding of the said companies. In most of the other companies, there was an interweaving and inter-locking of the sharehoding between and amongst such family companies including Akshya Nidhi Ltd., Marut, Raigarh, Ultra, Shree, Banu And FIDA.
12. The Board of Directors of the aforementioned companies were allegedly represented equally amongst the family members of B.P. Jalan and M.P. Jalan group and/or by their nominees.
13. Disputes and differences arose between two groups on Ram Nabami Day of 1989. Allegedly M.P. Jalan and his group committed various acts by themselves or through their nominees in holding illegal meetings in manufacturing documents — and selling out shares at nominal prices in favour of their own relations so as to enable them to acquire control over various companies.
14. A suit was filed by B.P. Jalan Being Suit No. 849/89 seeking inter alia, maintenance of status quo and framing of scheme for management and administration of the said companies
and therein it was alleged that certain books of accounts had also been removed from the Head Offices of the said Companies. During the proceedings of the said suit when the documents, records and other papers were produced, B.P. Jalan and his group allegedly came to learn about the alleged various misdeeds on the part of the M.P. Jalan and his group. In the suit filed by B.P. Jalan therein interim orders were passed including inventory of records and documents by officers of the Court. During the course of inventory of, such books, records and documents it was discovered from time to time that fabrication of the books, record and documents of the above companies had been resorted to by M. P. J. and his son to cause prejudice to the Applicant and his family members which led to filing of 3 proceedings under the Companies Act viz. Application under Section 397 and 398 of the Companies Act against Sandip Investment and Marut Jute Udyog Limited being Company Petition No. 493/89 (Re. Sandip Investment Pvt. Ltd.), application under Section 397/398 of the Companies Act against Debonair Agency Ltd. and its subsidiary Dinesh being Company Petition 494/89 as also the present proceedings in respect of Akshay Nidhi Ltd…. Allegedly during course of hearing of those proceedings, inspections were made resulting discovery of various others acts of omissions and commissions. The proceedings in relation to Sandip Investment Ltd. was disposed of by a learned single judge of this Court which has been affirmed by the division bench with certain modification. The matter is said to be now pending before Hon’ble the Supreme Court of India. The matter in respect of Debonair Agency Ltd. has also been disposed of by B.L. Jain, J., by a judgment and order dated 17-6-96 and an appeal there against is being disposed of. In this proceedings an interlocutory order was passed before the affidavits were filed. The said interim order was subject matter of the appeal.
15. A learned single Judge appeared to have heard the matter between April 1991 to August 1991 and hearing was concluded on 2-8-91. On 27-9-91 the proceeding being C. P. No. 447/90 was finally disposed of. However, there appeared to be certain inconsistencies in the minutes maintained by this Court and appeals were preferred there against by B.P. Jalan as also the other companies. A division bench comprising of B.P.
Banerjee and N.N. Bhattacharjee, JJ, by a judgment and order dated 28th July, 1994 recorded that the judgment delivered and signed by the learned trial Judge could not be traced out. An enquiry was made in the matter and in the said enquiry it was revealed that the judgment was sent to the residence of the learned trial Judge on 9-10-91 for His Lordships signature but the same did not come back to the High Court and whereabouts of the said judgment is not known. The division bench described the matter to be really a sad and unfortunate one. The original minute books were produced and it appeared that change and interpolation had been made with a designed motive to subserve the interest of one of the parties. The division bench, therefore, although did not see the judgment, set aside the same upon passing certain interim orders. The matter was assigned before A.N. Roy, J. and the same was heard during the period 12-9-96 to 28-1-97 i.e. for a period of 26 days. When the arguments were coming to an end, a question arose as to whether trial on evidence should be taken. A further question arose as to whether the company Court itself can try the accused persons for alleged offences committed by them under Section 406 read with XI Schedule of the Companies Act. By a detailed judgment running into 118 pages the learned Judge, inter alia, held that a criminal trial under XI Schedule of the Act would commence from 14th March, 1997 and in the mean time certain interim directions were passed and a special officer was also appointed. Upon an appeal made by M.P. Jalan and another being L. P. No. 1/97 a division bench comprising of S.K. Mookherjee and N.K. Batabyal, JJ. heard the matter for six days and by a judgment dated 19-6-97 disposed of the entire appeal. However, thereafter a grievance was made that the Court was addressed only on the stay application, pursuant whereto to matter was heard again and by a dictated order dated 20th June, 1997 the said judgment was suitably modified in terms whereof Their Lordships merely directed disposal of the stay application. As against the said order a special leave petition was filed by the applicants herein and the Apex Court directed hearing of the appeal afresh without reference to the said judgment dated 19-6-97.
16. However, as stated hereinbefore, before us the counsel for both the parties prayed that the
main Company Petition itself be disposed of. By a separate judgment we have disposed of the appeal in respect of that portion of the order passed by the learned trial Judge dated 6-2-97 whereby criminal proceedings under Schedule XI of the Companies Act were directed to be initiated.
17. The present application was filed on 12th September, 1990. Affidavits thereafter were exchanged. During the course of hearing written submissions have also been presented before this Court. As in the other two cases a preliminary objection had been taken as regard maintainability of the application, inter alia on the ground that as a suit having been filed, the instant application is not maintainable, and further the petitioners having no share in any companies other than Akshay Nidhi Ltd. this application is not maintainable as against the said Companies.
18. Allegedly the son of the Applicant had issued a notice for winding up of the companies. Allegations of oppression and mismanagement on the basis of several charges had been made against the respondent and in particular against the respondent Nos. 6 and 7.
19. The said charges, inter alia, are :–
1. Fabrication of minutes of meetings dated 28th June, 1989, 2nd September, 1989, 16th October, 1989, 22nd March, 1990.
2. Non-transmission of 1/3rd of 23,000 of equity shares (partly paid up) and 7000 preference shares (fully paid up).
3. Board meetings of Ultra dt. 5-3-90, 21-6-90, 10-6-89, 1-9-89 and annual General Meeting held on 27-9-89.
4. Registration of P.R. Sodhani from Board of Ultra.
5. Board Meeting of Shree Credit Company Private Ltd.
6. Non-holding of Board Meeting for the last one year.
7. No Annual General Meeting for the year ending 31-3-89.
8. Appellant being kept in dark with regards to the affairs of Shree Credit Company to enable the respondent to make illegal gain the secret profit and appointment of Sri K.B. Tebrial –Respondent No. 29 as an Addl. Direction of Shree Credit Company on 3-10-89 so as to create
majority in favour of Respondent No. 6 in the Board of Shree Credit Company and mismanagement of the said Company.
9. Bhanu Traders Pvt. Ltd. transmit 1/3rd of 23,000 equity shares (partly paid up) and 7,000 preference shares (fully paid up) in favour of petitioner.
10. Alleged Board Meeting dated 8-6-89 which was in fact not held.
11. Board Meeting dated 18-9-89, Board Meeting dated 16-10-89 which are said to have not been held and similarly manufacture of minutes of the meetings dated 30-12-89 and 19-2-1990 although no meeting was held.
12. Annual General Meeting of Bhanu Traders held on 5-7-89.
13. Sale of FIDA.
20. However, at the outset the sharehol-ding pattern of the respective parties may be noticed :–
C. P. No. 447 OF 1990
AKSHYA NIDHI LTD. (RESPONDENT No. 1)
AS ON 31ST MARCH. 1989
Paid ud Share Capital : 1.95.425 Nos. of Equity Share of Rs. 10/- each
MPJ GROUP
BPJ GROUP
OTHERS
Names
Direct
%
Proxy
%
Names
Direct
%
Names
Shares
%
M. P. Jalan
20,000
10.23%
B. P. Jalan
10.000
5.12%
SHS Investments Ltd./Swagat Properties Ltd.
