Dr.Percy Rutton Kavasmaneck vs Gharda Chemicals Ltd

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Bombay 400 050.

9.Bai Ratanbai Gharda Hospital Trust, 48 Hill Road, Bandra (W),

Bombay 400 050.

10.Mr.R.Kannan,

C/o.Gharda Chemicals Limited, having its office at 48, Hill Road, Bandra (West), Bombay 400 050.

11.Mrs.A.Ruby Madon,

12.Mr.Fali Madon,

both of Bombay, Indian Inhabitants,

residing at Shalimar, Marine Drive, Bombay 400 020.

13.Gharda Medical Foundation, having its address at 46, Hill Road, Bandra (West), Bombay 400 050.

14.Nadir B.Godrej, residing at 40-D, B.G.Kher Marg, Bombay-400 006.

15.Rishad K.Naoroji,

residing at Belha Court, Ramchandani Marg, Bombay-400 005.

16.Jamshed N.Godrej, residing at 40-D, B.G.Kher Marg, Bombay - 400 006.

17.Smita V.Krishna, residing at A-261, Grand Paradi Apartments, Off August Kranti Marg, Bombay-400 026.

18.Adi B.Godrej,

residing at Plot No.2, Military Road, Juhu, Bombay - 400 049.

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19.Godrej & Boyce Mfg.Co.Ltd., having its office at Pirojshanagar, Vikhroli, Bombay - 400 079.

20.Godrej Soaps Ltd., having its office at Pirojshanagar, Eastern Express

Highway, Vikhroli (E), Bombay - 400 079.

21.Miss Tanya Adi Godrej, residing at Plot No.2, Military

Road, Juhu, Bombay - 400 049.

22.Aban Darius Kavasmaneck, residing at 626, Parsi Colony, Dadar, Bombay-400 014.

23.Master Rutton Darius Kavasmaneck, through Aban Darius Kavasmaneck,

the mother and natural Guardian of Minor, residing at 626, Parsi Colony, Dadar, Bombay-400 014.

24.Miss Pearl Darius Kavasmaneck, through Aban Darius Kavasmaneck, the mother and natural Guardian of Minor, residing at 626, Parsi Colony, Dadar, Bombay-400 014.

25.Miss Mitchelle Darius Kavasmaneck, through Aban Darius Kavasmaneck,

the mother and natural Guardian of Minor, residing at 626, Parsi Colony, Dadar, Bombay - 400 014.

26.Christine Frances Mary Rebello,

residing at 1, Kostka House, St.Peter Co-op.Housing Society, 31-M, Gonsalves Road, Bandra, Bombay - 400 050.

27.Bobby Caitan Pinto,

residing at Dwarka Building, 15/2, Near Don Bosco School, G.Gupte Road, Dombivali (W), Thane.

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28.Ms.Neeta Rambhai Bhanushali, residing at 2, Matru Smruti, Cheda Road, Dombivali (East), Thane.

29.Mr.Ashok Laxmidas Bhanushali, residing at 2, Matru Smruti,

Cheda Road, Dombivali (East), Thane.

30.Mr.Malte Pankaj Ashokkumar, residing at 'C' Building,

A.Satya Apartments, Gokhale Road, Thane.

31.Miss Purenima Ashokkumar Malte, residing at 'C' Building,

A.Satya Apartments, Gokhale Road, Thane.

32.Mr.Mehul J.Somaiya, residing at Plot No.9, Love Nest, Dreamland Society, Jai Shankar Nagar, Mulund (W),

Bombay - 400 082.

33.Mr.Caitan A.Pinto, residing at Dwarka Building, 2nd floor, Room No.15, G.Gupte Road, Gaondevi Housing

Society, Dombivali (West), Thane.

34.Mr.Laxmidas P.Bhanushali, residing at 1, Matru Smruti, Cheda Road, Dombivali (East), Thane.

35.Mr.Ashokkumar Maganlal Malte, residing at 'C' Building, A.Satya Apartments, Gokhale Road, Thane.

36.Mr.Jitendra P.Somaiya, of Bombay, Indian Inhabitant, residing at Plot No.9, Love Nest, Dreamland Society, Jai Shankar Nagar,

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Mulund (W), Bombay - 400 082.

37.Mr.Cali Nasarvanji Madon, of Bombay, Indian Inhabitant, residing at Shalimar, 2nd floor,

Flat No.216, N.Subhash Road, Marine Drive, Bombay-400 020.

38.Mr.Vishwanath R.Hiremath, of Bombay, Indian Inhabitant, residing at 3, Jal Kiran, 35, Cuffe Parade, Bombay-400 005.

39.Gharda Consultants Pvt.Ltd., having their office at 5/6, Jer Mansion, 10 W.P.Warde Marg, Off.Turner Road, Bandra (West), Bombay- 400 050 and through its

Director, Dr.K.H.Gharda, presently residing at Sea-King Apartments, Flat No.101, Band Stand, Bandra,

Mumbai - 400 050.

40.Mr.C.H.Gandhi and

41.Mr.S.C.Gandhi,

both residing at 65, Linking Road, Main Avenue, Santacruz, Bombay-400 057, now showing an address at 201,

Silver Oak, Near Amrakunj Society, Race Course (North), Baroda-390 007.

42.C.H.Saheba

43.C.C.Saheba,

both of Bombay, Indian Inhabitants, residing at "Prachi", 6 Navyug Society, Juhu Scheme, Vile Parle (West), Bombay - 400 056.

44.Dr.Bomi Piloo Patel,

of Bombay, Indian Inhabitant, residing at 902, Benhur, N.D.Road, Bombay-400 006, having his office at 48,

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Hill Road, Bandra (West), Bombay-400 050. ...Respondents

.......

Mr.Kevic Setalvad with Mr.Cyrus Bharucha, Mr.Nusrat Hassan & Mr.Sidhartha Srivastava i/b D.H.Law Associates for Petitioners.

Mr.Vinod Bobde, Sr.Counsel with Mr.Kumar Desai, Mr.Shyam Mudaliar, Mr.Shehzad A.K.Najam-es-Sani i/b Mr.Reza A.K.Najam-es-Sani for Respondents 1 & 2.

Mr.Sunip K.Sen i/b Mr.Reza A.K.Najam-es-Sani for Respondent No.4.

Mr.T.N.Subramanian with Mr.Zal.T.Andhyarujina i/b

M/s.Rustomji & Ginwala for Respondents 5 to 9 & 39 to 44.

