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IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
O.J.APPEAL No. 6 of 1995
with
O.J. APPEAL Nos. 7 of 1995 & 8 of 1995
in
COMPANY PETITION No 51 of 1991
For Approval and Signature:
Hon'ble MR.JUSTICE R.K.ABICHANDANI
and
Hon'ble MR.JUSTICE A.R.DAVE
============================================================
1. Whether Reporters of Local Papers may be allowed : YES
to see the judgements?
2. To be referred to the Reporter or not? : YES
3. Whether Their Lordships wish to see the fair copy : NO
of the judgement?
4. Whether this case involves a substantial question : NO
of law as to the interpretation of the Constitution
of India, 1950 of any Order made thereunder?
5. Whether it is to be circulated to the Civil Judge? : NO
---------------------------------------------------------
SHANTADEVI PRATAPSINH GAEKWAD & ORS.
Versus
SANGRAMSINH P. GAEKWAD & ORS.
--------------------------------------------------------
DR.(MRS) MRUNALINI DEVI PUAR OF DHAR
Versus
SANGRAMSINH P GAEKWAD
-------------------------------------------------------
MRS SHUBHANGINI DEVI GAEKWAD
Versus
SANGRAMSINH P. GAEKWAD & ORS.
--------------------------------------------------------
Appearance:
O.J.APPEAL Nos. 6, 7 & 8 of 1995
MR PV KAPOOR, Senior Counsel with
MR KRISHNA KUMAR & MR VM TRIVEDI, Advocates for
Petitioners
MR ROHIT KAPADIA, Senior Counsel
with MR. K.S. JHAVERI & MR KAILASH JETHMALANI
Advocates for Respondents.
--------------------------------------------------------------
CORAM : MR.JUSTICE R.K.ABICHANDANI
and
MR.JUSTICE A.R.DAVE
Date of decision: 09/08/2000
ORAL JUDGEMENT (Per R.K.Abichandani,J.)
These three appeals are directed against the
judgement and order passed by the learned Single Judge on
17th April, 1995, in Company Petition No. 51 of 1991,
dismissing the petition which was filed under the
provisions of Sections 397 and 398 of the Companies Act,
1956. O.J. Appeal No. 6/95 has been preferred by the
petitioners of the Company Petition No. 51/91 and the
other two O.J. Appeals No.s 7 and 8 of 1995 have been
preferred by the supporting original respondents Nos. 11
and 12. Since common points were involved, all these
three appeals have been argued together by referring to
the record of the O.J. Appeal No.6/95, by both the
sides.
2. The case of the appellants in O.J. Appeal No. 6
of 1995 (hereinafter referred to as the petitioners) was
that the respondent No.6 company Gaekwad Investments
Corporation Pvt.Ltd. (hereinafter referred to as "the
company") which was initially incorporated as a Public
Ltd. company in the year 1958 was converted into a
Private Limited company around the year 1971 and its
registered office is situate at "`Indumati Mahal',
Jawaharlal Nehru Marg, Baroda 390 001". The company was
established with the objective of carrying on business of
an investment trust company and to transact the
activities which are referred to in the Memorandum of
Association of the company and its Articles of
Association at Annexure "A" to the petition.
2.1 According to the petitioners, the said company
was closely held by family members and family friends who
were its share-holders. Since its incorporation and
until his demise on 1st September, 1988, Shrimant
Fatehsinh Gaekwad was the Chairman of the company and in
his absence, his mother the petitioner No.1 Smt.
Shantadevi Pratapsinh Gaekwad used to function as the
Chairman. Shrimant Fatehsinhrao Gaekwad was holding
about 75% of the equity shares of the company. According
to the petitioners, the equity share capital in the
company consisted of 425 shares of Rs. 100 each, out of
which Shrimant Fatehsinhrao Gaekwad owned 301 shares, the
petitioner No.1 owned 7 shares, the supporting respondent
Smt.Shubanginidevi owned 5 shares, the supporting
respondent Smt. Mrunalinidevi Puar owned 10 shares, the
respondent No.1 Shri Sangramsinh P. Gaekwad, brother of
Shrimant Fatehsinhrao Gaekwad owned one share and his
wife Smt. Asharaje Gaekwad, respondent No.2 herein owned
5 shares. The remaining shares were held by the members
of the family of Shrimant Fatehsinhrao Gaekwad and his
friends. The statement showing share-holding pattern of
the 425 shares is at Annexure "A-1" to the petition.
According to the petitioners, on the demise of Shrimant
Fatehsinhrao Gaekwad on 1st Sept. 1988, his mother, the
petitioner No.1 was his sole heir.
2.2 On or about 23rd March, 1988, according to the
petitioners, in a family meeting, it was decided to
broaden the capital base of the company by further issue
of 15,000 equity shares of Rs. 100 each and it was
agreed at that meeting and also in a subsequent meeting
of the Board of Directors that out of 15,000 equity
shares, 8,000 would be allotted to Shrimant Fatehsinhrao
Gaekwad, 500 equity shares to Smt. Mrunalinidevi Puar
who was also his sister and 6475 shares to respondent
No.1 Shri Sangramsinh P. Gaekwad. No date was fixed for
payment to be made in respect of those shares and the
share certificates were to be issued as and when the
payments were made. These averments seem to have been
made in the petition on the basis of copies of a
requsition note containing endorsements in the
hand-writing of Shri N.K.K Mohammed, who was the Personal
Secretary of the respondent No.1 and the draft minutes
prepared on that basis . At Annexure "B" to the petition
is annexed the said note which is described as a note
dated 23.3.1988 in the petition, but on perusal it
appears that that the said date is written below the
endorsement made by Shri N.K.K. Mohammed, which reads
"Minutes of Committing meeting on this basis". This note
is a type-written note, containing particulars of
"requisitions so far" and in the margin it bears an
endorsement "Chairman has okayed this". Annexure "C" to
the petition is a note dated 29th March, 1988 signed by
the Company Secretary Mr. M.N. Khade forwarding draft
minutes of the Committee meeting held on 21st March, 1988
to Mr. N.K.K. Mohammed with a request to approve the
same. Both the said note bearing endorsement of Mr.
N.K.K. Mohammed and the draft minute forwarded under the
note dated 29th March, 1988 of the Company Secretary Mr.
M.N. Khade, reflected the agreed basis for allotment of
15,000 shares as stated in the petition. According to
the petitioners, on the death of Shrimant Fatehsinhrao
Gaekwad the right in respect of the 8,000 equity shares
which were decided to be allotted as per the draft
minutes to Shrimant Fatehsinhrao Gaekwad vested in his
mother the petitioner No.1, who was his sole heir. The
respondent No.1 as a member of Shrimant Fatehsinhrao
Gaekwad family had been managing the affairs of the
company for some time and after the death of Shrimant
Fatehsinhrao Gaekwad, he continued to manage the same.
According to them, they had reposed trust and faith in
him believing that he would be managing the affairs
fairly and honestly and will discharge his obligations to
his mother, sisters and other members of the family and
close friends. Therefore, no accounts were checked nor
any questions asked by the petitioners to the respondent
No.1.
2.3 It is alleged that in or about October/November,
1990, the petitioners came to know that the respondent
No.1 had transferred some of his share-holdings and that
of his immediate family to a non-member with an ulterior
motive. The petitioner No.1 therefore, took inspection
of the register of members and the register of transfers
and learnt that apart from issuing 6475 equity shares to
himself and the members of his family, (as per the
requisition note and the draft minutes at Annexures "B"
and "C" to the petition), the respondent No.1 had
fraudulently issued further 3,000 equity shares to his
son and daughter, who are respondents Nos. 4 and 5 in
the petition, increasing in the process his total
share-holding in the company together with the
share-holding of his wife, son and daughter and his HUF
i.e. the respondents Nos. 2, 3, 4 and 5, to 9481 equity
shares. The respondent No.1 had thus, changed behind the
back of the petitioners, the basic idea of the company
being the company of Shrimant Fatehsinhrao Gaekwad and
after his death, his mother as the sole heir of Shrimant
Fatehsinhrao Gaekwad. It is further alleged in the
petition that the petitioners also came to know that the
respondent No.1 and his wife, the respondent No.2,
purportedly transferred 9415 equity shares out of the
9481 to a company named Indreni Holdings Pvt.Ltd.
(hereinafter referred to as "Indreni") on or about 30th
March, 1990. According to the petitioners, the said
conduct of the respondents Nos. 1 and 2 was motivated to
grab the control of the company and the transfer of
shares in favour of Indreni was illegal, null and void.
After the transfer of their shares to Indreni, the
balance number of shares that remained with the
respondent No.1 was 26 and that the respondents Nos. 2,
3, 4 and 5, ten each i.e. in all 66. Some of the
share-holders filed Suits at Baroda and Rajkot, being
Suit Nos. 867/90 and 305/90 respectively, in which
ad-interim injunction was granted restraining Indreni
from exercising any voting rights in respect of the 9415
equity shares transferred to it. The injunctions were
served on Indreni on or about 15.12.1990. On 20.12.1990,
the respondent No.2, as the Executive Director of the
Company, had called an Annual General Meeting of the
company, by a notice dated 10.12.1990. It is alleged
that the said notice, at Annexure "D" to the petition,
was not valid since it was not a notice of fourteen clear
days as required. The Board meeting at which annual
accounts were approved, was held at Bombay on 10.12.1990
and therefore, according to the petitioners, it was
physically impossible for the annual accounts to be sent
thereafter on that day itself i.e. 10.12.1990 to the
auditors of the company at Baroda for their examination
and report and for the auditors to have examined and made
the report on that very day at Baroda, and to send it
back to Bombay. The fact that all this could not have
been done in a single day shows the malafide conduct of
the respondents Nos. 1, 2, 9, 10 and 11. It is further
alleged that several share-holders including the
petitioners had objected to the validity of the Annual
General Meeting at its very commencement on 20.12.1990.
At that meeting which was held in the registered office
of the company at Baroda, the respondent No.1 had taken
the Chair and 15 share-holders who are named in paragraph
10 of the petition attended in person or through their
proxies. Besides these persons, Shri H.A. Shinde, Shri
V.K. Raichand and Shri P.U. Rana also attended the
meeting as the Directors of the company. The objecting
members agreed to participate at the meeting under
protest without prejudice to their objections against the
validity of the notice. The agenda for the said meeting
contained in the notice dated 10th December, 1990,
referred to the fact that the respondent No.1 and Dr.
G.M. Oza, who were Directors, were eligible for
re-election and had so offered themselves for that
purpose. The agenda also referred to the fact that four
additional Directors, namely - the respondent No.2 Smt.
Asha Raje Gaekwad, the respondent No.9 Shri Dilip Thaker,
the respondent No.10 Shri Bhupatsnh Jadeja and the
respondent No.11 Shri V.K. Raichand held office until
the date of the said meeting and the resolutions would be
considered for their appointments as Directors. The
other matters on the agenda related to appointment of
auditors and payment of a sum of Rs. 3,500 per month as
remuneration to the respondent No.2 who was the Executive
Director. At the Annual General Meeting, it was pointed
out by the other Directors who were present that Dr.
G.M. Oza had already written a letter to the company, a
copy of which was endorsed to all the Directors that he
had not offered himself for re-election. A copy of that
letter dated 17th December, 1990 (Annexure "E" to the
petition), was shown in the meeting by the Director Shri
P.U. Rana. It was thereupon unanimously decided to drop
the agenda regarding appointment of Dr. G.M. Oza. It
is further alleged that after all the items on the agenda
were discussed, the respondent No.1 directed that poll be
taken by ballot on all the items except item No. 4
relating to the re-appointment of Dr G.M. Oza,
separately but simultaneously. Shri Ajitsinh Gaekwad, a
share-holder and Shri P.U.Rana, were appointed as
scrutinisers. Ballot papers were distributed to all the
members and proxy-holders and after each of them had cast
his/her votes, they were collected. It is then alleged
that when the question of counting the number of votes
arose, the Register of Members was taken out and the
number of equity shares mentioned against each member's
name was considered to be the number of votes to which
that member was entitled. In the register of members,
the number of shares shown against the respective
member's names were indicated as described in para 14 of
the petition, as per which 26 shares were shown against
the name of the respondent No.1 and 10 each against the
names of respondents Nos. 2, 3, 4 and 5. It is then
alleged that when the votes were counted, the resolution
for the appointment of auditors was unanimously passed.
However, the resolutions on all other items on the
agenda, including the resolution regarding re-appointment
or appointment of the respondents Nos. 1, 2, 9, 10 and
11 as Directors of the company were, defeated by a
majority of 1122 votes against and 66 for the
resolutions. The respondents Nos. 1 to 5 had voted in
favour of the resolutions while all others had voted
against them. When the respondent found that these
resolutions were lost, it is alleged, he took physical
possession of the ballot papers, the registers of
members, the proxy register, the attendance register and
other records and in a fit of rage threatened in presence
of the petitioner No.1 and other lady members that he
would be taking them away to Bombay. It is stated that
many members attempted to persuade the respondent No.1 to
prevent him from taking away the registers, ballot papers
and other documents, but he threatened them by saying
that a Police complaint had already been lodged on his
behalf and those obstructing him from leaving the meeting
with the record of the company would face dire
consequences. The members of the company were witness to
the conduct of the respondents Nos. 1 and 2 taking away
the said record. On ascertaining from the Navapura
Police Station, Baroda, it was learnt that the respondent
No.1 had lodged in advance what he described as a Police
complaint, a copy of which is at Annexure "F" to the
petition. On perusal of that document, it appears that
it was written on 20th December, 1990 by the Advocate Mr.
Kailash P. Jethmalani to the Police Inspector on behalf
of his client Shri R.M. Desai, authorised attorney of
the respondent No.6 company, stating that the Annual
General Meeting of the company was fixed at 11 A.M at the
venue stated therein and that his client anticipated that
some problem would be caused and some person might break
the law and distrub and therefore, Police Inspector was
requested to give Police protection at the said meeting.
The petitioners allege that the attempts of the
petitioners and other share-holders to persuade the
respondent No.1 to return the papers, failed.
2.4 It is then stated that in the Civil Suits
instituted against the respondents Nos. 1, 2 and 5 at
Baroda and Rajkot, they had filed affidavits stating that
the share transfer in favour of Indreni on 30.3.1990 was
rescinded in a meeting of the Board of Directors, which
was claimed to have been held on 9.8.1990. It is stated
that in the said affidavits it was mentioned that at the
meeting of the Board of Directors held on 13.7.1990, it
had been stated that the notices of transfers of shares
of the company by the respondent No.1 and his family
members were not sent to all the members and that since
the transfer might not be valid, a legal opinion should
be obtained. It was further stated by these respondents
that in the Board meeting held on 9.8.1990, the transfers
in favour of Indreni were rescinded and the offers for
the sale of shares were permitted to be withdrawn.
According to the petitioners, the purported transfer in
favour of Indreni had in fact not been rescinded at any
stage. However, with a view to circumvent the ad-interim
injunctions granted by the Civil Courts at Baroda and
Rajkot in the Civil Suits, injuncting Indreni from voting
on the 9415 shares already transferred to it, the
respondent No.1, as an after-thought, had belatedly
offered this explanation that the transfers were
rescinded on 9.8.1990. It is alleged that the said
affidavits were filed by the respondents only after the
respondents Nos. 1 and 2 took away the register of
members and other documents and records of the company
with them on 20.12.1990. It is contended that if the
transfer of shares in favour of Indreni had already been
rescinded in the Board meeting of 9.8.1990, the
respondents would not have waited till 20.12.1990 to file
a reply in the Suits at Baroda and Rajkot, for stating
that the said transfers were rescinded on 9.8.1990. It
is also stated that the plaintiffs in the Baroda suit had
on 21.12.1990 asked for copies of the minutes of the
Board meeting allegedly held on 13.7.1990 and 9.8.1990,
but these respondents have not supplied the same till the
filing of this petition. The petitioners had made
enquiries from the Company Secretary Mr. M.N.Khade, who
was present at the meeting of 13.7.1990 and were informed
that in the said meeting there were no discussion at all
on the fact that the transfer notices were not sent to
the share-holders and there was also no discussion about
any legal opinion concerning the validity of such
transfers to Indreni. Mr. M.N. Khade had informed the
petitioners that the alleged meeting of 9.8.1990 had not
at all been held and that the transfers to Indreni had
not been rescinded at all. The petitioners had stated
that they would file an affidavit of the Company
Secretary Mr. M.N. Khade to that effect and this they
have done later on by annexing his affidavit with the
affidavit-in-rejoinder filed by the petitioner No.1.
According to the petitioners, the contention of these
respondents that the transfer purportedly made in favour
of Indreni was discussed at the meeting of 13th July,
1990 and was rescinded on 9th August, 1990 was false to
their knowledge. It is alleged that this story is belied
by the fact that an interim dividend was paid by the
respondent No.6 company to Indreni and that the tax
deducted at source was deposited in the State Bank of
India after 9th August, 1990. It is also stated that the
petitioners and several other share-holders had inspected
the register of members on 20.12.1990 at the Annual
General Meeting of the company and had found that the
name of Indreni was shown therein as the holder of 9415
equity shares and that the respondents Nos. 1 to 5 were
holding a total of only 66 equity shares as per the said
register. It was stated that the petitioners had
obtained certified true copies of the register of members
and register of transfers on 10.12.1990, which are
produced at Annexures "G" & "H" to the petition. The
petitioners apprehended that the respondents Nos. 1 and
2 had tampered with the said registers, which were taken
away by them and retained in their custody since
20.12.1990. It was submitted that the respondents Nos.
1 and 2 should be directed to produce before the Court
the minutes of the Board of Directors as well as those of
Committees of Board of Directors of the company and the
register of members, register of transfers, attendance
register of Annual General Meetings, proxies lodged with
the company, ballot papers of the Annual General Meeting
of 20.12.1990 and other records and papers which were
taken away by them.
2.5 It was further contended that since the
respondents Nos. 1, 2, 7, 8 and 9 had ceased to be
Directors of the company in any event with effect from
20.12.1990, if not earlier, they had no right to
represent themselves to be the Directors of the company.