15,000
7.67%
M.P. Jalan (HUF)
10,000
5.12%
B.P Jalan (HUF)
25,000
12.80%
A. Jalan
10,000
5.12%
Aditya Kanoria/Nityanand Merchantile Ltd.
15,000
7.67%
Pholl Holding Ltd.
20,000
10.23%
Bhanu Traders Ltd.
20,000
10.23%
Aarkay Mercantile Ltd.
15,000
7.67%
Misc. Shareholders (Various)
10,425
5.35%
Maruti Jute Udyog Ltd.
15,000
7.67%
40,000
20.47%
50,000
25.57%
S. Choraria
10,000
5.12%
TOTAL :
40,000
20.47%
60,000
30.69%
35,000
17.92%
60,425
30.92%
SUMMARY
M. P. JALAN : (DIRECT)
20.47%
M. P. JALAN : (PROXY)
30.69%
51.16%
B. P. JALAN : (DIRECT)
17.92%
Others :
30.92%
TOTAL :
100.00%
21. There cannot be any doubt that the Applicant (BPS) and his group are minority shareholders. However, the companies are so inter-linked and interwoven, there cannot be any doubt that one company had connection with the other subsidiary companies of Akshay Nidhi Ltd., as would be evident from the following chart:–
22. Furthermore, the fact as noticed hereinbefore, clearly shows that behind all the aforementioned companies individuals have their hand which allegedly were manoeuvring the affairs of the company in such a manner so as to oust others from the affairs of the company. The rights, expectations and obligations of the members of family, their nominees and relations has to be considered in the backdrop of events and it cannot be said that even if fact exists, the veil of the company cannot be lifted. Exercise of right under Sections 397 and 398 of the Companies Act comes within the purview of the equitable jurisdiction of the company Court. There can hardly be any dispute that in view of the structures of share the respondent Nos. 2 to 5 in truth and substance and subsidiary companies of Akshay Nidhi Ltd. which is thus, a holding Company and thus in such a situation, the Court
cannot be a helpless spectator in looking behind
the corporate veil so as to disentitle itself from considering as to whether in fact there had been
mismanagement of oppression by one group or the other. There is another aspect of the matter. Provisions of Section 397 and 398 are taken recourse to in a piquant situation where two groups running the company are at logger heads so that it is impossible for them to join hands together and run the affairs of the company. The Court in such a situation would exercise its equitable jurisdiction and may grant appropriate reliefs.
23-24. In Life Insurance Corporation of India v. Escorts Ltd., the Apex Court after taking into consideration various decisions and treatises held that for certain purposes corporate veil can be lifted. It was stated (at page 1418 (of AIR) :–
“Generally and broadly speaking, we may say that the corporate veil may be lifted where a statute itself contemplates lifting the veil, or fraud or improper conduct is intended to be prevented, or a taxing statute or a beneficent statute is sought to be evaded or where associated companies are inextricably connected as to be, in reality, part of one concern. It is neither necessary nor desirable to enumerate the classes of cases where lifting the veil is permissible, since, they must necessarily depend on the relevant statutory or other provisions, the object sought to be achieved, the impugned conduct, the involvement of the element of the public interest, the effect on parties who may be affected etc.,.”
25. Reference in this connection may also be made to 1972 (2) All ER 492 at page 496 to 500, Hind Overseas Private Ltd. v. Raghunath Prasad Jhunjhunwalla and Needle Industries (India) Ltd. v. Needle Industries Newey (I) Holdings Ltd., .
26. In Loch v. John Blackwood Ltd. reported in 1924 AC 783, it has been held that certain companies may be treated as family or domestic concerns. In the instant case as noticed hereinbefore Akshay Nidhi Ltd. was managed by Jalans. When a partition took place amongst the three brothers, Akshay Nidhi Ltd. was not allotted in favour of Tolaram Jalan and remained in the joint venture of M.P.J and his sons and B.P.J
and his sons. Therefore, the concept of partnership is also available in relation to such a company.
27. It is also a trite law that over the affairs of company in question its entire affairs including those of the subsidiary companies can also be looked into.
28. In World Wide Agencies Pvt. Ltd. v. Mrs. Margarat T. Desor , the Apex Court rejected an objection to the effect that the appellants before it were not members of the company as their nominees had not been recorded in the register of members.
29. Before considering the charges and counter charges in relation to the board meeting of Akshay Nidhi Ltd., it may be noticed that it has 5 Directors. R.K. Nakhat – respondent No. 14, N. Padia, M.G. Lakhotia, P.K. Dalmia in the Board Meeting dated 20th June, 1989 were present. The fraction (factum) of holding of the meeting is not disputed. The allegation is that the resolutions passed therein were not the actual resolutions which were recorded. Therefore, N. Padia did not sign the meeting. The minutes of the meeting were said to have been written 30 days later. In this letter dated 1-3-90 N. Padia addressed to the Applicant denied that there had been any such resolution authorising the respondent No. 14 and respondent No. 17 to sign and execute transfer deeds and documents in connection with purchase, sell and transfer of shares in different companies. A similar letter has been addressed by him to the company. On 5-1-90 the said Sri Padia also stated that he was not the Chairman of the Board Meeting dated 20th June, 1989.
30. Although in the affidavit-in-opposition it has been stated that minutes were truly and correctly recorded but the same had been done with reference to the minutes of the meetings. Although the contents of the letter dated 6-3-90 had been denied, such denial does not inspire confidence. The learned counsel appearing on behalf of the Respondents argued that it was obligatory on the part of the said Sri Padia to show as to what had actually transpired in the said meeting. Having regard to the seriousness of the nature of allegations and having regard to the fact that two of the Directors who were admittedly present in the said meeting and who were said to have manipulated the whole thing, it was for them to swear and affidavit. Why two persons, viz. M.G.
Lakhotia an R.K. Nakhat were asked to sign purchase deeds has not been explained by M.P.J. and his group.
31. It is not for this Court to consider the matter in the light of the alleged practice as regards writing of the minutes in the next meeting by a person who chairs the same but there cannot be any doubt whatsoever that in law such minutes should be written immediately and must contain the signature of all those who attended the meeting. The purpose of authorising person who are favouring a particular group must, prima facie, be held to be made mala fide and with Collateral object and with a view to prevent the applicants from enjoying the benefit of shareholder of Akshay Nidhi Ltd. in other companies inasmuch as Akshay Nidhi Ltd. holds shares in other Jalan companies as would appear from the Balance Sheet and Profit & Loss Accounts which are at pages 53 to 55 of Vol-I of the Paper Book.
32. In the minutes of the meeting of the Board of Directors of Akshaya Nidhi Ltd., the following resolutions were taken :–
“Resolved that Draft Balance Sheet of the Company as at 31st March, 1989, together with the Profit & Loss A/c. for the year ended on that date be and are hereby received approved and adopted.”
“Further resolved that the said Balance Sheet and Profit & Loss A/c. be signed in accordance with the provisions of the Companies Act, 1956 and be submitted to the Auditors of the Company for their report thereon.”
“Resolved that next Annual General Meeting of the shareholders of the Company be called at the Registered Office of the Company at 36, Chowringhee Road, Calcutta 71, on Thursday the 28th September, 1989 at 11 am to transact the business as specified in Draft Notice of the Annual General Meeting placed before the meeting and Sri M.G. Lakhotia Director of the Company be and is hereby authorised to sign the Notice of the meeting and to send the same to all the shareholders of the Company and also to make necessary arrangements to implement the Resolution.”
“Resolved that Sri G.C. Jain be and is hereby authorised to act as the Company’s representative pursuant to provisions of Section 187 of the Companies Act, 1956 and to attend on behalf of the Company at the Annual General Meeting of
M/s. Aarkay Mercantiles Ltd. or at any postponement or adjournment thereof.”
“Resolved that Sri S.N. Misra or failing him Sri. K.L. Surana be and are hereby authorised severally to act as the Company’s representative pursuant to provision of Section 187 of the Companies Act 1956 and to attend on behalf of the Company at the Annual General Meeting or any postponement or adjournment thereof of the following Companies :–
M/s. M. P. Carbide & Chemicals Limited.