Mr.T.N.Subramanian with Mr.Zal.T.Andhyarujina M/s.Kanga & Co. for Respondents 11, 12 & 37. i/b

Mr.T.N.Subramanian with Mr.Zal.T.Andhyarujina i/b

M/s.Purnanand & Co. for Respondent No.13.

Mr.Amit Jamsandekar with Ms.Pratibha Mehta with Ms.Ramya Mahesh i/b Little & Co. for Respondents 14 to 21.

Mr.T.N.Subramanian with Mr.Zal.T.Andhyarujina i/b M/s.Wadia Ghandy & Co. for Respondent No.29.

......

CORAM: A.M.KHANWILKAR, J.

NOVEMBER 14, 2008.

JUDGMENT :

1. This Petition is filed under Sections 397,

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398, 402, 403 and 433(1)(f) of the Companies Act,

1956 (hereinafter referred to as 'the Act'). It

was originally presented by seven Petitioners

(hereinafter referred to as 'the Petitioners

group') claiming to be minority group having 27.21%

share in Respondent No.1 Company. However, after

the admission of the Company Petition and before

the same could proceed for final hearing, the

Petitioner Nos.1, 2, 3, 6 and 7 have withdrawn from

the proceedings unconditionally. Thus, it is only

the original Petitioner Nos.4 and 5 (hereinafter

referred to ig as 'the present Petitioners') have

decided to pursue this action. Notably, the shares

held by the Petitioners 4 and 5 together would

constitute only about 6.66% of the share capital of

the Respondent No.1 Company.

2. Briefly stated, sometime in or around 28th

April 1962, a partnership firm consisting of four

partners came into being which operated in the name

and style as Gharda Chemicals Industries. The four

partners were none other than the predecessor of

the present Petitioners Mr.Rutton Kavasmaneck who

held 30% in profits. The mother of Respondent No.2

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Mrs.Ratanbai Gharda having 15% share in profits.

The Respondent No.2 Dr.Keki Hormusji Gharda having

40% share in profits. The 4th partner Mrs.Coomi

Warden had 15% share in profits. The partnership

firm was running business of selling chemical

process know-how and of manufacturing dyes,

chemicals and textile auxiliaries. On 30th

November 1965, one of the partner namely mother of

Respondent No.2 Ratanbai Gharda expired. After her

demise, new partnership firm in the same name

Gharda Chemical Industries was constituted

consisting

of three partners. The predecessor of

the present Petitioners (Rutton Kavasmaneck) was

assigned 35% share in profits; whereas, Respondent

No.2 (Dr.Keki Hormusji Gharda) was assigned 45%

share in profits and the third partner (Mrs.Coomi

Warden) was assigned 20% share in profits.

Thereafter, on 7th March 1967, Respondent No.1 was

incorporated and registered as Private Limited

Company to take over the running business of the

firm Gharda Chemical Industries. The Respondent

No.1 had a paid up capital of 2000 shares of

Rs.100/-each (total Rs.2,00,000/-). The holding of

the erstwhile three partners, predecessor of the

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present Petitioners (Rutton Kavasmaneck), the

Respondent No.2 (Dr.Keki Hormusji Gharda) and the

third partner (Mrs.Coomi Warden) was 600 shares,

1100 shares and 300 shares respectively. In terms

of percentage, they respectively held 30:55:15

shares of the Company. When the Respondent No.1

Company was incorporated, the predecessor of the

present Petitioners had credit balance in Rutton

Kavasmaneck's capital account with the partnership

firm in the sum of Rs.2,90,000/- (Rupees Two Lakhs

Ninety Thousand). However, he chose to invest only

Rs.60,000/-

(Rupees Sixty Thousand) for purchasing

600 shares towards his capital contribution in the

Respondent No.1 Company. He deposited

Rs.1,80,000/- (Rupees One Lakh Eighty Thousand)

with the Respondent No.1 Company on interest basis.

That deposit was later on returned by the

Respondent No.1 Company on 30th June 1968. The

predecessor of the present Petitioners (Rutton

Kavasmaneck) withdrew the balance amount of

Rs.50,000/- (Rupees Fifty Thousand) lying in his

capital account of the firm. These facts are

relevant in the context of the stand taken by the

present Petitioners that the Respondent No.1

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Company was a glorified partnership company

incorporated and registered in furtherance of

confidence reposed by the three erstwhile partners

interse.

3. This Petition, which was originally

presented by seven Petitioners claiming to have

held between themselves to the extent of 27.21% of

the subscribed and paid up capital of the Company.

The allegation in the Petition in substance was

that the Petitioners group was being sidelined by

the

majority group and the Respondent No.2 by his

continuous acts of commission and omission, was

bent upon to take the complete control of the

Respondent No.1. The Petitioners relied on

instances which according to them constituted

oppression on the minority group and claimed that

the mischief committed by the Respondent No.2

should be remedied. The grievance is that the

second Respondent has taken over complete control

of the company after the demise of predecessor of

present Petitioners (Rutton Kavasmaneck). During

the life time of the said Rutton Kavasmaneck, he

was admittedly the Chairman of the Board of

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Directors of the Respondent No.1 Company. It is

alleged that even during his life time, the

Respondent No.2 attempted to rest complete control

of the Company with himself. With that end in

mind, the Respondent No.2 delayed the transmission

of shares of the deceased Rutton Kavasmaneck in

favour of the present Petitioners and other heirs

of the deceased and at the same time allowed

transfer of substantial other shares in complete

violation of Article 57 of the Articles of

Association (hereinafter referred to as 'the

A.O.A.').

It is asserted that there was consistent

campaign on the part of the second Respondent to

oust the Petitioners and for that repeated attempts

were made interalia to prevent them any access to

even the basic information, which the Petitioners

as members and shareholders of the company were

entitled to. Thus, not only causing harassment but

also oppression on the minority shareholders. In

Paragraph 14 of the original Petition, the

Petitioners have then referred to illustrative

instances such as Extra Ordinary General Meeting

was purportedly held on 15th October 1988 and

Resolution was passed purporting to authorise the

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Board of Directors of the Company to borrow moneys

(pursuant to Section 293 of the Act) to the extent

of Rs.20 Crores. However, no notice of the

purported meeting was given to the Petitioners or

any of them. Besides, it is stated that Company

had huge free reserves and had no expansion plan or

proposal which would warrant any borrowing by the

Company as purportedly authorised. In other words,

the purported Resolution was not in the interests

of the Company, for which reason, the Resolution

was void and of no effect. It is then stated that

the Company issued a notice dated 4th December 1989

informing the shareholders that the Annual General

Meeting of the Company would be convened on 29th

December 1989 to consider the Accounts as on 30th

June 1989, to declare the dividend and to reappoint

the third Respondent Director who had retired by

rotation and eligible for reappointment, to appoint

Auditors. According to the Petitioners, the

original second Petitioner and one Dr.Rebello (the

father of Petitioners 6 and 7) who held shares in

the Company jointly with Petitioners 6 and 7, had

attended the Registered Office of the Company on

29th December 1989 where the meeting was to be

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held. But found that neither Respondent No.2 nor