The petitioners however, received a notice dated 5.1.1991
as per Annexure "I" to the petition, under the signature
of the respondent No.2, claiming to be the Executive
Director of the company, stating that an extra-ordinary
General Meeting was called on 14.1.1991 at Bombay. By
that notice, an intimation was given for removing Shri
P.U. Rana and Shri H.A. Shinde, who had been Directors
of the company for last several years. The notice for
their removal was moved by the respondent No.4 Shri P.S.
Gaekwad, who is the son of respondents Nos. 1 and 2.
Furthermore, the registered office the company which had
ever since its inception been situated at "Indumati
Mahal" at Baroda was sought to be shifted to Surat and
the respondent No.1 was sought to be made a permanent
Director and Chairman of the company. The restrictions
on the transfer of shares were sought to be diluted to
facilitate the transfer of shares of the company in
favour of concerns in which these respondents had an
interest. According to the petitioners, all these
changes were sought to be effected in haste to defeat the
legitimate claims and rights of the petitioners and to
perpetrate the power and authority of these respondents
to use the company to their own personal benefit. The
power to call such meeting was questioned by several
share-holders including Shri P.U. Rana and Shri H.A.
Shinde and telegrams dated 13.1.1991 were addressed
stating that since the respondents Nos. 1 and 2 ceased
to be the Directors, and had no authority to call such a
meeting. These are produced at Annexures "I-A"
collectively to the petition. Shri P.U. Rana sent a
detailed letter dated 10.1.1991 to the respondent Nos. 1
and 2 in this regard, which was according to the
petitioners, evasively and falsely replied. These are at
Annexures "J" to "M" of the petition. It is also alleged
that the notice dated 5th January, 1991 was not valid as
it was not a 14 clear days notice. The respondents Nos.
1 and 2 published an advertisements (at annexures "O" and
"P" to the petition), alleging that the extra-ordinary
general meeting of the company was held on 14.1.1991 and
at the said meeting, the respondent No.1 was appointed as
a permanent Director and Chairman of the company; (2)
that Shri P.U. Rana and Shri H.A. Shinde had been
Directors of the company; (3) that the registered office
of the company had been shifted from Indumati Mahal,
Baroda to Surat and (4) the Article of Association of the
company had been altered. According to the petitioners,
the respondents Nos. 1, 2, 9, 10 and 11 ceased to be
Directors of the company and therefore, had no authority
or power to call such meeting. The company through its
Director Shri P.U. Rana, published an advertisement in
various newspapers as per Annexure "Q" to the petition,
in which according to the petitioners, true and correct
facts were stated.
2.6 It is also contended that despite the petitioner
No.1 having called upon the respondent No.1 orally on
several occasions and later by a letter dated 29th
November, 1990 to give share certificates of the said
8,000 equity shares which were to be allotted to Shrimant
Fatehsinhrao Gaekwad, respondents had neglected to do so.
A copy of the letter dated 29th November, 1990 is at
Annexure "R" to the petition. The petitioners alleged
that the respondents Nos. 1 and 2 had further colluded
and purported to allot 3,000 equity shares to their
children Pratapsinh S. Gaekwad and Miss Priyadarshini S.
Gaekwad i.e. the respondents Nos. 4 and 5, who were
minors and thereby had acted contrary to the decision
which was arrived at in March, 1988, by appropriating in
the names of their children, additional 3,000 equity
shares over and above 6475 equity shares, to which as per
the decision taken in March, 1988, the respondent No.1
was entitled for allotment. The respondents Nos. 1 and
2 had illegally attempted to transfer 9415 shares out of
their holdings of 9481 equity shares to Indreni and had
raised "palpably false story" that the transfer in favour
of Indreni was rescinded on 9th August, 1990. It is also
alleged that respondent Nos. 1, 2, 9, 10 and 11 had
purported to relieve long standing employees of the
company including its Company Secretary Shri M.N. Khade.
On these allegations it was contended that the affairs of
the company were being carried on in a manner prejudicial
to the interest of the company and to the public
interest. It was also pointed out that the respondent
Nos. 1 and 6 have filed Civil Suit No. 63 of 1991 in
the Court of learned Civil Judge (Senior Division) at
Surat against the petitioners and others claiming
themselves to be the Directors of the company and seeking
various reliefs. It is also alleged that in order to
grab control and properties of Alaukik Trading
Investments Pvt.Ltd., the respondents Nos. 1 and 2
acting as the Board of Directors of the respondent
company filed Special Civil Suit No.675/90 in the name of
the company, in the Civil Court (Senior Division) at
Baroda. According to the petitioners in view of various
acts and omissions on the part of the respondents Nos. 1
and 2, the affairs of the company were being conducted in
a manner prejudicial to the public interest and for the
ulterior motive of serving the personal interest of the
respondents Nos. 1 and 2 and their beneficiaries.
2.7 On the above allegations, the petitioners
initially sought a relief of declaring that the
petitioner No.1 and/or her nominees were the allottees of
8,000 equity shares of respondent No.6 company besides
the shares previously held by late Shrimant Fatehsinhrao
P Gaekwad, a direction on the company to issue share
certificates on that basis by adjusting the amount of Rs.
8 lakhs as share money from out of the deposits standing
to the credit of the petitioner No.1 with respondent No.6
company, a declaration that the issue of allotment of
3000 shares in excess of 6475 equity shares to respondent
No.1 and/or his nominees, respondents Nos. 2 to 5 was
null and void and seeking rectification of the register
of members, a declaration that the petitioner No.1 as
mother and sole heir of Shrimant Fatehsinhrao P. Gaekwad
was entitled to be in the majority and/or control of
respondent No.6 company, a declaration that respondents
Nos. 1, 2, 9, 10 and 11 had ceased to be the Directors
of respondent No.6 company and by an amendment, an
alternative declaration that all the allotments of shares
in the respondent No.6 company made beyond the original
paid up capital consisting of 425 equity shares as
existing on 23.3.1988 were null and void, illegal and of
no legal effect and seeking to set aside the same,
alternatively, a declaration that the allotment of 6475
equity shares of respondents Nos. 1 to 5 and/or their
nominees, was subject to the simultaneous allotment of
8,000 equity shares to petitioner No.1, 500 equity shares
to Smt. Mrunalinidevi Puar, 25 equity shares to Smt.
Shubhanginidevi and that the allotment of any further
shares including the said 3,000 shares to respondents
Nos. 4 and 5 was null and void. It was also prayed that
in the event of the Court holding that allotments of 6475
shares to respondents Nos. 1 to 5 and 3,000 shares to
respondent Nos. 4 and 5 were valid, it should be
directed that the said 9475 shares which were transferred
to Indreni shall be offered and transferred by the
respondent No.6 to the share-holders, on pro rata basis
of their original share-holding of 425 equity shares.
There are various other prayers for interim relief, which
need not be referred to here.
3. In response to the petition, the respondent No.1
filed his affidavit-in-reply dated 21st March, 1991,
denying the allegations and raising a preliminary ground
that the petition ought not be entertained in view of the
fact that the allegations and grievance set out in the
petition were urged in some form or the other in the
related proceedings pending before the Civil Courts,
namely - three Suits at Baroda, one Suit at Rajkot and
one Suit at Surat, as per the list Annexure-I to the
affidavit-in-reply. It was contended that the provisions
of Sections 397 and 398 of the Companies Act were not
attracted and that there was no oppression of minority as
contemplated by these provisions. According to the
respondent No.1, the petition was calculated by the
petitioners and their supporters to wrest control and
management of the well-known and prosperous Public
company, namely - Baroda Rayon Corporation Ltd. It is
alleged that the petitioners had made false statements
that the respondent No.6 company and various other
business entities were meant to be the personal property
of late Shrimant Fatehsinhrao Gaekwad and that they
passed by inheretence. Moreover, they had made false
statements relating to the issue of 15,000 equity shares
and related aspects and concerning the Annual General
Meeting held on December 20, 1990. The case of the
respondent No.1 is that he was appointed as an Additional
Director of Baroda Rayon Corporation from 1.7.1970,
became its Joint Managing Director in 1975 and after the
death of the Managing Director on 3.9.1976, he assumed
full responsibility of that company under the supervision
of the Board and subsequently was designated as Managing
Director for two periods of 5 years with effect from 19th
Feb. 1980 and 19th Feb. 1985. After the death of the
Chairman Shrimant Fatehsinhrao P. Gaekwad on 1.9.1988,
the Board appointed him as Chairman and Managing Director
on 23.9.1988 in the said Baroda Rayon Corporation.
According to him, he had devoted his full time and
attention and brought that company to its prosperous
days.
3.1 It is alleged that the Baroda Rayon Corporation and
the respondent No.6 Company were managed by the
executives and outside professionals and that Shrimant
Fatehsinhrao Gaekwad was not actively involved in their
day-to-day management. In 1988, the respondent No.2 was
appointed as an Executive Director in the responent No.6
company and managed it with the assistance of the
Executives. It is further alleged that Shrimant
Fatehsinhrao Gaekwad was not interested in business or
actual participation in financial matters and a large
chunk of his shares i.e. 300 out of 425 shares was held
by one Jaysing Ghorpade Trust, through Shrimant
Fatehsinhrao Gaekwad as the trustee and therefore, he was
not the owner of the shares because he had no beneficial
interest therein. Moreover, there were members from
outside the family, namely Shri Jadeja, Shri V.L.
Raichand, Shri Dilip Thakker, Shri K.D. Merchand, Shri
E.B Desai and Shri K.K. Shah, who had been in the Board
of Directors. According to him, the respondent No.6
company was a small investment company and it made loss
in the years ending 31st March, 1987 and 31st March,
1988, as a result of which substantial part of the equity
and reserves were wiped out. When Baroda Rayon skipped
the dividend in year 1986-87, this company also came into
financial trouble. In these circumstances, at a Board
meeting of the company held on 8th January, 1988 when the
respondent No.1 was in chair and Shrimant Fatehsinhrao
Gaekwad was absent, while Mr. P.U. Rana and Mr. P.H.
Chinoy had attended the meeting, after taking into
account all the circumstances, the Board of Directors
resolved that 15,000 equity shares of Rs. 100 each be
issued at par to the members of the company. The
resolution which was passed at Board meeting, which has
been reproduced in the affidavit-in-reply, reads as
under:-
"RESOLVED that out of 25,000 equity shares of Rs.
100 each, 15,000 equity shares of Rs. 100
covering Rs. 15,00,000 be issued at par to the
members of the company at present and the balance
as and when required.
FURTHER RESOLVED that the management Committee of
the company be and is hereby authorised to issue
equity shares to members in such proportion as it
deems fit.
FURTHER RESOLVED that the management Committee be
and is hereby authorised to do all such acts,
deeds and things necessary for the purpose."
Pursuant to the above resolution, the Company
Secretary Mr.M.N.Khade issued a circular letter dated
12.2.1988 to all the existing share-holders requesting
them to subscribe for the equity shares at par. It was
stated therein that if no reply was received by 10th
March, 1988, it would be presumed that the share-holders
concerned were not interested in the offer. That letter
is at Annexure "16" of the affidavit-in-reply of the
respondent No.1. The minutes of the earlier meeting held
on 8th January, 1988 were confirmed at the Board's
meeting held on 13.2.1988. It is further stated in
paragraph 6(g) of his reply that since no offers were
received from the existing share-holders, the Managing
Committee decided at its meeting held on 21st March, 1988
to extend the time for the said offer and it was further
decided that out of 15,000 shares, 8,000 shares be kept
apart for the time being for Shrimant Fatehsinhrao
Gaekwad "as he was desirous of subscribing to the same".
The balance 7,000 shares were kept apart for the other
existing members of the company including 6475 shares for
the respondent No.1 and his children. It was further
stated by the respondent No.1 in the said reply that
between March, 1988 and 9th June, 1988, the company
subsequently reminded Shrimant Fatehsinhrao Gaekwad to
subscribe to 8,000 shares which were offered to him, but
he decided that he would not subscribe to them and
renounced the offer in favour of the respondents Nos. 1,
4 and 5. In the meanwhile during the period between 21st
March, 1988 and June, 1988, the said 7,000 shares were
allotted on various dates during that period to the
share-holders who subscribed to the shares and paid
application money to the company. In addition to the 500
shares already allotted to Mrs. Puar, she was further
allotted 500 shares out of 8,000 shares kept apart for
Shrimant Fatehsinhrao Gaekwad. According to the
respondent No.1, at this stage itself the sanctity of
keeping aside 8,000 shares for Shrimant Fatehsinhrao
Gaekwad was broken. It is then stated that as far as
balance 7,500 shares were concerned, in view of the clear
expression of disinterest by Shrimant Fatehsinhrao P.
Gaekwad and his renunciation thereof in favour of the
respondent No.1 and his children in June, 1988, the same
remained unallotted. It is also stated that all efforts
were made to find subscribers from the existing members
to take up the remaining 7,500 shares. Ultimately, the
respondent No.1, his children Pratapsinh Gaekwad and
Priyadarshiniraje S. Gaekwad applied for further 3,000
shares through their guardian and in view of the
availability of shares, the Board of the company decided
to issue and allot the said 3,000 shares to them, thereby
leaving only an unallotted quantity of only 4,500 shares,
which according to the respondent No.1 were not available
for allotment. It was contended that the suggestion in
the petition that the petitioner No.1 had as long back as
in November, 1988 deposited an amount of Rs. 15 lakhs to
subscribe for shares of the company and that by letter
dated 29th November, 1990 sought retrospective
entitlement to 8,000 shares on the ground of being the
sole heir of the beneficial interest/right of Shrimant
Fatehsinhrao P. Gaekwad was false and incorrect.
According to the respondent No.1, an amount of Rs. 15
lakhs was paid as a loan to the company and that she had
no right to apply for 8,000 shares. It was contended
that in any event, the right to the said issue was
renounced by Shrimant Fatehsinhrao Gaekwad in favour of
the respondent No.1 and his children.
3.2 It was further stated in the said reply that the
respondents Nos. 1 to 5 had floated their own investment
company, namely Indreni Holdings Pvt.Ltd., in which the
respondents Nos. 1, 2, 3 and 4 had 50 equity shares each
and the other holder Prasang Holdings Pvt.Ltd. had 800
equity shares in the company. It was stated that in
Prasang Holdings Pvt.Ltd., the respondents Nos. 1, 2, 3
and 4 had 250 equity shares each and under the
circumstances, Indreni was wholly owned investment
company held and controlled by the respondent No.1 and
his family. For wealthtax purposes, it was felt that
barring a token share-holding to be held by the
respondents Nos. 1 to 5, the bulk of their share-holding
in the respondent No.6 company would be transferred to
Indreni and accordingly 9,415 shares were transferred to
Indreni, as stated in paragraph 6(m) of the
affidavit-in-reply. It is stated that the respondents
Nos. 1 to 5 had requested the Company Secretary Mr.
M.N.Khade to circulate a formal offer in accorance with
Articles 5 to 9 of the Articles of Association of the
company. On an assurance from him that all procedures
were complied with, the transfers were effected to
Indreni at the Board meeting held on 30th March, 1990.
It is further stated that in the Board meeting held on
9th June, 1990, on enquiries being made it was acertained
that the share transfer register was not traceable either
at the registered office of the company or at the Bombay
office of the company and therefore, the respondent No.1,
as a Chairman, directed that a fresh transfer register
should be maintained. According to the respondent No.1,
at the Board meeting held on 13th July, 1990, the Board
was for the first time informed that the transfer notices
under Article 9 of the Articles of Association of the
company were not given and it was suggested that the
transfer of shares by the respondents Nos. 1 to 5 to
Indreni may be considered to be irregular. It was
therefore, decided to reconsider the issue and invite
legal opinion on the matter and to reconsider the matter
after receiving views from the transferors and
transferees and in accordance with legal opinion. It was
further stated that after considering all aspects of the
case including the legal opinion, on 9th August, 1990,
the Board decided to cancel and rescind the transfer of
9415 shares which was made by the respondents Nos. 1 to
5 to Indreni, and, thereupon the status-quo ante was
restored. According to the respondent No.1, the Company
Secretary Mr. M.N.Khade had acted against the interest
of the company and at the behest and as a puppet of the
petitioner's group. In paragraph 6(q) of the
affidavit-in-reply, it was stated that before it was
decided by the respondent Nos. 1 to 5 to transfer the
shares to Indreni, Mr.M.N.Khade was told to inform the
existing share-holders as per the Articles of the
company. It was stated that it was felt that keeping in
mind the closely held nature of Indreni which was merely
respondents Nos. 1 to 5 in a corporate form, none of the
other members would get hyper-technical but would readily
consent in the transfer to Indreni, as any reasonable and
fair-minded person would have done and hence, there was
no real danger of having to disinvest in favour of other
members. It is further stated that eventhough he had
prepared a letter dated 15.11.1989 to all the
share-holders, he did not deliver them to any of them and
falsely informed the respondents Nos. 1 to 5 that there
was no response to the proposed transfer. It is stated
that this was recorded in the minutes of the Board
meeting held on 27th December, 1989 "in usual course".
It was stated that in view of the conduct of Mr.Khade, he
was removed from service of the company from 5th January,
1991.
3.3 In paragraph 6(t)(2) of the affidavit in reply it
is stated that in Suit No. 305 of 1990 filed on
28.11.1990 at Rajkot by Smt. Pramilaraje Kachar of
Jasdan for similar reliefs an interim order was obtained
in respect of these shares on the same day. The date of
hearing was fixed on 11.12.1990, but on that day the
injunction order was extended till 10.1.1991. It is
stated that a couple of days before the date of the
Annual General Meeting, i.e. on or around 16.12.1990,
some of the defendants of the Suit were served the
injunction order of the Court. It is stated in paragraph
6(t)(3) of the reply that Suit No. 872 of 1990 was filed
by Shri Ajitsinh Gaekwad in the Civil Court at Baroda on
19.12.1990, inter-alia, for freezing rights in respect of
9415 shares and that the application for injunction was
successfully resisted as caveates were filed. It was
further stated that at the meeting of the Board of
Directors held on 10.12.1990 at Bombay, the Board had
adopted annual accounts for the period ended 31st March,
1990. These accounts had been audited by and finalised
in consultation with M/s. Haribhakti & Company, a
Chartered Accountants firm on 7th, 8th and 9th at Bombay.
