RELEVANT PARAGRAPH
31. It is well established position that Articles of a Company are constituent document and are binding on the Company and its Directors. As aforesaid, the intention of Article 57 is that the share capital of the Company remains within the close knit group and nothing more. On the plain language of the said provision and the intent behind it, the regime of Article 57 has no application to transfer of shares between member to member of the Company interest. There is force in the argument of the Respondents that from the contemporaneous situation, it would appear that all capital expenditure already incurred at the Lote site during the relevant period. That the total capital expenditure envisaged has been to the tune of Rs.15 crores for which the Company had already obtained sanction. The total amount disbursed till the filing of the affidavit was Rs.445 lakhs and the balance was expected to be disbursed. In substance, elaborate information has been provided by the Company as to the circumstances in which it became imperative for enhancing the borrowing powers of the Board of Directors. The basis on which relief (e) is claimed is wholly substantiated by the present Petitioners. In the circumstances, I have no hesitation in taking the view that by this act of the Respondent Company, which was in the interests of the Company, there was any oppression of minority shareholders at all. In any case, the Petitioners have not succeeded in substantiating the basis on which relief (e) is claimed. Share capital of the Company remains within the close knit group and nothing more. On the plain language of the said provision and the intent behind it, the regime of Article 57 has no application to transfer of shares between member to member of the Company interest. There is force in the argument of the Respondents that from the contemporaneous situation, it would appear that all concerned were ad-idem on this aspect, which position is reinforced from the fact that on 27th June 1971 original Petitioner No.4 (Petitioner No.1) had transferred 50 shares to original Petitioner No.1, which was a transfer of shares between member to member of the Company. The same was approved by the predecessor of the present Petitioners (deceased Rutton Kavasmaneck) in his capacity has Chairman. Those shares were not offered to any other existing member on pro rata basis to comply with the regime of Article 57. Similar position obtained when original Petitioner No.3 transferred 120 shares in favour of original Petitioner No.2 when it was once again a case of transfer of shares between member to member of the Company, duly approved by the said deceased Rutton Kavasmaneck as Chairman without offering those shares to other existing members of the Company. Even in January 1982, original Petitioner No.1 sold 120 shares directly to Respondent No.2 which was transfer of shares between member +to member of the Company without following the regime of Article 57 aboutfirst offering the same to other existing members. Taking any view of the matter, therefore, by no standards, it can be suggested that the transfer of 3000 shares by Respondent No.5 directly to Respondent No.2 transfer of shares between member to member of the Company-was violative of Article 57 of the A.O.A. in any manner. The claim of the Petitioners in that behalf will have to be stated to be rejected. Thus understood, the same cannot be ruled as constituting oppression of minority.
32. That takes me to relief (e), whereby the Petitioners seek declaration of the purported Extra Ordinary General Meeting held on 15th October 1988 as null and void. Averments to support this relief can be traced to Paragraph 14 (i). It is stated that notice (Exhibit `S’) was issued with regard to purported Ordinary Resolution proposing enhancement of the borrowing powers of the Board of Directors of the 1st Respondent from Rs.20 Crores (as purportedly done on 15th October 1988) to an amount of Rs.40 Crores. It is stated that to the knowledge of the Petitioners, there was no expansion plan of the Company. On the other hand, the Company had free reserves to the tune of Rs.27
Crores from which any expansion plan could be met. It is stated that the stand of the Respondent No.1 Company about necessity of enhancing borrowing limit was based on false and misleading statement deliberately made to suggest that it was necessary for expansion plans. It is stated that the malafides are also borne out from the fact that the Directors and/or Company did not deem it fit nor felt it necessary to propose any such resolution at the Annual General Meeting convened on29th December 1989.
33. The Respondents by filing affidavit have not only stated that the allegations of the Petitioners are baseless, but also assert that notices of Extra Ordinary General Meeting dated 15th October 1988 were duly sent on the last known address of present Petitioners (original Petitioner Nos.4 and 5) in India. There is nothing on record to doubt this position. Besides, at the time of hearing, grievance was made on behalf of the Respondents that the present Petitioners have given false and incorrect residential address in the cause title of the Petition. Be that as it may, in the reply, it is stated that the decision to enhance the borrowing powers of the Board of Directors was in the interests of the Company. The Respondents have stated on affidavit that the Company has had expansion programme on hand involving capital expenditure of Rs.30 Crores. That was to cover the period from March 1990 to June 1991. It is stated that the Company had plans to produce Aniline and various other products based on Aniline apart from Anilopos Technical, Ortho Phenylene Diamine (OPDA) Vanillin etc.at its new factory site at Lote Parshuram, Chiplun, District Ratnagiri, Maharashtra State. The Respondent Company has stated on affidavit that the Company has borrowed a sum of Rs.410 lakhs from ICICI and Rs.175 lakhs from Commercial Banks to finance the capital expenditure already incurred at the Lote site during the relevant period. That the total capital expenditure envisaged has been to the tune of Rs.15 crores for which the Company had already obtained sanction. The total amount disbursed till the filing of the affidavit was Rs.445 lakhs and the balance was expected to be disbursed. In substance, elaborate information has been provided by the Company as to the circumstances in which it became imperative for enhancing the borrowing powers of the Board of Directors. The basis on which relief (e) is claimed is wholly unsubstantiated by the present Petitioners. In the circumstances, I have no hesitation in taking the view that by this act of the Respondent Company, which was in the interests of the Company, there was any oppression of minority shareholders at all. In any case, the Petitioners have not succeeded in substantiating the basis on which relief (e) is claimed.