Respondent No.3 were present nor any shareholder

was present. It is their case that in fact no

meeting was held on 29th December 1989. It is then

stated that the original second Petitioner had

requested the Company to forward the list of

shareholders as on 30th June 1989 and by his

subsequent letter dated 10th January 1990 to

forward the up-dated list of shareholders i.e. as

on 10th January 1990. It is then stated that it

has come to light after verification of the list of

shareholders ig supplied by the Company that the

second Respondent in violation of Article 57 of the

A.O.A. purported to transfer to himself 3000

equity shares of the Company hitherto held by one

N.K.Warden. According to the Petitioners, as per

Article 57 of the A.O.A., those shares should have

been offered to them on prorata basis. It is then

stated that the third Respondent was not a member

of the Company, for which reason, he was not

qualified for being appointed and to continue as

Director, having failed to acquire qualification

shares within two months from his appointment as

Director. Inspite of having ceased to be a

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Director on 29th December 1988 in terms of Article

123 of A.O.A., the third Respondent purports to

hold Office as Director with full knowledge and

connivance of 2nd Respondent. It is then stated

that the 2nd Respondent decided to institutionalise

and perpetuate the research culture of the Company

by starting the Gharda Research Foundation, for

which he issued Circular on 24th August 1989

addressed to all shareholders of the Company.

According to the Petitioners, the sole purpose

thereof was to usurp complete control over the

Company.

The Petitioners further allege that the

Company was not declaring fair dividends inspite of

high earnings. The main cause for the Petitioners

group to rush to file the present Petition was

issuance of notice by the Company dated 16th

January 1990 purportedly convening an Extra

Ordinary General Meeting on 15th February 1990 to

transact the business mentioned in the notice. The

Agenda of items to be considered at the meeting

were to increase borrowing powers, delete 'Pvt.'

from the name, as Company had become a deemed

Public Limited Company, increase the authorised

capital of the Company, substitute Article 8 of the

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A.O.A., substitute Articles 18 and 19 of the

A.O.A., to amend Article 57 of the A.O.A. of

Gharda Chemicals, to delete Article 123 which

pertains to requirement for qualification shares.

4. According to the Petitioners group, the

design of the 2nd Respondent to introduce above

said items to be considered in the Extra Ordinary

General Meeting convened on 15th February 1990 was

to achieve indirectly which he could not do

directly in 1989. This conduct of the 2nd

Respondent

was by reason of his brute majority in

malafide and fraudulent exercise of majority

powers. It is then stated that the Company is in

effect a glorified partnership promoted by the 2nd

Respondent and deceased Rutton Kavasmaneck

predecessor of the present Petitioners. Such acts

of the Respondent No.2 destroyed the fundamental

basis of the Company on which the Company was

incorporated and registered. The Petitioners

assert that there was loss of mutual confidence and

trust between the Petitioners group (minority

group) and the 2nd Respondent and his management of

the 1st Respondent Company. The 2nd Respondent was

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bent upon to rest complete control of the Company

by systematically excluding the Petitioners group

from the management of the Company and even from

the membership thereof and by diluting/nullifying

the value of the shares already held by the

Petitioners group. On these assertions, the

Petitioners prayed that it would be just and

equitable to dissolve and wind up the Respondent

No.1 Company.

5. During the pendency of this Company

Petition, the Petitioners group amended the Company

Petition on two occasions. By way of first

amendment, the Petitioners highlighted the issue

regarding the transfer of shares being in

contravention of Article 57 of the A.O.A. and were

intended to prejudice and oppress the minority

group. The first amendment was carried out on 9th

April 1992. The Petitioners group once again

carried out further amendment to the Company

Petition on 17th February 2000. By this amendment,

in substance, the Petitioners group have made

grievance regarding the conduct of Extra Ordinary

General Meeting convened on 15th February 1990;

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such as creating situation so as to discard the

valid proxy of the Petitioners and further to

discard the valid votes of the Petitioners group

which would defeat the Resolution required to be

carried out as Special Resolution by majority of

not less than 75%. It is further asserted that the

Respondents allowed invalid proxies of the

Respondent group to vote on the said Resolutions.

By way of amendment, new parties have been

impleaded as Respondents essentially those who were

to be affected by the challenge to the transfer of

shares in

breach of Article 57 of A.O.A. The

contesting Respondents have countered each of the

allegation. I shall deal with the relevant facts

and the stand of the respective parties while

considering the relevant grounds.

6. As aforesaid, the original Petitioner

Nos.1, 2, 3, 6 and 7 have withdrawn from the

present proceedings unconditionally. As per their

request, they have been deleted from the array of

Petitioners. The effect of unconditional

withdrawal from the proceedings by the said

Petitioners is that they have given up their

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challenge with regard to the alleged acts of

oppression and mismanagement. In that, those

Petitioners have consciously acquiesced in the acts

complained of. It is further significant to note

that during the arguments, the Counsel appearing

for the present Petitioners, in all fairness,

stated that although earlier the ground regarding

mismanagement was given up, but has been once again

introduced by way of amendment; nevertheless, the

present Petitioners shall confine to the ground of

oppression of minority. Indeed, learned Counsel

had stated igthat the facts which are pressed into

service in the context of ground of oppression of

minority would, by itself, indicate mismanagement

and be viewed accordingly.

7. The present Petitioners have filed

elaborate written submissions besides making oral

arguments through Counsel. During the submissions,

the thrust of reliefs pressed on behalf of the

present Petitioners was that to meet the ends of

justice, this Court should pass appropriate order

under Section 402 directing the majority

shareholders to buy out the shares held by them at

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such value as the Court may deem fit. In the

alternative, the Court may consider granting relief

in terms of prayer clauses (c) to (f), (h) to (hhh)

(v); (hhh) (xix); (xx); (xxii) and (xxiii) and

prayers (i)-(i) to (5). This position is restated

even in the concluding part of the written

submissions filed on behalf of the present

Petitioners.

