ORDER
Vimla Yadav, Member
1. In this order I am considering C.P. No. 74 of 2005 filed under Sections 397, 398, 399, 402, 403 and 406 of the Companies Act, 1956 (hereinafter referred to as the “Act”) against HTC Engineering (1958) Pvt. Ltd. and Ors. alleging that the R-2 with malafide intent excluded the petitioners from the business; the two allotments of shares in 1999 and in 2005 were made by the R-2 in favour of his son and himself respectively, by this issue and allotment, the R-2 purported to create a new majority in the Company and in effect converted the majority into a minority; the R-2 with an intention to reduce the P-1 to a minority on the Board of the company, illegally inducted R-3 as Director of the company allegedly on 26.3.1999; the R-2 has purported to show that the P-1 has ceased to be a Director of the Company by relying on the provisions contained in Section 283(1)(g) of the Act and that the petitioners’ entitlement of 488 equity shares out of 610 equity shares of their deceased father was not transmitted to deny majority shareholding in the company.
2. Sh. S.N. Mookherjee counsel for the petitioners pointed out that the case of the Petitioners is that HTC Engineering (1958) Pvt. Ltd. is a Family Company which was incorporated on 6th June, 1989, a private Company limited by shares. The subscribers to the Memorandum and Articles of Association were the P-1, R-2 and their father wherein equal shareholding was held by the P-1, R-2 and their father and the wives of the P-1 and the R-2 held equal number of shares. The father of the P-1 and R-2 admittedly died intestate on 18th May, 1999. By reason of the aforesaid, 610 shares held by the father of the P-1 and R-2 Late Sukumar Banerji is yet to be divided equally between his five heirs i.e. P-1, R-2 and P-3 to P-5. Petitioner Nos. 1, 3, 4 and 5 are entitled to 488 equity shares out of said 610 equity shares and thus in the absence of any further increase in the shareholding of the Company the petitioners constituted the majority shareholding of the Company on the death of Late Sukumar Banerji and, therefore, the petitioners are entitled to be in control of the majority shareholding of the Company. The respondents have also admitted such position as a partition Suit was filed by R-2 being Title Suit No. 22 of 2005. The business of the Company was primarily that of material handling and transportation. One of the principal businesses of the Company was the contract of material handling and transportation from SAIL. It is, however, an admitted position that since 2002, the business of the Company has come to a standstill. At all material time, the Company had three Directors, viz. P-1, R-2 and their father. It is the grievance of the petitioners that the R-2 has wrongfully taken control of both the shareholding and directorship of the company and completely ousted the petitioners from the Company and thereby taken control of the assets of the company which comprising inter-alia valuable immovable properties.
3. Sh. Mookherjee argued that allotment of 200 shares in favour of R-3 was allegedly made on 31st March, 1999. Such allotment is liable to be set aside as no Board meeting of the Company was held for making the said issue and allotment of shares; no notice of any Board meeting was ever given to the P-1, who was admittedly the Director at that point of time for holding or conducting any Board meeting for issue and allotment of the said shares; no reason has been given as to why the said issue and allotment of shares was necessary, which has only resulted for the Company getting a sum of Rs. 20,000/-. It is evident that the said issue and allotment of shares has been shown to be backdated as on 31st March, 1999 as Form No. 2 was filed relating to the said allotment on 4th November, 1999 for which there is no explanation. It was pointed out that the case of the R-2 is that this Form No. 2 was signed by the P-1. This allegation cannot be accepted because (i) It is the specific case of the P-1 that signature appearing on the said Form is not his. Same is corroborated by the fact that the admitted signature of the P-1 in these proceedings including the signature appearing in the affidavit verifying the Petition does not tally with the signature appearing in the said Form No. 2. Similarly the signature of the P-1 at Page 96 of the Petition which is an admitted signature of the P-1 does not tally with the signature appearing in Form No. 2. There is no explanation with regard to the discrepancy on the part of any of the respondents; (ii) There is no reason for the petitioner No. 1 consenting to such issue and allotment of shares or. signing any Form in respect thereof as prior to 31st March, 1999 i.e. even before the death of the father of the P-1 and the R-2 on 10th May, 1999 disputes had arisen between the P-1 and R-2 as is evident from the letter dated 21st July, 1999 which shows that disputes had been existing for one and half years prior to the issuance of the said letter. The receipt of the said letter has not been disputed by R-2 and in fact the R-2 has disclosed this letter in the Sur Rejoinder and relied upon the same. Admittedly no offer was made to any of the existing shareholders of the Company as on 31st March, 1999 to subscribe to any further shares in the Company in proportion to the shareholding nor was the purpose or object of the said issue and allotment of shares disclosed to other shareholders of the Company who are all family members. It was argued that in such circumstances, the said issue and allotment of 200 shares in favour of R-3 allegedly on 31st March, 1999 is false, backdated, mala fide and has been made with the sole and whole object of giving the R-2 and his family members an edge in the shareholding of the Company in comparison to the shareholding of the petitioner No. 1 and his family members and has been made in breach of fiduciary duty and obligations owed by the respondents.