34. That takes me to relief (f) of the Petition. It is for declaration that the purported Annual General Meeting held on 29th December 1989 is null and void and of no effect. The substance of the allegation is that the original 2nd Petitioner and Dr.Rebello (father of original Petitioners 6 and 7), who held shares in the Company jointly with original Petitioners 6 and 7, attended the registered office of the Company, where the said meeting was to be held on 29th December 1989, amongst others, to consider the issue of dividend and reappointment of third Respondent as Director who purportedly retired by rotation. However, when they reached the Office, in fact, no meeting was seen to be held or in progress. The Respondent Company on affidavit has stated that the Annual General Meeting held on 29th December 1989 was in fact held at 11.00 a.m. as stated in the notice. It is further stated that since the Agenda was very short and routine, the meeting terminated within half an hour of its commencement; whereas, the Respondent No.2 and Dr.Rebello arrived at the said Company’s office only at around 12.00 noon, by which time, meeting had already been terminated. The Respondent Company has thus denied the allegation that no meeting was in fact held. There is no reason to doubt the correctness of the stand taken by the Respondent Company. In any case, it is the 2nd Petitioner (original Petitioner No.2) and Dr.Rebello (representing original Petitioners 6 and 7) had attended the meeting. The said Petitioners have already withdrawn from the present proceedings unconditionally. Implicit in that is giving up the allegation stated in the Petition on their behalf.
35. Be that as it may, the items on which decision was taken by the General Body was in relation to declaration of dividend and reappointment of 3rd Respondent. With regard to issue of dividend, the grievance of the Petitioners is that from the period from 1991 to 1998, the Company has declared low dividend with a view to cause harassment and prejudice to the minority members. It is the case of the Petitioners that the Respondent No.2 in addition to dividend was being paid remuneration by the Company; whereas, the Petitioners were fully dependent on the dividend income receivable from the Company. On account of low dividends, the Petitioners were required to shell out substantial amount towards tax liability leaving almost no income in their hand. Instead, the Petitioners were required to sell the shares to meet their liability. It is the case of the Petitioners that on account of low dividends, the value of the shares was affected, thereby causing oppression of the minority shareholders. The basis on which the grievance regarding low dividend is made has been addressed by the Respondent Company. The Respondent Company has relied on the tabular chart to indicate that the rate of dividend in fact has been growing from 1984 to 1990. After the year of filing of present Petition i.e. 1990, dividend paid has been progressively increased from 14% to 50% and thereafter, increased from 50% to 90% in 1997. Material produced by the Respondent shows that the Company had a lean period from 1998 to 2002. However from 2003, dividend paid once again increased from 200% to 400%. The explanation offered by the Respondent Company seems to be plausible. There is no deliberate intention to declare inadequate dividends.
36. Insofar as dividend amount is concerned, the same is expressed as a percentage of the paid up capital on the face value of the share; and not on the basis of share in profits, which concept is relevant to a partnership firm. Besides giving the break up regarding the pattern of disbursal of dividend amount, the Respondents have also produced on record material to suggest that in addition to dividends, the Respondent No.1 Company has issued bonus shares on four occasions and has raised the paid up capital from 2000 to 62166. On account of issuance of bonus shares, the present Petitioner No.1 (original Petitioner No.4) has become shareholder in 967 x 150 shares being transferred to him by deceased Rutton Kavasmaneck; and present Petitioner No.2 (original Petitioner No.5) has become shareholder in 1981 x 500 shares being transferred to her by Petitioner No.1 (original Petitioner No.4). According to the Respondent Company, on the date of Petition in 1990, present Petitioner No.1’s shareholding had increased to 3208 shares and of present Petitioner No.2 increased to 1000 shares. Together, they held total 4208 shares. Further, the increased dividend paid on increased number of shares to present Petitioners is Rs.1,21,14,425/ – (Rupees One Crore Twenty-one Lakhs Fourteen Thousand Four Hundred Twenty-five) and the total face value of 4208 shares is Rs.4208 x 100 = Rs.4,20,800/ -, for which the present Petitioners have not spent any money to acquire the same. Moreover, the total value of the said 4208 shares it was stated across the bar, at present, was at the rate of Rs.50,000/- per share, would be approximately Rs.21.04 Crores.
37. Be that as it may, the question is:
whether payment of low dividend by the Company can be the basis to hold that it results in oppression of minority shareholders. The answer is an emphatic “No”, especially in the fact situation of the present case. The decision to pay low dividend applies across the board to all the shareholders and not limited to minority shareholders. The Respondents have given justification for the low dividend policy keeping in mind the income tax and wealth tax liability of individual shareholders at the relevant time. If any authority is required in support, we can usefully refer to the decision of the Calcutta High Court in the case of Maharani : Lalita Rajya Lakshmi vs. Indian Motor Co. (Hazaribagh) Ltd. & Ors. reported in 1962 (Vo.XXXII) Company Cases 207. The Division Bench of the Calcutta High Court rejected similar grievance of the shareholders by observing thus: “It is then argued that the board of directors controlled by the managing agents has not been properly declaring dividends. In fact what is said in paragraph 21 of the petition is that dividend which is much below the actual profit earned by the company has been declared. I fail to see how this is an act of oppression to any member or members within the meaning of section 397 of the Companies Act. The board of directors has a discretion to declare dividend and the rate of such dividend. There is no company law that I know which obliges a board of directors to use up all its profits by declaring dividend. No company law lays down that all profits must be declared and exhausted in paying dividends. Surely, failure to do so could not be a ground for an application for oppression under section 397 of the Companies Act. Besides, that will also not be a ground for winding up a company as indicated by Lord Blanesburgh in the observation quoted above in the Privy Council decision of Ripon Press and Sugar Mill Co.Ltd. v. Gopal Chetty.”
38. The above decision has been followed by the Single Judge of Calcutta High Court, Mrs.Justice Ruma Pal (as she then was), in the case of Jaladhar Chakraborty & Ors. vs. Power Tools & Appliances Co.Ltd. & Ors. reported in 1994 (Vol.79) Company Cases 505. From Page 516 onwards of the reported decision, the issue regarding non-declaration of dividend whether per se constitutes oppression, has been considered. After referring to the above quoted exposition in Maharani Lalita Rajya Lakshmi (supra), the Court observed that the test appears that whether by deliberately not declaring dividend the respondent directors have caused the “value of the shares to fall” so as to compel the minority to sell their shares to the majority, which statement of law was reiterated in the cases of Joseph (K.M.G.) vs. Kuttanad Rubber Company Ltd. reported in (1984) 56 CC 284 (Ker) and 301.