8. I would, therefore, think it apposite to

consider the entire matter only in the context of

reliefs

pressed on behalf of the present

Petitioners and in particular the grounds referred

to in the written submissions, while dealing with

individual instances referred to in the Petition as

amended.

9. Ordinarily, as the allegation is one of

oppression of minority, the Court is bound to

decide that aspect one way or the other on its own

merits. Dependent on the finding reached on the

said issue, the Court can proceed to pass

appropriate order in equity or otherwise.

Significantly, in the present case, the present

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Petitioners have made it more than clear that the

principal relief pressed by them is to issue

direction to the majority shareholders to buy out

the shares held by the Petitioners at such

valuation as the Court may determine. Even if this

relief is to be granted to the Petitioners, in the

first place, the same will have to be confined only

to the present Petitioners (original Petitioners 4

and 5). For, the other Petitioners (original

Petitioners 1,2,3,6 & 7) have consciously withdrawn

from the proceedings unconditionally. Insofar as

the

present Petitioners are concerned,as a matter

of fact they are free to deal with the shares held

by them. In that, the shares are now freely

transferable. Indeed, when the Petition was

presented at the relevant time, the Respondent No.1

Company was a Private Limited Company. As a

result, there was restriction in the transfer of

shares. However, it is common ground that now the

Respondent No.1 Company has become a Public Limited

Company-as a result of Special Resolution moved in

the Extra Ordinary General Meeting dated 5th May

2001 having been defeated. Having acquired the

status of a Public Limited Company, the restriction

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on the right to transfer the shares which was

applicable to Private Limited Company, would

naturally get diluted. That however, does not mean

that there would be no right in the Board of

Directors to consider the transfer request on case

to case basis on its own merit, keeping in mind the

best interests of the Company so as to prevent any

undesirable person becoming its member and if

enrolment of such person as a member, is likely to

be prejudicial to the Company. In other words, the

Board of Directors would be justified in declining

to

register a given request for transfer of shares

keeping in mind the paramount interests of the

Company, if so required. The only other

apprehension of the present Petitioners is that as

has been cited in the past in respect of some of

the transfer request that the maximum number of

members provided in the A.O.A. (as 50 members) has

already been exhausted. As a matter of fact, this

restriction will have no relevance after the

Respondent No.1 Company has admittedly become a

Public Limited Company. For, restriction of

maximum number of 50 members which may apply to a

Private Limited Company, will be of no relevance

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any more. Notably, even in respect of a Private

Company which limits the number of its members to

50,as provided in the definition of "Private

Company" in Section 3(1)(iii) of the Act, it would

not include persons who are in the employment of

the Company and persons who, having been formerly

in the employment of the Company were members of

the Company while in that employment and have

continued to be member after the employment ceased.

Indubitably, the Company will be bound to process

the share transfer request of the present

Petitioners

keeping in mind the regulations on the

subject applicable at the relevant time as and when

occasion arises.

10. Suffice it to observe that even if the

present Petitioners were to succeed in establishing

that it is a case of oppression and mismanagement,

direction that could be issued against the majority

of the members, is to buy out the shares held by

the present Petitioners at a fair value, keeping in

mind parameters provided in Article 57 (g) itself.

At best, it could be further ordered that in the

event, the majority shareholders were disinclined

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to buy out the shares held by the present

Petitioners within a reasonable time after the

offer is made by the present Petitioners in that

behalf, it would be open to the present Petitioners

to sell the said shares to any outsider as per the

price finalised with them interse. Indeed,

enrolment of the outsider transferee as member of

the Respondent No.1 Company would be subject to

scrutiny to be done by the Board of Directors in

the best interests of the Company for preventing

any undesirable person becoming a member of the

Company.

The Board of Directors will have to

assign tangible and legally sustainable reason to

reject the request to register the transfer of any

share. In my opinion, the principal relief claimed

by the present Petitioners would stand addressed

with the above arrangement.

11. I shall now proceed to consider the

alternative reliefs pressed during the course of

arguments by the Counsel for the present

Petitioners. Indeed, although the present

Petitioners have submitted that the reliefs to be

presently reproduced are alternative reliefs, the

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same in fact, are the substantive reliefs. I would

straightaway refer to the said reliefs pressed by

the present Petitioners, which read thus:

"(c) That the 2nd Respondent be restrained by an order of permanent injunction from exercising any rights or receiving any dividends or any rights or bonus shares or

any accretions in respect of the said 3000 share purportedly registered in the name of the 2nd Respondent and the 1st Respondent;

(d) For orders and directions directing Respondents 1 & 2 to offer the said 3000 equity shares of the face value of

Rs.100/- each (together with all accretions thereto) to the Petitioners in accordance with Article 57 of the Articles of Association at the value determined in

accordance therewith and directing the 1st Respondent to register the same in the name of the Petitioners and make consequential notings on the 1st Respondent's records;

(e) For a declaration that the purported Extra Ordinary General Meeting purportedly

held on 15/10/1988 is null and void and of no effect.

(f) For a declaration that the purported Annual General Meeting purportedly held on

29/12/1989 is null and void and of no effect.

(h) Holding the Extra Ordinary General Meeting on 15-2-1990 and/or transacting any business thereat whether as set forth

in the said notice dated 16-1-1990 (Ex.'S' hereto) or otherwise.

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(hh):(i) that it may be ordered and declared that the purported transfer of the said 4 shares described in Exhibit Q-42 hereto from the name of Respondent Nos.11 & 12 to the name of Respondent

No.13 is contrary to the Articles of Association of the 1st Respondent Company and therefore, illegal, null and void and

is liable to be set aside;

(h):(ii) that the register of the members of the 1st Respondent Company be rectified by deleting the name of Respondent No.13

from the register of members in respect of the said 4 shares described in Exhibit Q-42 hereto and by restoring the names of Respondent Nos.11 and 12 in respect of the said 4 shares.

(h):(iii) that Respondent No.1 and Respondent Nos.11 and 12 be ordered and

directed to take all such steps as may be necessary, including the execution of transfer forms etc. in order to transfer the said four shares from the names of

Respondent Nos.11 and 12 to the name of the Petitioners or any of them.