4. As regards issue and allotment of 2950 shares alleged to have been made on 19th February, 2005, the counsel for the petitioners argued that no effect can be given to the said issue and allotment of shares because no notice of any Board meeting relating to said issue and allotment was given to the P-1, who admittedly on the said date was a Director of the Company; no Board resolution was ever validly passed relating to making of the said further issue and allotment of shares. It was pointed out that the R-2 has contended that resolution was passed by the Board of Directors relating to the said issue and allotment on 19th February, 2005, which P-1 is alleged to have attended. Apart from the said Minutes of Board Meeting, the R-2 has relied on an extract of Minutes of Board Meeting of 7th December, 2004, letter dated 14th December, 2004 addressed by the Company to the Bank, reply dated 31st January, 2005 from the Bank, letter dated 20th February, 2005 from the Company to the Bank and the Return of Allotment relating to the said issue and allotment of shares. No reliance can be placed on any of the said documents disclosed by the R-2 because (i) It is unbelievable that P-1 would not subscribe to any further shares in the Company and permit the R-2 to acquire majority by himself when admittedly on the said date disputes were existing between the parties; (ii) The day when the Form No. 2 was filed was the same day when the P-1 had moved an application under Section 9 of the Arbitration & Conciliation Act, 1996 against the R-2 in regard to the affairs of the partnership firm of Howrah Trading Corporation; (iii) The Company was not carrying on any business and the purported issue and allotment was not in terms of the letter of the Bank dated 31st January, 2005 as the issued capital was not raised to Rs. 10.00 lakhs and the said issue and allotment was only enhanced allegedly to Rs. 5.00 lakhs. In fact, no additional funds came into the company and the increase in allotment was made against the alleged loans advanced to the Company is evident from the Return of Allotment which shows that no payment against the said shares; (iv) There is also nothing to indicate that at any future point of time, an offer was made to the other shareholders of the Company to increase their shareholding. It is thus evident that the sole and whole purpose of the increase was to create a new majority and to convert a minority into a majority; (v) In fact no steps have been taken in accordance with the letters exchanged with the Bank as no business has been commenced. The sole purpose of the issue was to create a new majority which is per se an act of oppression. During the course of hearing, it was suggested on behalf of the petitioners that the petitioners were willing to subscribe for the balance of Rs. 5 lakhs, but this was objected to by the respondents. It was argued that this clearly shows that the sole and whole object of the said issue and allotment was to create a new majority and not to permit the petitioners to exercise their rights as majority shareholders in the Company.
5. As regards the ouster of the petitioners from the company, it was argued that R-3 was shown to have been appointed as an additional Director of the Company on 26th March, 1999. Such appointment cannot be relied upon because (i) No Board meeting of the Company was ever held for the purpose of said appointment; (ii) There was no reason to reconstitute the Board by induction of R-3; (iii) No notice of any Board meeting was received by P-1 relating to appointment of R-3.(iv) Form No. 32 relating to such appointment which allegedly took place on 26th March, 1999 has been shown to have been prepared on 3rd November, 1999 and filed on 11th November, 1999. No explanation has been given for this delay; (v) The R-2 has sought to contend that P-1 consented and signed the Form relating to such appointment. Such contention cannot be relied upon as the P-1 has contended that the alleged signatures of P-1 is a forged signature. Same will be evident from a comparison of the signature with the admitted signature of the P-1 appearing at Pages 96 & 97 of the Petition and also in the affidavit verifying the Petition. There is also no reason for the P-1 to have consented to such appointment as by doing so he would commit hara-kiri, as by reason of such appointment, the R-2 would be in control of the Board of Directors when disputes had also arisen between the P-1 and the R-2 as would be evident from letter dated 21st July, 1999 addressed by P-1 to R-2. This letter has been disclosed by the R-2 himself in his Sur Rejoinder and the contents thereof have not been disputed by the respondents. In fact the respondents have relied upon the said letter. It was argued that the appointment of the R-3 as a Director is, therefore, not only illegal but also oppressive as it seeks to create a new majority in the Board.
