ORDER
S. Balasubramanian, Chairman
1. The petitioner claiming to be entitled to hold 49% shares in M/S Dr. Bais Surgical & Medical Institute Private Ltd. (the company) has filed this petition under Sections 397/398 of the companies Act, 1956 (the Act) alleging that by allotment of further shares to themselves the respondents 2 and 5 have reduced the shareholding of the petitioner and that the company is in the process of handing over complete control of the company to the 9th respondent which would be against the interest of the petitioner and the company. With these allegations, the petitioner has sought for cancellation of the allotment made and also for restraining the company from entering into any MOU with the 9th respondent.
2. The facts of the case are that the petitioner had earlier filed a petition under Sections 397/398 of the Act (CP 9 of 2001) which was disposed by an order dated 2nd December, 2004. In terms of the said order, the company was directed to allot 1475998 shares of Rs. 10 each to the petitioner or in the alternative refund the entire amount of Rs. 1.475 crores invest by him along with an interest of 6% from the date of investment till the date of payment. In a board meeting held on 15.12.2004, reserving its right to file an appeal against the order of this Board, the company decided to allot 1475998 shares to the petitioner and by a letter dated 16.12.2004, the petitioner was informed of the said decision. On the same day, i.e. on 15.12.2004, the company also held an EOGM to increase the authorized capital of the company from Rs. 3 crores to Rs. 10 crores. On 25.12.2004, while allotting shares to the petitioner as per the decision on 15.12.2004, the board of the company also allotted shares to the 2nd and 3rd respondents against their earlier investment. With these allotments against the investment already made, the shareholding of the petitioner and the 2nd and 3rd respondents came to be 49% and 51% respectively. However, on the same day the 2nd respondent was allotted further 60 lakh shares as consideration for sale of the land and building in which the hospital is functioning, to the company. The petitioner has challenged the allotment of 60 lakh shares to the 2nd respondent on the ground that the same was made solely with a view to dilute the percentage shareholding of the petitioner from 49% to around 15% and also to enable the 2nd respondent group to take complete control of the company in view of his holding going up from 51% to about 85% shares.
3. Shri Choudhary, Senior Advocate, appearing for the petitioner submitted: In the earlier proceeding, when the respondents contested the claim of the petitioner of being a 49% shareholder on the ground that no shares had been allotted to the petitioner, this Board upholding the claim of the petitioner, directed the company to allot 1475998 shares so that the shareholding of the petitioner would be 49%. However, with a view to over reach the directions of this Board that the petitioner should hold 49% shares, on the same day of allotment of shares to him, 6 lakh shares were allotted to the 2nd respondent by increasing the authorized capital. By this allotment, the petitioner’s shareholding has come down to 15%. It is to be noted that the company had issued a notice for convening an EOGM on 15.12.2004 at 10.00AM by a notice dated 15.11.2004. On the same day, the time is not known, the board allotted 1475998 shares to the petitioner in terms of the order of the Board dated 2nd December, 2004. This allotment was communicated to the petitioner vide letter dated 16.12.2004. When the appeal filed by the company came up for hearing before the High Court on 17.12.2004, the company sought for a stay of the order of this Board which was denied in view of the communication dated 16.12.2004 from the company. At the request of the petitioner therein, a copy of the resolution dated 15.12.2004 allotting shares to the petitioner was given to the petitioner on 23.12.2004. In this, there was no disclosure of alteration in the authorized share capital. Thereafter by a letter dated 1.1.2005, the company informed him that on 24.12.2004, 1475998 shares had been allotted to the petitioner and 6 lakh shares had been additionally allotted to the 2nd respondent consequent to increase in the authorized capital. Since in the High Court proceeding on 17.12.2004 the company had not disclosed the holding of the EOGM, it is doubtful whether the alleged notice dated 15.11.2004 was issued at all and whether the alleged EOGM was held at all. The respondents have not shown any board meeting wherein the board had considered the proposal to alter the share capital and to convene an EOGM. Even otherwise, the holding of the EOGM on 15.12.2004 without notice to the petitioner was illegal as on that day even according to the company, he had been declared as a shareholder. In the Explanatory Statement it is stated that the company had to allot 6 lakh shares to the 2nd respondent as consideration for purchase of the building in which the hospital is functioning and therefore it was necessary to increase the authorized capital. The very facts that no funds came to the coffers of the company and that the building was already in the possession