ORDER
A.K. Banerji
1. By means of this petition filed under Section 397 and 398 of the No.
Companies Act 1956 (the Act) the petitioner has alleged acts of
oppression and mismanagement against the respondents and has
sought appropriate reliefs.
2. Briefly stated, the case of the petitioner as set out in the petition is
that M/s Bansal Gems Pvt. Ltd. (respondent No. 1) was
incorporated on 15.10.1988 with an authorised capital of Rs. 5
lacs and a paid up capital of Rs. 10,000 only. The company was
promoted by the petitioner and the respondent No. 2, both brother,
who are the permanent directors of the company with equal equity
participation with the object of export of jewels and precious
stones. Both of the promoters subscribed one equity shares each
in the company in the Memorandum of Association and
subsequently on allotment, both held 50 equity shares each in the
company. The petitioner and the respondent No. 2 were the only
shareholders, permanent directors participating in the
management of the company, as a quasi partnership. In May 1995
the respondent No. filed a partition suit against the petitioner
relating to family properties and the relations between them
became strained. Taking advantage of his position as Managing
Director and in control of the affairs of the company, the
respondent No. 2 manipulated the records of the company by
fabricating the minute books of the Board of Directors and
General Meetings, and shifted the Registered Office of the
respondent company from Chittorgarh to Jaipur without the
knowledge and consent of the petitioner who was the only other
Director and shareholder of the company. He also allegedly
allotted 50 equity shares of Rs. 100 each at par to the respondent
No. 3 on 10.9.1992 as evident from the Form No. 2 dated 8.10.92
clandestinely without the consent and approval of the petitioner
and also appointed the said respondent No. 3 as an additional
director. Again on 06.6.1994, 50 equity shares were allotted at
par to respondent No. 4 who was the wife of the respondent No. 2,
and also appointed her as an Additional Director of the Company
as evident from the Form No. 32 dated 14.6.1994. The petitioner
never received any notices of the Board Meetings allegedly held
on 28.5.1994 and 6.6.94 and apprehend that the said minutes have
been fabricated by the respondents. By alloting the shares as
stated above, the respondent No. 2 has reduced the share holding
of the petitioner from 50% to 25% thereby he has become a
minority shareholder and is also in minority on the board of
directors. The respondent No. 2 has indulged in large scale
falsification and fabrication of the records of the company and has
even forged the signatures of the petitioner on the annual return filed with the Registrar of Companies by the respondent No. 2 on
or about 19.11.1992. The petitioner has been excluded from the
management of the company despite the fact that he was one of
the promoters and permanent director of the company. The
respondent No. 2 has established a proprietary concern in the name
and style of HNB Exports on or about the month of Jan 1993 and
started diverting the customers, business and profits of the said
respondent company to the said concern which is operating from
the same premises were the registered office of the company is
located. This competitive business is detrimental to the interest of
the company, the profits of which has been substantially reduced
to a minimum and the export business of the company have dried
up. The respondent company has also advance loans of about
Rs. 14.5 lakhs to the said firm of the respondent No. 2 during the
year ending 31.3.1994 and 1995 and the said firm has been shown
as a debtor of the respondent company. In view of the
misconduct of the respondent No. 2 who has taken over the
company in his exclusive management and eroded its resources,
the petitioner had no option but to file CP No. 14/1995 before the
Rajasthan High Court for winding up of the company under Section
433(f) of the Act. The respondent raised the question of
maintainability of the petition on the ground that the remedy lay
before this Board under Section 397/398 of the Act, consequently
the petitioner withdrew the winding up the petition seeking
permission to approach this Board. The respondents are guilty
of fraudulent conduct which is wrongful, burdensome and harsh
vis-a-vis the petitioner. The facts constituting acts of oppression
justify winding up of the company on just and equitable grounds,
however, as winding up would unfairly prejudice the petitioner,
he has prayed for appropriate orders under Sections 397, 398, 402, 403 No.
and 406 of the Act for redressal of the acts of oppression and
mismanagement set out above and No. has inter-alia prayed that the
Board of Directors be reconstituted with petitioner and the
respondent No. 2 only and the two other directors be removed
from their office of directorship and the allotment of the 50
equity shares each to respondent No. 3 and 4 be declared as No. illegal
null and void and non-est. It has also been prayed that
investigation be ordered into the affairs of the respondent
company and HNB Exports to ascertain siphoning of funds and
acts of mismanagement by respondent No. 2. Apart from the said
reliefs, other consequential reliefs have also been claimed.