The Board of Directors had approved draft of the Annual
General Meeting to be called on 20.1.1990. A shorter
notice was permissible in accordance with Article 18 of
the Articles of Association and that these notices were
despatched to the share-holders. According to the
respondent No.1, since the Board of Directors had
rescinded the transfer in favour of Indreni on 9.8.1990,
the status-quo ante prior to the original transfer to
Indreni had been restored and therefore, notice of the
meeting was not sent to Indreni. Feeling that the voting
rights in respect of 9415 shares were frozen since
Indreni was prevented from voting, the petitioner's group
was keen to proceed with the meeting on 20.12.1990. The
respondent No.1, contended in paragraph 6(x)(c) of the
reply that the ex-parte injunctions which were obtained
in Civil Suit No. 867/90 before Baroda Civil Court and
Civil Suit No. 305/90 before Rajkot Civil Court were
however, infructuous and inoperative, because, those
injunctions were obtained against Indreni which was no
more a share-holder in law at the relevant time.
3.4 The minutes of the Annual General Meeting held on
20.12.1990 are annexed at Annexure "18" to the
affidavit-in-reply of the respondent No.1, who has denied
any statement or allegation in the petition contrary or
inconsistent with these minutes. As regards the
resolution for appointment of Dr. G.M. Oza at the said
meeting, it is stated by the respondent No.1 that the
said resolution had been included in the notice convening
the meeting on the basis of past practice and his oral
consent and in any event, implied consent was obtained
prior to the meeting. It is contended that the reference
to the appointment of Dr. G.M.Oza was entirely
irrelevant to the present proceedings and cannot assist
the petitioner in their case of "oppression" by the
majority share-holders within the meaning of Section 397
of the Companies Act. It is further stated that having
regard to the conduct of Mr. P.U. Rana and Mr. H.A.
Shinde it was decided at the Annual General Meeting of
20.12.1990 that it was in the interest of the company
that they should not continue on the Board of Directors
of the respondent No.6 company. In the meanwhile, the
respondent No.4 Mr. P.S. Gaekwad had issued notices
under Section 190 and Section 284 of the Companies Act,
proposing resolutions for their removal. These were
placed before the Board of Directors on 5.1.1991, when it
was decided to convene an Extraordinary General Meeting
of the Company at a short notice on 14.1.1991. The
Extraordinary General Meeting had on its agenda, also a
resolution for appointment of respondent No.1 Shri
Sangramsinh Gaekwad as the permanent Director and
Chairman of the company, a resolution for shifting the
Registered office of the company to Surat, and a
resolution for amendment of the Articles of Association
of the company. It is stated that this meeting was held
on 14.1.1991 and the entire agenda was adopted, as a
result of which Mr. P.U. Rana and Mr. H.A. Shinde
were removed as the Directors of the company. The
requisite form was filed with the Registrar of the
Company as per Annexure "20" of the affidavit-in-reply.
The respondent No.1 therefore, prayed that the petition
should be dismissed.
4. In the affidavit-in-rejoinder, the petitioner
No.1 reiterated that Shrimant Fatehsinhrao Gaekwad was
holding 300 equity shares out of 425 and stated that the
Trust was created for the purpose of tax planning. It is
stated that after the demise of Shrimant Fatehsinhrao
Gaekwad, the petitioner No.1 and her daughter Smt.
Mrunalinidevi were the trustees of the private trust and
that the petitioner No.1 was the managing trustee. It is
pointed out that Shri Jaysinh Ghorpade was the brother of
the petitioner No.1 and living with them since child-hood
till his death.
4.1 It is stated in paragraph 11 of the
affidavit-in-rejoinder that the petitioner No.1 with her
daughter Smt. Mrunalinidevi had gone to the registered
office of the company on 10.12.1990 for inspection of the
register of members, register of transfer and other
registers and papers and when she inspected the register
of members and register of transfers, she was shocked to
note various entries made therein. Thereupon, she asked
the Director of the company Mr. P.U.Rana who had given
her the inspection, also to give inspection of the
minutes book of the Board of Directors of the company as
well as minutes book of the Committee meetings. To this
Shri P.U.Rana informed that the share-holders were not
entitled to see or inspect these Minutes books whereupon
she tried to convince him that it was at any rate not
illegal to give such inspection, particularly when it was
a family company and serious illegalities and fabrication
of documents was suspected. On inspection of the minutes
book of meetings of the Board of Directors and the
Minutes book of the Committee meetings, these petitioners
noted that in the minutes book of the Board of Directors
the last minutes that were recorded were of the meeting
of 30th March, 1990. They were signed by the respondent
No.1, although there was no date. They also found that
the minutes of the Managing Committee meeting held on
21.3.1988 and 10.12.1988 were totally fabricated and were
under the signatures of the respondent No.1. They
therefore, requested Shri P.U. Rana to give xerox copies
of the register of members, register of transfers, the
last recorded minutes of the meeting of the Board of
Directors and minutes of the committee meetings of
21.3.88 and 10.12.88 duly certified by a Notary Public.
It is further stated that Shri Rana took the documents
and got the same xeroxed and thereafter Shri M.C.
Vaidya, Notary was called to the office, who then
verified the said copies and after comparing the same
with the originals, certified the same to be true copies.
These copies were handed over to the petitioner No.1 and
the certified copies of the minutes of Board of Directors
of 30.3.1990 and the minutes of the Committee meetings
held on 21.3.88 and 10.12.88 are produced at Annexures
A/1, A/2 and A/3 of the affidavit-in-rejoinder. It is
indicated in the minutes of the meeting of the Managing
Committee held on 21.3.1988, which is at Annexure A/2 to
the rejoinder that only two persons i.e. the respondent
No.1 and one Shri P.H. Chinoy were present at the
meeting, while the respondent No.1 in his
affidavit-in-reply II(2)(vi) had stated that at a meeting
of the Managing Committee held on 21.3.1988, he requested
Shrimant Fatehsinhrao Gaekwad to reconsider his decision.
As per the minutes of the meeting held on 21.3.1988, it
was decided to issue 51 per cent additional equity share
capital to Shrimant Fatehsinhrao Gaekwad and not 8,000
shares. It is further stated in the rejoinder that
though the respondent No.1 had stated in his affidavit
in-reply that at the said meeting it was decided that
6475 shares should be kept apart for respondent No.1 and
others, from the minutes of 21.3.1988 at Annexure A/2 it
appeared that they did not at all provide that 6475
shares should be kept apart for the respondent No.1 and
others. In fact, the said minutes recorded that the
balance 49 per cent of the additional equity share
capital had to be issued to the existing members of the
company and there was no reference to 6475 shares being
kept apart for respondent No.1 and others. There was no
reference to the fact that the time was extended in the
said minutes of the meeting held on 21.3.1988 as was
stated by the respondent No.1 in his affidavit-in-reply
in paragraph 6(g). It was submitted in the rejoinder
that as per the minutes of the Managing Committee held on
21.3.1988, neither the respondent No.1, nor any of his
family members were allotted any shares on that date.
4.2 It was further stated in para 12 and 13 of the
rejoinder that the story of letter dated 11.6.1988 and of
Shrimant Fatehsinhrao Gaekwad expressing his lack of
interest in subscribing to the additional share capital
and renouncing the same in favour of respondent No.1 and
his children was totally fabricated and false, and that
nobody would have refused to subscribe to the shares of
the respondent No.6 company at Rs. 100 per share when
the real value of the share (looking to the huge
properties of the company worth several crores of rupees)
"was several hundred times more than only Rs. 100 per
share". It is denied that the respondent Nos.4 and 5
were allotted 3000 shares on 6.12.1988 as contended by
the respondent No.1. It was further stated that in view
of the minutes of the Managing Committee meeting on
10.12.1988, 7500 could not have been allotted prior to
11.6.1988 while the Register of Members indicated that
the shares were allotted prior to that date. The
petitioner No.1 has produced the affidavit of Mr. Khade
at Annexure "A/4" to the rejoinder in support of her
version. She has stated that she had advanced more than
15 lakhs free of interest to respondent No.6 and Smt.
Mrunalinidevi Puar had also advanced Rs. 15 lakhs free
of interest, and that no interest has been paid to her.
4.3 As regards the meeting of 20.12.1990, she has
stated that the minutes produced by the respondent No.1
are fabricated and has annexed at Annexure "5"
collectively, affidavits of other persons who had
attended the meeting to show as to what transpired at
that meeting. It is further pointed out in paragraph 22
of the rejoinder that the affidavit in the Baroda Court
which is said to have been filed on behalf of these
respondents as well as the `purshis' were filed only
after the general meeting of 20.12.1990. It is stated
that they were filed after the respondent No.1 and his
wife took physical control of the register of members and
other documents and papers and spirited them away. It is
also stated that after the respondents Nos. 1, 2, 9 and
11 ceased to be Directors, remaining Board of Directors
filed their annual return and form 32 to the Registrar of
Companies and had also written letters to Baroda Rayon
Corporation, Banks and others intimating to them that the
said respondents had ceased to be the Directors of the
Company on 20.12.1990.
4.4 It is stated in the said rejoinder that the
statement of the respondent No.1 that the information of
the transfer register being mis-placed furnished by Mr.
P.U.Rana was false as can be seen from the fact that Mr.
P.U. Rana did not attend the Board meeting of 29.6.1990.
It is also stated that at the Board meeting of 13.7.1990,
there was no talk whatsoever regarding the transfer of
shares to Indreni being irregular or the notice of
transfer not having been sent to the share-holders. The
petitioner No.1 has relied upon the affidavit of Mr.
M.N.Khade in this regard. It is further alleged that
from the minutes of the meeting dated 13.7.1990 produced
by the respondent No.1, it can be seen that no resolution
was passed at that meeting appointing Shri Rameshchandra
Desai as the power of attorney holder of the respondent
No.6 company. In the power of attorney annexed at
Annexure A/10 to the rejoinder it had been stated that it
was being executed pursuant to the authority in that
behalf contained in the meeting of the Board of Directors
of the company held on 13.7.1990. From this it is
contended that the respondent No.1 had fabricated the
said minutes of 13.7.1990. It is also contended that the
notice dated 10.12.1990 for calling the Annual General
Meeting was not in accordance with clause 18 of the
Articles of Association and that there was nothing on
record to show that any share-holders holding not less
than 50 per cent of the paid-up capital had agreed in
writing to a shorter notice. It is reiterated that there
was no meeting of the Board of Directors on 9.8.1990 and
the transfer in favour of Indreni was not at all
rescinded. It is further stated in paragraph 39 of the
rejoinder that the petitioner No.1 had seen the register
of members on 20.12.1990 during the Annual General
Meeting when votes were required to be counted and she
and others had seen therein that Indreni was shown as
holding 9415 equity shares in the respondent No.6
company, and till votes were ascertained from the
Register of members there was no correction made in it.
It is therefore alleged that the Register of members
appears to have been altered only after the Annual
General Meeting of 20.12.1990.
5. The supporting respondent No.12 Smt.
Mrunalinidevi Puar in her affidavit has stated that she
was allotted 1,000 shares in the company and was not
aware from whose alleged quota of shares she was being
allotted the shares. According to her, she was intimated
by the respondent No.1 that certain funds were required
for the respondent No.6 company and she had sent him two
separate cheques dated 23.3.1988 and 19.5.1988 for Rs.
20,000 and Rs. 80,000 respectively under the forwarding
letter dated 19.5.1988 and the share certificates were
issued to her by the respondent No.1 on or about
30.5.1988. She has denied that she was given 500 equity
shares from 8000 shares kept apart and allotted to her
late brother Shrimant Fatehsinhrao Gaekwad. She has
stated that she had made no application for any of these
1000 shares. As regards the Annual General Meeting of
20.12.1990, she has stated that at the said meeting all
the resolutions except the resolution for appointment of
the auditors, were defeated by majority of 1122 to 66.
She has stated that she had gone through the affidavits
made by Shri P.U. Rana and others in this regard and
that what is stated therein as regards what transpired at
the said meeting was true and nothing said to the
contrary by the respondent No.1 was true. The appellant
No.4 Shri Rajnitsinh Gaekwad has also given similar
version as regards the meeting of 20.12.1988, stating
that after counting of the votes it was made known to the
meeting that the resolution for the appointment of the
auditors was passed unanimously while all other
resolutions including the resolutions for reappointment
of various Directors were lost by majority of 1122 votes
against the resolutions and only 66 votes in favour of
them. He also has stated that when the members and proxy
holders including himself had seen the register of
members to know the number of votes to which they were
entitled, Indreni was shown therein to be holding 9415
equity shares. Similar averments are made in the
affidavit which has been filed by the supporting
respondent No. 13 Smt. Shubhanginidevi and Shri
Ajitsinh Gaekwad. Mr. P.U. Rana, Mr. H.S. Shinde and
Mr. G.G. Sirve, who were the Directors of the
respondent No.1 company have all stated in their
affidavits filed in support of the petitioner's version
that they had not received any notice of any meeting of
the company's Board stated to have been held on 9th
August, 1990 and that they had not sent any note for
granting them leave of absence from the said meeting.
They have all stated that they used to send in writing a
letter for granting leave of absence.
6. In his affidavit in-sur-rejoinder, the respondent
No.1 has denied the averments made in the rejoinder of
the petitioner as well as in the affidavits which were
produced in support of the version of the petitioners.
He has stated that he did not admit the minutes of the
Managing Committee held on 21st March, 1988 and 10th
December, 1988, which were produced by the petitioner
No.1 with her rejoinder. He stated that the draft
minutes of the meeting of the Managing Committee on
21.3.1988, which were relied upon by the petitioners and
were at annexure "C" to the petition indicated that
Shrimant Fatehsinhrao Gaekwad was present at the said
meeting. He has then stated in paragraph 14 of the
sur-rejoinder that "51% of the sharea has always been
8000 shares representing a convenient approximation". It
was contended in the sur-rejoinder that the fact that
6475 shares were kept apart for him and others was
confirmed even by the petitioners themselves in the
petition throughout as also in the proceedings before the
Rajkot Court. It is denied that at the time of the
meeting held on 20th December, 1990, 9415 shares of the
company were held by Indreni. It is also denied that any
share-holder or proxy holder had seen the register. As
regards the appointment of Dr. G.M.Oza as the Director,
he has produced at Annexure "D" to the sur-rejoinder
letter dated 11.3.1991 written by Dr. Oza to the
respondent No.2, who was the Executive Director, in reply
to her letter dated 28.2.1991, which was delivered to him
in person by Shri Khoth, stating that he was surprised
that the respondent No.2 had not received his original
letter dated 17.12.1990 and the copies addressed to other
Directors, which were left by him on the table of Mr.
M.N.Khade, Company Secretary of the respondent No.6. It
is stated in the said letter by Dr Oza that he still
confirmed and maintained that he had already resigned on
17.12.1990 from the Directorship of the respondent
company and that he had no intention to be re-elected as
a Director. He has annexed copies of his letter dated
17.12.1990 which was addressed to the respondent company.
He has stated that he had not offered for re-election nor
did he wish to be re-elected as a Director of the said
company. This was his response to the notice of the
Annual General Meeting, which was to be held on
20.12.1990, in which the resolution for his re-election
was proposed. Another letter dated 17.12.1990 addressed
to the respondent company with copies to the Chairman,
Shri H.S.Shinde, Shri S.G. Shirke, Shri P.U.Rana, Shri
P. Chinoy which were forwarded for favour of information
is also annexed with the letter of Dr. Oza dated
11.3.1991 at Annexure "D" to the sur-rejoinder of the
respondent No.1. The Respondent No.1 while referring to
this letter in paragraph 44 of his sur-rejoinder has
stated that it appeared that Mr. P.U. Rana took away
the said letter deposited by Mr. Oza and did not inform
about it to the company even during the Annual General
Meeting and only thereafter had sought to make confusion.
He has reiterated his stand as regards the Board meeting
of 13th July, 1990 and 9th August, 1990, maintaining that
transfers of shares to Indreni by the respondent Nos. 1
to 5 which were earlier made by them were rescinded. He
has denied the averments made by Mr. M.N.Khade in his
affidavit to the effect that the last minute drawn in the
minutes book of the meeting of the Board of Directors was
of 30.3.1990 as on 10.12.1990. He has stated that he did
not admit that his Secretary Mr. N.K.K Mohammed had
received the minutes book of the Committee meeting or
that Mr. Mohammed had okayed the same as having been
received by putting his initial by handwriting the word
"O.K." on the carbon copy of Mr. Khade's letter, which
was referred to in his affidavit and annexed thereto. He
has stated that in fact the writing was only his initial
and not "O.K" signifying acknowledgement of the said
letter and the parcel sent with it by Mr. Khade. He has
denied that Mr. Khade did not receive any letter written
by Mr. Mohammed stating that the minutes book of the
Committee was not returned as stated by Mr. Khade in his
affidavit. The respondent No.1 alongwith his
sur-rejoinder has produced an affidavit of Shri Vishwang
Desai at Annexure "F", which according to him gives
account of the Annual General Meeting, which was held on
20.1.1990, stating that the contents of the minutes of
the said meeting were true and correct recital of the
proceedings. Mr. Vishang Desai, aged about 29 years was
an Advocate and Solicitor, who is said to have been
invited by the respondent Nos. 1 and 2 at the meeting of
20.12.1988 alongwith other persons who were not the
members of the respondent company. In support of his
say, the respondent No.1 also relied upon the affidavits
of Mr. Bipin Babubhai Shah, who is said to have been
appointed as a scrutiniser at the said meeting and the
affidavits of Capt. V.K. Raichand, who is respondent
No.11 in this appeal, Mr. Pirojshah Hiraji Chinoy, who
was one of the Directors of the company, and, Mr. K.V.
Khoth, who is said to have written the letter dated
11.6.1988 under the directions of Shrimant Fatehsinhrao
P. Gaekwad, renouncing the additional shares offered to
him in favour of the respondent No.1 and his children.