of the company by way of lease, would reveal that the motive for allotment of shares to the respondents was only to reduce the shareholding of the petitioner. Since with the allotment of the shares to the petitioner, he had become a 49% shareholder, he could have blocked the special resolution if notice for the EOGM had been given to him. Further, the petitioner being one of the substantial shareholders, he should have been offered proportionate shares which with a view to marginalizing the petitioner, the company did not offer. By this singular act, notwithstanding the direction of this Board that the petitioner should be a 49% shareholder, his shareholding has come down to around 15%. Further, the allotment of 6 lakh shares is abinitio void as the property has not yet been registered in the name of the company meaning thereby that shares have been allotted without any consideration which is not permissible. Thus, taking into consideration all these aspects that the allotment is highly oppressive to the petitioner and that even legally the allotment is not sustainable, the allotment should be cancelled.
4. The learned Counsel further submitted: At the time when the petition was mentioned, this Board had directed that no management agreement should be entered into by the company with M/S Wockhardt. When the petitioner apprehended that the company/respondents might enter into management agreement, filed CA 54/2005 which was heard by this Board and by an order dated 14.3.2005 directed that the management agreement would be subject to final order on the petition. Therefore, a finding on this aspect should also be given.
5. Shri Ganesh appearing for the company submitted: The order of this Board dated 2.12.2004 did not bar the company from increasing its share capital. The only direction was that the petitioner should be allotted a certain number of shares and this was done. It is not correct that the petitioner became a shareholder on 15.12.2004. On that day, since the 15 days stipulated by this Board for the company to take a decision either to allot shares or refund the amount paid by the petitioner with 6% interest was expiring, the Board only took the decision to allot the shares and conveyed the Board decision to the petitioner on 16.12.2004. The shares were actually allotted only on 25.12.2004 along with the allotments impugned in the petition. Since the petitioner became a shareholder only on 25.12.2004, he had no right of notice for the EOGM held on 15.12.2004. In so far as the need to increase the authorised capital is concerned, by a letter dated 2.11.2004, the 2nd respondent had expressed his desire to sell the land and building in occupation of the hospital to the company for Rs. 6 crores and had sought for allotment of shares to that extent. This offer was accepted by the company by a letter dated 10.11.2004 and to enable the allotment, the authorized capital was increased and the shares were allotted on 25.12.2004. Till then, no shares had been allotted as contended by the petitioner to the 2nd respondent as consideration for the land and building nor the same had become the property of the company before that date. The reason for purchase is that in terms of the management agreement with Wockhardt, the land and building had to be purchased by the company failing which the management agreement itself would collapse. In other words, it was in the interest of the company that shares were allotted to the 2nd respondent and it was not done with a view to reduce the petitioner’s shareholding. The petitioner has questioned the need for entering into the management agreement with Wockhardt. The respondents have given full justification for entering into the management agreement in the reply to CA54 of 2005 filed by the petitioner from which it can be seen that right from 1998, the company had been incurring heavy losses and the 2 and 3 respondents had given unsecured loans of about Rs. 3 crores to the company to tide over the financial difficulties. Further, the company also had to pay back substantial loans taken from the bank. Since the company could not do so, the State Bank of India had taken symbolic possession of the land and building on account of the failure of the company to pay a sum of Rs. 1.32 crores. To tide over the financial difficulties, the company entered into the management agreement with Wockhardt, which on signing of the agreement, paid an amount of Rs. 1.2 crores as non refundable premium and the company would also get 5% shares in the net sales during the period of the agreement. Of the amount of Rs. 1.20 crorers, the 9th respondent had paid Rs. 87 lacs to State Bank of India due to which the bank had stopped further action against the company. Further, since the petitioner became a member only on 25.12.2004, he cannot challenge transactions prior to that date as he has no locus standi to do so. In so far as allotment of shares pending registration of conveyance deed is concerned, there is no prohibition in such allotment. Since whatever have been impugned in the petition are in the interest of the company, the petitioner cannot challenge any of the acts by the company/respondents in this regard and as such this petition should be dismissed.