(hhh)(i) This Hon'ble Court be pleased to declare that the petitioner No.2 was and in a willing member/share holder of the

Company as per the Articles of Association of the Company in respect of the 22 shares

offered by Respondent No.5 and 6 referred to in para 14(a)(vii) above;

(hhh)(ii) that Respondent Nos.1, 5 and 6 be ordered and directed to take all such

steps as may be necessary including the execution of transfer forms etc. in order to transfer the said 22 shares from the names of Respondent Nos.5 and 6 to the name of original Petitioner No.2 and the Register of members of the Company be

ordered to be rectified accordingly forthwith;

(hhh)(iii) that pending the hearing and

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final disposal of the Petition, Respondent No.1 be ordered and directed not to register the transfer of the said 22 shares from the name of Respondent No.5 and 7 to any outsider non-member of the

company;

(hhh)(iv) that this Hon'ble Court be

pleased to declare that the purported sale or transfer of shares from Respondent Nos.33 to 36 in favour of Respondent No.27 to 32 and the Respondent No.1 Company's registration of such transfers as per

particulars set out in Exhibit-QQ20 hereto is void, invalid and illegal;

(hhh)(v) that this Hon'ble Court be pleased to order and declare that the

purported sale or transfer of the said shares in favour of Respondent Nos.27 to 32 by Respondent Nos.33 to 36 and the

registration of the transfer of the said shares in the Register of Members of the Respondent No.1 Company be cancelled and set aside and the Register of Members of

Respondent No.1 Company be rectified accordingly;

(hhh)(xix) that it may be ordered and declared that the purported transfer of the said 5 shares referred to in paragraph

16(S)(1)(xiii) hereto from the names of Respondent Nos.2 & 4 to the name of

Respondent no.44 is contrary to the Articles of Association of the 1st Respondent Company and therefore illegal null and void and is liable to be set aside;

(hhh)(xx) that the Register of Members of the 1st Respondent Company be rectified by deleting the name of Respondent No.44 from the Register of members in respect of the said 5 shares and by restoring the names

of Respondent Nos.2 & 4 in respect of the said 5 shares;

(hhh)(xxii) that it may be ordered and

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declared that the purported transfer of the said 5492 shares in favour of Respondent No.39 (Gharda Consultants Private Limited) is contrary to the Articles of Association of the 1st

Respondent Company and contrary to the Companies Act, 1956 and is illegal null and void and is liable to be set aside;

(hhh)(xxiii) that the Register of Members of the 1st Respondent Company be rectified by deleting the name of Respondent No.39 (Gharda Consultants Private limited) from

the Register of members in respect of the said 5492 shares and by restoring the names of the respective transferors in respect of the said 5492 shares;

[the aforesaid numbering is given on the basis that the prayers proposed in Company application No.130 and as communicated

vide letter dated 26th July, 1993 will be sanctioned.]

(i) in the alternative to prayers (a) and

(b) above

(i) for appropriate orders and directions under sections 397, 398 and 402 of the Companies Act, 1956 including appointment of an Administrator or Special Officer of

the 1st Respondent with all powers of the Board of Directors for a period of 5 years

or for such other period as this Hon'ble Court may deem fit and proper for managing the affairs of the 1st Respondent and the Board of Directors of the 1st Respondent be displaced during such period;

(ii) the 1st Respondent be ordered to issue and allot to the Petitioners such number of equity shares of the nominal value of Rs.100/- each in the capital of the 1st Respondent as is requisite to give

to the petitioners a majority on the issued and paid up equity shares in the capital of the 1st Respondent as per value or at such premium as may be fixed by the

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Controller of Capital Issues, Government of India, or any other competent person as this Hon'ble Court deem fit and proper and to that intent the share capital of the Company be increased;

(iii) for orders and directions directing the Respondents 1 & 2 to offer the said

3000 equity shares of the face value of Rs.100/- each (together with all accretions thereto) to the Petitioners in accordance with Article 57 of the Articles of Association at the value determined in

accordance therewith and directing the 1st Respondent to register the same in the name of the petitioners and make consequential notings on the 1st Respondent's records.

(ii)(1) that it may be ordered and declared by this Hon'ble Court that the

and

Extra Ordinary General Meeting purported to have been held on 15th February, 1990 the business conducted therein/resolutions purported to have been

passed therein are all null and void and bad in law;

(2) that Respondent No.1 be restrained by an Order and Injunction of this Hon'ble Court from taking any steps or action on

the basis or in pursuance of the resolutions purported to have been passed

at the said meeting of 15th February, 1990 or from in any manner whatsoever giving effect thereto.

(3) that it may be ordered and declared

that the purported transfer of 3,000 equity shares by Respondents No.5 in favour of 2nd Respondent is illegal, null and void;

(4) that this Hon'ble Court be pleased to

rectify the register of members of the 1st Respondent by deleting the name of Respondent by deleting the name of Respondent No.2 and 4 in respect of 3000

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equity shares standing in their name and substituting the name of Respondent No.5,

(5) that Respondent No.2 be restrained by a permanent order and injunction of this

Hon'ble Court from in any manner whatsoever exercising any rights of membership whatsoever including the voting

rights in respect of 3000 equity shares standing their names."

12. It would be now necessary to formulate the

issues that have been agitated in the context of

the abovesaid reliefs;

(1) igWhether the present

(original Petitioner Nos.4 and 5) who have Petitioners

only less than 7% of the share holding in

the share capital of the Respondent No.1

Company are entitled to pursue the claim

under Section 397 of the Act ?

(2) Whether the instances pressed into

service by the present Petitioners

indicate that the affairs of the

Respondent No.1 Company is being conducted

in the manner prejudicial to public

interest or in a manner oppressive to any

member or members?

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If yes, whether the said facts would

justify making of a winding up order on

the ground that it is just and equitable

to wind up the Company and whether the

winding up of the Respondent No.1 Company

would or would not unfairly prejudice such

members?

(3) Whether the present Petitioners have

established that affairs of the Respondent

No.1 ig Company are being conducted in a

manner prejudicial to public interest or

in a manner prejudicial to interests of

the Company?

(4) Whether it is just and equitable to

wind up the Respondent No.1 Company?

ISSUE NO.1 :

13. Reverting to the first issue, it has to be

noted that the original Petition was presented by

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seven Petitioners who claimed to have held between

themselves 27.21% of the subscribed and paid up

capital of the Company. Out of them, original

Petitioner Nos.1, 2, 3, 6 and 7 have withdrawn from

the present proceedings unconditionally. The

effect of withdrawing from the present proceedings

by the said Petitioners is to give up their claim

and grounds alleged in the present Petition.