7. In the background of the above broad contours of
the controversy between the rival groups, the learned
Single Judge by his judgement and order dated 17th April,
1995, came to a finding that there was a mandate of the
Extra-ordinary General Meeting which was held on 17th
December, 1987 for issuance of 25,000 equity shares of
the company. It was also found that the Board of
Directors at its meeting held on 8.1.1988 decided to
issue only 15,000 shares in the first instance, leaving
its managing committee to carry out the mandate. It was
further held that so far as the allotment of 6475 shares
to the respondent group is concerned, the petitioners had
not earlier objected though they had objected to the
issue of additional 3,000 shares in favour of the
respondents Nos. 4 and 5. It was however, noted that
the reliefs as they now stand after the amendment in the
petition went to the extent of challenging the entire
fresh allotment that was made above 425 shares which were
held prior to the increase in the share capital as
decided by the Extra-ordinary General Meeting. It was
observed that if that and other analogous reliefs in that
regard were granted, the situation will be that
respondent No.6 company will be in the same position as
it was at the time when the Extra-ordinary General
Meeting was convened in the month of December, 1987, in
so far as its equity capital was concerned. The learned
Single Judge held that the body of the petition did not
bring about any change so far as the allotment of 6475
shares to the respondent No.1 were concerned. It was
observed by the learned Judge that the situation namely
that the entire issue over and above the original issue
of 425 shares was challenged in the relief clause while
maintaining the earlier reliefs to the claim of 8,000
shares may initially appear to be contradictory and
confusing. It was further observed that if the prayer
for striking down allotment of 3,000 shares to the
respondents Nos. 4 and 5 was granted, even then the
petitioners' group would not be in majority, because,
even then the respondent group will have 6475 shares,
subject ofcourse to the disputes raised as to the
transfer of shares to Indreni. Unless, therefore, 8000
shares are issued to the petitioner No.1, the
petitioners' group cannot be in majority in the company.
It was also observed that if the transfers to Indreni
were set aside the shares will not be available to the
respondent group automatically, but the Board of
Directors will have to offer the shares to the remaining
members of the company, who will have a right to buy them
if they so desired and therefore, if this prayer of
setting aside the transfer of shares to Indreni were
allowed in proportion to the respective holdings, the
petitioners' group will be in a position to acquire
majority. It was observed that the amended prayers
leading to the setting aside of the entire issue above
the original issue of 425 shares if granted, would bring
about a situation that the petitioner's group will be in
majority. The learned Judge held that while dealing with
a matter under Sections 397 and 398 of the Act, the
question of oppression with or without mismanagement, if
any, is required to be considered and in his opinion,
such oppression should be subjectively felt and
objectively established and according to the learned
Judge the oppression, if any, related to the control that
had slipped into the hands of respondent No.1 and nothing
else. His Lordship took note of the fact that there were
prayers found in the present petition as well as other
two proceedings before the Company Law Board that the
shares transferred to Indreni be offered to other
share-holders except the respondents' group and that the
transfer to Indreni were invalid. It was held that the
additional issue of 15,000 shares was to be dealt with
after keeping apart 8,000 shares for Shrimant
Fatehsinhrao P Gaekwad and the rest were to be issued in
different names. It was observed that 51 per cent of
shares referred to in the minutes of the meeting dated
21.3.1988 will work out to 7650, but the difference of
about 350 shares on the basis of 51 per cent on one side
and the round figure of 8,000 on the other was in the
opinion of His Lordship, of no consequence. The learned
Judge opined that the resolution of the Board dated
8.1.1988 continued to hold the field and the business of
allotment as continued all through out was done in
keeping with it. It was held in para 88 of the judgement
that " this will automatically cover the allotment of
6475 shares as it does, allotment of 25 shares to
respondent No.13 and 500 shares to respondent No.12". It
was further held that advancing of loans by the
petitioner No.1 and the respondent No.12 of Rs. 15 lakh
each to the company in November, 1988 was not for buying
shares. It was further held that the decision to issue
3,000 shares to the respondents Nos. 4 and 5 in
December, 1988 irrespective of the letter of 11th June,
1988 was in the exercise of the power of the Managing
Committee. It was also held that upto 31st March, 1989
i.e. the closure of the accounting year, none of the
Directors of the company who were with the petitioners'
group had questioned this action. As regards the time
limit of 10th March, 1988, it was held that unless it was
shown that while delegating its power the Board had also
imposed time limit upon the Committee, the petitioners
had no case in that regard. As regards the transfer of
shares by the respondents Nos. 1 to 5 to Indreni, the
learned Judge rejected the contention that the minutes of
the Board meeting dated 13th July, 1990 with regard to
transfer to Indreni were not correct and the contention
that there was in fact no meeting held on 9th August,
1990. It was further held that at the Annual General
Meeting held on 20th December, 1990, the result had gone
in favour of the respondents' group. The learned Single
Judge held that at the meeting of 14.1.1991 of the
Extra-ordinary General Meeting, the Director Shri P.U.
Rana, Shri A.K. Shinde and others who were supporting
the petitioners had lost their Directorship, and the
registered office of the company had been shifted from
Baroda to Surat. It was observed in paragraph 156 of the
judgement that: "This would have been an example of what
a majority minded to ride a rough shod over minority can
do", and, "This could have, therefore, been a target for
a petition under Sections 397 and 398 of the said Act".
It is observed that the relief in that regard therefore,
could have been granted. It is then stated in paragraph
157 of the judgement that: "However, I am not inclinded
to grant any, because to do so, would be to put the clock
back so far as the Board of Directors of GIC is concerned
and allowing the Directors thus removed to complete their
tenure as per the Articles of Association. This having
taken place in the month of January 1991 and more than 4
years having passed and more particularly because the
fate of BRC is inextricably linked up with that of GIC,
in larger public interest, keeping in mind BRC I would
not give any relief to the petitioners. If reliefs were
to be given it would have been to strike down the said
EGM and its entire proceedings and declare the Directors
removed thereat to be continuing as Directors from that
order onwards till the remining time of the tenure." It
was finally held that the petitioners had failed to make
out a case of oppression. It was held that as regards
mismanagement, if at all, the case of the petitioners was
only an apprehension that the respondents' group coming
in majority will mismanage the company, but this
apprehension was belied. It was held in paragraph 167 of
the judgement that there was no question of
aggrandisement on the part of the petitioners and "Except
for getting 9481 shares for themselves, they had done
nothing". The learned Single Judge therefore, dismissed
the petition, with no order as to costs, having regard to
the relationship between the parties.
8. The learned Senior Counsel appearing for the
appellants i.e. the original petitioners, contended
before us that the Managing Committee could not have
exercised its powers to make allotment of shares as it
pleased, in view of the embargo laid down in the Articles
of Association that transfer of shares to non-members was
not permissible and in view of the Board's decision that
the additional shares were to be issued only in favour of
the members of the company. It was submitted that there
was nothing to show in the circular dated 12.2.1988 that
it was sent to all the members of the company. It was
also argued that in view of the deadline of 10th March,
1988 indicated in the said circular letter which was
approved by the Board's meeting of 13.2.1988 and in view
of the admitted fact that no response was received to
that letter, the Managing Committee could not have made
any allotment of shares on the basis of that letter. It
was contended that as regards the decision said to have
taken on 21st March, 1988 by the Managing Committee,
there were conflicting versions. From the requisition
note and the draft of the minutes which were found by the
petitioners and annexed to the petition at annexures "B"
and "C" it appeared that a decision was taken to allot
8,000 shares to Shrimant Fatehsinhrao Gaekwad, 6475
shares to the respondent No.1, 1,000 shares to the
respondent No.12 and 25 shares to the respondent No.13.
It was submitted that though in the requisition note at
Annexure "B" to the petition, the words "and others" were
not there alongside the name of the respondent No.1, they
appeared to have been added by hand in the draft of the
minutes which were forwarded under letter dated 29.3.1988
by the Company Secretary to the Secretary to the
respondent No.1 as per Annexure "C" to the petition. It
was pointed out that in the third version, which emanated
from the minutes of the Committee meeting said to have
been held on 21.3.1988, a true copy of which was obtained
by the petitioner No.1 on 10.12.1990 and which was
produced alongwith the affidavit-in-reply of the
petitioner No.1 at Annexure "A/2" to that reply, there
was no mention at all, of allotment of 6475 shares to
respondent No.1. It was also pointed out that the said
minutes were signed by the respondent No.1 as the
Chairman and only two Directors were present at that
meeting, namely the respondent No.1 and Shri P.H Chinoy,
as stated in these minutes while in the draft minutes at
annexures "C" collectively to the petition, even the name
of Shrimant Fatehsinhrao Gaekwad was mentioned as the
Chairman present in the meeting. It was also submitted
that this conflicting version put under cloud the entire
process of allotment of shares to the members of the
company by the Managing Committee. It was also submitted
that since the Managing Committee admittedly consisted of
three persons, namely Shrimant Fatehsinhrao P. Gaekwad,
the respondent No.1 and Shri P.H. Chinoy, the decision
taken by two of the three members of the Managing
Committee was not a decision of the Managing Committee.
It was further contended that since Rs. 15 lakhs, were
already standing to the credit of the petitioner No.1 in
the books of account of the company, there was no fear of
not being able to recover from her the face value at
which the shares were to be allotted to the members. It
was submitted that there was, under the law, no time
limit for getting entitlement transferred to the name of
the heir and therefore, even when the letter dated
29.11.1990 was written by the petitioner No.1 to the
company, the shares could have been registered in her
name on the basis of such entitlement. It was contended
that the respondent No.1 could not have made allotment of
6475 shares to himself and to his family members, in
absence of any valid decision for such allotment. It was
submitted that his minor children, the respondents Nos.
4 and 5 were not entitled to be allotted the shares in
view of the fact that the shares could not have been
allotted to non-members. It was argued that by showing
himself as the natural guardian of the respondents Nos.
4 and 5, the respondent No.1 had cornered a large portion
of the shares which was intended only for the members of
the company. Moreover, these minor children on becoming
major, continued as the members of the company in the
record of the company. It was submitted that minors
could not have been made the members of the company
because a minor is not capable of entering into a
contract. It was further argued that if the decision of
21.3.1988 of the Managing Committee is to be accepted,
then a firm allotment of 8,000 shares or 51% of the total
of 15,000 shares which were to be issued, ought to have
been allotted to the petitioner No.1, who was the sole
heir of Shrimant Fatehsinhrao Gaekwad, who passed away on
1.9.1988. It was submitted that instead of doing that,
3000 shares out of those shares were allotted in favour
of the respondents Nos. 4 and 5 by their father, the
respondent No.1 and the rest of the issue was treated as
closed without the matter being referred to Board of
Directors, which had decided to issue 15,000 shares to
its members. It was further contended that the
respondents Nos. 1 to 5 had transferred 9415 shares to
`Indreni' without giving any transfer notice to the
company for the exercise of the right of pre-emption by
the members under the Articles of Association of the
company. It was also argued that since the transfer to
Indreni had reduced the share-holding of the respondents'
group to 66 and the resolutions Nos. 3 to 10 which were
on the agenda at the Annual General Meeting of 20.12.1990
were all defeated, the story that the transfer which was
made by the respondents Nos. 1 to 5 to Indreni was
rescinded on 9.8.1990 has been invented by these
respondents. It was submitted that the `notarised' true
copies which were supplied to the petitioner No.1 by the
Director of the company on 10.12.1990 clearly indicated
that uptill that date, the shares were not transferred
back from Indreni to the respondents Nos. 1 to 5. It
was also argued that the respondents Nos. 1 and 2 had
removed the registers and other documents of the company
and shifted the office of the company from Baroda to
Surat and also removed the longstanding Directors of the
company by convening an extra-ordinary meeting on
14.1.1991 and thereby they gained a complete control over
the company. It was submitted that the course of conduct
of the respondents Nos. 1 and 2 clearly indicated that
they acted in a self-interest, with a view to enhance
power and control to the detrement of the interest of the
company and its other share-holders and in breach of the
fiduciary duties of the directors.
8.1 In support of his above submissions, the learned
Counsel relied upon the following decisions:-
1. Decision in Needle Industries (India) Ltd. &
anr. Vs. Needle Industries Newey (India)
Holding Ltd., reported in 51 Company Cases 743
(S.C) was cited for its proposition that if the
conduct of the Directors lacks in probity and is
unfair and causes prejudice to the exercise of
share-holders' legal and proprietory rights, it
would amount to oppressive conduct. It was held
therein that such conduct must be continuous acts
on the part of the majority share-holders showing
that the affairs of the company were being
conducted in a manner oppressive to some part of
the members. This decision was also relied upon
to point out that it was held that Clause (c) of
Section 81(1) of the Companies Act cannot apply
to the erstwhile private companies which had
become public companies under Section 43A and
which include, that is to say - which retain or
continue to include in their Articles of
Association the matters specified in Section
3(1)(iii) of the Act, and that, if Clause (c)
were to apply to Section 43A, proviso-companies,
it would be open to the offerees to renounce the
shares offered to them in favour of any other
person or persons, which would result directly in
the infringement of the Article relating to the
matters specified in Section 3(1)(iii)(b)
because, under Clause (c) of Section 81(1), the
offeree is entitled to split the offer and
renounce the shares in favour of as many persons
as he chooses, depending partly on the number of
shares. It was held that the right to renounce
the shares in favour of any other person is also
bound to result in the infringement of the
article relating to the manner specified in
Section 3(1)(iii)(c), because an offer which
gives to the offeree the right to renounce the
shares in favour of a non-member is, in truth and
substance, an invitation to the public to
subscribe for the shares in the company.
(2) Decision in M/s. World Wide Agencies Pvt.Ltd.
Vs. Mrs. Margarat T. Desor & ors., reported in
AIR 1990 (S.C) 737 was relied upon for the
proposition that the legal representatives of
deceased member whose name is still on the
register of members were entitled to file a
petition under Sections 397 and 398 of the Act.
(3) Decision in Nanalal Zaver and anr. Vs. The
Bombay Life Assurance Co.Ltd., reported in AIR
1950 (S.C) 172 was referred to for the
proposition that the Directors cannot act against
the interest of the company or malafide.
(4) Decision in Ramashankar Prosad & ors. Vs.
Sindri Iron Foundry (P) Ltd., reported in AIR
1966 (Calcutta) 512 was cited for the proposition
that once all the evidence is before the Court
and the case of oppression clearly emerges from
the facts disclosed, it would not be proper to
measure the rights of the parties only in terms
of the assertion made in the petition.
(5) The decision in Jadabpore Tea Co.Ltd. Vs.
Bengal Dooars National Tea Co.Ltd., reported in
1984 (55) Company Cases 160 was cited to point
out that the Calcutta High Court had held that
malafide allotment to reduce a majority
shareholder to minority would be void for
mis-management.
(6) The decision of the Supreme Court in M/s. John
Tinson & Co.Pvt.Ltd. Vs. Mrs. Surjeet Malhan &
anr. reported in 1997 (1) CCC 435 (SC) was
referred to for the proposition that it was well
settled that Articles of Association of a private
company was a contract between the parties. This
was cited in context of the minors being allotted
the shares of the company at the instance of the
respondents Nos. 1 and 2, who were their
parents.
(7) The decision in Life Insurance Corporation of
India Vs. Escorts Ltd. and anr. reported in 59
Company Cases 549 (S.C) was cited for the
proposition that while a transfer of shares may
be effective between the transferor and
transferee from the date of transfer, the
transfer is truly complete and the transferee
becomes a shareholder in the true and full sense
of the term, with all the rights of a
shareholder, only when the transfer is registered
in the company's register.
9. The learned Senior Counsel appearing for the
contesting respondents supported the judgement and order
of the learned Single Judge and contended that the
oppression on the part of the petitioners was neither
subjectively felt by them, nor was it objectively
established. It was contended that from the averments
which were made in the petition as it was originally
filed, it was clear that there was no dispute raised
about the issue and allotment of 6475 shares in favour of
respondents Nos. 1 to 5 and the only dispute that was
raised was in respect of 3,000 shares issued to
respondent Nos. 4 and 5 and in respect of alleged
entitlement of the petitioner No.1 to 8,000 shares which
were kept apart for Shrimant Fatehsinhrao Gaekwad. It
was submitted that initially no relief was sought for
transfer and recession in record to the said 6475 shares.
It was submitted that in order to ascertain whether the
cardinal principle that the oppression must be
subjectively felt and objectively established was
satisfied, one should view the matter from the manner in
which the `players' have perceived it. It is submitted
that the petitioner No.1, the supporting respondent No.13
who had filed Civil Suit No. 867 of 1990 and Shri
Ajitsinh Gaekwad, who had filed Special Civil Suit No.
872/90 had all in their pleadings referred to the total
holding of the respondents Nos. 1 to 5 of 9481 shares in
respect of which no grievance was raised so far as the
allotment to the respondents Nos. 1 to 5 in respect of
6475 shares were concerned. It was therefore contended
that since the petitioners' group did not perceive any
oppression in respect of 6475 shares allotted to the
respondents Nos. 1 to 5, the petitioners cannot be heard
to say that they were oppressed by such allotment. It
was submitted that the factum of the issue of these
shares was reflected in the accounts of the company which
were approved at the Annual General Meeting of 13.9.1989,
in which the respondent No.1 was not even present. It
was argued that if the respondent No.1 had any guilty
mind, he would have remained present at that meeting. It
was submitted that even in the annual return of 30th
November, 1989, it was shown that the issued capital of
the company was 10,500 shares and there was nothing
clandestine about it. It was also submitted that the
share certificates which were issued were signed by Shri
Shinde, who was the Director and the Company Secretary
Shri Khade. It was therefore, submitted that everybody
knew about these allotments including the allotment of
3,000 shares. The learned Counsel argued that the whole
problem started because of the filing of the Suit by the
other company Alaukik Trading and Investments
Pvt.Ltd.(hereinafter referred to as "Alaukik"). It was
submitted that by letter dated 17.5.1990, the respondent
No.6 was suddenly informed that Alaukik was no more its
subsidiary and since this was done behind the back of the
respondents' group, the Suit was filed against the
petitioners' group. It was submitted that nobody in fact
had any objection to issuance of 9481 shares to the
respondents Nos. 1 to 5 and it was only because the said
was Suit filed that the petitioners retaliated by a
flurry of Suits and this petition in which they had not
questioned the allotment of 9481 shares, but questioned
only 3000 out of them, though by an amendment in the
petition they had thereafter questioned everything. It
was also submitted that petition under Sections 397 and
398 of the Act should not be entertained by the Court
where civil procedings were filed and pending, and which
covered the reliefs claimed in the petition or a part of
them. It was submitted that since the reliefs in respect
of the transfer to Indreni of the shares of respondents
Nos. 1 to 5 were also claimed in the Suits filed by some
share-holders who supported the petitioners' group, the
present petition ought not to be entertained when
alternative remedy forum was already chosen. It was
submitted that shorn of the Indreni issue which was the
subject matter of Civil litigation the complaint of
issuance of shares was impossible to sustain. It was
further contended that the petition under Sections 397
and 398 of the Act has been filed for collateral purpose,
as can be seen from prayer clause (c) of the petition, in
which it was prayed that it should be declared that the
petitioner No.1 as the mother and sole heir of late
Shrimant Fatehsinhrao P. Gaekwad was entitled to be in
the majority and or control of the respondent No.6
company. It was submitted that the learned Single Judge
had correctly lifted the corporate veil of Indreni and
seen to it that it was a company consisting of the
members of the respondent No.1 family, who completely
controlled it. It was submitted that the learned Single
Judge had exercised discretion against the petitioners
which should not be lightly interfered with. It was also
submitted that the controversy in respect of the Annual
General Meeting on 20.12.1990 raised by the petitioners
was not justified and the contemporaneous record showed
that a `pursis' was filed by 3 P.M in the Civil Suit at
Baroda on 20.12.1990 on behalf of these respondents that
their group had exercised voting rights. (The said
`pursis' was filed in Civil Suit No. 872 of 1990, which
was filed by Shri Ajitsinh Gaekwad and it was stated
therein that the Annual General Meeting of the company
had taken place on 20.12.1990 at 11 A.M as scheduled and
was over at 11.25 A.M. It was mentioned that the
defendants Nos. 3 to 7 i.e. respondents Nos. 1 to 5
had exercised their voting right therein and that voting
was done in respect of all the important resolutions.