6. In rejoinder, Shri Choudhary submitted: In the earlier petition, the petitioner had claimed 49% shares in the company which claim was upheld by this Board. Within a few days thereafter, the company could not have reduced the petitioner’s shareholding, the act of which itself would show that it is nothing but a gross oppression against the petitioner. Further, the land and building had already been valued against which shares had already been issued to the 2nd respondent. Therefore, the question of revaluing the land again and allotting further shares does not arise. Since sale deed had not yet been registered, the allotment made on 25.12.2004 other than that of the petitioner should be cancelled.
7. I have considered the pleadings and arguments of the counsel. It is very unfortunate that within a few days after the disposal of his earlier petition CP 9 of 2001 on 2nd December, 2004, the petitioner had to file the instant petition on 5.4.2005 alleging further oppression against him by the respondents. The main grievance of the petitioner is that even though this Board has recognized the right of the petitioner to have 49% shares in the company by its order dated 2nd December, 2004, the respondents, by allotting 60 lakh shares to the 2nd respondent, have reduced the petitioner’s shareholding to below 15% which is a grave act of oppression against the petitioner and that by entering into the MOU/Management Agreement with the 9th respondent by which the entire hospital has been handed over to the 9th respondent, respondents 2 to 5 have acted against the interest of the petitioner and the company. It is also alleged that the increase in authorized capital was done behind the back of the petitioner without giving him any notice and that the purported allotment to 2nd respondent against the property is a sham transaction.
8. The petitioner has impugned the allotment made to the respondents on various grounds; that even though he was entitled for a notice of the EOGM, he was not given a notice: that if notice for EOGM had been given to him, he would have blocked the special resolution for increase in the authorized capital; that the allotment to respondents was made only with a view to reduce his shareholding from 49% to 15%; that the respondents had already been allotted shares for the premises and second allotment for the same premises could not have been made; that if he had been offered shares, he would have accepted the same. As far as notice for the EOGM is concerned, it is the stand of the respondents that the notice for the EOGM was issued on 15.11.2004, when the petitioner was not a shareholder and the shares were issued/allotted to the petitioner only on 25.12.2004 after the receipt of the order of this Board dated 2.12.2004.
9. In so far as notice for the EOGM is concerned, when the company purportedly issued a notice on 15.11.2004 for convening the EOGM on 15.12.2004, admittedly on that day the order of this Board in CP 9 of 2001 had not been issued. According to the respondents, since on 15.11.2004, the petitioner was not a shareholder, he was not entitled for the notice. Shri Choudhary doubted whether a purported notice for the EOGM was at all issued on 15.11.2004 as in the High Court, the fact of increase in the authorized capital was not disclosed. It is to be noted before the impugned allotment, according to the respondents themselves, there were only two shareholders in the company and both of them were directors i.e. respondents 3 and 4. It is highly inconceivable that board consisting of both the shareholders would issue such a formal notice for an EOGM, that too, to be convened one month later. Further, only in its letter dated 1st January, 2005, the company informed the petitioner that an EOGM was held on 15th December, 2004 authorizing the increase in the authorized capital of the company to Rs. 10 crores and that in the meeting held on 25.12.2004, shares were allotted to the petitioner and the respondents. In the said letter, it is also indicated “Should you wish to take inspection of the records of the company, you are welcome to do so on any working day during the working hours at the company’s registered office with 48 hours advance notice to the company of your intention to do so”. Such an unusual invitation raises a doubt about the veracity of the sequence of events. Further, in this letter, there was no mention that shares were allotted to the 2nd respondent against his property. From the minutes of the board meeting and the EOGM both held on 15th December, 2004, I find that while the time of the EOGM is shown as 10.00AM, the time in respect of the board meeting has not been indicated. If the board meeting had been held after the EOGM, there is no mention of the EOGM in the board minutes. Nothing has been indicated in the board minutes as to why shares could not have been allotted on the day itself both to the petitioner and the 2nd and 3rd respondents against their share application money as even the original authorized capital of Rs. 3 crores was adequate for these allotments. Further, when the board had decided to allot shares to the petitioner on 15.12.2004, in all fairness he should have been atleast advised of the EOGM and also the proposal of the company to allot shares to the 2nd respondent against his property as the said allotment would result in reduction of the percentage shareholding of the petitioner. By making the impugned allotment immediately after allotting the shares to the petitioner, the respondents had ensured that the petitioner could not enjoy the benefit of the order of this Board that the petitioner should be allotted 49% shares even for a day. Therefore, this action of the respondents is highly oppressive to the petitioner.