3. Initiating arguments on behalf of the petitioner, Shri U.P. Mathur,
learned counsel for the petitioner submitted that the respondent
company was a family company promoted by two brothers
(petitioner and respondent No. 2) who were the only shareholders
and permanent directors of the company which was in the nature
of a quasi partnership,. right from the time of its incorporation.
There was equal shareholding and equal representation on the
Board and the management of the company was carried on jointly.
The registered office of the company was at Chittorgarh where the
petitioner resided. The respondent No. 2, with oblique, motive,
clandestinely, without the consent of the petitioner and by
manipulation of the records shifted the registered office to Jaipur
were respondent No. 2 resided and thereafter to exclude the
petitioner from the management of the company and to reduce
him to a minority, first allotted 50 shares to the respondent No. 3
and subsequently allotted 50 shares to respondent No. 4 who was
the wife of the respondent No. 2 and also made them directors of
the respondent company. The petitioner therefore was reduced
from a 50% shareholder to 25% shareholder and also in minority
in the Board. All this was done malafide with the motive to take
control of the respondent company. For this purpose the
respondent No. 2 fabricated the records and also forged the
signature of the petitioner where required and submitted false
returns before the Registrar of Companies. In fact no such Board
Meetings as alleged had taken place. All minutes copies of
which have been filed by the respondent as per the directions of
this Bench, are in the same handwriting and appears to have been
written at the same time. The records been fabricated to
show as if the petitioner was present in the Board Meetings. It is
evident from the facts that the conduct of the respondent No. 2
against the petitioner is grossly oppressive and lacking in probity
fairness and against the spirit of partnership. Mismanagement is
evident from the fact that the respondent company which was
running in profits and had good export earnings is now making
only nominal profits through local sales and the export orders
have either dried up or all been routed through the proprietorship
concern of the respondent No. 2. In these circumstances, it has
been contended that the prayers made in this petition be allowed
to put the affairs complained of to an end.
4. Manmohan Bansal (respondent No. 2) who appeared in person
before us has on the other hand submitted that the present petition
has been filed as a counter blast to the partition suit filed by him
filed as a counter blast to the partition suit filed by him
in the year 1995. The petitioner himself has admitted that till the
filing of the suit in May 1995, the relations between the parties
were cordial. The registered office of the respondent company
was shifted to Jaipur in July, 1992 much before the relation
between the parties became strained. The requisite forms were
filed with the Registrar of Companies on 5th Aug. 1992 and the
petitioner was fully aware of the same as he was present in all the
meetings. So far as the allotment of shares was concerned 50
shares were allotted to Smt. Lad Kanwar (respondent No. 3) who
was none other but the mother of the petitioner on 10.9.92 and 50
shares were allotted to respondent No. 4 Smt. Kamla (wife of the
respondent No. 2) on 6.6.1994. In both these meetings, the
petitioner was present and the shares were allotted with his
consent. As a matter of fact, the petitioner signed the annual
return as on 30.9.1992 which return shows the allotment of shares
to the respondent No. 3 and her appointment as director. Despite
this fact disclosed in the reply of the respondent the winding
up petition, the petitioner did not dispute the signing of the
annual of the shares in the said petition. It has been contended
that Form No. 2 in respect of the allotment of shares to the
respondent No. 3 and respondent No. 4 have been duly filed with the
ROC on 9.10.1992 and 23.6.1994 respectively and therefore a
presumption can be drawn under Sections 194, 195 and 75 of the No.
Companies Act that the same were properly done and the
petitioner not having challenged the said allotment at the point of
time is estopped from challenging the same now. The petitioner
himself has filed as annexure ‘K’ to the present petition the annual
return dated 9.10.1992 which bore his signatures and wherein the
allotment of shares to respondent No. 3 was mentioned. As
regards the contention that the shares alloted to respondents 3 and
4 were alloted at par though the price of the shares would be
many times more, the respondent No. 2 has referred to the case of
the Needle Industries (AIR 1981 SC 1298) and contended that the
directors have power to issue shares at par. Besides this was a
family company and the shares were issued to the mother and the
sister-in-law of the petitioner that too with his consent in a Board
Meeting where the petitioner was present.