The outcome of the voting was however, not mentioned in
that pursis.) It was submitted that there was no reason
for the petitioners' group that had attended the said
meeting to feel scared because of the so-called complaint
which was filed with the Police. It was submitted that
the petitioners' group was not so naive as to get afraid
by the letter written by an Advocate to the Police
Inspector, in which it was requested to make an
arrangement to prevent any possible disturbances at the
meeting. It was also submitted that since Indreni was
not an outsider as it was completely controlled by the
respondents Nos. 1 to 5, there was no need to give any
transfer notice when the shares were transferred by the
respondents Nos. 1 to 5 to Indreni. It was argued that
Mr. M.N.Khade who was supposed to circulate the notice
in respect of the transfer had misinformed the
respondents Nos. 1 to 5 as a result of which the
transfer to Indreni was later on rescinded. It was
submitted that the real object of the petition was to
exert pressure for restoration of power, which shows the
mind-set of the petitioner. Since the petition is filed
for a collateral purpose, it constitutes an abuse of the
process of the Court. He submitted that since the
respondents Nos. 1 to 5 were in majority, they were
entitled to take the decisions in the Board of Directors
in respect of the affairs of the company and such
decisions cannot be assailed on the ground that they were
oppressive to the minority.
9.1 In support of his submissions, the learned Senior
Counsel referred to the relevant material on record and
also the following citations.
1. He referred to Pennington's Company Law, Seventh
Edition p. 901 for the proposition that a petition for
relief from oppression under the statutory provision
would be dismissed, if it was not presented in good faith
solely in order to obtain such relief.
2. Decision in Hungerford Investment Trust Ltd., Re
Vs. Turner Morrison & Co.Ltd., reported in ILR 1972 (1),
Calcutta 286 was cited for pointing out that the Calcutta
High Court in paragraph 55 of its judgement at page 313
held that serious and disputed questions of title and
controversies already the subject of pending legal
proceedings, should not generally be adjudicated in a
summary proceeding under Section 397 of the Act.
3. Decision in Re Bengal Luxmi Cotton Mills Ltd.
reported in 35 Company Cases 187 (Calcutta) was referred
to for pointing out that the High Court held at page 249
of the report that where a winding up order on the just
and equitable ground cannot be made as there is another
remedy available for redress of the grievance relating to
transfer of shares and that remedy was resorted to, no
order can be made under Section 397 of the Act.
4. The decision of this Court in Shantilal Manibhai
Patel and ors. Vs. Laxmi Film Laboratory and Studios
Pvt.Ltd. and anr. reported in 1984 (56) Company Cases
110 was cited to point out that the High Court had at
page 127 of the report, taking note of the fact that a
Civil Suit was filed for declaration that the plaintiff
had continued to be the Director of the Company, held
that the question raised in the petition that the notices
were not served on him could be decided in the suit and
that it could be satisfactorily disposed of after the
parties have had an opportunity of leading oral evidence
in the suit pending before the Court. It was held that
it was not proper to decide the question on affidavits
particularly when the Suit was pending in the subordinate
Court in which this question could be satisfactorily
resolved only on evidence properly adduced by the
parties.
10. The respondent No.6 company is a Private Limited
Company to which Regulations in Table "A" of Schedule I
to the Companies Act, 1956 except in so far as they are
excluded by Article 2 of the Articles of Association of
the respondent No.6 company apply. The power to allot or
otherwise dispose of the shares in the capital of the
company was in the Directors. Under Article 3(a) read
with Article 6 of the Articles of Association of the
Company, the right to transfer its shares was restricted
in the manner and to the extent provided in Articles 7 to
15. Article 7 provided for the preemption right of
members of the company by restricting the transfer of
shares first to a member selected by the transferor
emphasising that no share shall be transferred to a
person who is not a member so long as any member was
willing to purchase the same at the fair value. The
purpose of such restriction, common in the articles of a
private company, is to preserve the proportionality of
the other members' shareholdings as between themselves.
A member cannot evade such provision for pre-emption by
contracting to sell his shares to an outsider. It was
therefore, incumbent on a proposing transferor to give a
transfer notice in writing to the company that he desires
to transfer the share. Such notice shall specify the
fair value and shall constitute the company as agent for
the sale to any member of the company. A transfer notice
could not be revoked without the sanction of the
Directors as provided by Article 8 of the Articles of
Association. The company was required, within 28 days
after being served with the transfer notice to find out
the purchasing member to whom the proposing transferor
was bound to transfer the share upon payment of its fair
value as per Article 9. The transfer rules incorporated
in Article 13 provided that the share specified in any
transfer notice shall be offered by the company to the
members other than the proposing transferer as nearly as
may be in proportion to the existing shares held by them
respectively and the offer shall, in each case, limit the
time within which the same, if not accepted, shall be
deemed to be declined. If the members do not claim their
proportions, the unclaimed shares were to be used for
satisfying the claims in excess of members who desired to
have excess shares. The transfer was required to be
registered in the name of the transferee as provided by
Article 15. Article 14 under which shares could be
transferred by a member to their issues or other
beneficiaries under a will did not originally provide for
the transfer of shares by the members of the respondent
No.6 company to a wholly owned company of the existing
share-holders or the company owned by the family members
of the share-holders, and, for this reason mentioned in
the explanatory statement as required by Section 173(2)
of the Act attached to the notice said to have been given
on 5.1.1991 for Extra-ordinary General Meeting of the
company convened on 14.1.1991, Article 14 was amended by
a resolution passed at that meeting for this purpose.
10.1 Articles 23 to 27 of the Articles of Association
provided for appointment of Directors and Articles 28 and
29 for their powers and duties. Accordingly, the minimum
number of Directors was fixed at two and maximum at
fifteen. The Directors could appoint "Alternate
Directors" during absence of a Director as provided in
Article 24 and casual vacancy occurring in the Board of
Directors could be filled-up for the remaining period by
the Directors under Article 25. At every Annual General
Meeting, one third of the Director was liable to retire
by rotation under Article 27. Managing Director could be
appointed under Article 31 by the Directors but he was
liable to be removed or dismissed as stipulated therein
though not subject to rotational retirement. There is no
provision in the Articles of Association for appointment
of a permanent Director or Chairman.
11. By a special resolution passed in the
Extra-ordinary General Meeting of the Company held on
17th December, 1987, the Board of Directors of the
company was authorised to issue 25,000 shares to any
members they deem fit. Thereafter, in the Board meeting
of 8.1.1988 it was resolved that out of 25,000 equity
shares, 15,000 be issued to the members of the company
"at present" and the balance as and when required. The
Managing Committee was authorised to issue these shares
to members in such proportion as it deemed fit. As per
the admitted break-up of the original 425 shares held by
the members, before 15000 equity shares were offered to
the members at par by letter dated 12.2.1988, out of 425
total number of equity shares, 301 stood in the name of
Shrimant Fatehsinhrao P. Gaekwad, 7 in the name of his
mother the petitioner No.1 Smt. Shantadevi Gaekwad, 10
in the name of his brother Shri Ranjitsinh Gaekwad, the
petitioner No.4, 1 in the name of Smt. Devyanidevi
Chandrasen Gaekwad - the petitioner No.2, 10 in the name
of the petitioner No.3 Capt. V.S. Hazare, 5 in the name
of the petitioner No.5 - Smt.Lalitadevi Kirdatt, 10 in
the name of the supporting respondent No.12 Dr.(Mrs.)
Mrunalinidevi Puar and 5 in the name of the supporting
respondent No.13 Smt. Shubanginidevi Raje Gaekwad. The
respondent No.1 Shri Sangramsinh P. Gaekwad and his wife
respondent No.2 Smt. Ashraraje S. Gaekwad had 1 and 5
shares respectively in the company. Thus, prior to the
disputed fresh allotments of shares, according the
appellants, their group owned 348 shares out of 425 while
the respondents Nos. 1 and 2 together held six shares.
There is no dispute about the fact that late Shrimant
Fatehsinhrao P. Gaekwad's only class one heir was his
mother, the petitioner No.1 - Smt. Shantadevi Pratapsinh
Gaekwad, because he died intestate on 1.9.1988. When the
member of the respondent company bequeaths his shares
under a will, the succession will be given effect to as
per Article 14 of the Articles of Association without the
restriction in Article 16 of the Directors' right to
refuse to register any transfer or transmission being
attracted. Regulations 25 to 28 of Table A of Schedule-I
to the Companies Act, which applied to this company under
Article 1 read with Article 2 of the Articles of
Association, relate to transmission of shares.
Accordingly, on the death of a member, who was a sole
holder, his legal representatives shall be the only
persons recognised by the company as having any title to
his interest in the shares. Any person becoming entitled
to a share in consequence of the death of a member may
elect either to be registered himself as holder of the
share or to make such transfer of the share as the
deceased could have made as provided in Regulation 26,
read with Regulation 27 of Table "A" of Schedule-I to the
Act. A person becoming entitled to a share on death of a
member is, as recognised by Regulation 28, entitled to
the same dividends and other advantages to which he would
be entitled if he were the registered holder of the share
except any membership right in relation to the meetings
of the company which he can get only on getting himself
registered. Thus, the fact that the property in share
passes by inheritance to the heir of the deceased member
like his any other property is duly recognized. The
words "other advantages" in Regulation 28 suggest that
all the entitlements of a deceased member will pass on to
his heir who becomes entitled to a share of such deceased
member. The transmission of share related rights will
take place irrespective of the factum of registration of
the successor. The only thing that a Board can do is to
give a notice requiring any such person to elect to be
registered himself or to transfer the share, and if the
notice is not complied with within ninty days, the Board
may thereafter with-hold payment of all dividends,
bonuses or other moneys payable in respect of the share,
until the requirements of the notice have been complied
with as laid down in Regulation 28. In the present case,
therefore when Shrimant Fatehsinhrao P. Gaekwad died
intestate on 1.9.1988, his mother i.e. petitioner No.1
who was the only class one heir, succeeded to the shares
which were already held by him and became entitled under
Regulation 28 to the same dividends and other advantages
to which she would be entitled if she were the registered
holder of the shares of Shrimant Fatehsinhrao P.
Gaekwad. This statutory entitlement did not depend upon
the mercy of the Board of Directors which could have, at
the best, given a notice as required by the proviso to
Regulation 28. There is no time limit provided in
Regulation 28 for exercising the option given to such
successor to get registered as holder of the share or to
make transfer of the share as the deceased could have
made. In other words, there is no contingency provided
by which the rights which devolved on the heir would
lapse, and the attribute of a vested right in the share
of the deceased member devolving on the successor is duly
recognised. Therefore, if there was a valid decision
taken to allot new shares and such shares are earmarked
for such allotment to a member who became entitled to
subscribe therefor and receive them, such entitlement of
the deceased member would also devolve on his heir who
would step into his shoes and can claim that advantage to
which the deceased member was entitled as if the
successor were the registered holder of shares. The
petitioner No.1 therefore, as a sole heir of the deceased
member Shrimant Fatehsinhrao P. Gaekwad, became entitled
to his entire share-holding out of 425 shares at the time
of his demise on 1.9.1988 with all its advantages under
the said Regulation.
11.1 The petitioner No.1 had addressed a letter dated
29.11.1990 as per Annexure "R" to the petition, as stated
in paragraph 21 of the petition, in which it was stated
by her that after the death of Shrimant Fatehsinhrao P.
Gaekwad, she was entitled as his sole legal heir to the
8,000 equity shares of Rs. 100 each which were set apart
in favour of and for Shrimant Fatehsinhrao P. Gaekwad,
on payment for the same. It was stated that she had paid
to the company in or around November, 1988 a sum of Rs.
15 lakhs of which Rs. 11,15,000 was still lying with the
company to her credit. It was stated that a sum of Rs.
8 lakhs be appropriated therefrom as share money.
However, if the company so required, she would send Rs.
8 lakhs by Demand Draft. In the meeting held on
30.3.1990 wherein transfer of 9415 shares by the
respondent Nos. 1 to 5 to `Indreni' was approved,
transmission of 23 shares standing in the name of
Shrimant Fatehsinhrao P. Gaekwad to the name of the
petitioner No.1 Smt . Shantadevi Gaekwad was also
approved. Therefore, the petitioner No.1 was already
treated as the sole heir who was entitled to the shares
of Shrimant Fatehsinhrao P. Gaekwad on his demise.
However, the question whether the entitlement of Shrimant
Fatehsinhrao P. Gaekwad to 8,000 shares stood
transmitted to her on his demise was never put up on the
agenda though the fact that she being the sole heir of
Shrimant Fatehsinhrao P. Gaekwad was known to all. It
appears that no reply was sent to the letter dated
29.11.1990 addressed by the petitioner No.1 to the
respondent No.1 in his capacity as Chairman of the
company.
12. This brings us to the stand taken up by the
contesting respondents that Shrimant Fatehsinhrao P.
Gaekwad had before his demise renounced his entitlement
to 8,000 shares which were decided to be allotted to him,
in favour of the respondent No.1 and his children. This
story has surfaced in the affidavit-in-reply of the
respondent No.1. According to the respondent No.1, after
the company resolved in its Extra-ordinary General
Meeting held on 17.12.1987 to increase the share capital,
it was resolved in the Board meeting of 8.1.1988 that
15,000 equity shares of Rs. 100 each be issued at par to
the members of the company and that the Managing
Committee of the company be authorised to issue equity to
members in such proportion that it may deem fit. The
Secretary of the Company Mr. M.K. Khade thereupon
issued letter dated 12.2.1988 as per Annexure "16" to the
affidavit-in-reply of the respondent No.1, communicating
the decision to increase the equity share capital of the
company by issuing to its members 15,000 equity shares at
Rs. 100 each at par and requesting them to convey their
acceptance for the number of shares the member would like
to subscribe, with a cheque for the full amount on or
before 10.3.1988, failing which it would be presumed that
the member was not interested in the offer and the shares
will be offered to the other members. There is some
dispute over the fact whether this letter was sent to all
the members, because, the copy at Annexure "16" of the
affidavit-in-reply of respondent No.1 shows that it was
addressed to Shrimant Fatehsinhrao P. Gaekwad. The
minutes of the Board meeting held on 13.2.1988 as per
Annexure "9A" to the affidavit-in-reply of the respondent
No.1 however, shows that the Board was apprised of the
fact that necessary action was taken on the agenda of the
Board's meeting dated 8.1.1988 and that letters were
addressed on 12.2.1988 to the share-holders informing
them that the company had issued 15,000 equity shares of
Rs. 100 each to members and to convey their acceptance
on or before 10.3.1988.
12.1 It is an admitted fact that no acceptance was
conveyed by any of the members for the subscription of
the new shares till 10.3.1988. According to the
respondents No.1's case as reflected in paragraph 9(g) of
his affidavit-in-reply filed on 11.4.1992 in the Company
Petition No. 7 of 1992, since no offers were received
from the existing share-holders, the Managing Committee
decided at its meeting on 21.3.1988 to extend time for
the offer and further decided that out of 15,000 hares,
8,000 be kept apart for the time being for Shrimant
Fatehsinhrao P. Gaekwad. The balance 7,000 shares were
kept apart for the other existing members of the company.
Thereafter, the respondent No.1 instructed the Company
Secretary Mr. Khade "to give first option to other
family members to subscribe for shares according to their
request and the remaining be put in the name of myself
and my family". His version in paragraph 6(g) and (h) of
the affidavit-in-reply is that: "Since no offers were
received from the existing share-holders, Managing
Committee decided in its meeting on 21.3.1988 to extend
the time for the aforesaid offer. It further decided
that out of 15,000 shares, 8,000 shares be kept apart for
the time being for Shrimant Fatehsinhrao P. Gaekwad as
he was desirous of subscribing to the same. The balance
7,000 shares were kept apart for the other existing
members of the company including 6475 shares for myself
and my children."