10. Now the allotment of shares to the 2nd respondent against his property. The justification for allotment of shares to the 2nd respondent against his property in which the hospital is functioning is that one of the pre conditions in the MOU for signing the Management Agreement with the 9th respondent was that the company should acquire the property. By a letter dated 2nd November, 2004, the 2nd respondent agreed to sell the property to the company for Rs. 6 crores against shares to be issued. This offer was accepted by the company on 10th November, 2004. There is nothing on record that the company had caused independent valuation of the property to ascertain whether the demand of the 2nd respondent for Rs. 6 crores was justified. In the Explanatory Statement to the Notice for the EOGM given on 15.11.2004, the object for increasing the authorized capital that the same was needed to allot shares worth Rs. 6 crores to the 2nd respondent against the property had been indicated. The reliance of the respondents on the precondition in the MOU is misplaced. The original MOU is dated 22.4.2004. Along with the MOU a draft undated Management Agreement initialed by the parties had been enclosed as Annexture 1 to the MOU. In terms of the MOU the conditions precedent as specified in the Management Agreement had to be fulfilled within a period of 6 months from the date of execution of the MOU and the period could be extended by Wockhardt by another 3 months. Two of the important conditions precedent as provided in the draft Management Agreement were: The hospital was to purchase the land and building from the 2nd respondent who shall execute and register the deed of conveyance paying the stamp duty; The 2nd and 3rd respondents were to hold 100% shares in the company. After this Board disposed of CP 9/2001, by a letter dated 2.3.2005, Wockhardt proposed, with reference to the draft Management Agreement annexed to the MOU dated 22.4.2004, that it would execute the Management Agreement with certain modifications, more particularly with reference to the conditions precedent. The conveyance and registration of the land and buildings was to be completed within 15 days of execution of the said letter and that the 2nd and 3rd respondents were to ensure that they held, within 6 months, 51% of the paid up capital of the company. The conditions in this letter were accepted by the other respondents and on the same day, i.e., on 2.3.2005, Management Agreement was entered into between the company and Wockhardt. From the modified agreement, it is evident that the conditions precedent that the land and buildings had to be registered in the name of the company and that as against 100% shares that the 2nd and 3rd respondents were to hold in terms of the earlier agreement, now they have to hold only 51%. Even though in terms of the modified agreement, the land and buildings have to be registered in the name of the hospital within 15 days, it is on record that when the shares were allotted against the property, the registration had not taken place and by the impugned allotment of shares against the property, the 2nd and 3rd respondent now hold about 85% shares in the company as against 51% stipulated in the modified agreement. The company could not have allotted the shares against the property without the same becoming the property of the company by registering the conveyance deed in favour of the company. In other words, the company has not received the consideration for the shares before allotment of the shares. Allotment of shares without consideration is not permissible and could be cancelled, but I am not doing so in view of the final direction that I propose to give. I only hold that the hurried manner in which the allotment was made on the same day when the petitioner was allotted shares, was to ensure that the petitioner did not get the benefit of the allotment ordered by this Board and as such the petitioner is justified in alleging oppression in this regard.