5. It was also contended that the respondents 3 and 4 were appointed
directors with the consent and knowledge of the petitioner. The
appointments were valid and proper and the required form No. 32
were duly filed with the Registrar of Companies and is also
supported from the corresponding resolutions in the minute book,
copies of which have been filed and are on the record. In this case
also presumption under Sections 194, 195 and 75 of the Act can be
drawn in favour of the said appointments and the petitioner is
estopped from challenging the same. By the said appointments
there has been no violation of any of the Articles and Section 257
of the Act was not applicable to private limited companies.
Referring to the case of Shri Ram Vilas Press v. K. Meenakshi
(1992) 73 Comp. Cases 275 it was contended that unless the
Articles so required the company was not bound to inform its
members about candidature of a person for directorship at a
general meeting and the proposal could begin straightaway at the
meeting itself.
6. As regards the reduction of the shareholding of the petitioner it
was contended that the company has a right to allot the remaining
of the authorised share capital and had rightly allotted 50 shares
each to the respondents 3 and 4 and in doing so there was no
violation of the provisions of the Articles of Association. Besides
the shares were allotted with the consent of the petitioner and the
very fact that he did not challenge the allotment earlier and even
in the winding up proceedings it goes to show that the present
objection is an after thought and motivated. Denying the
allegations of the petitioner that his signatures were forged in the
annual return filed with the ROC in the year 1992 and certain
other documents it was contended that the same was without any
basis and the respondents had already filed an application in the
present proceedings in the month of July, 1997 to get the
signatures examined by a competent handwriting expert.
7. As regards the allegation regarding competitive business carried
on by the respondent No. 2 in the name and style of M/s H.N.B.
Exports it was contended that the said business was not a
competitive business and was started only after a resolution was
adopted in the meeting of the Board of Directors on 24.2.1992 in
which the petitioner was present. Attention was also drawn to the
annexure R-14 of the reply which was a letter of the petitioner
dated 10.11.1991 by which the petitioner had given his consent
about the starting of a personal business by the respondent No. 2.
8. As regards the allegation regarding mismanagement it was
contended that the company did not suffer in any manner by the
shifting of the registered office, allotment of shares or
appointment of directors or by carrying on the personal business
of the respondent No. 2. The company suffered due to the non
cooperation of the petitioner as well as by the other brother
namely Shri C.M. Bansal to whom the goods were being
exported earlier and who had stopped giving orders. In fact the
petitioner ceased to attend the meeting of the Board of directors
after 13.12.1994 despite notices sent to him thereby incurring the
disqualification to hold office of director under Section 283(1)(g)
of the Act. All the notices of the meeting were sent under UPC
as provided under Section 53 of the Act and three letters were sent
by Registered. Post all of which has been denied by the petitioner
with ulterior motive.
9. We have heard the parties and have perused the pleadings. In
view of the close relationship between the parties we had
suggested that the dispute may be settled amicably by them, but
despite sufficient time being granted on request, the parties failed
to arrive at a settlement consequently we heard the case on merits.
Admittedly this company was promoted by the two brothers and
the only business of the company was to export jewels and
precious stones to a business house at Germany which was being
run by another brother namely C.M. Bansal. Initially only the
two brothers were the promoter directors and subsequently when
the impugned shares were allotted that was to the respondent No. 3
who was the mother of the contesting parties and the respondent
No. 4 who was the wife of the respondent No. 2. Thus it is clear
that inspite of the corporate status, the company was being
managed as a family company in the garb of a quasi partnership,
as also evident from the copies of the correspondence filed by the
respondent No. 2 alongwith the reply to this petition. In a family
company of this nature wherein there had been equal shareholding
between the two groups right from the incorporation any change
in the shareholding parity, it has been repeatedly held, without
mutual agreement is definitely an act of oppression meriting
winding up of the company on just and equitable considerations.
In fact as noticed in the present case the crux of the contention of
the learned counsel for the petitioner is to this effect. Similarly,
where there is equal participation in the management by two
directors and where appointment of additional directors from one
group the equality in participation in the management has been
disturbed, it has been held that the same amounts to oppression.