39. Even in the present case, present Petitioners have failed to establish that the share value held by them has depleted in any manner. No such case is made out in the Petition. There is, however, material to take the contrary view that the value of the shares has enhanced steeply. In such a case, the question of holding that on account of declaration of low dividend, has resulted in oppression of minority shareholders cannot be countenanced.
40. The decision in the case of Jaladhar Chakraborty & Ors. (supra) has been pressed into service also on the proposition that once the Court finds that there is no ground for oppression or mismanagement, there is no question of the Court passing any order from bringing to an end the matter complained of either under Section 397 or 398. In that, the substratum for passing any order under Section 397 or 398 is unavailable. For that, reliance has been placed in the said decision on the case of Jermun Street Turkish Baths Ltd., In re (1971) 41 Company Cases 999 wherein, it was observed as follows : “If this could be regarded as an act of oppression, which in our opinion it cannot, it would not, we think, justify an order that one side should buy the shares of the other. So drastic a remedy would go far beyond what is necessary to put an end to this particular form of oppression.”
41. Reliance is also placed on the earlier decision in Lalita Rajya Lakshmi (supra) wherein at page 129 of the report, the Division Bench of that Court had observed that: “wide as the power of the Court” is flowing from the words of the expression “such order as it thinks fit”. It is nevertheless controlled by the overall objective of this section which must be kept strictly in view that the order must be directed “to bringing” an end to the matter complained of. It is further observed that marginal note of Section 397 of the Act shows also that the purpose of the order of the Court in this Section is to give `relief in case of oppression’. The Single Judge of the Calcutta High Court then proceeded to distinguish the exposition in Needle Industries (India) Ltd. v.Needle Industries Newey (India) Holdings Ltd. reported in (1981) 51 Company Cases 743 (SC) = 1981 3 SCC 333. After elaborately considering the circumstances in which the observations were made by the Apex Court in Needle Industries’ Case (supra), the Court went on to hold that in the case before it, the Respondents had never expressed any willingness to purchase the shares of the Petitioners. That there is also no act of inequity in the case as the illegal meeting in Needle’s case, of which justice demands rectification. The Court plainly observed that the Needle Industries’ case (supra) was not an authority for proposition that even in cases where oppression and mismanagement are not found under Section 397 or 398 of the Act, the Court can compel the Company or the Respondents to buy the dividend shareholdings.
42. The Petitioners would rely on the decision of the Chancery Division in the case of Re: Sam Weller & Sons Ltd. reported in 1990 BCLC 80. In the said case, the grievance of the Petitioners who were minority shareholders of the Company was that even though the Company had very substantial accumulated profits, the Directors failed to give an adequate consideration to the question of what proportion of the profits of the Company should be distributed by way of dividend. The Court accepted the said grievance of the Petitioner and found that in the fact situation of that case, it was unfairly prejudicial to the interest of some part of the members. In the first place, the legal exposition in the said decision is in the context of Section 459(I) of the Companies Act 1985 which was applicable to the case before the Chancery Division. The same reads thus :
“Section 459(I) of the Companies Act 1985 is in these terms: `A Member of a company may apply to the court by petition for an order under this Part on the ground that the company’s affairs are being or have been conducted in a manner which is unfairly prejudicial to the interests of some part of the members (including at least himself) or that any actual or proposed act or omission of the company (including an act or omission on its behalf) is or would be so prejudicial. ‘
43. I am in agreement with the argument of the Respondents that the provision in the Indian Companies Act 1956 is differently worded. In that, the provision in Indian Companies Act does not limit the action to conduct which is unfairly prejudicial to the interest of some part of the members. Whereas, it requires that the conduct should be such that it is in a manner oppressive to any member or members. The Indian Law envisages that the act of the majority shareholders should be replete with malice and one of continuous oppression of the minority shareholders’ right till the hearing of the Company Petition.
44. Counsel for the Respondents has invited my attention to the decision of the Apex Court in the case of Hind Overseas Private Limited v. Raghunath Prasad Jhunjhunwalla & Anr. reported in (1976) 3 SCC 259 In Paragraph 32 of this decision, our Apex Court has expounded that although the Indian Companies Act is modelled on the English Companies Act, the Indian Law is developing on its own lines. Our law is also making significant progress of its own as an when necessary. It is further observed that where the words used in both the Acts are identical, the English decisions may throw good light and reasons may be persuasive. But then the Court added word of caution relying on the exposition of the Privy Council in the case of Ramanandi Kuer v. Kalawati Kuer reported in AIR 1928 PC 2 which reads thus : “It has often been pointed out by this Board that where there is a positive enactment of the Indian legislature, the proper course is to examine the language of that statute and to ascertain its proper meaning – uninfluenced by any considerations derived from the previous state of the law or of the English law upon which it may have been founded.”
45. This decision of the Apex Court was also pressed into service in the context of the argument of deadlock in relation to passing of Special Resolution. In Paragraph 33, the Apex Court has observed that when more than one family or several friends and relations together form a company and there is no right as such agreed upon for active participation as members who are sought to be excluded from management, the principles of dissolution of partnership cannot be liberally invoked. Besides, it is only when shareholding is more or less equal and there is a case of “complete deadlock” in the Company on account of lack of probity in the management of the company and there is no hope or possibility of smooth and efficient continuance of the company as a commercial concern, there may arise a case for winding-up on the just and equitable ground. In the present case also, the grievance of the present Petitioners is that the majority shareholders, in particular, Respondent No.2, always kept out the predecessor of the present Petitioners (Rutton Kavasmaneck) and controlled the entire affairs of the Respondent No.1 Company himself. Besides, after the demise of Rutton Kavasmaneck, none of his heir was replaced as Director on the Board of Directors. Both these arguments will have to be stated to be rejected keeping in mind the principle stated by the Apex Court that there was no right accrued upon in this behalf. Besides, I have already dealt with the grievance of the Petitioners with regard to the delayed transfer of shares of the deceased. Until the shares were transmitted, the heirs could not have been made Directors. It is the Petitioners’ group who delayed the process of transmission by submitting application in that behalf almost after twelve and a half years. With regard to the argument that it is a case of deadlock in passing of Special Resolution, is also answered by this decision as what is envisaged to be a complete deadlock in the company on account of lack of probity in the management of the Company and there is no hope and possibility of smooth and efficient continuance of the company concerned. By no standards, such a finding can be recorded in the fact situation of the present case.