Instead, they have acquiesced of all the acts

referred to in the present Petition and moreso in

the stand taken by the Respondent Company. What is

further

relevant to note is that the present

Petitioners (original Petitioner Nos.4 and 5) hold

only 6.66% of the share holding of the 1st

Respondent Company. There is no dispute on this

position. The question is: whether the present

Petitioners have right to apply under Sections 397

and 398 of the Act. To answer this question, it

would be apposite to advert to Section 399(1) of

the Act, which reads thus:

"399.Right to apply under sections 397 and

398.-

398. (1) The following members of a company shall have the right to apply under section 397 or 398:-

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(a) in the case of a company having a share capital, not less than one hundred members of the company or not less than one-tenth of the total number of its members, whichever is less or any members

or members holding not less than one-tenth of the issued share capital of the company, provided that the applicant or

applicants have paid all calls and other sums due on their shares;

(b) in the case of a company not having a share capital, not less than one-fifth of

the total number of its members."

14. The law requires that the specified

strength of members of the Company have right to

apply under

Admittedly, igSection

the present 397 or 398

Petitioners of the

(original Act.

Petitioners 4 and 5) do not fulfil the requirement

of Section 399(1) of the Act, which mandates that

in the case of a Company having a share capital,

not less than 100 members of the Company or not

less than one-tenth of the total number of its

members, whichever is less or any member or members

holding not less than one-tenth of the issued share

capital of the company. In case of company not

having a share capital, not less than one-fifth of

the total number of its members. The present

Petitioners are only two and their holding is

admittedly only 6.66%. On this finding, the

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Petition should necessarily fail.

15. To get over this position, Counsel for the

Petitioners, however, would rely on the exposition

in the reported cases that the Court will have to

consider the validity of the Petition on the facts

as they were at the time of its presentation and

the Petition which was valid when presented, does

not become invalid on account of events subsequent

to its presentation. Reliance is placed on the

decision in Rajahmundry Electric Supply Corporation

Ltd. v.

A.Nageshwara Rao reported in AIR 1956 SC

213. 213 That decision was rendered in the context of

an application filed by the 1st Respondent under

Section 162(v) and (vi) of the Act for an order

that the Rajahmundry Electric Supply Corporation

Ltd. be wound up. One of the contention canvassed

before the Apex Court was that out of the 80

persons who had consented to the institution of the

application, 13 were not share holders at all and

that two members had signed twice. Besides 13 of

the members who had given their consent to the

filing of the application had subsequently

withdrawn their consent. It was argued that

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excluding these 28 members, the number of persons

would be reduced to only 52. As a result, the

condition specified under Section 153-C sub-clause

(3)(a)(i) was not satisfied. The argument that

subsequent to filing of the Application, some

members had withdrawn their consent, militates

against the validity of the Petition, has been

overturned. Reliance is also placed on the

decision of the Madras High Court, which has

followed the principle stated in Rajahmundry's case

(supra) in the case of L.R.M.K.Narayanan & Anr. v.

Pudhuthotam ig Estates Ltd.-(1992) 74 CC 30, Re :

Steelsons P.Ltd.-(1974) 44 CC 538 (Del.), Jawahar

Singh v. Smt.Sharda Talwar-(1974) 44 CC 552 (at

page 556), S.Varadarajan v. Venkateswara Solvent

Extraction (P) Ltd.-(1994) 80 CC 693 (at page 712)

and Kshounik Chowdhury v. Kero Rajendra-(2002) 1

CLJ 552 (at page 569).

16. There is no difficulty in following the

exposition in the above said cases. However, the

enquiry in the present Petition will have to be

confined only in the context of grievance of the

present Petitioners (original Petitioners 4 and 5)

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and not on the basis of grievance made by the other

original Petitioners (1, 2, 3, 6 & 7), since those

Petitioners have consciously withdrawn from the

proceedings unconditionally thereby giving up all

the grievances made at their instance in the

present Petition. That conscious act of the said

Petitioners (original Petitioners 1, 2, 3, 6 & 7)

relates back to the cause for institution of the

Petition in relation to the grievances made by

them. Any other view would result in a situation

where the original Petitioners 1, 2, 3, 6 & 7

having

consciously withdrawn from the present

Petition unconditionally, would, indirectly,

resurrect their claim by this process, which cannot

be countenanced. For, the said Petitioners have

willingly chosen to acquiesce into the acts and

stand of the Respondent Company as also the

decisions of the Respondent No.1 Company taken from

time to time which were made subject matter of this

Petition by them. It is well established position

that the conduct amounting to oppression must be

"continuing at the date of hearing of the

Petition", which statement of law can be discerned

from Halsbury's Laws of England, 4th Edition,

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Volume 7, para 1011, which is quoted with approval

by the Apex Court in the case of Kamal Kumar Dutta

& Anr. v. Ruby General Hospital Ltd. &

Ors.-(2006) 7 SCC 613, in particular, paragraph 41.

Keeping the abovesaid principle in mind, the

grievance of the "present Petitioners" alone can be

enquired into to find out whether it would

constitute "continuing oppression" qua them, albeit

holding only 6.66% of the shares of the 1st

Respondent Company and no one else.

ISSUE NO.2 :

17. Be that as it may, reverting to the second

issue, it needs to be noted that no case has been

made out in the Petition that the affairs of the

Company are being conducted in a manner prejudicial

to the "public interest". Therefore, the

discussion will have to be confined to the question

as to whether the alleged affairs of the company

are such that it would result in prejudice or

oppression of minority shareholders.

18. According to the Petitioners, the company

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is a closely held family company in the nature of

glorified partnership, in which the personal

relationships and mutual trust and confidence was

flowing from the special underlying agreement which

was the fundamental basis of the incorporation and

continued existence of the Company and was an

essential part of the substratum of the 1st

Respondent. This assertion is made to further

contend that the responsibility of the Directors

such as Respondent No.2 would be far onerous.

19. The argument of the Petitioners has been

rightly countered by the Respondents 1 to 4.

According to them, even though the Respondent

Company has emanated from the original partnership

business, the issue will have to be answered on the

basis of provisions in the A.O.A. From the

provisions of the A.O.A., it was more than clear

that it is a Private Limited Company where the

right to transfer shares of the Company is

restricted in the manner prescribed in the

Articles. I find that there is nothing in the

A.O.A. to suggest that the Company was to be

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treated as a glorified partnership.

20. According to the Petitioners, the 2nd

Respondent along with his group, by their action

systematically sought to rest complete control of

the 1st Respondent by oppressing the minority

shareholders. It was suggested by the Petitioners

that there is deadlock in the company in that no

special resolutions can be passed. The argument

was that special resolutions under Section 189(2)

of the Act requires majority of 75% of shareholding

which

majority shareholders do not have; whereas,

minority shareholders held in excess of 25% of the

shareholding. It was argued that all matters which

require a Special Resolution, cannot be passed in

view of the deadlock between the majority and the

minority of shareholders. At the same time, it was

contended that an order of winding up would

unfairly prejudice the members.