11. It is to be noted that in the earlier proceedings, this Board had passed an order on 31.1.2001 restraining the respondents from dealing with the properties of the company. When the company had entered into a MOU with Wockhardt on 22.4.2004 by which the hospital was handed over to M/S Wockhardt, the petitioner filed a contempt application. Even though, I held that no contempt has been committed, yet, I also observed that by way of abundant caution, the respondents should approach this Board before implementing the MOU. The hearing of CP 9/2001 was concluded on 15.10.2004 and the order was passed on 2.12.2004.1 find from the correspondence enclosed with the reply by the respondents 1 to 5 that on 2nd November, 2004, the 2nd respondent wrote to the company that he was willing to sell the property to the company on allotment of shares worth Rs. 6 crores. On 10th November, 2004, the company wrote to the 2nd respondent conveying its acceptance of the offer and to allot 60 lakh equity shares of Rs. 100/- each and along with the letter, a draft agreement to sell was also enclosed. At no time during the hearing of the earlier proceedings, any indication was given that in consideration for the property, shares would be allotted. The very fact that the decision to sell the property against allotment of shares and the company accepting the same within a month of conclusion of the hearing of the earlier petition and before the order was delivered would indicate that both the 2nd respondent and the company should have thought of the arrangement much earlier and therefore it would have been prudent for the respondents to have disclosed this intention during the earlier proceedings so that the final direction that I have given in that proceeding could have been different. I gave the option to the company either to allot shares or refund the investment of the petitioner only with a view that in case the company decided to allot shares, he would be holding 49% shares which by allotment of shares against property have come down to around 15%. Therefore, the petitioner has justifiable grievance in the allotment of shares against the property.
12. As far as the grievance of the petitioner that he was not offered proportionate shares is concerned, the stand of the respondents as seen in Para 7 of their reply is : that he had earlier withdrawn his offer to purchase the equity shares and had also filed a civil suit for recovery of his share application money, thus exhibiting his intention not to invest further in the company: that he had not contributed any fund to the company after May, 2000 while respondents had mobilized huge funds to clear the bank loan: that since the company is a private company, provisions of Section 81 are not applicable etc. Considering the fact, that the relationship between the parties have strained so much, it would not be in the interests of the petitioner himself to invest more money into the company, the grievance of the petitioner that he had not been offered right shares does not require any adjudication.
13. Now regarding the Management agreement with Wockhardt. The petitioner has alleged that by entering into the said agreement the respondents have acted against the petitioner and also against the interests of the company. It is on record that the hospital is in financial difficulties and that after the disputes had started between the petitioner and the respondents, the hospital had practically become non functional. It is also on record that M/S Wockhardt had invested a substantial amount of money which was even during the pendency of the earlier petition, as recorded in the order dated 2.12.2004, was to the tune of nearly Rs. 48 lacs and the MOU has also provided for a regular payment of Rs. 2.5 lacs every month to the company by M/S Wockhardt. It is also on record that at the time of entering into management agreement on 2nd March, 2005, M/S Wockhardt had cleared the bank loan of about Rs. 87 lacs. The admitted fact is that M/S Wockhardt is a renowned hospital group and therefore it is also in the interest of general public that the hospital is managed by a reputed hospital group. The petitioner has not been able to establish in any manner how the management agreement with M/S Wockhardt is detrimental either to the petitioner or to the company. Further, this issue would be of no relevance to the petitioner in view of the final directions that I proposed to give.