M/s. Kapil Agro Limited.”
“Resolved that Sri M.P. Jalan or failing him Sri V.K. Kejriwal be and are hereby authorised severally to act as the company’s representative pursuant to provision of Section 187 of Companies Act 1956 and to attend on behalf of the Company at the Annual General Meeting of M/s. Raigarh Trading Company Limited or any postponement or adjournment thereof.”
“Resolved that Sri M.G. Lakhotia of failing him Sri. R.K. Nakhat be and are hereby authorised severally to act as the Company’s representative pursuant to provision of Section 187 of Companies Act 1956 and to attend on behalf of the Company at the Annual General Meeting or any postponement or adjournment thereof of the following companies :
M/s. Bhanu Traders Pvt. Ltd.
M/s. Sree Credit Co. Pvt. Ltd.
M/s. Ultra Holdings Pvt. Ltd.”
33. A bare perusal of the aforementioned minutes of meetings show that resolutions of grave importance were taken in the same meeting. A serious allegation has been made that the said resolution was fabricated as Annual General Meeting of Bhanu Traders Pvt. Ltd. which was scheduled to be held on 31-12-89 had already been held. It was alleged that on that day it had not received the notices conveying M/s. Raigarh Trading Company Ltd. and thus the normal practice is that generally such resolution was passed after receipt of the quorum of Annual General Meeting had not been followed. The minutes of the aforementioned meetings had been signed by the respondent No. 17 on 16-10-89 i.e. well after 30 days of the alleged Board Meeting as would appear from the letter of Sri Padia dated 1-3-80 and 6-3-80 to the petitioner and Akshay Nidhi Ltd. respectively.
34. Apart from the fact that there has been a vague allegation and the bare denial or the contents of the letters of Sri Padia, it has been admitted that there has been no advertisement and it is only stated that C.E.S.C. was informed by a letter dated 1-9-89. The argument to the effect that similar such lapses had occurred earlier does not impress this Court inasmuch as according to the applicants such resolutions have been made with collateral object and preventing him from enjoying the benefits or shareholders in Akshay Nidhi Ltd. The submission of the learned Counsel for the respondents to the effect that the same being a family company no notice was required to be serves is stated to be rejected.
35. The argument of the respondents to the effect that it was incumbent upon the applicant to produce documents to show that on earlier occasions notices had been given is of no moment as issuance of such notice and advertisement is not only the requirement of law but the purported resolution itself states about issuance of such advertisement. Similarly the argument of the Respondent to the effect that the applicant had not shown as to what steps he had taken to hold
such meeting also appears to be an argument of desparation as it was for the said respondents to show, that such a meeting had actually been held and the same had been held in accordance with law upon service of notice to all concerned.
36. The minutes of meeting dated 16-10-89 is to the following effect:–
Present
:
1. Sri M. G. Lakhotia
:
2. Sri R. K. Nakhat
Chairman
:
Sri M. G. Lakhotia was voted to the Chair
Leave of Absence
:
Leave of absence was granted to Sri N. Padia and Sri P. K. Dalmia
Last Minutes
:
Minutes of the last meeting were read, approved and signed
Registers
:
The Statutory Registers of the Company were placed before the meeting and contents noted
Transfer of Share
:
The Chairman placed before the meeting application received for Transfer of Shares of the Company. After discussion, the following Resolution was passed :
“RESOLVED THAT following Equity Shares of the Company transferred in the name of the transferee applicant :
Transferor
Transferee
No. of Shares
Nityanand Mercantile Ltd.
Sri Aditya Kanoria
15,000
Swagat Properties Ltd
SGS Investments. Ltd.
15,000
And that Sri M. G. Lakhotia be and is hereby authorised to register the above
transfer and make necessary endorsement in the share certificate.”
Sale of share
:
The Chairman informed the Board about the sale of 1,250 Equity Shares of Raigarh
Trading Company Ltd. @ Rs. 25/- per share amounting to Rs. 31,250/-. The Board noted and confirmed the above sale of shares
General
:
General affairs of the company were discussed
Vote of thanks
:
There being no other business, the meeting terminated with a vote of thanks to the Chair.”
37. In this case also no notice had been served and according to the Applicant no actual meeting was held. The resolution adopted in the said meeting are of grave importance. Some arguments which have been made in connection with the earlier meeting dated 2nd September, 1989 has been advanced in this case also and for the self-same reasons the same are rejected. The argument that neither Nityanand nor Swagat had challenged the transfer of shares made by them in favour of Aditya and S.G.S. Investment Ltd. respectively is of no moment inasmuch as the allegation of the Applicant is that the same has done mala fide.
38. So far as the transfer of 1,250 equity shares held by Akshay Nidhi Ltd. in Raigarh Trading Ltd. is concerned this Court is of the opinion that the same does not appear to have
been made in normal course of business. Apart from lack of notice and material particulars in the affidavits filed by the respondents with regard to the persons to whom the shares had been sold the element of haste involved therein is a pointer to the fact that the same was sought to be done for some collateral purposes. Any decision to transfer the shares and recording the names of the transferees in the register of the companies without notice is void. See Turner v. Morrison (1935 Ltd.) reported in (1980) 50 Com Cas 296.
39. This Court for the purpose of disposal of the matter cannot consider the price at which such shares were purchased by Akshay. It is stated that despite the fact that in Calcutta Stock Exchange the rate was quoted at Rs. 103/- the shares were sold at the rate of Rs. 25/-. In this context it was submitted that such shares were purchased by Akshay Nidhi Ltd. on 4th November, at the rate of Rs. 19-03 per share. The learned Counsel for the respondents had produced before us an Income Tax Ready Reckoner to show that in the Delhi Stock Exchange the value of such share was recorded as 19.75. Apart from the fact that it was for the respondent to show that transfer of such shares were necessary and advantageous to the company as has been held in Torner v. Morrison ((1980) 50 Com Cas 296) (supra), there does not appear to be any earthly reason why the price quoted in Calcutta Stock Exchange should not hold the field particularly when the company concerned, purchaser and the buyer, are at Calcutta. Although in a proceeding under Section 397/398 of the Companies Act the actual value of the shares has to be determined upon taking into consideration various relevant factors, it may be noticed that in Commissioner of Wealth Tax v. Mahadeb Jalan, the Apex Court held that in determining the fair value of shares who had the shares would be the prevailing price on the valuation date as quoted in the concerned Stock Exchange. Again in this connection reference may be made to letters of one of the Directors dated 1 -3-90 and 6-3-90 which are in the following terms :–
Mr. B.P. Jalan
Executive Director,
Raigarh Jute and Textile Mills Ltd.
36, Chowringhee Road,
Calcutta-700071.
March 1, 1990
Dear Sir,
Re : Akshay Nidhi Ltd.
With reference to the discussions the undersigned had with you in regard to the above-mentioned company and the various extracts of the minutes which you had shown to me as having been noted in the Directors Minute Book/ Shareholders Minute Book of the Company, I would like to comment as follows :
(1) The last proper meeting of the Board of Directors of the Company attended by me was on 20th June, 1989. Since then I have received notice for only one meeting held on 28th December, 1989. The Company did not give me adequate notice as requested by me. Also in the latter meeting there were a number of irregularities which I have put on record vide my letter No. NP/2 dt. 5-1-90. I am enclosing herewith a copy of my letter written to the Company for your perusal.
(2) At the Board Meeting of 20th June, 1989, there was no resolution authorising Mr. M.G. Lakhotia or Mr. R.K. Nakhat to sign arid execute any share transfer deeds and other documents in connection with the purchase, sale and transfer of shares of different companies.