46. Reliance is also placed by the Petitioners on the decision of Privy Council in the case of Loch & Anr. & John Blackwood Ltd. reported in 1924 AC 783, in particular, exposition at pages 793 and 794 to contend that the Petitioners group had completely lost confidence in Respondent No.2 on account of continuous act of Respondent No.2 in keeping out the Petitioners group from the affairs of the Respondent No.1 Company. It was a case of incompatibility between the Petitioners group and the Respondent No.2. In the first place, it is only the present Petitioners who can make such grievance. Insofar as other original Petitioners are concerned, they have already withdrawn from the proceedings and given up all their claim. This authority is also concerning the issue of declaration of low dividend and of benefiting only one group. The Court on facts found that the same was done unilaterally, as no notice was given to the Respondents, as shareholders of particular piece of business being contemplated and no notice was given of what had been done. Similarly, no accounts were provided and the minority group was kept in ignorance. That is not the case on hand.
47. Reverting to the grievance regarding declaration of low dividend, notably, the prerogative to recommend the rate of dividend is exclusively in the Board of Directors of a Company in terms of Section 205 of the Act. Even the shareholders at the Annual General Meeting cannot increase the rate of dividend recommended by the Board but at best, can consider of reducing the same. Even Article 183 of the A.O.A. of the Respondent Company would reinforce this position. Besides Article 183, it will be useful to refer to Articles 185 to 188. Article 188 postulates that the Board may set-aside profit as reserve as it thinks proper. Dividend is to be paid out of profits only in terms of Article 185. Considering the Scheme of these provisions, coupled with the fact that no tangible material has been brought on record by the present Petitioners to substantiate that the declaration of low dividend was not only intentional, deliberate and replete with malice, but was intended to and in fact had reduced the value of their shares. In such a case, there can be no cause for oppression. In my opinion, present Petitioners are not entitled for even relief (f) of the Petition.
48. That takes us to relief (h) which presumably seeks declaration that the holding of Extra Ordinary General Meeting on 15th February 1990 is illegal and bad and to refrain the Company from proceeding to convene the said meeting. The present Petition has been filed two days before convening the said meeting dated 15th February 1990 with a view to interdict the said meeting. However, under the orders passed by this Court, the meeting was convened on the basis of undertaking given by the Respondents not to act on any Resolution that may be passed at the said meeting till further orders. The subjects which were to be discussed in the said meeting were notified by way of notice dated 16th January 1990 for holding Extra Ordinary General Meeting. The items that were to be discussed have already been mentioned hitherto. The grievance about the invalidity of this meeting at the instance of the present Petitioners is on diverse grounds. However, those grounds at best make out a case bordering some irregularity. Significantly, the original Petitioners 1, 2, 3, 6 & 7 having unconditionally withdrawn from the present proceedings and have given up all the grounds presupposes that they have accepted the Resolution passed at the said meeting dated 15th February 1990. In other words, it is only the present Petitioners who are opposed to the validity of the said meeting and the decisions taken therein. The present Petitioners, however, constitute less than 7% of the share holding. By no standards, it can be said that the present Petitioners on their own would be in a position to defeat the Resolution which is supported and in any case now accepted by members having majority of over 93% share holding. Had it been a case where the ground pressed into service by the present Petitioners would end up in a finding that the conduct of the said meeting was void, it would be worthwhile for the Court to examine each of such ground elaborately. Be that as it may, the grounds which are pressed are that the proposed Resolutions were for the personal benefit of the 2nd Respondent and were sought to be passed with a view to oppress the minority. That the purpose of the amendment was to overcome the restriction and permit transfer of shares to the Foundation/other persons/Company’ s control by the 2nd Respondent and to exert Petitioners to sell their shares by depriving them of adequate price. The purpose of the Resolution was to gain complete control of the 1st Respondent. It is stated that the 2nd Respondent was interested in the proposed Resolutions for which it was incumbent to disclose in the explanatory statement annexed to the notice dated 16th January 1990 the nature of interest of the 2nd Respondent in the proposed Resolution as also his interest in the Foundation. Whereas, the statement in the explanatory statement stated that none of the directors was concerned with the Resolution which was palpably false. That no approval of the Board of Directors was granted in the proposed Extra Ordinary General Meeting held on 15th February 1990; whereas, such meeting could have been called only by the Board of Directors. It is the case of the Petitioners that the decision in the said meeting was for the personal benefit of the 2nd Respondent. The main argument of the present Petitioners is that they had lodged proxies well in time but at the behest of 2nd Respondent, the proxies were not received before time so as to render the proxy invalid. In the process, the proxy of present Petitioners was denied participation in the meeting. On the other hand, the proxies appointed by the supporters of 2nd Respondent were allowed to participate in the meeting even though their proxies were invalid. If the said votes were to be discarded, then it would necessarily follow that the Resolution was not carried through. These are amongst other grounds on the basis of which validity of the meeting dated 15th February 1990 has been now questioned.