6. As regards cessation of Directorship of P-1, it was pointed out that in the reply for the first time, R- 2 has sought to contend that P-1 has ceased to be a Director of the Company by not attending three consecutive Board Meetings of the Company held on 18th May, 2005, 16th August, 2005 and 16th November, 2005. Such contention cannot be accepted because (a) No notice of any Board meetings of 18th May, 2005, 16th August, 2005 and 16th November, 2005 was given to the P-1; (b) There is no reason for P-1 not attending such Board Meetings, if notice had been received by P-1, particularly as parties had already approached Court in respect of their disputes on the said date. It is thus unbelievable that the P-1 would not have attended the said Board Meetings. P-1 would have attended the said Meetings, if the P-1 had been given or received any Notice thereof. It was argued that it is evident that such Board Meetings were held without notice to the P-1 and as such cessation of the Directorship of the P-1 is liable to be set aside; (c) It was argued that the P-1 will not be committing hara-kiri and it is impossible to believe that a person, who admittedly has disputes with the Respondents, would consent to any action, which was clearly against his interests. The P-1 has been shown to have stopped attending alleged Board Meetings after 19-2-2005 (the date on which resolution to allot 2950 shares to R-2 was passed). The P-1 is very conveniently shown to have missed the 3 consecutive alleged Board Meetings subsequent to the alleged Board Meeting dated 19-2-2005 and has thereafter shown to have ceased being a Director by the operation of Section 283 (1)(g) of Companies Act. The cessation of directorship of the P-1 is thus not only illegal but is oppressive as it results in ouster of the P-1 from a family company.
7. The counsel for the petitioners drew my attention to other charges of oppression & mismanagement. It was pointed out that in spite of requests being made by the petitioners to transmit their entitlement of 488 equity shares out of 610 equity shares standing in the name of the deceased father of the P-1, till date no steps have been taken in this regard by the R-2 and this is so because the R-2 seeks to deny to the petitioners majority shareholding in the Company. This itself is an act of oppression, more so because it is an admitted position that the father of the parties died intestate on 18.5.1999 and that his 610 shares were to be divided equally amongst his 5 heirs i.e. Petitioners Nos. 1, 3, 4, 5 and R-2. It is also an admitted position that the R-2 filed a partition suit in respect of the assets of the deceased father and a preliminary decree dated 14.9.2005 came to be passed in the said suit. In terms of the preliminary decree, 122 shares each have to be transmitted to the heirs of the deceased father. The R-2 has despite repeated requests failed and neglected to transmit the said shares and has, therefore, deliberately prevented the Petitioner’s group to get its rightful share.
8. Responding to the contention of the Respondents that P-1 was never involved in the business of the company and was a minor when the Company was incorporated, and that it is the R-2 who has nurtured and developed the business and that the company is not a family company and the father of the parties was not actively concerned with the Company, it was argued that the contentions are completely false and incorrect. The petitioner was born on 27.1.1962 and surely was not a minor in 1982. No document has been produced by the R-2 as evidence to show that the father of the petitioner retired as an employee of the railways. On the contrary it is pertinent note that M/s. Howrah Trading Corporation was started in the year 1958 by the father of the petitioner as a sole proprietor. Subsequently it was converted into a partnership firm with the father of the P-1, the P-1 and the R-2 each having one-third share. In the year 1989 the R-1 company was formed for the purpose of taking over the partnership firm. The P-1, R-2 and their late Father were the original subscribers to the Memorandum and Articles of Association of the Company and were the first Directors of the Company. There was no outsider in the company either as a shareholder or director. This is a perfect example of a family company. The R-2 is estopped from contending that his father or P-1 had no role in the family business.
9. Further, it was argued that the contention that the R-2 has allegedly invested funds into the company and that the share capital of the company had to be increased in view of the purported direction of Union Bank of India, the bankers of the company, to raise the capital to Rs. 10 lacs, it was due to this purported reason that 2950 equity shares were allotted to R-2 against his alleged outstanding loans to the company is incorrect as is evident from the fact that though the Union Bank in its letter dated 31.1.2005 had sought increase of Share capital to Rs. 10 lacs, fact remains that the share capital was purportedly increased only to Rs. 5 lacs; Further, the Bank had been purportedly approached for working capital facility for diversification of business, admittedly no working capital facility has been granted by the Bank and the company has not been conducting any business since 2002. In such circumstances, the justification for increase in share capital has no basis; In fact, the Respondents have been using the office, staff and resources of the Company to run their partnership business under the name and style of Golden Peninsula Impex; The R-2 illegally and wrongfully changed the Auditors of the company without any intimation or consent of the other shareholders; No Balance Sheet of the company has been filed by the R-2 which shows that additional funds were inducted by the R-2. The R-2 also did not produce any documents including his income tax returns or personal Balance Sheet to prove his case, nor furnished any account nor disclosed expenses of the company.