(3) I have not received notice for any meeting allegedly held on 2nd Sept. 1989 at 11.30 a.m. I understand, at this meeting, draft accounts of the company were placed before the Board and approved. Resolutions were passed inter alia, in connection with the approval of Directors’ Report, holding of Annual General Meeting, closure of Register of Members and Share Transfer Register, representation under Section 187 in the Annual General Meeting of various Jalan Group Companies, etc. This meeting is illegal, irregular, null and void and not binding upon me or the company as no notice of the meeting was given to me.
(4) You informed me that the Sixth Annual General Meeting of the Company was purportedly held on 28th Sept. 89 at 11.00 a.m. at its Registered Office. This alleged meeting is irregular and illegal as no Board Meeting was held to finalise the notice to convene the purported Annual General Meeting.
(5) Another Board Meeting of the company has been purportedly held on 16th October ’89 at 2.30 p.m. Once again I was not given any notice of the said meeting and, therefore, the same is
illegal, irregular null and void and not binding upon me or the company. The resolutions passed at that meeting inter alia of. transfer of shares from Nityanand Merchantile Ltd. to Mr. Aditya Kanoria and from Swagat Properties Ltd. to S.G.S. Investments Ltd. and the sale of shares of Raigarh Trading Co. Ltd. are void and cannot be acted upon. In this connection, please note that I am a director of both Nityanand Merchantile Ltd. and Swagat Properties Ltd. and these companies have never decided to sell their holdings in Akshay Nidhi Ltd. at any point of time. Also, the Company has never decided to sell its holdings in Raigarh Trading Co. Ltd.
Vide my letter dated 2nd January, 1990, I had sought inspection of the various statutory books and records of the Company and fixed up appointment on 9th Jan. ’90 at 10.30 a.m. On visiting the Registered Office of the Company the same had been denied to me. I have also put the same on record vide my letter No. NP/5 dt. 15-1-90, copies of both these letters are enclosed herewith for your perusal.”
Without Prejudice
March 6, 1990.
Akshaya Nidhi Ltd.
36, Chowringhee Road,
Calcutta-700071.
Dear Sir,
Recently I met Mr. B.P. Jalan who showed me extracts of various meetings of the Board of Directors and the Shareholders. There are a lot of irregularities in the same which I would like to point out since you have not granted me inspection, I have not had the opportunity to inspect the records myself. Some of the irregularities which have come to my knowledge are pointed out below. Other irregularities shall be pointed out as and when they come to my notice.
(1) The last proper meeting of the Board of Directors was held on 20th June, 1989. Thereafter, I have received a notice for only one meeting which was held on 28th December, 1989. By comments regarding the meeting of 28th December ’89 have already been sent to you vide my letter No. NP/2 dt. 5th January, 1990.
(2) In the Board Meeting of 20th June, 1989 held at 11.30 a.m. these was no resolution or any discussion regarding authorising Mr. M.G. Lakhotia or Mr. R.K. Nakhat to sign and execute
any share transfer deeds, and other documents in connection with the purchase, sale and transfer of shares of different companies.
(3) As mentioned earlier, I have not received any notice for a meeting of the Board of Directors which was purportedly held on 2nd September ’89 at 11.30 a.m. wherein Mr. P.K. Dalmia, Mr. M.G. Lakhotia and Mr. R.K. Nakhat have been shown present. In the alleged Board Meeting, I understand that the draft accounts of the Company were placed before the Board for approval and the resolution was passed inter alia in connection with the Directors’ Report, holding an Annual General Meeting, closure of Register of Members and Share Transfer Register, representation under Section 187 in the Annual General Meeting of various Group companies, etc. Since no notice for the said meeting was ever given to me either in writing or otherwise, the meeting is illegal, irregular, null and void and not binding upon me or the Company.
(4) I understand that the Sixth Annual General Meeting of the Company was purportedly held on 28th Sept. ’89 at 11.00 a.m. at its Registered Office where Mr. M.G. Lakhotia, Mr. R.K. Nakhat, Mrs. Madhuri Devi Jalan (representing Deepa Trade and Commerce Ltd.), Mr. M.P. Jalan, Mr. S.N. Bagri (representing Bhanu Traders Pvt. Ltd.), Mr. R. Bedi (representing Aarkay Merchantile Ltd.) and Mr. M.C. Pandiya (representing Bhool Holding Ltd.) have been shown present. This purported meeting is also irregular, illegal, null and void and not binding upon me or the Company as no Board Meeting was ever held in order to convene the Annual General Meeting.
(5) I understand that the Board Meeting of the Company has been purportedly shown on 16th October ’89 at 2.30 p.m. wherein Mr. M.G. Lakhotia and Mr. R.K. Nakhat have been shown present. Once again, I was not given any notice of the said meeting either in writing or otherwise and, therefore, the said meeting is illegal, irregular, null and void and not binding upon me or the company. The resolutions passed at this alleged Board Meeting inter alia of transfer of shares from Nityanand Merchantile Ltd. to Mr. Aditya Kanoria and from Swagat Properties Ltd. to S.G.S. Investments Ltd. and the sale of shares of Raigarh Trading Co. Ltd. are therefore void and cannot be acted upon. In this connection, please note that I am a director of both Nityanand
Merchantile Ltd. and Swagat Properties Ltd. and these companies have never decided to self their holdings in Akshay Nidhi Ltd. at any point of time. Also, the Company has never decided to sell its holdings in Raigarh Trading Co. Ltd.”
Those letters speak for themselves.
40. It is also idle to contend that only because M. P. J. and his group were majority shareholders, it was not necessary for them to make any manipulation to tilt the balance in their favour inasmuch as it has rightly been pointed that such a step has been taken with a view to have the complete control over the company by ousting the Applicants. Furthermore, such a contention has to considered in the context of the case of the Applicants to the effect that both the groups were to have equal share in all the family concern.
41. It is also Worth taking note of the fact that the respondent No. 24 received payment for sale of such shares on 21-10-89 after the same had been registered and similarly the respondent No. 22 also received payment on 26-10-89. It has further been alleged in respect whereof there has been only a bare denial that even in the Board Meeting dated 22-6-89 the majority directors of the said company had no knowledge of such resolution of board meeting.
42. Although in the said meeting Padia attended despite the fact that no legal notice had been served on him, it appears that various interpretation had been made. The applicants have shown as has been done in connection with Company Petition No. 494/89 that although the respondent No. 8 was in Bombay on that date, her name had been deleted and the name of respondent No. 9 was inserted by handwriting as being representative of respondent No. 27. The same bears the initial of respondent No. 17. Documents have been brought on records to show that such interpolation appeared to have been made on 24-2-90 which was the date of first inspection after Order dated 20th February, 1990 was passed in Suit No. 849/89 as also prior to 27-2-90 which was the date of second inspection. It has also been brought on records that respondent No. 13 is shown to have Chaired in Annual General Meeting of respondent No. 23 at New Delhi at 3.30 p.m. on the same date and is said to have also attended the meeting in Calcutta at the same time. The respondent No. 13 had not affirmed any affidavit denying the said fact. It has further been
brought on record that there was no flight from Calcutta to Delhi between 11 a.m. to 3.30 p.m. Similarly the respondent No. 12 has also been shown to be present at the same meeting, although he was not of town. At appears that although Sri Padia having attended in the meeting after issuance of notice to him, might have become stagnant as has been held in Parmeshwari Prasad v. Union of India, but the fact remains that such interpolation in the meeting have been detected.
43. There are allegations and counter allegations as what had actually happened in the said meeting and as to who actually attended the same. Further if the respondents Nos. 8, 12 and 13 were not present and an improper authorisation has been given by respondent No. 16, there cannot be any doubt that the said resolution was illegal. It further appears that respondent No. 17 has signed the meeting on 5-10-89 although he was not a shareholder. He has proposed the resolution relating to accounts. The auditors also could not have been validly appointed as respondent No. 13 was in New Delhi. It is evident that in this case also allegations of grave nature have been proved to a substantial extent.