49. On the other hand, the Respondents have not only denied material grounds and would submit that proper compliance has been observed. In addition, the Respondents would contend that the Petitioners should be non-suited for having approached this Court with unclean hands. In that, the fact that the Petitioners have already entered into a Memorandum of Understanding with Godrej Soaps Ltd. to acquire shares in Respondent No.1 Company was kept a secret arrangement till it became known for the first time to the Respondent in February 2005. It is common ground that even the present Petitioners are signatories to the said Memorandum of Understanding. In fact, even the present Petitioners have sold 27 and 66 shares respectively to Godrej Soaps Ltd., without following the regime of Article 57. On the one hand, the Petitioners were questioning the intention of the 2nd Respondent but at the same time, the Petitioners were themselves indulging in act which was not only illegal but against the interests of the Company. According to the Respondents, the Petitioners group was bent upon selling their shares to a person who happens to be the competitor of Respondent Company. Besides, it is the Petitioners group who on the one hand were opposed to increase of authorised share capital-resulting in Respondent No.1 not being able to declare bonus shares; and on the other hand were acting against the interests of the Company by committing themselves to sell their shares to person who happens to be the competitor of Respondent Company. According to the Respondents, the present Petition is a speculative Petition, for which reason also the grievance made at the instance of Petitioners with regard to meeting dated 15th February 1990 cannot be countenanced.
50. The fact that even the present Petitioners were party to Memorandum of Understanding and have committed themselves to espouse the cause of the alleged competitor of the Company and in fact transferred part of the shares to an outsider, have come to the notice of the Respondents only in February 2005. Those material facts have been suppressed by the Petitioners. For this reason alone, the Petitioners deserve to be non-suited. It is well established that no indulgence can be shown to a litigant who approaches the Court with unclean hands. In any case, as observed earlier, after the withdrawal of other Petitioners from the present proceedings unconditionally, thereby giving up all the allegations and claim against the Respondent Company, the issue regarding validity of meeting dated 15th February 1990 survives only at the instance of present Petitioners. They have less than 7% of share holding in the Respondent Company. At their instance, therefore, the question of overturning the decisions taken in the said General Meeting particularly having referred to their conduct does not arise. Even if the matter was to be examined on facts, on its own merits, the grievance of the Petitioners in respect of each of the grounds will have to be stated to be rejected. By no standards, the decision to convene meeting to consider the eight items stated in the notice dated 16th January 1990 can be said to be oppression against minority shareholders. The necessity to increase borrowing powers was in the context of expansion plans in relation to which ample explanation has been offered by the Respondent Company. Insofar as changing of name from Private Limited Company to one of Public Limited Company was also out of necessity. Even the explanation offered by the Respondent Company about the necessity to increase the authorized capital of the company can, by no standards, be said to be oppression against the minority shareholders. No tangible material has been produced to substantiate that position. Even the amendments suggested to the A.O.A. were not to favour only the majority shareholders but would apply across the board and every member would be benefited by the said amendment. The controversy regarding deletion of Article 123 as raised is also without any substance Besides, it is common ground that the Company has now become a Public Limited Company. Even on account of this change, it has become redundant to entertain the grievance of the present Petitioners in relation to the issues concerning Extra Ordinary General Meeting dated 15th February 1990. Moreso, when the stand taken by the present Petitioners at the time of arguments plainly suggests that they are interested in walking out of the Company and sell their shares at a fair price.
51. That takes me to next relief (hh)(i) to (h)(iii) which pertain to the transfer of four shares from Respondent No.11 and 12 to Respondent No.13 being contrary to A.O.A. According to the Petitioners Mrs.Ruby Madon and Mr.Fali Madon had offered 400 shares of the 1st Respondent. The shares were offered only to five shareholders of the 1st Respondent. It is not in dispute that the letter of offer was also received by original Petitioner Nos.2 and 3. The original Petitioners 2 and 3 registered their protest about the proposed transfer being contrary to Article 57 of the A.O.A. The Petitioners had moved Company Application No.104 of 1991 to prevent the 1st Respondent from registering any transfer of the said shares except in accordance with the procedure set out in Article 57. The Court directed the Respondent No.1 Company to follow unamended Article 57 of the A.O.A. before registering the transfer of shares. The controversy brought before this Court is only in respect of four shares out of the said 400 shares. It is not in dispute that out of 400 shares, 395 shares were already purchased by the Petitioners group. In fact, the present Petitioners have purchased 93 shares out of the shares offered to them. The Petitioners may be justified in asserting that inspite of order dated 21st March 1991 passed by this Court, the “four shares” out of the 400 shares offered by Respondent Nos.11 and 12 were transferred in favour of Respondent No.13 in violation of unamended Article 57. On that view, the four shares would come under cloud. However, it cannot be overlooked that the order of this Court dated 21st March 1991 was a tentative order and not a final order as such. Moreover, having held that the decision taken in Extra Ordinary General Meeting dated 15th February 1990 has become conclusive and cannot be reopened, the present Petitioners cannot succeed in their argument that the transfer of said four shares was contrary to Article 57. In that, Article 57 as amended in the meeting of 15th February 1990, would recognise the said four shares in favour of Respondent No.13 as valid transfer. The amended Article 57 contains additional clauses (h) to (k) after clause (g). The Resolution No.6 of the Extra Ordinary General Meeting passed on 15th February 1990 reads thus:
“6. “RESOLVED THAT the following clauses be inserted as clauses 57(h), 5(i), 57(j), 57(k) as additional clauses to existing Article No.57. Nothing contained in clauses 57(a) to 57(g) hereof shall apply to any transfer or shares which falls under any one or more of the following circumstances: –
(i) transfer by a person to another person who is a “relative” within the meaning ascribe thereto in the Companies Act, 1956;
(ii) transfer to a body corporate in which a majority of directors (or other persons who in law are to be regarded as Directors or shareholders holding not less than 51% of the voting rights are persons who are the members of the Company.
(iii) transfer by way of gift whether on account of love and affection between persons who are relatives of each other or by way of philanthropy.