Here, however, the contention of the respondents is that the
allotments were made to the mother and sister-in-law of the
petitioners with his consent and knowledge and he was a party to
the same. In pursuance of our order dated 8.2.99 the respondents
have produced the original and have filed the photocopy of the
minute book of the Directors Meetings, the attendance register as
well as the minute book of the General Meetings alongwith the
photocopy of the notices of the meetings including the agendas
which goes to show that the meeting of the Board of Directors as
well as the General Meetings had taken place from time to time
and till the year 1994 the petitioner had participated in those
meetings. Though the minutes appeared to have been written by
the same person as the handwriting appeared to be similar yet in a
small family company comprising only of two shareholders
initially and thereafter four shareholders, established with an
authorised capital of Rs. 5 lakhs only, no exception can be taken
for the minutes being written by one and the same person. From
the photocopy of the postal receipts which have been filed it is
evident that the notices were duly sent to the shareholders
including the petitioner. The petitioner has only made a bald
statement that the notices and the postal certificates have been
fabricated, however, in the absence of any evidence from the side
of the petitioner in rebuttal we are unable to accept the case of the
petitioner with regards to the same.
10. There is another aspect of the matter. In paragraph 6.3 of the
petition it has been stated that the relation between the two
brothers, viz. petitioner and respondent No. 2 became strained
when the respondent No. 2 filed a suit No. 11 of 1995 in the Civil
Court at Chittorgarh against the petitioner relating to family
property and thereafter the mutual confidence had been breached
by the said respondent who had acted in a systematic and planned
manner with the active support of the respondent No. 3 and 4 to
oust the petitioner from the management of the affairs of the
company. Similarly in paragraph 10 of the rejoinder it has been
stated thus;
“Subsequently due to strained relations developed in 1995
between the petitioner and respondent No. 2 the respondent
No. 2 planned to oust the petitioner, his younger brother
from the respondent company, allotted shares to his wife
and the mother by fabricating the records and also
inducted them in the Board of Directors”.
Obviously therefore, the relations between the parties were not
bad till atleast May 1995. If this was the situation it was
inconceivable that the respondent No. 2 would transfer the
Registered Office from Chittorgarh to Jaipur in the year 1992 and
would be holding meetings of the Board of Directors and the
General Meetings without the petitioner having any knowledge of
the same. The respondent has filed copy of the form No. 23 and 18
for change of the registered office with effect from 9.7.92 and the
corresponding Board resolutions in respect of the said change.
Similarly with regards to the allotment of shares made in favour
of respondents 3 and 4, the copies of the relevant form No. 2 filed
with the ROC on 9.10.92 and 23.6.94 respectively are on the
record. These contemporaneous documents support the case of
the respondent that there was no fabrication or manipulation in
respect of the records so far as the change of the Registered.
Office or the allotment of shares and the appointment of
additional directors were concerned. The annual return as on
30.9.92 copy of which is on record as Annexure K to the petition
shows that the same was signed by the petitioner wherein the 50
shares allotted to the respondent No. 3 has been disclosed. Copies
of Form No. 32 in respect of the appointment of additional
directors namely, respondent 3 and 4 are also on the record. In the
absence of any cogent evidence from the side of the petitioner we
are unable to accept the case of the petitioner that these
documents have been fabricated or manipulated to oust the
petitioner from the management.
11. That apart in proceedings under Section 397/398 the conduct of the
parties is a relevant consideration. The petitioner’s case is that he
along with the respondent No. 2 signed the last annual return upto
25.9.91 and balance sheet as at 31.3.92 but thereafter he was not
issued notices of Board Meetings and had no knowledge
regarding the allotment of additional shares till 1992 he was
attending the Board Meetings but thereafter he was not issued
notices and had no knowledge regarding the allotment of
additional shares to the respondents 3 and 4 and about their being
made additional directors. Being 50% shareholder and having
equal representation in the board if his claim is that he had not
attended any Board Meetings after 31.3.1992 for want of notice
there is nothing on record to show that he had at any time raised
the issue with the respondent directors. Being a person involved
in business he should be aware of the statutory provisions relating
to holding of Board Meetings and General Body Meetings.
Apparently the petitioner did not consider it necessary to find out
what was happening in the company and why the meetings were
not being held. It is unbelievable that the petitioner will keep
silent for over three years and not try to find out why the meetings
were not being held. Therefore, there does appear force in the
submission made by the respondent that the petitioner was aware
of what was happening in the company and he was a party to the
allotment of shares.