10. Further, it was argued that the P-1 was actively involved in the affairs of the Company as he attended the Arbitral proceedings relating to disputes with SAIL. P-1 also signed the Balance Sheets of the Company upto 1997-98, which is prior to death of their father and he was also involved in correspondence with SAIL, and it was only because the P-1 and his deceased father authorized R-2 to represent the Company in tenders of SAIL, that letters came to be addressed to R-2. If it is to be accepted that P-1 was not involved in the management and affairs of the Company, there is no explanation as to why presence of the P-1 is being shown at Board Meetings of the Company, in case of issue and allotment of shares and on the Forms relating to appointment of R-3 as Director. The allotment of shares in favour of R-3 is being shown to have been signed by P-1 and there is no explanation as to why P-1 admittedly signed the Balance Sheets of the Company upto 1997-98.
11. Further, my attention was drawn to several complaints to the police authorities that in spite of efforts made by the petitioner to enter the office premises he was resisted by the R-2 from entering and taking part in daily affairs of the company. Admittedly since the arbitration proceedings were held at a place outside the office premises the petitioner thus could attend the said proceedings after coming to know of the dates of arbitration from the office of the conducting advocate. As regards the argument that the debt is owed to the R-2 by the company, namely, over Rs. 7.40 lacs, it was pointed out that this is not supported by any evidence and no reliance can be placed thereon; the part of the purported loans which were illegally converted into equity in favour of the R-1 was a wrongful attempt on his part to consolidate his position in the R-1 company, purported loans were not reflected in the income tax returns of the company or the personal income tax returns of the R-2; the balance sheet of the R-1 company also does not show such loans; no accounts were given of the purported loans.
12. As regards the allegation that P-1 was carrying on independent business, it was contended that the respondents failed to show single scrap of document prior to the P-1’s exclusion from the affairs and the business of the company, i.e. before 1998 that he was so engaged. It was only after the petitioner No. 1 was forced out of participation in the business of the said company, thereafter, for the purpose of his sustenance he had commenced acting as an agent of National Insurance Company. On the contrary the R-2 was and is still carrying on business from the office of the R-1 company through the R-4 by using the resources of the company. This is prejudicial to the interests of the company and is a gross act of mismanagement and the respondents are bound to account for their dealings to the company and compensate the company.
13. Further, the counsel for the petitioners contended that the respondents’ reliance on several vouchers, annexed to sur-rejoinder, to contend that funds were withdrawn by the P-1 from the Company ought not to be relied upon because (i) The said Vouchers are in duplicate; (ii) Such expenses have not been reflected in the Accounts of the Company which have been audited; (iii) The said Vouchers have been fabricated; (iv) The name of D. Banerjee has been inserted.
14. Sh. S.N. Mookherjee vehemently argued that the respondents are guilty of oppression and mismanagement of the affairs of the Company and have acted to the prejudice of the Company. The decision reported in AIR 1966 Cal 512 at Paragraph 49, 50, pages 527 would clearly show that the allegations made by R-2 against the petitioners cannot be accepted with regard to appointment of R-3 as a Director of the Company and the further issue and allotment of shares in favour of R-2 and R-3, as the same if accepted would support the inference that the petitioners were committing hara-kiri. The petitioners being entitled to majority and the petitioner Nos. 3, 4 and 5 are legal heirs of their deceased father are also entitled to institute the Petition. [AIR 1990 SC 737 : 1990 (1) SCC 536 refers]. The issue and allotment of shares made in favour of R-2 and R-3 allegedly on 31st March, 1999 and 22nd February, 2005 should be set aside and the names of the P-1, P-3, P-4 and P-5 should be inserted in respect of 488 equity shares out of 510 equity shares standing in the name of Late Sukumar Banerji in the records of the Company and a General Meeting should be held to elect the Board of Directors after such rectification. Further, it was argued that or in the alternative, after setting aside the issue and allotment of shares in favour of the respondents, the respondents being guilty of oppression should be directed to sell their shares to the petitioners at a fair valuation. Further appointment of R-3 as additional Director is also liable to be set aside. No question arises of petitioners being asked to sell their shares as prayed for by the respondents during the course of hearing because the majority cannot be asked to sell. Same has been recognized in the decision reported at 1998 (5) CLJ 463 at Page 527 which has been approved by Supreme Court in 2005 (1) SCC 212 at Paragraph Nos. 23 to 36. The decision of this Hon’ble Board reported in Re. Ganesh Commercial 2006 (6) CLJ 351 (CLB) at Para 17 et seq should be followed.