(iv) transfer by a person to another person who is an existing member of the Company; PROVIDED THAT in each the question as to whether the case falls under any of the foregoing circumstances shall be subject to a decision by the Board of Directors who shall be entitled to call for such nformation and particulars as may be reasonable required to examine as to whether the case does in fact bona fide fall under any of the foregoing circumstances. “
52. It is not the case of the Petitioners that the transfer of said four shares in favour of Respondent No.13 was also in breach of this amended Article 57 as such. Indubitably, the matter will have to be tested in the context of the amended Article 57 which amendment has been approved by the General Body on 15th February 1990, whereas the proposal for transfer of shares by Respondents 11 and 12 in favour of Respondent No.13 in relation to the stated “four shares” was obviously subsequent, to be governed by the amended provision. Taking any view of the matter the controversy regarding four shares can be no basis to rule that it is a case of oppression of minority. Thus understood, the Petitioners are not entitled to any of the relief under consideration.
53. Insofar as reliefs (hhh)(i) to (hhh)(iii), these reliefs will have to be denied to the present Petitioners. Inasmuch as, the same are in relation to 22 shares offered by Respondents 5 and 6 referred to in Para 14(A)(vii) of the Petition. The case made out is specific to original Petitioner No.2. It is the original Petitioner No.2 who alone was willing to purchase the said 22 shares offered by Respondents 5 and 6. It is nowhere mentioned in the Petition that the said offer given by original Petitioner No.2 was for himself and for and on behalf of other original Petitioners, much less, the present Petitioners. t is admitted position that original Petitioner No.2 has withdrawn from the present proceedings and therefore given up the claim set up in the Petition in relation to the said 22 shares of Respondents 5 and 6. The present Petitioners cannot espouse the cause of original Petitioner No.2 who has already withdrawn from the proceedings and given up that claim. This does not persuade me to hold that it will or has resulted in oppression of minority. Accordingly, the present Petitioners are not entitled for any of the relief under consideration.
54. Insofar as relief (hhh)(iv) and (hhh)(v) are concerned, the same pertain to transfer of shares from Respondent Nos.33 to 36 in favour of Respondent Nos.27 to 32. The grievance can be discerned from averments in Paragraph 14C(iii) to 14D(ii). In substance, the allegation is that the Petitioners noticed new entries in respect of Folio Nos.31 (of one Mr.R.G.Vyas) , in Folio No.32 (of one Mr.L.P.Bhanushali) , in Folio No.33 (of one Mr.A.M.Malte) , in Folio No.43 (of one Mr.C.A.Pinto) , in Folio No.62 (of one Mr.M.K.Thimothy) and in Folio No.72 (of one Dr.D.C.Manshurmani) . It was noticed that each certificate of 10 equity shares were split into two certificates of 5 shares each, bearing the new distinctive numbers. This was done on 28th May 1992. According to the Petitioners, this was a calculated attempt so as to unduly increase the number of members and to defeat the possibility of transfer of shares at the instance of Petitioners group in favour of non-member. Since the maximum number of members could be only 50. According to the Petitioners, the apprehension turned out to be correct since shares lodged for transfer at the instance of Petitioners group were declined as the maximum number of members was exhausted. Once again, the Petitioners heavily rely on the order passed by this Court dated 21st March 1991 to contend that splitting of shares in favour of non-members by the six employee members was impermissible. The above argument though attractive, is of no avail. Inasmuch as, as has been found earlier, once the validity of the Resolution passed on 15th February 1990 has been held to be conclusive and cannot be reopened, the transfers made by employees in favour of their relations only of part shares originally held by the employee concerned was permissible within the scope of amended Article 57. Amended Article 57 allows such transfer in favour of relative of the member without requiring him to offer those shares to the existing members. From the events that have unfolded from the inception of the Company, it is noticed that transfer of shares in favour of lineal descendant though not a member was always granted. There are more than one such instance referred to by the Respondents. In that, on 3rd November 1967, deceased Rutton Kavasmaneck, predecessor of the present Petitioners transferred his 150 shares to Maharukh Murad Oomrigar (original Petitioner No.3), 150 shares to Dr.Percy Rutton Kavasmaneck (lineal descendant) Petitioner No.4/present Petitioner No.1, and 70 shares to Jer Rutton Kavasmaneck (not a lineal descendant-original Petitioner No.1)-which transfers were approved by the deceased Rutton Kavasmaneck as Chairman himself. The Respondents would also rely on the instance of 1968 when A.M.C.Rebello transferred his 85 shares to joint names of herself and her husband (not a lineal descendant). Even this transfer was approved by the said deceased Rutton Kavasmaneck as Chairman. Instance of another transfer by Respondent No.2 of 100 shares on 4th February 1969 to his wife/Respondent No.4 (not a lineal descendant) was also approved by deceased Rutton Kavasmaneck as Chairman. Respondents also rely on transfer of 160 shares by deceased Rutton Kavasmaneck in favour of original Petitioner No.2 and original Petitioner No.3 on 22nd June 1971. The argument of the Petitioners, however, is that those transfers were done by consent and not unilaterally. The fact remains that procedure under Article 57 was not strictly followed even during the lifetime of deceased Rutton Kavasmaneck and more so, in relation to transfer in favour of the lineal descendant. In any case, on account of amendment to Article 57 which is approved by the General Body on 15th February 1990, the act of splitting of shares on 28th May 1992 being subsequent in time, would be legitimate and permissible. It is not the argument of the Petitioners that even the amended Article 57 would not permit such transfer or splitting of shares in favour of the relations and lineal descendants.