12.2 It is stated by the respondent No.1 in paragraph
31(b)(vi) of his affidavit-in-reply dated 11.4.1992 in
Company Petition No. 7 of 1992 (CLB) that subsequently
i.e. between March and 9th June, 1988, Shrimant
Fatehsinhrao P. Gaekwad was reminded to subscribe to
8,000 shares which were offered to him, but he indicated
that he would not subscribe to these 8,000 shares and
renounced the offer in favour of the respondent No.1 and
his children. In para II (2)(vii) of the
affidavit-in-reply filed in this Company petition it is
stated by the respondent No.1 that ultimately on 11th
June, 1988 addressed a letter to him through his personal
Secretary renouncing the offer made to him" in my favour
and in favour of my children". A copy of the letter
dated 11th June, 1988 said to have been addressed to the
respondent No.1 by the Secretary to Shrimant Fatehsinhrao
P. Gaekwad, Mr. K.V. Khoth is annexed at Annexure 10
of the said affidavit-in-reply. Much reliance is placed
on this letter on behalf of the contesting respondents to
contend that the entitlement to get 8,000 shares which
were kept apart for Shrimant Fatehsinhrao P. Gaekwad
could not have been inherited by his mother the
petitioner No.1 on his demise, because, it was already
renounced in favour of the respondent No.1 and his
children. Thus, even according to the respondent No.1,
Shrimant Fatehsinhrao P. Gaekwad was entitled to
subscribe to the additional share capital, but he
renounced his rights in favour of the respondent No.1 and
his children through his Secretary's letter. Obviously,
if the entitlement was renounced by Shrimant Fatehsinhrao
on 11.6.1988 in favour of the respondents Nos. 1, 4 and
5, there was no advantage in form of such entitlement
which could have devolved on his mother by succession on
his demise on 1.9.1988. The communication dated
11.6.1988 therefore merits a close look. It is a letter
which was addressed to the respondent No.1 in his
personal name and not to the Company. The new shares
were offered to Shrimant Fatehsinhrao P. Gaekwad by the
company and admittedly no communication was addressed by
him to the company in response to that offer. After the
alleged communication of the letter dated 11.6.1988 said
to have been written by his Secretary to the respondent
No.1, the Board's meetings took place, according to the
respondent No.1, on 8th July, 1988, 26th August, 1988,
26th October, 1988 and 3rd December, 1988, but the said
letter dated 11.6.1988 was not placed or even referred to
before the Board of Directors and it was for the first
time mentioned in the minutes of the Managing Committee
said to have been held on 10.12.1988 (certified copy at
Annexure A/3 of the rejoinder of the petition), in which
it was recorded that in terms of the offer made in the
letter dated 12th February, 1988, response was received
only from the four existing share-holders and that the
Chairman of the company Shrimant Fatehsinhrao P. Gaekwad
who was offered 51% shares out of the additional 15,000
shares also declined to accept the offer, vide his
Executive Secretary's letter dated 11.6.1988. Hence, in
terms of the decision taken in the Committee meeting held
on 21st March, 1988, the shares were offered for
subscription amongst the family members of the
share-holders. It was further stated that accordingly
the company had received applications, namely for 2,000
shares from the respondent No.1, 1475 shares from the HUF
of the respondent No.1, 1,000 shares from Smt.
Mrunalinidevi Puar, 25 shares from Smt. Shubanginidevi,
1500 shares from the respondent No.2 Smt. Ashrareje and
1500 shares from Shri Pratapsinh Gaekwad, son of the
respondent No.1 - that is in all 7500 equity shares. It
was recorded in the minutes that the Committee decided to
allot 7500 shares in the above proportions to them. Out
of the remaining 7500 shares, it was decided to offer
3,000 equity shares of Rs. 100 each between Shri
Pratapsinh Gaekwad and Miss Priyadarshini Gaekwad in the
proportion as they liked and as soon as the application
money of Rs. 3 lakhs for 3000 equity shares was
received, the subscription of additional shares be closed
at 10,500 equity shares. Shrimant Fatehsinhrao P.
Gaekwad had passed away on 1st September, 1988 and a
meeting of Board of Directors was held on 26th October,
1988 where the respondent No.1 and Mr. P.H. Chinoy were
present for a condolence resolution. The decision was
taken therein for sale of Manav Mandir property of the
company for not less than Rs. 50 lakhs and the
respondent No.1 was authorised to finalise the agreement.
Similarly, for Kamalja property, it was decided to sell
it for not less than Rs. 20 lakhs and it was left to the
respondent No.1 to finalise the agreement. Other
important decisions were also taken in the said meeting,
but there was no mention made at all to the letter dated
11.6.1988 by which Shrimant Fatehsinhrao P. Gaekwad was
said to have renounced through his Secretary his
entitlement to 8,000 shares in favour of the respondent
No.1 and his children which was to tilt the balance of
power in his favour. Even in the meeting of the Board of
Directors held on 14th March, 1989 convened after the
alleged allotment made by the Managing Committee on
10.12.1988, there was no mention made about it as can be
seen from the minutes. The last meeting of the Board
attended by Shrimant Fatehsinhrao P. Gaekwad was of
13.2.1988. The meetings of the Board held after
10.12.1988 i.e. the date of the allotment of the
additional shares by the Managing Committee, on
14.3.1989, 26.5.1989, 1.7.1989, 21.7.1989, 2.9.1989,
3.10.1989 and 27.12.1989 were attended by only two
persons i.e. the same respondent No.1 as Chairman and
Shri P.H. Chinoy. These were the only two persons who
were present even at the meeting of the Managing
Committee said to have been held on 10.12.1998 for
allotment of shares.
12.3 There was admittedly no response to the notice
dated 12.2.1988, in which the members were required to
indicate the number of shares that they desired to
subscribe with a cheque for the value thereof by
10.3.1988. None responded. The deadline was not
specifically extended beyond 10.3.1988. According to the
respondent No.1, on 21.3.1988 it was decided to allot the
15,000 shares of which 8,000 were decided to be allotted
to Shrimant Fatehsinhrao P. Gaekwad. The minutes of the
meeting of the Board of Directors held thereafter on 16th
April, 1988 show that a transfer of 22 shares of 5
members was sanctioned in favour of Shrimant Fatehsinhrao
P. Gaekwad. This transfer makes it clear that Shrimant
Fatehsinhrao P. Gaekwad had not lost interest in holding
shares in respondent No.6 company. If he could care to
buy 22 shares on 16th April, 1988, it does not stand to
reason that he would renounce 8,000 valuable shares on
11.6.1988. Renouncing 8,000 shares would have been a
major event in which all share-holders would be
interested and were entitled to be informed. No such
renouncement was addressed to the company by Shrimant
Fatehsinhrao P. Gaekwad. Admittedly, Shrimant
Fatehsinhrao P. Gaekwad did not himself send any letter
to the company or for the information of the
share-holders who were close relatives and friends. The
letter of so called renouncement therefore does not
inspire any confidence.
13. The petitioner's case in paragraph 6.6 of the
petition was that there was a family meeting on 23rd
March, 1988, wherein it was decided to broaden the
capital base of the company by issuing 15,000 shares of
Rs. 100 each. It was decided therein and also
subsequently at a meeting of the company's Board of
Directors that out of the 15000 equity shares, 8,000
equity shares would be allotted to Shrimant Fatehsinhrao
P. Gaekwad, 500 equity shares to Smt. Mrunalinidevi, 25
equity shares to Smt. Shubhanginidevi and 6475 equity
shares to respondent No.1 Shri Shangramsinh Gaekwad. It
will be seen that these averments were based on a note of
Shri N.K.K. Mohammed, Personal Secretary of the
respondent No.1 and the letter dated 29th March, 1988 of
Shri M.N.Khade forwarding draft minutes of the meeting of
21.3.1988 on the basis of that note, which were annexed
at Annexures "B" and "C" to the petition. In the
typewritten draft minutes attached to letter Annexure
"C", the words "and others" are added in hand after the
name of the respondent No.1. On the basis of these
words, the respondent No.1 seeks to derive authority to
get shares for his family members also. Here however, it
becomes important to see what were the final minutes
drawn in respect of the meeting of the Committee held on
21.3.1988. It will be noted from the draft minutes that
the Managing Committee referred to therein consisted of
(1) Shrimant Fatehsinhrao P. Gaekwad, (2) respondent
No.1 Shri Shangramsinh Gaekwad and (3) Shri. P.H.
Chinoy. It was during their arguments confirmed by the
learned Counsel for both the sides that these three were
the only members of the Managing Committee, which was
authorised by the Board meeting of 8th January, 1988 to
issue equity shares to members in such proportion as the
Committee deemed fit. The final minutes of the decision
of the meeting of the Managing Committee held on
21.3.1988 which are duly signed by the respondent No.1 as
Chairman are on record at Annexure "A/2" of the
affidavit-in-rejoinder of the petitioner No.1 Smt.
Shantadevi. The original minutes book of the Managing
Committee is not forthcoming and according to the
petitioners, the minutes books of the Annual General
Meeting/Board of Directors meeting and Committee Meetings
were sent to the Secretary of the respondent No.1 by
letter dated 20th November, 1990, while according to the
respondents Nos. 1 to 5, the the minutes book of the
Committee meetings was not received. It will however, be
seen that the copy of the minutes of the meeting of the
Managing Committee said to have been held on 21.3.1988
produced with the affidavit-in-rejoinder at Annexure A/2
by the petitioner No.1 was notarised as a true copy on
10.12.1990 by a Notary of Baroda Mr. M.C. Vaidya as
stated in paragraph 11 of the said rejoinder of the
respondent No.1. The signature of the respondent No.1
appearing as Chairman therein, which was not disputed
before us, shows that these minutes were duly
authenticated by him. A copy of the minutes of the
Managing Committee meeting held on 21st March, 1988
signed by the respondent No.1 as Chairman is also at
Annexure "E" to the Company Petition No. 7 of 1992 filed
by the respondent No.12 before the Company Law Board,
Delhi. A comparison between the draft minutes of the
meeting of the Managing Committee held on 21st March,
1988 forwarded under letter dated 29th March, 1988 of the
Company Secretary Mr. Khade at Annexure "C" collectively
to the petition and the minutes of that meeting signed by
the respondent No.1 as Chairman at Annexure "A/2" to the
rejoinder of the petitioner No.1 shows the following
differences:-
(a) In the draft minutes it was mentioned that the
following three were present (1) Shrimant
Fatehsinhrao Gaekwad Chairman, (2) Shrimant
Sangramsinh Gaekwad, and (3) Mr. P.H. Chinoy;
while in the final minutes signed by the
respondent No.1, it is stated that (1) Shrimant
Sangramsinh Gaekwad and (2) Shri P.H. Chinoy
were present. Thus, the name of Shrimant
Fatehsinhrao Gaekwad who was shown present as the
Chairman of the meeting in the draft minutes,
said to have been forwarded under the signature
of Shri M.N.Khade, the Company Secretary, on
29.3.1988 to Mr. N.K.K. Mohammed, Bombay who
was the Secretary to the respondent No.1, is
conspicuously absent in the final minutes.
(b) The final minutes of the Committee held on
21.3.1988 show that the respondent No.1 was in
the Chair and the minutes were signed by the
respondent No.1 as the Chairman of the meeting
while in the draft minutes Shrimant Fatehsinhrao
Gaekwad was shown to be the Chairman of the
meeting.
(c) In the draft minutes there was no specific
reference made to the resolution passed at the
Board meeting on 8.1.1988 for issuance of 15,000
equity shares and about the offer letters dated
12.2.1988 having been sent to the share-holders,
while in the final minutes these are specifically
mentioned.
(d) In the draft minutes it was stated that after the
discussion the allotment was decided as under:-
(i) Shrimant Fatehsinhrao P. Gaekwad - 8,000
shares of the value of Rs. 8 lakhs;
(ii) Shrimant Sangramsinh Gaekwad and others
(these last two words "and others" are
written in hand) 6475 shares of the value
of Rs. 6,47,500;
(iii) Smt. Mrunalinidevi Puar 500 shares of
the value of Rs. 50,000; and
(iv) Smt. Shubhanginidevi Gaekwad 25 shares
of the value of Rs. 2,500/-.
In the final minutes however, there is no mention
of allotment of shares by number as stated in the draft
minutes. Instead, it has been stated: "Out of these
additional equity shares, it is decided to issue 51%
additional equity share capital to Lt. Col. Dr.
Fatehsinh Gaekwad and the balance 49% to be issued to the
existing members depending on the offer accepted by them.
In case the existing members do not subscribe to the
additional share capital offered to them in terms of the
letter of offer dated 12th Feb. 1988 sent to all the
members of the company, it was decided to offer these
equity share capital remaining unsubscribed to the
persons as the Committee deem fit. "Thus, in the final
minutes of the meeting of the Managing Committee held on
21st March, 1988, which were signed by the respondent
No.1,. there was absolutely no reference to allotment of
6475 shares to the respondent No.1. These minutes
disclose that a firm decision to issue 51% additional
equity share capital to Shrimant Fatehsinhrao P. Gaekwad
was already taken while the balance of 49% was yet to be
issued to the existing members depending on the offer
accepted by them. It is only when the existing members
did not subscribe to the offer made to them in letter
dated 12.2.1988, it was decided to offer the unsubscribed
shares to the persons as the Committee deemed fit.
13.1 The version of the respondent No.1 in paragraph
9(g) of his affidavit in reply in Company Petition No.
7/92 is that: "at the meeting of the Managing Committee
held on 21st March, 1988, 8,000 shares were kept apart
for the time being, for Shrimant Fatehsinhrao P.
Gaekwad. The balance 8,000 shares were kept apart for
the other existing members of the company. Thereafter, I
specifically instructed Mr. Khade to give first option
to the other family members to subscribe for shares
according to their request and the remaining be put in
the names of myself and my family. The only two persons
who responded to these were Mrs. Mrunalinidevi Puar for
500 shares and Mrs Shubanginidevi Gaekwad for 25 shares
and so automatically whatsoever was remaining was put
down in my and my family's name by Mr. Khade, which
amounted to 6475 shares". In contrast to this version,
the respondent No.1 has stated in para II (2)(vi) of his
affidavit in reply in the present petition that:
"despite his (i.e Shrimant Fatehsinhrao Gaekwad's)
reluctance, 8000 shares were kept apart for him if he
chose to subscribe for the same. It is for this reason
that the Committee meeting of 21st March, 1988 (draft
minutes whereof are annexed at page 102 of the petition)
specifically recorded that the shares would be allotted
as and when amounts are received. At the said meeting it
was further decided that 6475 shares would be kept apart
for myself "and others". Since I was basically handling
Baroda Rayon Corporation and in this company, I was given
liberty to either subscribe in my own name or through
others including family members, whereas as far as others
were concerned, they could be considered only if they
themselves made the application personally and not by
others". It is further stated by him: " ........
pursuant to the decision taken on 21st March, 1988 by the
Managing Committee I and my family members subscribed for
6475 shares which were available to me for subscription.
I actually put in the subscription monies and was
allotted shares in the period between April and June,
1988. In the meanwhile Smt. Shubanginidevi Raje Gaekwad
was allotted 25 shares and Smt. Mrunalinidevi for whom
only 500 shares were kept apart applied and was allotted
1,000 shares in the aggregate on 30th May, 1988." It is
then stated that: "Thus, the position that obtained in
end of May/June, 1988 is that 7500 shares were issued and
allotted and certificates issued and only balance 7500
shares were yet to be allotted". Then after referring to
the so called renouncement by Shrimant Fatehsinhrao
Gaekwad through his Secretary's letter dated 11.6.1988,
the respondent No.1 in para II(2)(viii) of his affidavit
in reply stated that "Once again efforts were made to
find out if any other members would like to give an offer
for subscription of shares of the company, but no offer
was forthcoming. With a view to augment the equity
resources of the company, the respondents Nos. 4 and 5
(i.e. his minor son and minor daughter) made an
application for 3000 shares of the company. No other
persons were interested in subscribing out of the said
balance of 7,500 shares. Under the circumstances,
further allotment of 3,000 shares was made in favour of
my children, the respondents Nos. 4 and 5 on 6th
December, 1988". In paragraph II(2)(x), he states that
"under the circumstances, a further allotment was made in
favour of my children on 6th December, 1988. With this
final allotment of 3,000 shares, the issue of 15,000
shares proposed on 8th January, 1988 stood finally closed
with the total allotment of 10,500 shares". In his
version in the affidavit-in-reply filed in Company
Petition No. 7 of 1992, in paragraph 9(j) the respondent
No.1 has stated that: "The existing members specifically
refused to take up any shares out of balance 7500 shares,
saying that they were short of funds. Ultimately, my
children Mr. Pratapsinh S. Gaekwad and Kum.
Priyadarshiniraje S Gaekwad applied for further 3000
shares through me as their guardian and in view of the
availability of shares, it was decided to issue and allot
the said 3000 shares to them thereby leaving only an
unallotted quantum of 4,500 shares. These 4,500 shares
remained unallotted and in any event are not available
for allotment after the issue was closed on 10.12.1988."
13.2 In the background of the above discrepancies in
the version of the respondent No.1 about his having been
allotted 6475 shares for himself and his family, we may
now refer to the minutes of the meeting of the Managing
Committee said to have convened on 10th December, 1988.
A notarised true xerox copy of these minutes is produced
at Annexure "A/3" of the affidavit-in-rejoinder of the
petitioner No.1, read with para 14 thereof. Heavy
reliance was placed on behalf of the respondent Nos. 1
to 5 on these minutes in context of letter dated 11th
June, 1988 written by the Secretary to Shrimant
Fatehsinhrao P. Gaekwad, which is referred to therein,
by which Shrimant Fatehsinhrao P. Gaekwad is said to
have declined to accept the offer of shares contained in
the letter dated 12.2.1988, as well as, in respect of
allotment of 3,000 shares to the respondents Nos. 4 and
5. These hand-written minutes bear the signature of the
respondent No.1 as the Chairman of the meeting at which
the same two Directors, namely - the respondent No.1
Shangramsinh Gaekwad and Shri P.H. Chinoy were present.
It is recorded in these minutes that in terms of the
offer letter dated 12th Feb., 1988 sent to all the
share-holders of the company pertaining to the issue of
15,000 equity shares of Rs. 100 each of the company, the
response was received only from the four existing
share-holders of the company. The Chairman of the
company Shrimant Fatehsinhrao P. Gaekwad who was offered
51% shares out of the 15,000 additional equity shares of
Rs. 100 each also declined to accept the offer vide his
Executive Secretary's letter dated 11th June, 1988.
Hence, in terms of the decision taken in the Committee
meeting held on 21.3.1988 the shares were offered for
subscription amongst family members of the share-holders.
Accordingly, the company had received application for
7500 equity shares as per the details given in the
minutes i.e. (1) Shri S. Gaekwad (individual) 2000
shares, (2) Shri S. Gaekwad (HUF) 1475 shares, (3) Smt.