15. Shri Jaidip Gupta counsel for the respondents pointed out that The R-1’s business till 2002 was handling of Steel materials in the stockyards of Steel Authority of India Ltd. (SAIL) at Paharpur, Coal berth at Kolkata, and at Dankuni near Kolkata pursuant to tenders invited by SAIL. Since 2002 the said contract has not been renewed. After the said business of the Company came to an end, the day to day expenses of the Company has been taken care of by the R-2 out of his own funds. There is, as of now, a total sum of Rs. 11,30,000/- infused by the R-2 in the Company for running its day to day expenses. The R-2 who has all along been solely looking after the affairs of the Company sought to revive the Company by obtaining loans from the Union Bank of India in the year 2004. Union Bank of India agreed to make available credit facilities provided the Debt Equity Ratio of the Company is increased. To achieve this end the P-1 was unable to infuse any further funds into the Company though it was agreed by him that the same may be done by setting off a part of the amount due and payable by the Company to the R-2. Subsequently, disputes and differences arose between the P-1 and R-2. As a result the efforts made by the R-2 to revive the affairs of the Company failed and the P-1 initiated the present proceedings in a further attempt to ensure that the Company is unable to revive. It was argued that the petitioner has not come to court with clean hands and the entire petition is based on false allegations, disentitling the petitioners to any relief.
16. Responding to the contention that the petitioner has been involved in the day to day affairs of the Company, the counsel for the respondents argued that this contention is untenable because (a) The business with SAIL was procured and conducted entirely by the R-2; (b) There is no evidence of day to day involvement in the management of the Company by the P-1, the age difference between the P-1 and R-2 is almost ten years and the R-2 had been conducting the business with SAIL exclusively since 1982 when the petitioner was still under going his education; (c) The P-1 is not even aware of the correct particulars of the business; (d) Admittedly the P-1 has spent his entire life dabbling in other personal business interests none of which have any history of success.
17. Further, it was argued that it is incorrectly contended by the petitioner that the business was developed by their Late Father. In fact though one of the objects of the Company when it was floated was to take over the partnership business, it did not actually take over the partnership firm which continued to conduct its own affairs, the Company was incorporated when their father was 71 years of age, he was affected by failing health much prior to this until his death, he used to live in New Delhi from the early eighties. The returns of the business however did sustain the members of the family including the P-1 and assets were acquired from the Company’s funds. Further, it was pointed out that it has been incorrectly contended that the P-1 left the business to look after the late father when he was bed ridden. In fact all expenses of his treatment were borne by the R-2, he was treated at Kolkata. The P-1 separated from the family in 1987 during the lifetime of their father though the petitioner continues to reside in the same premises. Further, it was pointed out that in fact the P-1 never participated in the business of the Company though he was allowed to enjoy the fruits of the business, the contention that he was excluded from the business of the Company by the R-2 after the death of the father is incorrect. My attention was drawn to the various vouchers and documents to show that the P-1 upto the date of hearing of this matter continued to draw sums from the Company and no objection was raised with regard thereto by the Respondent, far from excluding the P-1 from the benefits of the Company, the R-2 all along sustained the P-1 from the funds of the said Company. Responding to the allegation of duplication of such vouchers it was contended that there are more than one voucher on the same date which indicates that the P-1 drew more than once from the Company on the same date and does not indicate any duplication as incorrectly alleged.
18. Pointing out to the false averments of P-1, it was contended that the allegations made in the rejoinder are directly contrary to those made in the petition. In the rejoinder the Petitioner also annexed order sheets of the arbitration proceedings which he attended on behalf of the Company. These documents show that even after the death of Late Sukumar Banerji, being the father of the P-1 and the R-2, the P-1 was allowed to participate in the affairs of the Company giving a complete lie to the case made out in the petition which stated that taking advantage of the illness of the father and after having assigned the job of looking after the ailing father to the P-1, the R-2 took over the affairs of the Company and did not allow him to return even after the death of the father. This allegation is also totally contrary to the tenor of the letter dated 10th February, 2005 written by the P-1 to the police very long after the death of Late Sukumar Banerji, in which he complained that on that date when he reached the office premises he was not allowed to enter the same. It was argued that in the light of such reckless contradictory allegations made in the present proceedings no credence can be given to the allegations made by him and the same stand disproved.
19. Sh. Jaidip Gupta further argued that in fact, to the knowledge of the petitioner himself the R-3 was issued 200 shares and inducted in the Board of Directors of the Company in March 1999 and returns to that effect were filed with the ROC under the signature of the P-1 himself. Faced with the aforesaid documentation the petitioner has sought to allege that his signatures were forged. However, no attempt has been made by the petitioner to prove this alleged forgery. The Company Law Board is a court of original jurisdiction which has stepped into issues of the jurisdiction exercised by the single Judge of the High Court. If an allegation of forgery has to be considered seriously by this Hon’ble Tribunal adequate proof has to be adduced. The burden of proving fraud is on the petitioner and the standard of proof required to establish a quasi criminal allegation of this nature is indeed heavy. The petitioner has made no attempt whatsoever to adduce any evidence in this regard other than making an averment to this effect in the pleadings. Averment in the pleadings without any attempt at proof cannot be seriously taken note of by this Court. No attempt has been made to have the document examined forensically by a handwriting expert. The petitioner has not even sought to invite the court’s attention to other signatures of his own and to invite a visual comparison by the court itself. It was argued that, in fact, the admitted signatures of the P-1 which are available on record (if compared with the signatures in the form 32 and form 2 dated 26th March, 99 and 31st March 99 would leave no manner of doubt with the signatures contained in the return filed with the Registrar of Companies is genuinely that of the petitioner. It was vehemently argued that P-1 has been demonstrated to have agreed to the issuance of shares in favour of R-3 and to have the R-3 in the Board of Directors of the Company and has allowed this state of affairs to continue from 1999 till the filing of the 397 petition in September 2005, without any protest or demur.