55. The only other argument of the Petitioners that needs to be addressed is the apprehension expressed by the Petitioners that taking advantage of increased number of members on account of such splitting of shares, the Respondent No.1 Company would block the possibility of shares proposed to be transferred by the Petitioners on the ground that the maximum number of members is exhausted. And in that case, the only option to the Petitioners would be to offer the shares to the existing members and that too, at unreal and depressed value. The argument will have to be rejected for more than one reason. In the first place, Article 57 is a complete Code as to how the shares offered by the member ought to be valued. The shares will have to be offered to the existing members at a fair value. The method of computing fair value is also spelt out in that Article itself. There is no ambiguity in that behalf. It is not the case of the Petitioners that the said method is inappropriate or unfair. The said Article will be as much binding on the company as on the present Petitioners. The regime of Article 57 further postulates that if the offered shares are untaken at the determined fair value, it is open to the offeror to sell the shares to a non-member or recognise such transfer unless the transferee was found to be unsuitable and opposed to the interest of the Company. Once it is held that the Company is obliged to recognise such transfer by the member, it necessarily follows that the Company would be bound to take such remedial measures including to amend its A.O.A. so as to record the transfer within a reasonable time. As a matter of fact, it is common ground that the Company has now assumed the hat of a Public Limited Company from 5th May 2001. On account of this transformation, the apprehension of the Petitioners that the possibility of denying transfer of shares to outsiders at a real value is misplaced. I may clarify that this is not an expression of opinion either way in relation to transfers already effected in favour of non members by the Petitioners group and still not recognised by the Company. All issues in relation to the said transaction will have to be answered on its own merits on case to case basis in appropriate proceedings. Suffice it to observe that the splitting of shares belonging to Respondent Nos.33 to 36 cannot be the basis to take the view that it was done with the purpose of oppressing the minority share holders, in particular, the present Petitioners. In the circumstances, even these reliefs under consideration cannot be granted to the present Petitioners. 56. That takes me to the prayer clauses (hhh)(xix) and (hhh)(xx). The same pertain to transfer of five shares of Respondents 2 and 4 in the name of Respondent No.44 being contrary to A.O.A. Relevant assertion in this behalf can be found in Paragraph 16(S)(1)(xiii) . According to the Petitioners, one Dr.Bomi Patel was the husband of the 4th Respondent’s niece i.e. the niece of the wife of 2nd Respondent. According to the Petitioners till 10th June 1996, the said Dr.Bomi Patel did not hold any shares in the 1st Respondent. The 1st Respondent purported to employ the said Dr.Bomi Patel as an Additional Director on 14th September 1996. It is further stated that on 10th August 1998, five shares held by the 2nd and 4th Respondents were transferred to Dr.Bomi Patel. According to the Petitioners, the transfer of said shares was contrary to Article 57. Besides, the said Dr.Bomi Patel was not qualified to remain as Additional Director as he did not hold the requisite qualification shares in terms of Article 123. It is further stated that the transfer of shares was suppressed in notice dated 21st September 1996. The argument though attractive, does not take the matter any further for the present Petitioners. The Petitioners accept that the said Dr.Bomi Patel was employed. During his employment, he was allotted five shares of Respondents 2 and 4 as per the A.O.A. The said transfer of shares in favour of employee was recognised. It is not in dispute that the transfer of five shares was done on 10th August 1998. Indeed, the transfer of five shares in favour of Dr.Bomi Patel was not done within two months from his appointment as Additional Director. That, at best, would be a breach of Article 123, but by no standards, can be a case of oppression of minority. It is not the case of the present Petitioners that any of them wanted to be director when Dr.Bomi Patel was appointed or when he incurred such disqualification. In my view, the factum of illegal continuation of Dr.Bomi Patel as Additional Director even after two months from the date of his appointment without acquiring five shares, cannot be the basis to answer the issue of oppression of minority shareholders in the affirmative.
57. The only grievance of the Petitioners that needs to be considered in the context of oppression of minority is of transfer of five shares by Respondents 2 and 4 directly to Dr.Bomi Patel without following the regime of Article 57. Insofar as this grievance is concerned, as aforesaid, the said shares have been allotted to Dr.Bomi Patel being an employee of the Respondent No.1 Company, which was permissible under the A.O.A. It cannot be overlooked that the transfer is only in respect of five shares which is insignificant number and cannot be the basis to hold that it is a case of oppression of minority shareholders. In any case, on account of the amendment of Article 57 in terms of General Body Resolution dated 15th February 1990, transfer of five shares in favour of Dr.Bomi Patel by Respondents 2 and 4 were perfectly valid. Accordingly, even the reliefs under consideration cannot be granted at the instance of the present Petitioners.
58. The next reliefs pressed are (hhh)(xxii) and (hhh)(xxiii) in relation to transfer of 5492 shares in favour of Respondent No.39 being contrary to A.O.A. According to the Petitioners, the Respondent No.1 Company surreptitiously and without giving notice to other shareholders of the Respondent Company transferred the stated 5492 shares, approximately 8.5% of the issued and paid up capital of Respondent No.1, in favour of Respondent No.39. That was not only a case of oppression of minority shareholders but also a case of mismanagement. Grievance with regard to this relief can be traced to averments in Paragraph 16(T)(2) of the Petition. The relevant averments read thus:
“16(T)(2) The Petitioners have also thereafter discovered that the wife of the said Bomi Patel (viz. the niece of Respondent No.4) has been appointed Chief Manager (Rural Development) in Respondent No.1 Company. The main objects of the Respondent No.1 Company does not include any type of rural development. Significantly, it is Respondent No.2 who claims to have earned and profited only by way of salary/commission from Respondent No.1 Company but yet has, after the filing of this Petition, been able to invest an mount exceeding Rs.10 crores through the said Gharda Consultants Pvt.Ltd. to purchase aprox.5,492 shares of Respondent No.1 Company surreptitiously and without notice to the other shareholders of Respondent No.1 Company. Such acquisition of 5,492 shares since 1990 onwards is approximately 8.5% of the issued and paid up capital of Respondent No.1 Company. The said Gharda Consultants Pvt.Ltd. is a dead/dormant company, which has no business and the cornering of shares by this Company, is clearly the result of siphoning away of monies from Respondent No.1 Company by Respondent No.2 and utilising the same for purchasing further shares of Respondent No.1 Company. Even apart from the fact that the provisions of Article 57 have been breached by such transfers, the purchase of shares in all by Gharda Consultants Pvt.Ltd. are illegal being contrary to Section 77 of the Companies Act, 1956 and oppressive to the Petitioners apart from being an indicator of the mismanagement of Respondent No.1 Company. These facts have come to the notice of the Petitioners only after the filing of the above Petition. The Petitioners state that in respect of the aforesaid they have filed an independent application for appropriate reliefs. The Petitioners crave leave to refer to and/or reply upon the said application, when produced and reiterate all that is stated therein as if the same were specifically set out in this Petition. The Petitioners reserve their right to claim pro-rata entitlement in respect of the said 5,492 equity shares in accordance with the Articles of Association of the 1st Respondent Company at the price when the same were purportedly transferred, from time to time.”