Mrunalinidevi Puar 1000 shares, (4) Smt. Shubanginidevi
Raje Gaekwad 25 shares and (5) Pratapsinh S Gaekwad 1,500
shares i.e in all 7,500 shares were applied for. Then
comes the material part of the minutes which reads thus:
"The Committee decided to allot 7500 equity shares of Rs.
100 each in the above mentioned proportions to the
respective applicants of shares. Out of the remaining
7500 equity shares it was decided to offer 3,000 equity
shares of Rs. 100 each between Pratapsinh Sangramsinh
Gaekwad and Miss Priyadarshini Sangramsinh Gaekwad in the
proportions as they like. As soon as the applicants
money for 3,000 equity shares of Rs. 100 each amounting
to Rs. 3,00,000 is received the subscription of
additional shares be closed at 10,500 equity shares of
Rs. 100 each amounting to Rs. 10,50,000". It would
appear from these minutes of the Managing Committee that
7,500 shares were allotted out of the total 15,000 shares
offered to the applicants for the first time on
10.12.1988 at a decision taken at this meeting. Out of
the remaining 7,500 shares, 3,000 shares were allotted to
respondents Nos. 4 and 5 and the issue was closed on
that day. The stands taken up by the respondent No. 1
in context of these minutes of 10.12.1988 in his
affidavits are conflicting. In his sur-rejoinder to the
rejoinder of the petitioner No.1 in the petition, he has
stated in paragraph 14 that he did not admit that the
said minutes are genuine, but, in para 31(g) of his
affidavit-in-reply filed in Company Petition No. 7 of
1992 on 11th April, 1992, he has stated, in response to
paragraph 6(9) of that petition in which a xerox copy of
these very minutes was placed at Annexure "F" with an
allegation that these were fraudulent and fabricated and
brought about by Shri Sangramsinh P. Gaekwad (who is
respondent No.2 therein) with the sole object of gaining
control of the company, that: "Although the shares were
to be allotted as and when the money came these minutes
were written on 10th December, 1988". He has denied in
para 31(g)(i) of the said reply the allegation that these
minutes of 10th December, 1988 were fraudulent or
fabricated. In para 31(g)(ix) the respondent No.1 in
response to the allegation that the alleged decision of
the Managing Committee of 10.12.1988 was not placed
before the Board meeting held on 14.3.1989 and that it
was not ratified by the Board has stated thus: "I submit
that as the very power of allotment of shares was given
to the Managing Committee the question of ratification by
the Board of Directors did not arise. The decision was,
therefore, not required to be placed before the Board of
Directors for its ratification or approval". When as per
these minutes of the Managing Committee said to have held
on 10th December, 1988, the Committee took the decision
to allot the shares for the first time at that meeting,
the theory of the respondent No.1 that 6475 shares were
already allotted by the Committee to the respondents Nos.
1 to 5 earlier, stands badly exploded. In the Board's
meeting of 16.4.1988, there was no mention of any such
allotment but only a mention in para 3 and 4 of the
minutes that "the Board discussed the issue of 15,000
equity shares of Rs. 100 each of the company." There was
no reference made to any decision of the Managing
Committee meeting held on 21.3.1988 but a generally
worded resolution was recorded to the effect that the
share certificates to cover equity shares be issued to
the members and they be signed by respondent No.1 and
Shri H.A. Shinde, Directors and counter-signed by Mr.
Khade, the Secretary of the company. It was also
resolved that common seal of the company be affixed to
the equity share certificates when ready in the presence
of the respondent No.1, a Director of the company. In
para 6 of these minutes, it is recorded that the Board
sanctioned transfer of 22 equity shares in favour of
Shrimant Fatehsinhrao Gaekwad. It will be noted from the
minutes that the name of Shrimant Fatehsinhrao P.
Gaekwad was initially written "present as Chairman" but
appears to have been scored out and added in the list of
Directors who were granted leave of absence and the
numbering is altered accordingly at all places. The only
minutes that reflect a decision for allotment of shares
to the respondents Nos. 1 to 5 of 6475 equity shares and
to respondents Nos. 4 and 5 of 3,000 equity shares are
these minutes of the meeting of 10.12.1988. It is not
possible to believe that the respondent No.1 would have
signed these minutes recording the decision to allot 6475
shares to the respondents Nos. 1 to 5 on 10.12.1988 if
the shares were already allotted to them earlier by the
Managing Committee. No such earlier decision of the
Managing Committee to allot 6475 shares is forthcoming.
As noticed above, there was no indication to make any
such allotment to the respondents Nos. 1 to 5 in the
minutes of the Managing Committee held on 21.3.1988 which
were signed by the respondent No.1. We may note here
that throughout the hearing there was no dispute raised
over the fact that both the notarised minutes of the
Committee dated 21.3.1988 and 10.12.1988 produced at
Annexures A/2 and A/3 of the affidavit in rejoinder of
the petitioner No.1 with the particulars of such
notarisation stated in para 11 thereof, contained the
signature of the respondent No.1 put as Chairman of these
meetings and on our own perusing these signatures and
keeping in view his other signatures on record it is
clear that these are rightly not disputed. In fact as
noted above the minutes dated 10.12.1988 have been
admitted by the respondent No.1 to be true in his
affidavit-in-reply filed on 11.4.1992 in the Company
Petition No. 7 of 1992 before the Company Law Board. It
is obvious that being confronted by the notarised xerox
copy of these minutes the respondent No.1 has tried to
avert his embarrassment that they caused as much as
possible in the said affidavit-in-reply dated 11.4.1992
after having taken a different stand in the
affidavit-in-reply dated 21.3.1991 and his sur-rejoinder
dated 22.4.1991 filed in the petition before this Court.
13.3 It will be noted that in the minutes of 10th
December, 1988, there is no reference to the type of
allotment referred in the draft minutes of 21.3.1988
which were forwarded to the Secretary of respondent No.1
Mr. N.K. K. Mohammed under note dated 29th March, 1988
of the Company Secretary. In the minutes of 21.3.1988
which were signed by the Chairman, there was no mentioned
that the shares would be allotted as and when the amounts
were received as was contained in the draft of the
meeting. There was a firm decision to issue 51%
additional equity shares to Shrimant Fatehsinhrao P.
Gaekwad and as regards balance 49% they were to be
offered to the existing members and if the existing
members did not subscribe then to persons as the
Committee deem fit. In this context, if we refer to the
requisition note which is at Annexure "B" to the
petition, read with para 6.5 thereof and also at Annexure
"D" to the Company Petition No. 7/92 (Volume 10 at page
81), it would appear that there are figures written
therein showing the requisitions received till that day
from the members mentioned therein. As per the
particulars mentioned in it, the Chairman i.e. Shrimant
Fatehsinhrao P. Gaekwad, had requisitioned 8,000 shares,
Maharani of Dhar (i.e. respondent No.12) 500 shares,
Princes Shubangini Raje 25 shares and the respondent No.1
Shri Sangramsinh Gaekwad had requisitioned 6475 shares.
There is an endorsement in the margin of these
requisitions that the Chairman had okayed this. There is
another endorsement below the type-written portion which
reads: "Minutes of Committee meeting on this basis" and
is signed by Shri N.K.K. Mohammed, Secretary to the
respondent No.1 Shri Sangransinh Gaekwad with the date
23.3.1988. The said date below the endorsement i.e.
23.3.1988 is not shown as the date of any family meeting
but the date on which the endorsement was put stating
that the minutes be prepared on that basis. Since the
endorsement appears the date 23.3.1988 for preparing the
minutes, the draft minutes which was forwarded on
29.3.1988 would have been prepared on the basis thereof.
However, in the draft minutes the words "and others" were
added alongside the name of the respondent No.1 which
were not there in the said note of requisition which was
said to have been approved by the Chairman. In the
notarised copy of the minutes of the meeting of the
Managing Committee held on 21.3.1988, signed by the
respondent No.1 as Chairman, there was no mentioned
therein of Shrimant Fatehsinhrao Gaekwad even being
present at that meeting. Only the respondent No.1 and
Mr. P.H. Shinoy were shown as present. Therefore, the
story of 6475 shares being requisitioned by the
respondent No.1 and allotted to him which is reflected
from the note of requisitions which bears the endorsement
made by the Secretary of the respondent No.1 on 23.3.1988
to the effect that the minutes of the Committee meeting
be prepared on this basis and that the Chairman of the
meeting (i.e. the respondent No.1) had okayed this, has
clearly emanated for the first time from the respondent
No.1 through his Secretary who caused the draft minutes
being prepared on the basis of that note. Therefore,
while in the final minutes of the meeting on 21.3.1988
there was no decision recorded for allotting any shares
to the respondent No.1 or that shares will be allotted in
the names as stated in any such requisition note, it
appears that by sending the requisition note with a
direction issued by an endorsement made thereon by his
Secretary at his own instance the respondent No.1 got the
minutes prepared by the Company Secretary Mr. Khade,
which were forwarded under a note (Annexure "C" to the
petition) to Mr. N.K.K.Mohammed, Secretary of the
respondent No.1 on 29.3.1988 by the Company Secretary, as
can be seen therefrom. This course was not open to the
respondent No.1 on the basis of the decision taken at the
meeting of 21.3.1988, as recorded in the minutes of that
meeting (Annexure A/2 to the petition), which were signed
by the respondent No.1 as its Chairman.
13.4 The minutes book of the Managing Committee
according to the affidavit of the Company Secretary Mr.
Khade, was forwarded by him to Mr. N.K.K. Mohammed on
20.11.1990 (paragraph 9 of the affidavit) alongwith the
minutes books of the general meetings and the meetings of
the Board of Directors. He has stated that they were
delivered to Mr. N.K.K. Mohammed through a personal
messenger and Shri N.K.K.Mohammed, "received the same and
okayed having been received by putting in his own
hand-writing the words "O.K" on the carbon copy of my
said letter dated 20.11.1990." He has produced a
photocopy thereof. Not being aware of the fact that a
xerox copies of the minutes of the meeting held on
21.3.1988 and 10.12.1988 bearing his signatures as
Chairman will be produced, the basis of allotment was
tried to be worked out in the manner reflected in the
requisition note okayed by him and forwarded to the
Company Secretary by his Secretary for preparing minutes
and on the basis of which the draft minutes were prepared
and forwarded to his Secretary on 29.3.1988, the
respondent No.1 seems to have taken up a convenient stand
that the minutes book of the meetings of the Managing
Committee was not received from Mr. Khade. Merely
because the minutes books were sent under a letter dated
20.11.1990 to the Secretary of the respondent No.1 at
Bombay, it can not be inferred that they remained at
Bombay and were not available at the registered office of
the company at Baroda when the notarised xerox copies
thereof were taken on 10.12.1990. In fact, these minutes
of 10.12.1988 have been admitted by the respondent No.1
in his affidavit-in-reply filed on 11.4.1992 in the
Company Petition No. 7/92 as noted hereinabove and
therefore, the stand taken up in para 14 of his
sur-rejoinder by the respondent No.1 that the minute book
of the Managing Committee meetings was lying at Bombay
and its copy could not have been taken out on 10.12.1988
is insignificant and misleading. The averments contained
in paragraph 11 of the affidavit-in-rejoinder of the
petitioner No.1 that she had alongwith her daughter
inspected on 10.12.1990 the Register of members, Register
of transfer, Minute Books of the Board of Directors and
the Minutes Book of the Committee meetings and saw the
minutes dated 21.3.1988 and 10.12.1988 which were under
the signature of respondent No.1 as stated by her and
obtained xerox copies thereof from the Director Shri P.U.
Rana which were verified by Shri M.C. Vaidya after
comparing the same with the original and certified by him
as true copies, is a version which deserves to be
accepted in view of the notarised copies not only of
these minutes but also of the register of members and
other documents duly notarised on 10.12.1990 having been
produced on the record of this petition. It is clear
that on that day all these registers and minute books
including the minutes book of the Managing Committee were
lying in the Registered office of the company at Baroda
even though they may have been sent earlier to the
Secretary of the respondent No.1 on 20.11.1990. The
Director of the company Mr. P.U. Rana in his affidavit
produced at Annexure "5" collectively with the rejoinder
of the petitioner No.1 has stated in paragraph 2 that he
did allow the peitioner No.1 who was a senior-most member
of the Royal family to inspect the Register of members,
the Register of transfers, the minutes book of the
meetings of the Board of Directors of the respondent No.6
company, and the minutes book of different committee
meetings on 10.12.1990. He also states that he had got
the required documents xeroxed and called the notary Shri
M.C. Vaidya to the registered office of respondent No.6
company at Indumati Mahal, Baroda, who after comparing
the xerox copies with the originals certified the xerox
copies to be true copies. Amongst the certified copies
thus given by him to the petitioner No.1 were copies of
the Register of minutes, Register of transfers, the last
minutes in the minutes book of the meeting of the Board
of Directors held on 30.3.1990 and Minutes of the
Committee meetings dated 21st March, 1988 and 10th
December, 1988. It is thus, clear that the minutes book
of the Committee meeting was amongst other minute books
and registers at the company's office on 10.12.1990 and
the certified copies thereof which have been produced on
the record were obtained by the petitioner No.1 on that
day.
13.5 The allotment of 51% of the new shares to
Shrimant Fatehsinhrao Gaekwad firmly reflects from the
minutes of 21.3.1988 and there was no reference therein
or even in the minutes of 10.12.1988 about any decision
to issue any shares to the respondent No.1. That
decision has emerged in the requisition note on which the
Secretary of respondent No.1 made endorsement for
preparing minutes on 23.3.1988, at the instance of the
Chairman who had okayed it. That Chairman was none other
than the respondent No.1 who had signed the minutes of
21.3.1988. On the basis of that requisition note the
draft minutes were made to show as if it was decided to
give 6475 shares to the respondent No.1 and others while
in fact no such decision was recorded in the minutes of
the meeting of the Managing Committee of 21st March, 1988
or of 10th December, 1988 in which that decision of
21.3.1988 was referred and which were signed by the
respondent No.1. Since admittedly the Managing Committee
consisted of three Directors i.e. Shrimant Fatehsinhrao
P. Gaekwad, the respondent No.1 Shri Sangramsinh Gaekwad
and Shri P.H. Chinoy, the endorsement in the requisition
note was capable of being construed to mean that Shrimant
Fatehsinhrao P. Gaekwad had okayed the allotment as
Chairman. Only the respondent No.1 was interested in
bringing about such a situation on record because
Shrimant Fatehsinhrao P. Gaekwad's allotment of 51%
share was firmly mentioned as reflected in the minutes of
21.3.1988 and that would have gone to his heir on his
demise. Thus, though there was no decision for allotment
of 6475 shares to respondent No.1 as per the minutes of
the meeting of the Managing Committee dated 21.3.1988
signed as Chairman by him, the respondent No.1 who was
the director of the company brought about the allotment
of such shares to himself and his family members, which
were later transferred by the respondents Nos. 1 to 5 to
Indreni. Such issuance of shares coupled with blocking
of 51% equity shares from devolving on the sole heir of
Shrimant Fatehsinhrao P. Gaekwad was obviously intended
by the respondent No.1 to enhance his power and position
by allotting shares to himself and his family members.
The exercise was obviously intended for destroying the
existing majority and creating a new majority of his
group. The transfer of the new shares in the Register
and issuance of share certificates in favour of the
respondents Nos. 1 to 5 was clearly not warranted by any
valid decision of the Managing Committee or the Board of
Directors.
13.6 Self-interest is the commonest instance of
improper motive leading to abuse of power. Where the
question is one of abuse of powers the state of mind of
those who exercised power as reflected from the
surrounding circumstances and the materials which throw
light upon that aspect so as to show whether they were
honestly acting in discharge of the powers in the
interest of the company or were acting for their own
advantage of improperly favouring themselves or one
section of the share-holders against another is to be
examined. Where directors have acted in what they
believe to be an interest which they were entitled to
serve, their exercise of power can only be set aside, if
it be found that the interest they were serving was an
inadmissible or corrupting interest, such as
self-interest. The power to issue shares being of
fiduciary nature its exercise can be set aside when it is
exceeded or abused. There can be no dispute over the
proposition that a majority share-holders cannot control
the Directors as to the exercise of their fiduciary
powers. The Directors of a company, however, cannot use
their fiduciary powers over the shares of a company for
the purpose of destroying an existing majority. The
purpose of altering the balance of voting power is never
permissible. If the purpose of issuing shares was solely
to alter the voting power, the issue would be invalid.
The directors cannot manipulate the issue of shares for
private purposes, or merely to secure voting power. A
power of the directors to issue shares must be exercised
for the benefit of the company because primarily it is
given to them for the purpose of enabling them to raise
capital when required for the purpose of the company.
There may be occasions when the directors may fairly and
properly issue shares in case of a company. However,
when shares are issued to persons who are obviously meant
and intended to secure necessary statutory majority that
will not be a fair and bonafide exercise of power. If
the shares are issued under the general and fiduciary
powers of the directors for the express purpose of
acquiring an unfair majority for the purpose of altering
the rights of parties under the Articles, the Court ought
to interfere because it would be unconstitutional for the
Directors to use their fiduciary powers over the shares
in the company purely for the purpose of destroying an
existing majority, or creating a new majority. If there
is added to this immediate purpose an ulterior motive to
enable an offer for shares to proceed which the existing
majority was in a position to block, the departure from
the legitimate use of the fiduciary power will be
considered to be greater. This precisely was done by the
respondents Nos. 1 and 2 who were the Directors of the
company for their self-aggrandisement and in breach of
their fiduciary duty to the company and the shareholders.
14. In the meeting held on 27.12.1989, the respondent
No.1 who chaired it and the other director Mr. P.H.
Chinoy took some interesting decisions as reflected from
the minutes. The Chairman "informed" in the meeting
where these two alone were present that it was necessary
to expand the Board by appointing additional Directors
"so that the company can get the benefit of their
guidance and experience". The Chairman i.e. the
respondent No.1 was authorised to invite his wife - the
respondent No.2 Mrs Ashra Raje, Mr. Dilipbhai Thakker,
Mr. Bhupat Singhji Jadeja and Capt. V.K. Raichand to
join the Board as Directors. These minutes also indicate
that the Board approved the transfer of shares by the
respondent Nos. 1, 2 and their son P.S. Gaekwad. There
is an indication that no objections were received from
the share-holders in response to transfer notices but no
particulars regarding the nature of transfer or number of
shares or the transferee were mentioned.