12. As regards the allegation of the petitioner that the respondent No. 2
is running a competitive business as HNB Exports, we find that
alongwith the reply the respondents have annexed as annexure R-
14 a letter dated 10-11-91 by the petitioner to the respondent No. 2
where he has given certain proposals for increasing the
remuneration of the respondent No. 2 and one of the said proposal
was of opening a personal firm by respondent No. 2 and the third
brother namely C.M. Bansal could purchase part of his imports
through such firm so as to give the respondent No. 2 tax free
income and further the company could help the firm in case
required. Alongwith documents Annexure R-12 filed collectively
the respondent has annexed a copy of the minutes of the Board
Meeting dated 24.2.1992 attended by the petitioner and the
respondent No. 2 wherein one of the resolutions passed is as
follows:
“Resolved that Director M.M. Bansal may start his own
personal business and may carry out from this premises
only, company may provide time to time help required by
him.”
In the rejoinder filed to the reply the petitioner has not denied
having written the letter dated 10.11.1991 or specifically denied
the above noted resolution being passed in the above noted Board
Meeting. In view of the same we are not inclined to accept the
contention of the petitioner that either this business of the
proprietary concern of the respondent No. 2 was competitive to the
main business or that the same was prejudicial to the interest of
the company. As noted above, the proposal was mooted by the
petitioner and accepted by the Board in a meeting in which the
petitioner was present and was a party to the resolution passed.
13. Having come to the conclusion that the issue of additional shares
as well as the appointment of two additional directors in the facts
of the present case could not be taken to be acts of oppression, as
the same was as per the resolution of the Board to which the
petitioner was a party, the issue for consideration is whether the
petitioner is entitled to any relief as we are exercising as equitable
jurisdiction in a proceeding under Section 397/398 of the Act.
14. It is very clear from the facts of the present case that the relations
between the two shareholders who are the promoters and the
permanent directors of the company are very strained. As a
matter of fact in the winding up petition (CP 14 of 1995) filed
by the petitioner before the Rajasthan High Court in paragraph 9
of the said petition the petitioner had pleaded that the relation
between the two directors were no longer cordial and allegations
of fraud and fraudulently prepared documents have been made. It
was stated that when the circumstances have become so acute
that the petitioner was raising doubts about the bonafidies of
another director, all these taken together would lead to one
conclusion that it is just and equitable that the company should be
wound up. In the present petition also, the petitioner has alleged
that the facts constituting acts of oppression justify winding up of
the company on just and equitable grounds, however, as winding
up would unfairly prejudice the petitioner, her has prayed for
appropriate orders under Section 397/398, 402 of the Act for
redressal of the acts of oppression and mismanagement. The
remedy under Section 397 is alternative to winding up, which
means that the interest of the company is paramount in moulding
the relief. Normally, in a family company like this where both the
brothers were promoters and permanent directors holding equal
shares, once mutual trust and confidence between them is lost, one
of them going out of the company is the only way, which would
protect the interest of the company. Having held that the allotment
of shares made to respondents 3 and 4 were valid the petitioner
has become a minority shareholder. Therefore equity demands
that the petitioner may sell his shares on the payment of
reasonable and appropriate value of his shares and go out of the
company
15. Accordingly we order as follows:
a) The respondents or the company will purchase the shares held
by the petitioner at a value to be determine by an independent
valuer. In case the company decides to purchase the shares
then consequent reduction in the share capital will be effected;
b) The date of valuation of shares will be 31.3.97 which is the
proximate date to the date of the petition, since the petition was
filed in Oct 1996.
c) The allotment of impugned additional shares will remain as it
is.
d) The additional directors will continue.
e) Till such time the shares are purchased the petitioner will be
entitled to receive (though having ceased to be a director)
notices for all the Board Meetings together with agenda as
well as the General Meeting atleast 15 days prior to the date
fixed, by Registered Post. He shall also be entitled to receive
copies of the resolutions passed in the Board Meetings for
information.
f) The parties will appear before us on 23.4.2002 at 4 p.m. for
suggesting the name of an independent valuer.
This petition is disposed of accordingly with no order as to cost.