21. Insofar as the argument of deadlock is

concerned, it is noticed that there is no specific

case made out in the Petition in this behalf.

Besides, the shareholding pattern of majority and

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minority shareholders was almost same right since

its inception when the Company was incorporated.

In that, the minority shareholders always held in

excess of 25% of the shareholding. Inspite of

that, the Company has travelled thus far. The

facts would not justify a finding of deadlock in

the Respondent No.1 Company.

22. According to the Petitioners, after the

incorporation of the 1st Respondent, the 2nd

Respondent with a view to gain absolute majority

and

control of the 1st Respondent, sought to oust

the predecessor of the present Petitioners

(deceased Rutton Kavasmaneck). Petitioners are

relying on the oppressive attitude of the 2nd

Respondent towards the deceased to contend that the

deceased was unable to have a say in the management

of the 1st Respondent.

23. In the first place, this assertion has not

been substantiated. Indeed, the Petitioners have

relied on letter sent by deceased to 2nd Respondent

dated 27th June 1975. This letter has come on

record for the first time along with the affidavit

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of Darium Rutton Kavasmaneck dated 3rd August 2005.

Besides this letter, reliance is also placed on

proceedings in Suit No.6360 of 1975. No reference

of the contents of these documents are found in the

original Petition.

24. The differences which have led to the

writing of the said letter or for that matter for

filing the Suit, if any, is a tall claim put up by

the Petitioners to establish the fact that there

has been continuous oppression of minority

shareholders.

ig As a matter of fact, it is noticed

that till the deceased Rutton Kavasmaneck was

alive, he acted as Chairman of the Board of

Directors and exercised all his powers in that

behalf. The issues raised in the letter or the

Suit do not suggest that the Respondent No.2 was

instrumental in oppressing the deceased Rutton

Kavasmaneck (predecessor of the present

Petitioners).

25. The Petitioners would then assert that

after the demise of Rutton Kavasmaneck on 5th

February 1977, the Company was expected to transmit

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the shares in favour of all the heirs of the

deceased. The deceased had left behind about 3300

equity shares about 5.25% of paid up capital of the

1st Respondent. However, there was delay in

transmission of the shares in favour of the heirs

of deceased Rutton Kavasmaneck. Besides, no member

of Kavasmaneck family was replaced on the Board

after demise of the deceased Rutton Kavasmaneck.

Instead, the 4th Respondent was made a Director of

the 1st Respondent in place of deceased.

26.

The argument, though attractive, will have

to be considered in the context of the fact that it

is the heirs of deceased Rutton Kavasmaneck who for

the first time applied for transmission of shares

on 13th September 1989. The heirs of deceased had

done so only after estate duty clearance relating

to the estate of the deceased Rutton Kavasmaneck

was available. It is well established position

that the heirs of the deceased would be in a

position to avail of the rights only after becoming

a member of the Company and not otherwise. It is

noticed from the record that within three days from

the date of presentation of the request, the shares

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were transmitted in the name of heirs of the

deceased. Therefore, no fault can be found with

the Company for not transmitting the shares of the

deceased Rutton Kavasmaneck in the name of his

heirs immediately after the demise of deceased

Rutton Kavasmaneck. Suffice it to observe that the

fact that the shares of deceased were transmitted

in favour of heirs after over 12 years from the

demise of the deceased is not on account of any

deliberate failure or omission on the part of the

Respondents and in any case, , cannot be the basis

to draw

inference that it was with a view to

suppress or oppress the minority share holders. It

was for the heirs of the deceased to apply for

transmission of shares expeditiously. Due to their

lapse, no adverse inference can be drawn against

the Company. As aforesaid, so long as the shares

were not transmitted in the names of heirs of the

deceased, the question of nominating any of them on

the Board of Directors did not arise. At the same

time, since the affairs of the Company were

required to be carried on, it was necessary to

appoint some other able and suitable person as

Director. The decision of the Company in

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appointing in the first place Respondent No.4 and

later on replacing him by Respondent No.7, cannot

be viewed as oppression of the minority

shareholders.

27. That leaves us with the instance or acts

for period after the heirs of deceased Rutton

Kavasmaneck were enlisted as members on account of

transmission of shares in their favour. Although

Petition deals with several aspects, in my opinion,

it would be appropriate to consider the matter in

the context

of the grounds canvassed during the

arguments and in particular, the relevant reliefs

pressed by the present Petitioners at the hearing,

to which reference has been made hitherto.

28. Insofar as reliefs (c) and (d) are

concerned, the same are in the context of 3000

shares held by 5th Respondent which were sold to

2nd Respondent on 26th November 1988. The said

shares were sold by the 5th Respondent for a

consideration of Rs.12,00,000/- (Rupees Twelve

Lakhs). According to the present Petitioners, the

said transaction was not in conformity with the

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provisions of Article 57 of the A.O.A., whereunder

the shares were required to be offered to the other

existing share holders and could not have been

directly purchased by the 2nd Respondent. Insofar

as the fact that 5th Respondent sold the said 3000

shares in favour of the 2nd Respondent on 26th

November 1988, the same is not in dispute. The

question is: whether the said transaction was

contrary to the provisions of Article 57 of the

A.O.A.

29. The ig Respondents 1 to 5, however, submit

that as the sale of shares was between member to

member, it was not necessary to offer the shares to

other existing members of the Company. On the

basis of the stand taken by the parties, the real

question is of construction of Article 57 of the

A.O.A. of the Respondent No.1 Company. We shall

immediately refer to the said Article as was

applicable prior to its amendment. The same reads

thus :

"57. Save as aforesaid, the following provisions shall apply to the transfer of shares:-

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(a) A member of the Company may transfer a share to his lineal descendant, but save as aforesaid no share shall be transferred to a person who is not a member of the Company so long as any member is willing

to purchase the same at the fair value as hereinafter provided;

(b) The member proposing to transfer any shares (hereinafter called the proposing transferor) shall give notice in writing (hereinafter called a transfer notice) to the Company that he desires to transfer

the same;

(c) Within the period of seven days from the receipt of a transfer notice as aforesaid the Company shall offer to each

of the existing members of the Company respectively such number of the shares included in the transfer notice as a pro

rata or as nearly as may be to the holding of each member respectively on the footing that if he desires to purchase any or all of such numbers of the said shares at the

fair value he shall within fifteen days of the offer be entitled to apply for the purchase and transfer of the same and the Company shall be bound, upon payment to the transferor of the fair value of such shares, to transfer the shares of member

applying;