20. As regards issue of allotment 2950 shares in favour of the R-2 on 22nd of February, 2005, Shri Jaidip Gupta contended that on 7.12.2004 a resolution was passed by the Board of Directors of the Company unanimously authorizing the R-2 to take steps for obtaining loan from Union Bank of India for reviving the Company, the P-1 was present; on 14.12.2004 the R-2 wrote a letter to Union Bank of India for availing the necessary credit facility; on 31.1.2005 Union Bank of India wrote a letter informing the Company that equity capital of the Company should be increased to at least Rs. 10 lakhs for enabling the Bank to consider the sanctioning credit facility of Rs. 66 lakhs; on 19.2.2005, the Bank’s recommendation was placed at the Board meeting, it was resolved in the presence of the P-1 that out of the total dues of the Company towards R-2, Rs. 2,95,000/-would be converted into equity shares and in the process the Company’s liability would be decreased and the debt equity ratio of the Company would improve; on 20.2.2005 the Company informed the Bank that the equity capital of the Company was enhanced to Rs. 5 lacs; on 9.3.2005 Return of allotment was filed with the Registrar of Companies. It was argued that the P-1 has not denied the fact that the aforesaid correspondence did take place with the Union Bank of India. If the correspondence did take place with the Union Bank of India, then the allegation that the R-2 fraudulently and surreptitiously and behind his back issued and allotted shares cannot be accepted. From the very beginning the P-1 was not at all interested in the affairs of the Company and was busy with other business interests of his own. The P-1 did not have the financial means to contribute to the Company in its bid to revive its fortunes. Under these circumstances the P-1 quite rationally agreed to the issue and allotment of shares in favour of the R-2 who had all along been funding the day to day expenses of the Company and is still continuing to do so.
21. Responding to the reliance of the learned Counsel for the Petitioner upon the judgment of the Hon’ble Supreme Court in Dale & Carington v. P.K. Prathapan it was pointed out that the said judgment was decided on its own facts as will appear from para 29 of the report the Managing Director had neither placed on record anything to justify issue of further share capital nor has it been shown that proper procedure was followed in allotting additional share capital, it was also, as a matter of fact that the motive for allotment under such circumstances was malafide and should be set aside, it was not laid down in the said judgment nor could it be laid down that in the case of a private Company it is not permissible to issue shares in favour of one shareholder. It was contended that the common law right of a shareholder to participate in all further issue of shares cannot be said to be available in India in view of Section 81 of the Companies Act. To that extent the judgment of Tea Brokers v. Hemendra Prasad Baruah was not accepted by the Hon’ble Supreme Court. The only test was whether the right had been exercised bonafide and in the interest of the Company. It was categorically submitted that the said judgment is not an authority for the proposition that before shares can be issued to any shareholder notice must be given to all shareholders and a right offer should be made to all shareholders. More specifically it was reiterated in the facts of this case. It was argued that the P-1 was aware of the issue of fresh capital and did not want to take up any shares therein. Placing reliance on the case of Needle Industries AIR 1981 SC 1292, it was argued that the issuance of share capital in favour of the answering respondents was entirely and in the interest of the Company and, therefore, under no circumstance would amount to an act of oppression or mismanagement on the part of the Respondents.
22. Further, it was argued by Shri Jaidip Gutpa that the judgment in the case of Ganesh Commercial cannot be relied upon in the light of the fact that the same is the subject matter of a pending appeal before the High Court of Calcutta. The submission that notice should have gone to all the heirs of Late Sukumar Banerji even before any transmission of the said shares took place is on the face of it unsustainable and needs to be rejected.