14. Even though in the earlier paragraph, I have held that the MOU/Management Agreement with Wockhardt is in the interest of the company, yet, the manner in which management agreement has been entered into does not inspire confidence. Along with the petition, CA7 of 2004 was filed seeking, inter alia for the following reliefs: to restrain the respondents from exercising any right in respect of the impugned shares allotted to them; restraining them from transferring the said shares; restraining the company from signing any agreement with the 9th respondent pursuant to MOU dated 22.4.2004 or in the alternative restrain the 1st and 9th respondents from acting or giving effect to the said MOU; restrain the respondents from dealing with the properties of the company. On hearing the interim application in the presence of the advocates on behalf of respondents 1 to 5 and 9 and 10, I passed the following order on 10.1.2005: “Petition mentioned and interim relief sought. The status quo in regard to the property to be maintained as of date. It is mentioned by the Counsel for the respondents that no management agreement has been entered into with Wockhardt but interim arrangement is continuing. Reply to the petition to be filed by 10.2.2005 and rejoinder by 10.3.2005. The petition will be heard on 17.3.2005 at 10.30 AM. It is also stated that the land and building had not yet been registered in the name of the company”. This order was taken on an appeal by the company before Bombay High Court, Nagpur Bench alleging “By directing the parties to maintain status quo with respect to the property, the Company Law Board has in fact restrained the appellant No. 1 company from completing the transaction of transfer of the land and building belonging to appellant No. 2 to itself in compliance with the condition precedent stated in the management agreement. Further, this transfer being one of the conditions precedent for the execution of the management agreement, by passing the status quo order, the Company Law Board in fact restrained the appellant No. 1 company from completing the conditions precedent contained in the management agreement and therefore prevented the execution of the management agreement”. The High Court dismissed the appeal by an order dated 1.3.2005. Before the High Court order was received, the petitioner filed CA 54 of 2005 which was heard on 7.3.2005 and an order was passed on 14.3.2005 as follows:
In the application, it is stated that the above order of this Bench was taken on an appeal by the respondents before the Nagpur Bench of Bombay High Court on the ground that by the said order, this Bench had directed maintenance of status quo in regard to the management agreement. By an order dated 1.3.2005, the High Court had dismissed the appeal observing that the order of this Bench dated 10.1.2005 does not stop the respondents from entering into final agreement with Wockhardt. Since the High Court has thus observed, the respondents are likely to enter into further management agreement with Wockhardt and therefore the respondents should be restrained from entering into agreement with Wockhardt.
When this application was heard, the learned Counsel appearing for the respondents submitted that this application has become infructuous as the respondents have already entered into a management agreement on 2nd March, 2005 and the respondents may be given 4 days time to file an affidavit giving full details. On 11th March, 2005, the respondents have filed an affidavit wherein they have justified their action in entering into a fresh management contract with Wockhardt.
The admitted position is that on the day when the petition was mentioned on 10.1.2005, the petitioners had also filed an application CA 7 of 2005 wherein they have specifically sought for a prayer in the following terms: “Restrain the respondent company from signing any agreement with respondent No. 9 hospital pursuant to the MOU dated 22.4.2004 or otherwise; or in the alternative respondent No. 1 company and respondent No. 9 hospital be restrained from acting on or giving effect to the said MOU or any agreement entered pursuant to the said MOU or otherwise”. In the hearing held on 10.1.2005, the learned Counsel for the petitioners vehemently argued for granting the said prayer. However, the learned Counsel for the respondents submitted that no final management agreement has been entered into with Wockhardt but interim arrangement was continuing. By this submission, the learned Counsel for the respondents led not only this Board but also the petitioners to believe that till the disposal of the petition, the interim arrangement would continue. That is why, this Bench did not consider the prayer of the petitioners for restraining the respondents from entering into any agreement with Wockhardt. However, the respondents took the order on an appeal and later on they have entered into a management contract which in the circumstances of the case was not justified. However, I do not propose to pass any order at this point of time other than stipulating that the agreement entered into with Wockhardt would be subject to the final order on the petition.