44. In the Annual General Meeting dated 28th September, 1989 the following resolution was passed :
“Resolved that M/s. M. L. Choudhury and Co. Chartered Accountants who are retiring and being eligible for reappointment be and are hereby reappointed as Auditors of the Company to hold the office until the conclusion of the Next Annual General Meeting of the Company at a remuneration to be decided by the Board of the Directors of the Company.”
The allegations made in the application are as follows :
(a) No notice of any board meeting of Akshay was given to its directors including R. Padia for the purpose of convening or holding any such annual general meeting and no such board meeting of Akshay was held.
(b) No notice was issued by Akshay for convening or holding any annual general meeting on 28th September, 1989 or otherwise and no annual general meeting of Akshay was held on 28th September, 1989 or otherwise for the financial year ended on 31st March, 1989.
(c) No notice was received by the shareholders of Akshay including B.P. Jalan and Bhanu.
(d) The minutes relating to the said A.G.M. have been fabricated, interpolated and falsely created.
(e) Initially such minutes purported to record presence of Anushree Jalan along with others at the said meeting. That was the position when the Special Officers appointed in Suit No. 8.49 of 1989 initiatted the minutes on 11th December, 1989. However, after evidence was adduced, inter alia, by B.P. Jalan showing that Anushree Jalan was not present in Calcutta on the said day, it appears that the name of Anushree Jalan was deleted and the name of Madhuri Jalan was inserted in handwriting representing Deepa Trade and Commerce Limited. Such alteration was done after the first inspection of shareholders’ minute book which was taken by B.P. Jalan on 24th February, 1990 and was noticed on the second inspection taken by B.P. Jalan on 27th February, 1990. Madhuri Jalan could not have been present at the said meeting as authorised representative of Deepa as Deepa had sold all its shares in Akshay and in fact did not authorise any such representation as would appear from a letter dated 9th March, 1990 allegedly issued by Deepa to B.P. Jalan,
(f) M.C. Pandiya and R. Bedi who were shown to be present at the said meeting could not have been present because they were shown to be present in meetings of other companies held on the same day and at the same time.
(g) As Anushree Jalan, M.C. Pandiya and R. Bedi could not have been present at the said meeting, there was no quorum for the purpose of the said meeting.
(h) There has been violation of the provisions of Section 256 of the Companies Act, 1956 regarding retirement of directors.”
45. In this connection it may be mentioned that we have been taken through the judgment in relation to the proceeding of Debonair Agencies Ltd. wherein similar allegations had been made and similar contentions have been raised as hearing but the same had been rejected and, thus it is not necessary to reiterate the same. However, in our opinion it may not be necessary to go into such allegations and counter allegations in great
details in view of the fact that it appears from the said judgments that the persons who had shown to have attended in the meeting but not actually attended as there was no quorum.
46. The question as to whether any prejudice has been caused to the applicants or not is a matter which has to be considered keeping in view the cumulative effect of the acts of omission and commission on the part of the alleged oppressor. It may be true that violation of any provision of the Companies Act by itself may give rise to a cause of action but we may note that the said question has been considered by the Apex Court in Needle Industries (India) Ltd. v. Needle Industries Newey (India) Holding Ltd., . Reference in this connection may also be made to the decision of the Gujarat High Court in Sheth Mohanlal Ganpatram v. Shri Sayaji Jubilee Cotton and Jute Mills Co., and Elder v. Elder and Watson, reported in 1952 SC 49. Both the aforementioned decisions have been considered by the Apex Court in Needle Industries (supra).
47. It is also not correct to contend that an application under Sections 397/398 of the Companies Act cannot be maintained by a person who in a Director as such application has to be made qua shareholder. The applicant B.P. Jalan represent Hindu undivided family. He has not filed the application in his capacity as Director but representing the minority shareholders and as such the said application is maintainable.
48. So far as the submission to the effect that the question as to whether names of B.P. Jalan having not been registered members of respondents Nos. 3 to 6 and thus, he cannot be treated as a member is concerned, it may be noticed that in World Wide Agencies Pvt. Ltd. v. Mrs. Margarat T. Desor, it has been held that a legal heir is also a legal representative. Reliance in this connection may also be made to Dhool Chand v. Ganpat Lal, and Chiranjilal Shrilal Goenka v. Jasjit Singh, .
49. In Gower on Principle of Modern Company Law, Chapter 10, 3rd Edn. page 665, it is stated:–
“Under the section any member who complains that the affairs of the company are being conducted in a manner oppressive to some part of the members (including himself) may petition the Court which, if satisfied that the facts would justify a winding-up order on the just and equitable ground but that this would unduly prejudice that part of the members, may make such order as it thinks fit. The order may regulate the conduct of the company’s affairs in future, may order the purchase of the shares of any members of the company by other members or by the company itself with a consequent reduction of capital or may otherwise bring to an end the matters complained of. Where an alteration of the memorandum or articles is ordered the company may not make any further alteration inconsistent therewith without the leave of the Court.
As in the case of a winding-up petition on the just and equitable ground this affords an individual member a remedy for internal improprieties free from the trammels of the Foss v. Harbottle rule. And it has the enormous advantage over winding up that it is less drastic and more flexible; instead of killing the company it enables the Court to impose whatever solution it considers just and equitable. As a weapon in the shareholder’s armoury it has often proved effective, particularly in the case of small companies, when brandished with a threat to strike. Unfortunately, it has proved less efficacious when the threat has not induced those in control of the company to behave more reasonably; indeed, there are only two reported cases in the United Kingdom where petitioners have ultimately succeeded — a disappointing record when compared with the just and equitable ground for winding up. In part this is due to defects in drafting and in part to the restrictive attitude generally adopted by the Courts, despite the example of those two decisions.”
50. In any event, on the date of presentation of the application the respondents Nos. 3 to 5 were subsidiary of respondent No. 2 and respondent No. 5 in held 80% shareholder of respondent No. 6 it would be subsidiary of respondent No. 5 and consequently a subsidiary of respondent No. 2 also. This aspect of the matter has been considered in Life Insurance of India v. Hari Das Mundhra, reported in (1966) 36 Com Cas 371, as also the decisions rendered by this Court in other
company applications inter parties.
51. In R. v. Board of Trade, reported in 1964 (2) All ER 561 it has been stated that the affairs of the company could be considered on broad spectrum and it may include of its business transactions, its goodwill, its profit and losses and its contracts and assets and its control of a subsidiary company. This aspect of the matter would also be evident from the chart referred to hereinbefore. Akshay Nidhi Ltd. admittedly holds identical shareholding Share, Ultra and Bhanu to the extent of 4,000 shares and 30,000 dormant shares which are still registered in the name of Mohanlal Jalan, thus, Akshay Nidhi Ltd. is in a position to control the Directorship of all the aforementioned 3 companies. Akshay Nidhi can also decide how FIDA will function as more than 80% of its shares are held by Bhanu. It is not possible to keep the unregistered share of M.L. Jalan apart as B.P. Jalan has been claiming half of such equitable ownership, his shareholding would be more than 10%. The decision cited by the learned Counsel for the respondents in this regard may now be considered.
52. In Ved Prakash v. Iron Traders Pvt. Ltd., (sic) the Apex Court merely held that a member of a company is only he who has his name on the register of members.
53. Stadmed (P.) Ltd. v. K.M. Saha, cannot be said to be a good law.
54. Furthermore it may be borne in mind that while finally adjudicating upon a petition under Section 397/398 of the Companies Act, the Court can even distribute the asset of a Company which has been even prayed for in this application by the concerned respondents themselves. Reference in this connection may be made to Sishu Ranjan Dutta v. Bhola Nath Poddar, reported in (1983) 53 Com Cas 883 : (1981 Tax LR NOC 152) and in that view of the matter there is absolutely no reason as to why unregistered shareholders cannot be said to have any locus standi to maintain the application. Reference in this connection may also be made to Clemens v. Clemens Bros Ltd., reported in 1975 (2) All ER 268.