(d) In case any member or members shall not have applied for the purchase and transfer of any or all of the shares to which he is entitled, the Company shall within seven days of the date at which the

offer closed, offer the untaken shares to such of the members as have applied for the purchase and transfer of all of the shares to which they were entitled by the terms of the original offer in proportion as the holding of each of such members

bears to the total number of shares held by them and they shall be entitled within fifteen days of the offer to apply for the purchase and transfer of a pro rata number

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of the said untaken shares and the Company shall be bound, upon payment to the transfer for the fair value of such shares, to transfer the shares to the member applying;

(e) The proposing transferor shall be bound to execute a transfer in respect of

any shares so sold and in default thereof be deemed to have executed such a transfer. The Company shall thereupon cause the names of the members who have purchased the shares to be entered in the

Register as the holders of such shares and thereafter the validity of the proceedings shall not be questioned by any person;

(f) In case no member shall apply for any

of the shares included in the transfer notice or in case any are untaken after compliance with the foregoing provisions

of this Article the intending transferor shall have the right (which right shall endure for the period of one year from the date of transfer notice) to sell and

dispose of his shares to any person and at any price and to apply for registration of the transfer of the same and the company shall be bound to give effect to the transfer of such shares accordingly;

(g) For the purpose of this clause the fair value of the share shall be such sum,

if any, as the auditors for the time being of the Company shall certify as the fair value thereof provided that it expressly declared that the fair value shall be (1) the amount of capital paid up thereon

plus, (2) a sum bearing the same proportion to the value as appearing in the Company's last balance sheet of any reserve fund or other fund of the Company as the capital paid up on all the shares of the Company for the time being issued

plus or minus as the case may be, (3) a sum bearing the same proportion to the value as appearing in the Company's last balance sheet of any balance in the profit

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and loss account consisting of or representing undivided profit and loss account consisting of or representing undivided profits or losses as the capital paid up on such share bears to the total

capital paid up on all the shares of the Company for the time being issued."

30. On a fair reading of the provision, in

particular, clause (a), I am in agreement with the

argument of the Respondents that in case of

transfer of share between member to member of the

Company, the requirement of offering the shares to

other existing members on prorata basis, would not

arise. The

avowed object of the Article is to

restrict the right to transfer the shares of the

Company "essentially to outsiders". As the Company

was incorporated as Private Limited Company,

imposing of such restriction was very natural.

Notably, the restriction in clause (a) is of very

limited nature. It postulates that as a general

rule, transfer of shares to a person who is "not a

member" of the Company is prohibited. It, however,

makes one exception that a member can transfer his

shares to his lineal descendant though not a member

of the Company. That provision, in no way, creates

any inhibition for transfer of share by a member to

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another member of the Company. For, by doing so,

the change that would be brought about is only in

the percentage of holding of the respective members

and not to introduce any outsider as member of the

Company. It is well established position that

while construing any restriction with regard to

transferability of shares of the Company, the

provision will have to be strictly construed. On

reading Article 57 of the A.O.A., either clause by

clause or as a whole, there is absolutely no

indication to infer that before effecting transfer

of shares between member to member, it is necessary

to offer the shares to other existing members on

prorata basis. The Respondents have justly pressed

into service decision of Court of Appeal in the

case of Greenhalgh v. Mallard & Ors. reported in

(1943) Vol.2 All England Law Reports Annotated 234,

where similar controversy has been considered. The

question considered in that case was of

construction of A.O.A. of that Company-which

provided that no share in the Company shall be

transferred to a person not a member of the Company

so long as any member of the Company may be willing

to purchase such shares at a fair value to be

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ascertained in accordance with sub-clause (b) of

the relevant Article. The Court went on to hold

that on reading the said provision, it cannot be

suggested that sub-clause (a) contains any

prohibition express or implied against transfers to

persons who are members of the Company. It further

held that the object of the said Article was quite

clear. It is to put a clog upon the power of

transfer outside the ring of members of the

Company, and nothing else. The Court rejected the

argument that the said clause be construed to mean

that even in case of transfer of shares from member

to member, same regime should apply as in the case

of transfer in favour of a person who is not a

member of the Company. The Apex Court in the case

of V.B.Rangaraj vs. V.B.Gopalakrishnan & Ors.

reported in AIR 1992 SC 453, 453 had occasion to

consider the question whether shares are

transferable like any other movable property under

the Companies Act or Transfer of Property Act. In

Para 6, the Apex Court has plainly observed that

only restriction on the transfer of shares of the

Company is as laid down in its Articles, if any.

It is further observed that restriction which is

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not specified in the Articles, is, therefore, not

binding either on the Company or on the

shareholders. In Paragraph 7, the Court has noted

that in determining the extent of any restriction

contained in the Articles, a strict construction is

to be adopted. The restriction must be set out

expressly or must arise by necessary implication

and any ambiguous provision is construed in favour

of the shareholder wishing to transfer. The Apex

Court has referred to authorities dealing with

restrictions on transfer shares, amongst others,

Penington's ig Company Law (6th Edition) at page 753,

wherein it is mentioned that shares are presumed to

be freely transferable and restrictions on their

transfer are construed strictly and so when a

restriction is capable of two meanings, the less

restrictive interpretation will be adopted by the

Court. It is also noted that the restrictions have

to be clearly embodied in the A.O.A.

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

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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 interse. 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 as 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

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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

about first 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

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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 on 29th

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

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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

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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 ig (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

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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

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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 ig 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

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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.

ig 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,

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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 1967 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

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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

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Lalita Rajya Lakshmi vs. Indian Motor Co.

(Hazaribagh) Ltd. & Ors. reported in 1962

(Vo.XXXII) Company Cases 207. 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

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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

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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

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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

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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

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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

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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

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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

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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.

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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, 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 ig 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

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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

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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

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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, ig 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

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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

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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

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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,

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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.

ig 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

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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 authorised

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

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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

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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,

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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

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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 information 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

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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.

ig 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.

It is admitted position that original Petitioner

No.2 has withdrawn from the present proceedings and

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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

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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 ig 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

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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

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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

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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 ig 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

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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 ig 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

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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

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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

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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 ig 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.

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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

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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. apart from the fact that the provisions of Even

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

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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

or utilising

Company to Gharda Consultants

any such money for purchasing Pvt.Ltd.

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

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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

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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

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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

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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

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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.

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65. Accordingly, this Petition should fail.

Hence, the same is dismissed on the above terms.

No order as to costs.

A.M.KHANWILKAR, J.

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