15. In terms of the above said order, I have to examine whether the conduct of the respondents in entering into the Management Agreement on 2.3.2005 is in order or not. Respondents 1 to 5 had filed an affidavit in reply to CA 54/2005. In this affidavit, they have elaborated the urgent need for entering into the management agreement. It is their stand that the submissions of their Counsel on 10.1.2005 was not an undertaking nor was intended to be an undertaking. It is further stated that even in the order dated 2.12.2004, in CP No. 9 of 2001, the Company Law Board had not put any fetters in this regard and the petitioner has not shown any justifiable reason on occurrence of new events after that date, to seek for restraining the company from entering into the management agreement. It is further stated that only after the order of the High Court on 1.3.2005, the respondents executed the management agreement on 2.3.2005. They have further expressed shock and surprise on the observation of this Board in its order dated 14.3.2005. The submission of the Counsel for the respondents as recorded in that order has to be viewed in the context of the prayers against which the said submission was made. In CA 7/2005, the petitioner had specifically sought for restraining the respondents from entering into the management agreement and as a response, the Counsel for the respondents submitted that no management agreement had been entered into but the interim arrangement was continuing. In view of this submission, the petitioner did not press for restraining the respondents from entering into the management agreement nor this Board considered whether such a restraint was necessary. As a matter of fact, even the respondents had understood this order as one of directing the respondents to maintain the status quo and on that ground only, they filed an appeal before the High Court against this order. Having filed an appeal, the respondents were bound by the judgment of the High Court. It is to be noted that even though the High Court had observed that the submissions of the Counsel for the respondents recorded in the order dated 10.1.2005 was not in the nature of recording of an undertaking, yet, in paragraph 18 of the Judgment the Court has observed “_Looking in the nature that no prejudice what so ever is seen to have been caused to the appellants due to the impugned order to the parties, it would be proper to leave the parties to avail the option of approaching the CLB and on completing their pleadings to move the CLB for disposal of the application for interim relief”. Having so observed, in paragraph 21 of the Judgment, the High Court has specifically stated that this Board need not and shall not feel in any manner influenced by the findings and observations in the said order and the CLB shall decide the interlocutory application on merits. Therefore, not only the respondents understood the order of this Board dated 10.1.2005 as a restraint order, even after the High Court had left the matter to be decided by this Board on completion of pleadings. Yet, the next day after the date of the judgment of the High Court, the respondents had entered into the management agreement, that too by modifying the conditions precedent. The order of the High Court was not available to me on 7.3.2005. Had it been available to me on that day, I would have decided CA 54/2005 then and there. Therefore, when the High Court had left the matter of deciding the interlocutory application to this Board, it was incumbent on the respondents to have approached this Board. It is to be noted that in the order dated 10.1.2005 which was taken on an appeal, I had given directions for completion of the pleadings by 8.3.2005 and had fixed the matter for hearing on 17.3.2005. There is nothing on record to show why the respondents could not have waited till 17.3.2005. If at all there was any urgency (the urgency indicated in their affidavit dated 11.3.2005 was that the company had to clear the bank loan on receipt of advance premium for Wockhardt on signing of the Management Agreement), the respondents should have applied to this Board for urgent hearing. In this connection I may note that in the earlier proceeding also, when an order of this Board was subsisting, the respondents handed over the management of the hospital to Wockhardt. The petitioner complained that by doing so the respondents had committed contempt. Even though in my order dated 2.12.2004 I held that no contempt had been committed, yet, I also observed that by way of abundant caution, the respondents could have taken the permission of this Board before entering into the MOU. Thus, this observation was known to the respondents and therefore, even in the present case, the respondents should have approached this Board before entering into the Management Agreement. Thus the manner in which the Management Agreement was entered into cannot be sustained.