55. In Scottish Co-operative Wholesale Society Ltd. v. Meyer, reported in 1958 (3) All ER 66 also it has been held that when a Court is in seisin of a matter under Section 397/398 of the Companies Act it can take notice of the affairs of the subsidiary companies also.
56. Keeping in view the aforementioned principles, the affairs of the respondents Nos. 3 to 7 companies as regards ‘Ultra’ the validity and/or illegality of 5 Board Meetings and one Annual General Meeting in question had to be considered. In the Board meeting dated 10th June, 1989 only general affairs of the company was discussed. No prejudice, therefore, was caused to the applicants. However, the said meeting cannot be said to be legal for the reasons that no notice was served on Padia and M.C. Baid. Similar allegation had been made in respect of the Board Meeting dated 1st September, 1989. In this case also, although M. Padia allegedly did not attend the meeting but he signed the balance sheet. The accounts of the said meeting has not been challenged.
57. So far as the Board Meeting dated 3rd October, 1989 is concerned the minutes of meetings thereof is in the following term :–
“The chairman proposed to appoint Sri P.K. Dalmia and Sri J.K. Modi as an additional director of the company to broad base the Board of the Company.
Sri P.K. Dalmia and Sri J.K. Modi who were present on invitation accorded consents to be directors of the Company, if appointed. The matter was discussed by the Board and following resolution was passed unanimously.
Resolved that Shri P.K. Dalmia be and is hereby appointed as an Additional Director of the Company.
Resolved that Shri J.K. Modi be and is hereby appointed as an Additional Director of the Company.
Sri R.K. Nakhat was requested to comply with the requirements of the Companies Act, 1956 in this regard.”
58. In that meeting one Jugal Kumar Modi (Respondent No. 10) and Pawan Kumar Dalmia (respondent No. 11) were co-opted as Addl. Directors. Allegedly such co-option was made to take management and control of ‘Ultra’ and make illegal gain and secret profit of its funds and its bona fide shareholders. By reason of the said meeting the directoral pattern of the company was changed. Apart from the fact that the respondents have merely stated that notice had
been sent by registered post, it has not filed any affidavit showing service of valid legal notice. Admittedly the majority shareholder and the majority of the directors are in the group of M.P. All the documents were in their possession. They, therefore, could not withhold any document from the Court only on the ground that the onus lies on the petitioner.
59. For the reasons stated in the earlier paragraphs, this Court also cannot accept that by reason of the transfer of share in favour of P.K. Dalmia by C.B. Gupta, this Court cannot go in such a matter as no complaint has been made by C.B. Gupta himself. As indicated hereinbefore the allegation is that the Directors have been co-opted with a view to oust the applicants’ group.
60. Furthermore, in this case the letter dated 15-1-90 issued by Sri M. Padia is also relevant. He had requested for notice of the Board Meeting by registered post. Similar request had been made by a letter dated 15-1-90. The only statement made in the affidavit-in-opposition is that the said notice returned unserved. Whatever be the circumstances, the resolution purported to have adopted therein that a new Bank Account be opined and none of the Directors who are in the side of B.P. Jalan was authorised to operate said Bank Account also assumes significance.
61. In the Board Meeting dated 21st June, 1990 the following resolution was passed :–
“Leave of absence :– Sri M. Padia placed a letter dated 19th June, 1990 from Sri M.C. Baid requesting grant of leave of absence and informing that notice to hold this meeting was not sent to him by the company. The chairman informed that the notice was duly sent by registered post and placed the R/C No. 128 dated 12-6-90 relating to the posting. The Directors present were unanimous of the view that the compliance of sending proper notice has been made and as such the holding of the meeting was in order. However, leave of absence as requested by him was granted. Leave of absence was also granted to Sri P.K. Dalmia.
Last minutes: Minutes of the last meeting of the Board of Directors of the Company were read approved and signed by the Chairman Mr. Padia’s dissent was noted.
Suit No. 849 of 1989: The chairman informed the present status of the suit No. 849 of 1989
pending before the Hon’ble High Court at Calcutta. The hearing of an application made by the company in the said suit has been concluded and judgment is wanted.
Circular Resolution: The Chairman informed the Board that due to mistake this item was taken on agenda. The Board noted the same.
Purported letter dated 30th September, 1989:– The Chairman informed that vide letters dated 8-5-90 and 17-5-90 Mr. B.P. Jalan has drawn reference to the purported letter of the company dated 30-9-1989 by which as alleged the company had surrendered the tenancy of 14 Dover Park, Calcutta in favour of Mr. B.P. Jalan. Mr. M. Padia at this stage stated that he had also come to know from Mr. B.P. Jalan that the company had issued such a letter of surrender. It was stated that at no time the Company had issued any such letter and in fact the Company is and has already been the tenant of the said premises and have been paying the rent regularly. The Directors discussed the matter and decided that since there is some fabrication and forgeries being made by certain interested persons to illegally take away the valuable tenancy right of the company by using wrongful means, necessary action to protect the interest and right of the Company should be taken and for this purpose any legal action as may be advised taken suitably and for this purpose. Mr. S.K. Sharma was authorised to do all such acts as requested in this connection.
Letter dated 1-6-90 of the Company Law Board: The Chairman placed letter dated 1-6-90 received from the Joint Director Accounts, Company Law Board, Eastern Region, Calcutta to allow inspection of the statutory records of the Company under Section 163(2) and 163(3) of the Companies Act, 1956 to Sri M. Padia, one of the Directors of the Company. The Chairman informed that the company has never refused to grant inspection to Mr. M. Padia who had also taken inspection earlier. The Chairman placed the companies reply dated 5th June, 1990. A letter dated 11 -6-90 of Mr. M. Padia has been received asking for inspection under Section 163(2) and 163(3) of the Companies Act, 1956. The Board noted the same.
It was noted that Sri Padia has been inspection earlier and he is most welcome to take further inspection on 25-6-90 as per his desire.”
62. In that case, allegedly the notice served by
M.P. Baid was returned undelivered. Despite the same no further notice was given and Sri Baid was removed from the partnership. There also appears to be controversy as to whether letters of Mr. Padia to Ultra dated 2nd July, 1990 was replied or not. It may not be necessary to go into that question at this stage.
63. The next meeting which is sought to be under challenge, is the Annual General Meeting held on 27th September, 1989. Allegedly no such Annual General Meeting had been held and no notice had been given to the shareholders. As noticed hereinbefore important resolutions appear to have been taken in the final meeting. Annual General Meeting has its own importance. Such a meeting cannot be held without complying with the provisions of the Companies Act. The appellants have merely made a bare denial and alleged that the said charges are based on surmises and conjecture but they have not come forward to show by filing documents and affidavits affirmed by competent person including Directors as to how and in what manner such meeting had been held which can be termed to be valid and legal. Even there was no quorum and copies of accounts had not been forwarded to the shareholders. Another allegations has been made by the applicants as regard resignation of P.R. Sodhani from the Board of Ultra. It has been alleged that the respondent No. 6 had caused Sri Sodhani to resign from the Board of Director of Ultra by issuing the aforementioned letter of resignation dated 10-1-90. A bare denial has been made to the aforementioned allegation. It is important to note that no affidavit has been filed by the respondent No. 6. Only respondent No. 7 has sworn the affidavit making a bare denial.
64. As regard Board Meeting of Shree Trading Ltd. it may be noticed that respondents Nos. 12, 20, 21 and one A.L. Shah was its Directors is said to be the only Director who are supporting B.P. Jalan and others were supporting M.P. Jalan. He had written a letter dated 25th June, 1990 stating that no Board Meeting had been held for one year and no Annual General Meeting had been held on 31-3-89. He was also forced to resign. A Secretary of Raigarh Jute and Textile Mills Ltd. was forced to resign by respondent No. 6. On 3-10-89 Sri K.B. Tebrial was shown to have been appointed although according to the respondents they were already having the majority Shares, there cannot be any doubt that by ousting Sri Shah, they had been complete control.