23. As regards non transmission of shares of Late Sukumar Banerji, it was argued that there is no dispute about how the said shares had devolved on the heirs of Late Sukumar Banerji and, therefore, the refusal to carry out the transmission of shares is not bonafide and is not an act of oppression. The shares of Late Sukumar Banerji are admittedly one of the assets of Late Sukumar Banerji and form a part of the estate of the deceased person which has to be administered. It was contended that a partition suit has been filed to ensure that proper devolution of the estate of the said deceased person is carried out. It is not inevitable that the shares of Late Sukumar Banerji in the Company in question must necessarily devolve in 1/5 shares to the parties in the present petition as alleged by the petitioners. In fact it is quite possible that the partition of the assets and liabilities of the said estate will involve sharing of various assets and liabilities in different proportions. Since this is not the only asset comprised in the estate, there is no inevitability as far as this devolution is concerned. It was argued that given the fact that the petitioners were never interested in carrying on the affairs of the company it would be the contention of the R-2 that the said shares would come to R-2 and R-3. Preliminary decree has been passed in the partition suit and the same is pending determination by the appropriate civil court and no reliance can be placed in respect of that transaction by this Board without effectively interfering with the jurisdiction of the civil court in this regard.
24. As regards the allegation of utilization of the assets of the Company for R-2’s own business, it was denied that the R-2 is misutilising the assets of the Company. On the contrary the P-1 is regularly conducting his business activities from the Company’s premises and utilizing its assets and infrastructure and enjoying free electricity, etc.
25. As regards the allegation that the R-2 is running a competitive business in the name and style of R-4 it was argued that the petitioners are not even aware of the nature of the business carried on by the R-4 which is wholly different from the business of the respondent Company.
26. Further, without prejudice it was argued that the Respondents 2 and 3 have no objection if in order to bring to an end all disputes between the parties the assets be valued and liabilities be taken into conditions and partition between the R-.2 and R-3 on the one hand and P-1 and the other members of the family on the other hand. For this purpose my attention was drawn to a valuation already provided by the P-1 himself at page 37 of the petition. It was pointed out that this valuation, however, does not take into account the liability. Since the P-1 was never involved in the affairs of the Company and is running his individual business for a long time, it was prayed that business it would be appropriate if the shareholding of the P-1 in the present Company is transferred to the R-2 & R-3 upon on the basis of the valuation given by the petitioner at page 37 subject to the liabilities being taken into account.
27. Considering the pleadings and annexures thereto as well as the arguments and the cases cited by the parties I find that the petitioners have not fully succeeded in making out their case of oppression and mismanagement by the Respondents. There are several untenable allegations and counter allegations in this petition. The narration of events and the facts and circumstances of the case reveal that the P-1 has not taken any keen interest in the affairs of the company, he did not infuse the requisite funds when R-2 was making efforts to revive the family company. It is an admitted case that he signed the balance sheets of the Company only upto the period 1997-98. Even during the life time of his father [father dies on 18.5.99] when his elder brother presumably could not have stopped him from participation, he did not take any active interest in the affairs of the company, there is no such evidence on record. There is no such complaint regarding his exclusion from business till 2005. It is not understood as to why he had kept quiet all this time. The P-1 has failed to refute the contention of the Respondents that it is the petitioner himself who has allowed the said state of affairs to come about by his non-participation in the affairs of the company and by his not infusing the requisite funds for the revival of the company. The respondents’ contention that despite his non-participation and not fulfilling his fiduciary duties as a director the R-2 being the elder brother had still allowed him to enjoy the fruits of the business of the company by letting him draw funds for his sustenance is found to be correct. The Respondents have successfully refuted the allegations contained in the petition. The case laws relied upon by the petitioners have been distinguished on facts and have correctly been held to be inapplicable to the facts of the present case.
28. As regards the allotment of 200 shares in favour of the R-3 as well as his appointment as director on the board of the company, the P-1 has acquiesced to the allotment of shares and the appointment of R-3 as Director because these facts were in his knowledge since 1999 when the P-1 himself had filed the requisite return to the ROC to that effect. However, it is only now that he has chosen to allege that his signatures on the said return are forged. From March 1999 when the alleged allotment was done and R-3 was appointed as additional director till the date of filing of this petition the petitioners did not make any complaint about it and it is only now after so much of delay and laches he has made a futile attempt to allege that his signatures were forged and that too without adducing any evidence to that effect to prove the alleged forgery. However, no efforts have been made even to compare the signatures on record to reveal forgery, if any. The petitioner has failed to discharge the onus placed on him. Merely an affidavit does not reduce the burden. The bald allegation made in this regard is not tenable. Besides, delay and laches and his acquiescence to the allotment of shares and appointment as director only prove the Respondents’ case estopping him from agitating this matter now. Even the legal contention that illegal allotment of shares done without any proper purpose is a continuous act of oppression is also of no avail.