59. The Respondents 1 to 4 have denied the above allegations. It is denied that Gharda Consultants have no income and were incapable of purchasing the said shares. It is also denied that the purchase of shares exceed Rs.10 crores or that they were founded by any diversion of funds of the company as alleged. The Respondents have also denied the charge of siphoning of any monies from Respondent Company to Gharda Consultants Pvt. Ltd. or utilising any such money for purchasing the shares. According to the Respondents, transfer of shares in favour of Respondent No.39 was one of member-to-member transfer which did not require observing regime of Article 57. Insofar as that argument is concerned, the same has already been answered in favour of the Respondents in the earlier part of this Judgment.
60. What is intriguing is that the principal prayer of the present Petitioners during the argument was that direction be issued to the majority shareholders to buy out the shares held by the present Petitioners. On the one hand, the present Petitioners are keen to walk out of the Company by selling their shares to the majority shareholders at a price to be determined by this Court. I have already adverted to the provisions of the A.O.A. which govern the procedure for determining fair value of the shares, in the event, the shares were to be offered to the existing members. In my opinion, in the fact situation of the present case, there is no question of issuing direction to the majority members to buy out the shares of the present Petitioners. If the Petitioners are keen to walk out of the Respondent Company, it does not stand to reason as to why the Petitioners are questioning every singular transfer of share, especially between 1989 to 5th May 2001. After 5th May 2001, as the Company has become a Public Company, the issues raised on behalf of the Petitioners would become insignificant. Assuming that the Petitioners were to succeed in their assertion, it is only the present Petitioners who would be entitled to claim prorata shares allocable to them (original Petitioners 4 and 5) and not to invalidate the transfer of 5492 shares in its entirety. However, as has been found earlier, since the transfer of said 5492 shares was between member-to-member, the same was legitimate and even consistent with the norms of Article 57. Accordingly, no relief in terms of prayer clauses under consideration can be granted to the present Petitioners. 61. The only other reliefs that need to be addressed are the alternative reliefs to prayer clauses (a) and (b) being prayer clause (I) and in particular clauses I(i) to (iii) and II(i) to (v). All these reliefs are also incidental to the reliefs pressed at the time of arguments which have already been dealt with in the earlier part of this decision. For that reason, it is not necessary to separately deal with the same.
62. Taking overall view of the matter, I have no hesitation in concluding that no case regarding oppression of minority shareholders has been established by the present Petitioners. Assuming I were to hold to the contrary, I would still be inclined to hold that no tangible grounds are made out to conclude that it is just and equitable to wind up the Respondent No.1 Company. For, on this finding as observed in the case of Jaladhar Chakraborty (supra), no further direction needs to be issued. However, insofar as the direction pressed by the present Petitioners against the majority shareholders to buy out the shares of the present Petitioners, I have already dealt with that aspect in the earlier part of this Judgment.
ISSUE NO.3 :
63. That takes me to the 3rd issue as to whether the affairs of the Company have been conducted in manner prejudicial to the interests of the Company. At the cost of repetition, it is relevant to note that no case has been made out in the Petition that the affairs of the Company are being carried on in a manner prejudicial to the “public interest”. Even with regard to the ground that the affairs of the Company have been conducted in manner prejudicial to the interests of the Company, on reading the Petition as a whole, and more particularly, upon considering the arguments of the present Petitioners canvassed at the time of hearing, no such case has been presented. As recorded at the outset, Counsel for the Petitioners fairly stated that initially the grievance regarding mismanagement of the Company ascribable to Section 398 was given up but the amendment was once again introduced. Nevertheless, the present Petitioners would confine the ground only of oppression of the minority and the facts indicated for that purpose be construed as mismanagement of the Company. In my view, none of the facts pressed into service would persuade me to hold that either singular or all of them together were of such magnitude so as to result in conduct which is prejudicial to the interests of the Respondent No.1 Company. No serious attempt has been made by the present Petitioners to identify the acts that would constitute mismanagement of the Respondent No.1 Company. On the other hand, there is ample material on record that inspite of differences between the two groups, the Company has been performing very well and the financial position of the Company is very sound. The Company has made huge profits in the past and has grown by leaps and 100 bounds. Even if the Court were to consider the issue of mismanagement of the Respondent No.1 Company as has been found earlier, that even if all the acts complained of are taken into account as it is, singularly or together, no case is made out that it is just and equitable to wind up the Respondent Company.
ISSUE NO.4 :
64. That takes me to the last issue as to whether it is just and equitable to wind up the Respondent Company. I have already adverted to all the grounds complained of by the Petitioners which according to them constitute case of oppression and mismanagement. As aforesaid, even if the said acts constituted oppression or mismanagement, were not sufficient to hold that the Respondent Company be wound up on the ground that it is just and equitable to do so within the meaning of Section 433(1)(f) of the Act.
ABOVE CASE LAW DETAILS
Decided by: HIGH COURT OF BOMBAY, In The case of: Dr. Percy Rutton Kavasmaneck v. Gharda Chemicals Ltd., Appeal No.: Company Petition No. 77 of 1990, Decided on: November 14, 2008