65. So far as Bhanu Traders Pvt. Ltd. (Respondent No. 5) is concerned the validity and legality of Annual General Meeting is in question. In that company, respondents Nos. 16, 18 and 19 apart from H. Shah were the Directors.
66. The allegations which had been made in respect of other companies have been made in respect of the said meeting also. However, serious charges had been made in respect of the meeting dated 18-9-89 whereby P.K. Dalmia was appointed as an Additional Director and the representative of the company was authorised to attend the Annual General Meeting of different companies. Apart from the fact that there are allegation that no notice was issued, no actual board meeting was held and there was no valid quorum.
67. It has not been denied that relevant formalities by filling up forms in Form Nos. 29 and 32 as is required under Sections 303 and 307 of the Companies Act had not been complied with by respondent No. 16, although noting is on record to show that a date had been fixed for holding Annual General Meeting of Akshay Nidhi Ltd. on 29-9-89, a resolution was made that S. N. Bagri, R.K. Nakhat and P.K. Dalmia would represent the company at the Annual General Meeting to be held- on a near future. In the facts and circumstances of this case and for the reasons stated hereinbefore we also do not accept the argument that the applicants had not been prejudiced by reason of such resolutions.
68. Again a meeting was held on 16-10-1989, the minutes whereof is as follows:
“Resolved that Sri S.N. Bagri or failing him Sri A.C. Nakhat or failing him Sri P.K. Dalmia be and are hereby authorised severally to act as the Company’s representative pursuant to the provisions of Section 187 of the Companies Act 1950 and to attend and vote on behalf of the company at the Annual General Meeting or any adjournment and postponement thereof of the following companies :–
(1) Free India Dry Accumulators Ltd.
(2) Aarkay Mercantile Ltd.”
69. In this case again no notice was issued, no actual Board Meeting was held but in reply
thereto only bare a denial has been made. It appears that the purchase of the shares of FIDA was shown on 18-8-89. It has been pointed out that minutes of meetings have not been held initially by the special officer appointed in the suit filed by B.P., which evidently suggests fabrication. Similar allegations had been made in respect of Board Meeting dated 30-12-89 and 19-2-90. In that case the resignation of Hemant Shah in terms of his letter dated 3-1-90 was accepted. It has been stated that letters had been procured by the respondents Nos. 6 and 7.
70. However, it is not possible for this Court to decide the question as to whether Sri Shah resigned on his own volition or not. The annual general meeting of Bhanu had been questioned on the same ground which were the subject-matter of the allegation in respect of the other companies and thus, it may not be necessary to consider the same once over again.
71. So far as the allegation to the effect that Bhanu Traders has surrendered tenancy in respect of Premises No. 12 Dover Park, Calcutta is concerned, the same being subject-matter of another company petition, it is better that no cognizance thereof is taken in this proceeding.
72. So far as the sale of shares in FIDA (Respondent No. 15) is concerned it appears that it was a family company and it was merged with Bhagya Lakshmi Cotton Mills by an order of the Calcutta High Court.
73. Although several other meetings had taken place in respect of the subsidiary companies of Akshay Nidhi Ltd., it is not necessary to deal with the same as it appears that most of them dealt with routine matters and providing information to the Directors as regard Court cases. In some other meetings certain Directors were authorised to do certain works.
74. However, it appears that in some of the meetings S.K. Jalan had questioned the legality thereof and expressed his dissent with the resolution taken therein which had duly been noted. It further appears in a meeting held on 2nd March, 1990 Free India Dry Accumulators Ltd., it was recorded that the said Company has become subsidiary of M/s. Bhanu Traders Pvt. Ltd.
75. In view of the discussions made hereinbefore it is absolutely clear that there are reasons to hold that there had been acts of ‘oppression’ by the majority shareholders on the minority shareholders.
76. In a proceeding under Section 397/398 of the Companies Act, it is not necessary that all the allegations made in the application must be proved to the hilt.
77. For the purpose of holding that the conduct of a particular group amounts to oppression the same should be harsh and wrongful. It does not include an isolated incident but there must be a continuing course of oppressive conduct. However, such provisions are not confined merely to conduct designed to secure pecuniary advantage to the oppressors, they may cover wrongful usurption of authority even though the affairs of the company proper in consequences. See paragraph 1011 of Halsbury’s Laws of England, Vol. 7, 4th Edn.
78. However, such an order can be passed also on just and equitable ground. What would be just and equitable principle, having a link with a partnership law have been stated in paragraphs 2208 and 2209 of Halsbury’s Laws of England, 4th Edn. Vol. 7(3) and it is not necessary to reiterate the same. Suffice it to say that the words ‘just and equitable’ are of wide import as has been judicially construed.
79. In the instant case the contention of the parties are not much at variance with regard to the background in which they came to hold shares in different companies. The principles of partnership is applicable even a Public Limited Company see Loch v. John Blackward Ltd., reported in 1924 AC 783, Ebrahimi v. Westhourne Galleries Ltd, reported in 1972 (2) all ER 492.
80. In Hind Overseas Private Ltd. v. Raghunath Prasad Jhunjhunwalla, reported in AIR 1976 SC 865, wherein an application had been filed by one group of shareholders for winding up of the company under Section 433(f) of the Companies Act, the business was originally conceived as a partnership although the said business did not start, keeping in view the fact that the share pattern in the company was approximately in the same ratio. The Court, was held to be entitled to direct winding up of the company as in the case of the dissolution of partnership in terms of Section 44(g) of the Indian Partnership Act.
81. It may be true that mere mismanagement may not give rise to an inference that a case under Sections
397/398 has been made out but in Needle Industry (supra) the Apex Court affirmed the judgment of Gujarat High Court in Mohanlal Ganpatram v. Shri Sayaji Jubilee Cotton and Jute Mills Co. Ltd., wherein it was held that there is no hard and fast rule.
82. In Needle Industries (India) Ltd. v. Newey (India) Holding Ltd., , the Apex Court held at page 1360 :–
“Even though the company petition fails and the appeals succeed on the finding that the Holding Company has failed to make out a case of oppression, the Court is not powerless to do substantial justice between the parties and place them, as nearly as it may, in the same position in which they would have been, if the meeting on 2nd May were held in accordance with law.”
83. Reference in this connection may also be made to a decision of a Company Law Board in Vijay Krishan Jaidka v. Jaidka Motor Co. Ltd., reported in 1997 (1) Com LJ 268.
84. However, in Hungerfold Investment Trust Ltd., Re v. Turner Morrison and Co. Ltd., reported in 1972 (1) ILR Cal 286, a division bench of this Court referring to the provision of Sections 4, 42, 212, 213, 214(2), 235, 295(2)(b), 370 and 372 of the Companies Act held that the said provisions are clear indication that although holding companies and subsidiary companies are treated to be separates but there are many restrictions and qualifications in relation thereto. But there cannot be any doubt whatsoever that for the purpose considering a matter of oppression, the action on the part of the majority shareholders of a holding company may also be applied in the case of the subsidiary companies as holding companies hold majority shares in the subsidiary companies particularly when both holding company and subsidiaries are family companies and for that limited purpose the corporate veil can be lifted. In the decision itself it has been held :–
“The principles indicate that the wide powers of Sections 397 and 398 of the Companies Act, 1956 given to the Court should no doubt be used in appropriate cases, but they must be used with caution and not to substitute the company by the Court management for every difference of opinion between the shareholders.”
85. In this view of the matter, it has to be held
that the petitions must succeed the shareholding pattern of the parties have been stated hereinbefore. The respondents hold a majority share although the actions on the part of the respondents were taken in a calculated manner so as to cause injury to the other group but it is also evident that even after several interim orders had been passed by this Court from time to time, there had been no allegation of mismanagement on the part of the group who is incharge of the company during pendency of this appeal. The charges of commission of fraud and forgery cannot be dealt with in the manner laid down under Section 340 of the Code of Criminal Procedure as such forgery had not committed in course of the proceedings in this Court. They may have to be dealt with in appropriate proceedings.