29. As regards the allotment of 2950 shares to R-2 on 22.2.2005, my attention was drawn to the chronology of events highlighting the facts that the effort was to avail the necessary credit facility from the Union Bank of India to revive the company to decrease the company’s liability and to improve the debt equity ratio of the R-1 which, in fact, has improved. Though it is correctly contended by the respondents that this exercise was in the interest of the company for a proper purpose but the facts and circumstances also reveal that there was no notice given to P-1 who was also a director on that date. The respondents’ contention that he was present in the meeting on 19.2.2005 cannot be given credence in view of the fact that on 10.2.2005 the P-1 had already lodged a complaint with the police station regarding his inaccessibility to the office premises. And the day when Form No. 2 in this regard was filed with the ROC was the day when the P-1 had moved an application under Section 9 of the Arbitration and Conciliation Act, 1996 against R-2 with regard to the affairs of the partnership firm of Howrah Trading Corporation. In the backdrop of these facts allotment of further shares only to R-2 to the exclusion of the petitioners and other shareholders amounts to an illegality being in violation of the provisions of the Act and the Articles of Association. But mere illegality per se does not amount to oppression. Again in the backdrop of the facts that from the very beginning P-1 was not interested in the affairs of the company and did not have the financial means to contribute to the company in its bid to revive its fortune, it would not be proper to hold the allotment to be improper, it having been done for a proper purpose in the interest of the company. Though propriety requires that equitable number of shares be offered to the petitioners’ group as well but the petitioners have failed to make out a case that R-2 has excluded the petitioners from the business with malafide intent. Late Sukumar Banerji died on 18.5.1999. Even during the lifetime of his father P-1 has failed to demonstrate that he took any keen interest in the affairs of the company. The respondents have placed sufficient evidence on record to prove their contention that the business of R-1 with SAIL was procured and conducted entirely by the R-2. It was he who inducted funds to revive the company. The P-1 was allowed sufficient opportunity to participate in the business of the company. The litigation matters and arbitral proceedings were attended by P-1 along with the lawyer of the company and it was only in February 2005 when the P-1 for the first time started complaining that he was not being allowed to enter the office premises of R-1. As regards P-1’s contention that he was kept out of the business on the pretext of taking care of their ailing father, this contention of the P-1 is also not tenable as the Respondents have successfully contended and demonstrated that it were the Respondents who took care of the father who was treated in Kolkatta and, in fact, all expenses of his treatment were borne by the R-2. Now offering equivalent number of shares to the petitioners’ group who have kept themselves out of the affairs of the R-1 company for almost a decade (from 1998 to 2008), they are not even aware as to what was the state of affairs of the company during all those years, though it is an admitted case that business with SAIL (being the main business of the R-1) continued till 2002 and was not continuing thereafter, it would not be in fairness of things to give such a relief to put the petitioners in charge of the affairs of which they themselves have not been aware. Nor have the petitioners succeeded in making a case that the respondents’ conduct has been harsh and burdensome. Despite the petitioners’ non-participation in the affairs of the company, they have been allowed to draw funds for their sustenance. This again reflects that the petitioners have not had the financial means to contribute funds for the revival of the company. In these circumstances, no offer can be made for equivalent number of shares to the petitioners at this stage.
30. As regards the petitioners’ allegation that their entitlement of 488 equity shares out of 610 equity shares of their deceased father have not been transmitted as yet, the respondents have made it amply evident, and I have no reason to disagree, that the share of late Sh. Sukumar Banerji are admittedly one of the assets of their father and form a part of the estate of the deceased person which has to be administered and a partition suit in this regard to ensure proper devolution of estate has been filed and since preliminary decree has been passed in the partition suit and the same is pending determination by the appropriate Civil Court, CLB has no jurisdiction to interfere in the jurisdiction of the civil court in this regard.
31. As regards the P-1 ceasing to be a director, it was pointed out that the petitioner has not been removed from the directorship of the company, rather he ceased to be a director of the company by operation of law under Section 283(1)(g) of the Act as he absented himself without obtaining any leave of absence in the meetings held on 18.5.2005,16.8.2005 and 16.11.2005. I find that this petition was filed on 5.9.2005. The P-1 is shown to have ceased to be a director during the pendency of this petition before the CLB. The P-1 has discovered this with shock and surprise. He denied having received any notice for these meetings in which he was required to seek leave of absence. This act of the respondents is found to be oppressive being harsh and burdensome and furthermore it has been done during the pendency of this petition. The respondents’ contention that it is not a company in the nature of quasi-partnership is also of no avail as it is a family company, there is no outsider in the company either as a shareholder or as a director. In these circumstances I find no reason to uphold the action of the respondents. The cessation of directorship of P-1 as a director by vacation of office by operation of Section 283(1)(g) of the Act is hereby declared as null and void. All resolutions passed to this effect and all statements furnished to the ROC in this regard are hereby declared as null and void. It is hereby declared that the P-1 shall continue to be a director of the R-1 company from the date of his appointment as a director. With the above directions, I dispose of this petition. All interim orders stand vacated. All CAs stand disposed of. No orders as to cost.