16. Now regarding the relief. It is on record that before the petitioner joined the company, the hospital was in great financial difficulties and it is an admitted fact that the petitioner not only invested over Rs. 1.48 crores towards share capital, he had also contributed Rs. 48 lacs by way of loans. In other words, at the initial stages, the company had enormously benefited by the investment made by the petitioner and therefore he cannot be made a non entity with a meager 15% shares in the company. By doing so, the respondents have ensured that investment made by the petitioner has become sunk without any benefit whatsoever. Such a treatment to a person who has given helping hand at the initial stages is a grave act of oppression against him. Further, I have already held that the manner in which the authorised capital was increased and the shares worth Rs. 6 crores allotted to the 2nd respondent is highly oppressive to the petitioner. Similarly, the manner in which the management agreement was entered into has also been found to be not in order. In the earlier order, I gave an option to the respondents either to allot shares or to refund the investment of the petitioner with an interest at the rate of 6% per annum. It is also on record that one of the pre conditions stipulated in the draft management agreement enclosed with the MOU dated 22.4.2004 was that the 2nd and 3rd respondents should hold 100% shares in the company within a period of 6 months. With such a pre condition, the most appropriate decision that the respondents/company should have taken was to opt for refunding the investment of the petitioner so that the 2nd and 3rd respondents would have held 100% shares in the company. Instead of doing so and after the company had allotted the impugned shares, by a letter dated 2nd March, 2005 M/S Wockhardt modified the said pre-condition to stipulate that the 2nd and 3rd respondents would hold 51% shares. The action of the company in allotting the shares and the decision of M/S Wockhardt to change the pre condition after the allotment, would clearly indicate that both of them had acted in tandem to ensure that the interest of the petitioner is compromised by denying him the benefit of 49% shares in the company. Considering the fact the resolution of the disputes between the petitioner and the 2nd and 3rd respondents would not only be in their own interest but also in the interest of M/S Wockhardt which is managing the hospital and also the company itself, I am of the view that the only relief that could put an end to the acts complained of is to direct parting of ways by which the petitioner would go out of the company on receipt of adequate consideration for his shares
17. That is why, even during the proceeding I had suggested so and the parties had also agreed as is evident from my recording in the order sheet on 12.2.2007, which reads: “The Counsel report that discussions on amicable settlement are on by which the shares of the petitioner would be purchased by the respondents and all the unsecured loans given by the petitioner would be repaid and other dues for consumable etc. also would be paid for. Counsel requires time to prepare documentation and accordingly seek for adjournment. To report on 24.4.2007”. On 24.4.2007, a copy of the letter written by the company to the petitioner was produced. In this letter, it was stated that the company had enquired from M/S Wockhardt whether it would be interested in purchasing the shares of the petitioner and that Wockhardt had indicated that it would not be possible to consider the proposal till year end 2007 and thereafter it would examine the proposal subject to the condition that the price for the shares would be at book value as on 31.1.2001. It is further stated in that letter that the petitioner would have to withdraw the suit and if he does so, the company would also withdraw its counter claims and if the said proposal is acceptable, the company would take up the matter with Wockhardt. This letter would indicate that M/S Wockhardt was not averse to purchase the shares of the petitioner. However, its desire to purchase the shares at a value as on 31.1.2001 is highly inequitable to the petitioner as on that date, the value of the shares could be very much below even the par value. M/s Wockardat should realize that the hospital would not have been what it was when it took the management control, but for the huge investment made by the petitioner in the initial stages. Further, it is the company and M/s Wockhardt which are going to reap the benefits of the hospital in future. Therefore, I am of the view that the petitioner should get some return on his investment while going out of the company.
18. Accordingly, I direct that the shares allotted to the petitioner should be purchased either by the company or by the 2nd and 3rd respondents at par value together with an interest at the rate of 6% per annum (simple) (even though higher rate of interest is justified, I am restricting the rate at 6% in view of my earlier order in CP 9/2001) from the date of investment made by the petitioner till the date of payment. M/S Wockhardt has also the option to purchase the shares on the same terms and conditions. Because of this direction, I am not setting aside the allotment of 6 lakh shares to the 2nd respondent even though I have held that the said allotment was oppressive to the petitioner and that the allotment could not have been made without receiving the consideration by way of registering the conveyance deed in favour of the company before allotment. Similarly, in view of the said direction, I also condone the action of the company and M/S Wockhardt in entering into the management agreement without the leave of this Board. Whoever may be the purchaser of the shares of the petitioner, it should be ensured that the consideration is paid latest by 31st July, 2008. In case the company purchases the shares, it is authorised to reduce its share capital to the extent of the face value. The petition is disposed of in the above terms. All the interim orders stand vacated.