86. But there cannot be any doubt whatsoever that even if the said words are not used in technical sense or in restricted sense, there exists an intention to cause damage or injury. As in the instant case prejudices had been caused to a particular shareholder and the interest of the company has been affected, the decisions reported in (1962) 32 Com Cas 307, N.I. (India) Ltd. v. Newey (India) Holding Ltd. reported in 51 Company Cases 743 and Shanti Prasad Jain v. Kalinga Tubes Ltd. , which strong reliance had been placed by the respondent cannot be said to have any application. This Court is also not impressed with the argument of the respondents that as the allegation is that the companies are family companies and as such no notices of the meetings were required to be given in view of the fact that issuance of such notices is not only the requirement of law but such notices had not been served with a mala fide motive. It was not for the applicant to prove that on earlier occasions such notices had been served inasmuch as the Court would presume that notices are required to be given in ordinary course of business and such requirement has been complied with.
87. The respondents further being in control of actual management and they having the special knowledge in relation thereto, it was for them to show that meetings had been held in the manner laid down in law. There are some cases where meeting had been held without existence of a positive proof of lack of notice and the same is intrinsic in the subject matter of the minutes of the meetings.
88. In Re, Jermyn Street Turkish Baths Ltd. reported in 1970(3) All ER 57, it was observed that in certain circumstances omission to give
notice for the meeting may be considered to be a conduct oppressive to the members of the company.
89. Even transfer of shares had not been registered in normal course. Apart from lack of notice, lack of material particulars in the affidavits filed by the respondents with regard to the persons to whom the share had been sold and the element of haste involved therein is also a pointer to the fact that the same had been done with a view to wrestle the affairs of the company in their hands, he tilting the balance in their own favour. See Turner Morrison & Company Ltd. v. Shalimar Tar Products (1935) Ltd. reported in (1980) 50 Com Cas 296.
90. Even allegations had been made that shares had been transferred at nominal values. It is now a trite law that the burden of proof in such cases is on the persons who are beneficiaries of the transactions so as to show that such transfers had taken place either by way of necessity and/or the same were advantageous to the company as has been held in Turner Morison (1980) 50 Com Cas 296) (supra), which burden the respondents have failed to discharge.
91. The main question which now arises for consideration as to what relief should be granted in the matter.
92. In Re a company ex parte Shooter Re a company ex parte Broadhurst reported in 1990 BCLC 384 upon which strong reliance had been placed by the respondents it has been directed that the majority should sell their shares in favour of the minority shareholders.
93. However, the said decision did not and has not laid down any broad proposition nor can the said rule be applied in all situations. The Court there directed the oppressor to sell their shares to the oppressed in the special facts and circumstances of that case. The Court appeared to have been prompted to give such unusal direction in view of continued and repeated mismanagement of the company in question and that the company too was a football company whose activities are far from similar to those of the company in the instant case. In the matter of management of a football company the competence of the persons at the helm of the affairs of such a company was held to be crucial for the purpose of running the same. The Court in that case held that the majority by reason of their continued and repeated misconduct and mismanagement was wholly unfit to run the company. The said decision cannot possibly have any application in the facts and
circumstances of this case as would be evident from the facts related in the said case. The wrongdoers therein were held to have committed repeated failures to hold annual general meeting, lay accounts before the members illegally, issuing new share etc. In the instant case, that nature of the alleged wrongdoing is totally different. Moreover, the gravity if any, is far less than those which had been committed in the said case. Further what is most important is that in the instant case no cases has been made out of mismanagement at all. In the said case it was held that the persons in management being the majority were unfit to run the company and that was one of the principal reasons which prompted the Court to give direction upon the oppressor to sell out to the oppressed. There was also a public element involved in the said case in view of the nature of the company where the members subscribed to the company not for the purpose of or with a view to earn dividends but for the purpose of and with view to see that the company’s football team could perform better to earn reputation for the locality. In the instant case there is also no allegation of manipulations of accounts.
94. Reliance has also been placed upon unreported judgment of Assam High Court in Hathi Mal Pincha v. Kettela Tea Company Pvt. Ltd. OJ (Company Appeal) No. 45 of 1997) disposed of on 18-3-1998. In that case keeping in view the fact that an oppression was alleged in relation to a running concern, parties were directed to submit their respective bids in sealed covers. The aforementioned unreported decision is not an authority for the proposition that in all cases the Court will follow one pattern or the other.
95. There cannot be any doubt whatsover that the power conferred upon the Court in terms of Section 402 of the Company Act is very wide. The Court can, pass different orders in different cases keeping in view the nature of the allegations and the facts and circumstances of each case.
96. There cannot further be any doubt whatsoever that in all circumstances the minority or the oppressed has to sell or relinquish its shareholding as the main consideration is what would be for the benefit of the company.
97. The only property of all these companies is an immoveable property situate at 36, Chowringhee Road. It does not have any other
business nor does run any industry and, thus, the question as to who manages the company takes a back seat. It is in this situation the question has to be considered as to whether a direction to sell shares by minority shareholders to the majority shareholders would serve the purpose. The best course in the facts and circumstances of this case might have been that a partition be effected amongst the two groups but that is not possible keeping in view the fact that one of the matters viz. In Re. Sandip Investment Co. Ltd. arising out of a Company Petition No. 439/89 is pending before the Supreme Court of India. The said decision arises out of a judgment passed by a learned single Judge of this Court directing sale of the shares by B.P.J. group to M.P.J. group. The said decision has been upheld by a Division Bench of this Court with slight modification by appointing of Hon’ble Mr. Justice K.M. Ganguly, a retired Judge, as a special officer to hold a meeting of the respondents therein for the purpose of finding out as to which group has the majority share.
98. In Scotish Co-operative Wholesale Society Ltd. v. Mayer reported in 1958 (3) All ER 66 Lord Denning, J., held :–
“One of the most useful orders mentioned in the section which will enable the Court to do justice to the injured shareholders is to order the oppressor to buy their shares at a fair price, and a fair price would be, I think, the value which the shares would have had at the date of the petition, if there had been no oppression. Once the oppressor has bought the shares, the company can survive.”
99. Similar direction had been passed in Combust Technic Pvt. Ltd. In Re. reported in (1986) 60 Com Cas 872 and an unreported judgment of T.K. Basu, J. in Re : Asiatic Oxygen Limited disposed of on 10th January, 1986 which has been followed by U.C. Banerjee J. In Re : Bagri Private Ltd. reported in (1993-94) 98 CWN 617. Reference in this connection may also be made to .
100. In Re: Jermyn Street Turkish Baths Ltd. reported in 1970 (3) All ER 57, Pennycuick, J. following Scottish Co-operative Wholesale Society Ltd. v. Meyer reported in 1958 (3) All ER 66 observed :–
“If I may say so, I find that a most helpful passage.”
101. Furthermore, proceedings under Section 397/398 of the Companies Act provide for break down a machinery and in view of the fact that the applicants herein did not make an attempt whatsoever to take part in the management of the Companies for all these years and further in view of the fact that the accounts maintained by the respondents herein have not been questioned; in our opinion, proper exercise of the jurisdiction would be to direct the appellants to sell their shares in favour of the respondents. However, the value of such share may be fixed as on the date of passing of the judgment keeping in view the fact that the property in question is an immovable property and during course of the pendency of the proceedings the value might have gone up. Such valuation may be made by one of the Chartered Engineers nominated by the Registrar, Original Side of this Court.
102. This application is allowed to the extent mentioned hereinbefore but in the facts and circumstances of this case there will be no order as to costs.
D.B. Dutta, J.
103. I agree.