14.1 In the meeting of the Board held on 30.3.1990 the
Respondent No.1, Mr. P.H. Chinoy and the above four
newly invited directors were present and they
participated. The other four directors remained absent.
The respondent No.1 took the Chair and informed the Board
that the company's day-to-day management hither to was
looked after by the Managing Committee of Directors, and
that, with the appointment of the new Directors on the
Board, it was proposed that the day-to-day management
could be vested in one of the Directors. The minutes
record that the matter was discussed and it was proposed
that the respondent No.2 Mrs. Ashra Raje be appointed as
the Executive Director of the company. The Board
resolved that the Managing Committee of the Directors of
the company be dissolved forthwith i.e. with effect from
30.3.1990 and that Mrs. Ashra Raje, the respondent No.2
be appointed as the Executive Director of the company
with effect from 1.4.1990 with powers: (a) to look after
the day-to-day management of the company and to exercise
such powers from time to time as may be required, (b) to
buy and make investments on behalf of the company in
shares/securities of other companies and in immovable
properties upto Rs. 50 lakhs in a financial year, (c) to
sell and disinvest shares/securities of other companies
held in the name of the company and immovable properties
of the value of Rs. 50 lakhs in a financial year, and,
(d) to do all that was necessary for conducting exports
business of the company as a merchant exporter in the
interest of the company. Such transactions and business
were to be placed before the Board for ratification. The
Chairman placed before the Board the documents received
for transmission of shares from the name of late Shrimant
Fatehsinhrao P. Gaekwad to the name of his mother Smt.
Shantadevi Gaekwad and it was resolved that 23 equity
shares of the company standing in the name of Shrimant
Fatehsinhrao Gaekwad be transmitted to the name of Smt.
Shantadevi Gaekwad. Even here it was not mentioned that
the entitlement of Shrimant Fatehsinhrao Gaekwad to 8,000
shares was not available to her because he had renounced
the shares in favour of the respondent No.1 and his
children. The Board then took a decision on the basis of
the transfer documents placed before the meeting by the
respondent No.1 and resolved that the transfer of 9415
equity shares of the company be approved. By this
resolution the transfers of, 1495 shares of respondent
No.2 - Smt Asha Raje, of 2740 shares of the respondent
No.4 Mr. Pratapsinh, 1975 shares of the respondent No.1
Shri Sangramsinh Gaekwad, 1465 shares of his HUF and 1740
shares of his daughter the respondent No.5 Priyadarshini
were approved and necessary entries in the transfer
register and issuance of certificates was authorised to
be made by the respondent No.2 - the Executive Director.
These 9415 shares were transferred to a company named
Indreni Holdings Pvt.Ltd., (Indreni for short) by the
respondents Nos. 1 to 5.
14.2 The minutes of the meeting held on 30.3.1990 are
said to have been confirmed at the meeting held on
29.6.1990. At that meeting it was resolved to remove the
name of the respondent No.1 as the guardian of Pratapsinh
who had become major. It was resolved to maintain a new
share transfer register as directed by the Chairman on
the ground that the share transfer register of the
company was not traceable at the company's office. It
was further resolved to approve purchase of 4,000 equity
shares of the Baroda Rayon Corporation Ltd. by the
company. The meeting of the Board held on 13.7.1990, as
per the minutes, took decisions on important financial
transactions and fixed the remuneration of the Executive
Director to be paid with effect from 1.4.1990. It was
also resolved that the transfer of 9415 equity shares in
favour of Indreni Holdings Pvt.Ltd. be reconsidered and
the matter be referred to transferors. It was decided to
pay the dividend to Indreni Holdings Pvt.Ltd. and
subject to its refunding the same to the transferees "in
the event the same being found irregular". The Board
took a serious view of the Alaukik Trading & Investments
Pvt.Ltd. having issued further shares without informing
the company, which held more than 80% shares of Alaukik &
decided to seek legal opinion. The Alaukik Trading &
Investments Pvt.Ltd. had informed by letter dated
17.5.1990 that it had ceased to be the subsidiary of this
company. In the minutes of the meeting of the Board
meeting allegedly held on 9th August, 1990, relied upon
by the respondents Nos. 1 to 5, the Board had resolved
to rescind the transfer of shares and permit revocation
of transfer notice and rescinded the resolution dated
30.3.1990 by which transfer of 9415 equity shares had
been approved in favour of Indreni. The respondent No.2
Executive Director was authorised to make the required
endorsements in the register and on the share
certificates and the transferors and transferees were
permitted to cancel the transfer.
15. The case of the respondent No.1 in para 6(9) of
his affidavit-in-reply was that before it was decided by
the respondents Nos. 1 to 5 to transfer the shares to
Indreni, Mr. Khade the Company Secretary was told to
inform the existing share-holders about it. It was
stated that though he prepared a letter dated 15.11.1989
to all the share-holders as per copy at Annexure "17" to
the reply, he did not deliver these letters to any one of
them and on the contrary he falsely informed them that
there was no response to the proposed transfer. In the
minutes of the meeting of Board of Directors held on
27.12.1989, there is reference to a report from the
Secretary of the company about the procedure followed in
response to the transfer notice received from the
share-holders of the company but no such report is
forthcoming. Mr. Khade who was the Company Secretary
has stated in his affidavit at Annexure "5" collectively
to the rejoinder of the petitioner No.1 that there was no
talk about transfer of shares to Indreni in the Board
meeting of 13.7.1990 and that there was no Board meeting
held on 9.8.1990. He states that he had taken the minute
book of the Board meetings to the auditors in or about
October/November, 1990 and till that time the last
minutes written were of the Board meeting held on
3.3.1990 and that no minutes were written in the minutes
book of the Board meetings after 30.3.1990 till he went
on leave on or about 5.12.1990. He has categorically
denied that there was any talk about transfer notices to
the share-holders on 13.7.1990. He has denied the
allegation of wilful default made by the respondent No.1
against him and has stated in para 7 of his affidavit
that the minutes as now produced were neither true nor
correct. He also states that he was present in the
meeting of the Board of Directors held on 29.6.1990 and
there was no mention about the transfer register being
not traceable or about maintaining a new transfer
register. He states in para 9 of his affidavit that he
had sent the minute books of the General Meetings, Board
Meetings and Committee Meetings under the forwarding
letter dated 20.11.1990 to Mr. M.K.K.Mohammed, the
Secretary of the respondent No.1 and they were delivered
to him through a personal messenger which he acknowledged
on the copy by endorsing "OK".
15.1 Before the shares were transferred to Indreni, it
was incumbent upon the transferor to give a transfer
notice to the company as required by Clause 8 of the
Articles of Association. Admittedly, no such transfer
notice was given in respect of 9415 shares to the company
by the respondent Nos. 1 to 5. Therefore, the transfer
in favour of Indreni by them which was effected at the
behest of the respondents Nos. 1, 2 and their group at
the meeting of 30.3.1990 in breach of the Articles of
Association and ignoring the rights of other members to
be offered by the company shares specified in a transfer
notice as nearly as may be in proposition to their
existing shares, as envisaged by Clause 13 of the
Articles of Association. The transfer notice under
Clause 8 of the Articles of Association was required to
be given by the respondents Nos. 1 to 5 in writing and
in absence of such transfer notice there could have
arisen no question of the Company Secretary sending offer
letter in respect of shares to the members. Therefore,
the story put up by the respondent No.1 that the Company
Secretary Mr. Khade was told to inform the share-holders
as per the Articles of Association and that eventhough he
prepared the letter dated 15.11.1989 (Annexure "D"), he
did not deliver it to any of the members, does not
inspire confidence. In any event, the fact remains that
no transfer notice was given to the company by the
respondents Nos. 1 to 5 and the members also did not
receive any intimation before 9415 shares were
transferred to Indreni. The transfer documents were
executed in favour of Indreni by the respondents Nos. 1
to 5 and the transfers were duly recorded in the Register
of members. Therefore, if these transactions had to be
undone, that could be done only by Indreni resolving to
retransfer the shares to respondents Nos. 1 to 5 by
executing appropriate retransfer documents. It is
abundantly clear that the title in 9415 shares that had
passed on to Indreni was not conveyed back in this
manner. Such retransfer would again have required
transfer notice as per Clause 8 of the Articles of
Association, because, Indreni's name had already been
entered in the Register of members and the other members
again had preemption right if Indreni were to transfer
the shares back. All these hurdles were conveniently
crossed by resorting to the device of so-called
rescission retrospectively recorded in the minutes of
9.8.1990 which is not borne out from the entries in the
Register of members even upto 10.12.1990 as is clear from
the certified copies taken out on that day of the
register of members. Even if Indreni was a company
controlled by the respondent No.1 and his family, in the
eye of law it was a separate legal entity and not an
existing member of the respondent No.6 company to whom
the shares could have been transferred or by whom they
could have retransferred back without a transfer notice.
Therefore, transfer of shares to Indreni by the
respondents Nos. 1 to 5 was not a transfer to a member.
Such a transfer was therefore, clearly impermissible and
in violation of the transfer rules contained in the
Articles of Association. This aspect has significance in
the present case not from the view point as to who is the
owner of these 9415 shares i.e. respondents Nos. 1 to 5
or Indreni but it has a great bearing on the conduct of
the respondents Nos. 1 to 5 and shows that the
provisions of Articles of Association were being violated
by them with impunity and that the Directors respondents
Nos. 1 and 2 committed breach of their fiduciary duty
towards the company by keeping their self-interest
paramount.
15.2 As per the minutes of the meeting of Board of
Directors held on 10.12.1990, and presided over by the
respondent No.2 it was resolved to approve the minutes of
9.8.1990 which she signed. It is however, not mentioned
in the minutes whether the respondent No.2 who was
authorised under those minutes had made entries in the
Register of members to show that 9415 shares were
transferred back from the name of Indreni to the names of
respondents Nos. 1 to 5. On this very day the Civil
Court had issued injunction against Indreni and
inspection of the Register of members was taken and the
notary public attested a copy of the register of members
in which the shares stood in the name of Indreni and were
not transferred back to respondents Nos. 1 to 5. Had
the shares really been so transferred back the
respondents Nos. 1 and 2, who were at the helm of
affairs, would have carried out the change in the
Register of members which was in their charge. It
appears from these minutes that the respondent No.1 Shri
S.P. Gaekwad and Dr. G.M. Oza were to retire by
rotation. The additional directors who were invited by
the respondents Nos. 1 and 2 as aforesaid i.e. Capt.
V.K. Raichand, Shri Dilip Thakkar, Shri B. Jadeja and
the respondent No.2 Smt. Asha Raje were to hold office
only till the conclusion of the ensuing Annual General
Meeting. The matter of their reappointment was therefore
approved at this meeting and it was resolved to convene
the Annual General Meeting on 20.12.1990 and a draft
notice was approved for the purpose. The Executive
Director - respondent No.2 was authorised to invite Shri
Rajan Chhabaria and Mrs. Estelle Cowarjee as directors
of the company.
15.3 In the affidavit-in-reply of the respondent No.1
filed in Company Petition No. 7 of 1992 before the
Company Law Board, in paragraph 9 (s) and (y), it was
alleged that Mr. Khade was asked to make entries in the
register of members since it was only a clerical job but
Mr. Khade did not record recission of transfer in the
register which took place on 9.8.1990, while in the
minutes of the meeting said to have been held on
9.8.1990, it is recorded that it was resolved to
authorise the executive director i.e. the respondent
No.2, to make the required endorsements in the Register
of members and the share certificates for this purpose on
behalf of the company. There was no mention made in the
minutes about any instruction to Mr. Khade to make any
entries in the register. The version of Mr. Khade is
that no such meeting was held on 9.8.1990 and the true
copies of register shows that when it was inspected on
10.12.1990, there were no entries of recission made
therein and the shares which were transferred in favour
of Indreni by the respondents Nos. 1 to 5 stood in the
name of that company which was also paid dividend. In
paragraph 9 (y) of the affidavit-in-reply of the
respondent No.1 in Company Petition No. 7 of 1992, it
was stated that the register of the members was rectified
with retrospective effect from 9.8.1990 before the Annual
General Meeting of 20.12.1990. There is however, no
mention of any such retrospective amendment of the
register even in the minutes of the Board meeting said to
have been held on 10.12.1990, in which the minutes of the
previous alleged meeting of 9.8.1990 were confirmed. It
will be significant to note that though it was recorded
in the minutes of the meeting held on 9.8.1990 that leave
of absence was granted to the directors Shri P.U.Rana,
Shri H.A. Shinde and Shri S.G. Shirke pursuant to
requests made on their behalf, Shri P.U. Rana, Shri H.A.
Shinde and Shri S.G. Shirke had in their affidavits at
Annexure "5" collectively and Annexure "11" to the
rejoinder of the petitioner No.1, categorically stated
that they had not received any notice of the meeting of
the Board of Directors scheduled to be held on 9.8.1990
and that they had not sent any letter for granting leave
of absence to them. The respondent No.1 in paras 89, 99
and 101 of his sur-rejoinder has vaguely dealt with these
averments and not come out with any material to show that
Shri P.U.Rana, Shri H.A.Shinde and Shri S.G. Shirke were
served with any notice of that meeting or that they had
sought leave of absence as alleged. The true copies
certified by the notary on 10.12.1990 which are on record
clearly show that on 10.12.1990, no such decision in
respect of 9415 shares which would have them restored in
the names of the respondents Nos. 1 to 5 was recorded
which now appears in the original register of the members
shown to the Court by the learned Counsel for the
respondents Nos. 1 to 5. It therefore becomes clear
that the shares which were transferred under the transfer
documents to Indreni by the respondents Nos. 1 to 5 as
approved by the Board meeting on 30.3.1990 remained in
the name of Indreni, which was controlled by the
respondent No.1 and his family and to which "for wealth
tax purposes" 9415 shares were transferred as stated in
his affidavit in reply (paragraph 9[m]) filed by the
respondent No.1 in the Company Petition No. 7 of 1992.
It is in this background that the proceedings of the
Annual General Meeting of 20.12.1990 are to be viewed.
15.4 Indreni was admittedly restrained by an
injunction order dated 12.12.1990 of the Civil Judge
(Senior Division), Baroda, made in Civil Suit No. 867 of
1990 filed by Smt. Shubanginidevi Raje, from attending
meeting of GIC or exercising any rights in respect of
9415 equity shares. Similar injunction orders dated
28.11.1990 was served in respect of these shares on the
defendants of Suit No. 305/1990 filed by the
share-holder Smt. Premila Raje at Rajkot. Thus, the net
position which obtained just prior to the Annual General
Meeting of 20.12.1990 was that 9415 shares continued to
be held by Indreni in the Register of the company and
that there were Court injunctions preventing exercise of
voting rights in respect of 9415 shares transferred to
that company by the respondents Nos. 1 to 5. It is
obvious from the facts on the record that the story of
recission on 9.8.1990 is thought out with a view to meet
with this situation which had reduced the voting power of
the respondents Nos. 1 to 5 to only 66 shares at the
Annual General Meeting scheduled to be held on
20.12.1990.
16. It will be seen from the minutes of the Annual
General Meeting convened on 20th December, 1990 that the
petitioner Nos. 1, 4, 5 and their supporting respondents
Nos. 12 and 13 were present at the meeting with Mr.
Ajit Gaekwad. Two of the directors Shri P.U.Rana and
Shri H.A. Shinde, who according to the respondent No.1
supported them were also present. The proxy holders of
other members supporting that group were allowed to
exercise their rights as stated in the minutes. The
opposition against the resolutions for electing
respondent No.1 Shri Sangramsinh Gaekwad as the Director,
proposed by the respondent No.2 Smt. Asha Raje and
seconded by their son (Resolution No. 3), Shri P.S.
Gaekwad, for electing Dr. G.M.Oza as a Director
(Resolution No.4), for electing respondent No.2 Asha Raje
as Director (Resolution No.5), for electing Dilip
Thakkar, Shri Bhupatsinh Jadeja and Shri V.K. Raichand
as Directors (Resolution Nos. 6, 7 & 8) as proposed by
the respondent No.2 were all opposed by Shri Ajitsinh
Gaekwad who spoke on behalf of his group as recorded in
the minutes. The resolution seeking confirmation of the
respondent No.2 as the Executive Director was also
opposed by that group. The proceedings thereafter as
recorded in the minutes make a curious reading. As per
the minutes, ballots were distributed amongst
share-holders and the proxies present, who were required
to exercise their vote on Resolutions Nos. 3 to 10. The
ballot box was shown to them to indicate that it was
empty. It was noticed that the majority of persons
present had not cast their vote by ballot. After the
process of voting came to an end, Shri Ajitsinh Gaekwad
and Shri Bipin Shah were requested to compile the report
on the poll and bring the poll result to the Chairman.
Shri Bipin Shah reported to the Chairman that Shri
Ajitsinh Gaekwad refused to sign the poll register to
witness his consent as a scrutiniser on the polling.
Thereafter, the Chairman substituted Shri P.S. Gaekwad
as the second scrutiniser. Thereafter, Mr. Bipin Shah
and Mr. P.S Gaekwad submitted a report on the poll to
the Chairman who declared the result and stated that
resolutions Nos. 3 to 10 were passed without any
opposition "as share-holders holding 9481 equity shares
had cast their votes in favour and none against". This
outcome recorded in the minutes does not stand to reason.
The opposition to these resolutions was itemwise
expressed by Shri Ajitsinh Gaekwad for his group as
recorded in the minutes and there was no reason why the
same group should shy away from the same view being
expressed by them and their proxies in the ballots which
were distributed to them. In the minutes it is stated
that the ballots were distributed to the share-holders
and proxies who were present. If the group had decided
not to vote by ballot that fact would have been recorded
in the minutes. No opposition to voting by ballot was
recorded in the minutes. Moreover, as recorded in the
minutes "after the process of voting came to an end the
scrutiniser were requested to compile the report on
poll". This means the group of which Shri Ajitsinh
Gaekwad was the spokesman had not walked away before the
poll and they were in fact present. It is therefore
impossible to believe that his group that had
meticulously opposed the resolutions Nos. 3 to 10 and
whose members had accepted the ballot papers would, for
no apparent reason, refrain from voting so as to bring
about a resounding victory for the respondents' group by
enabling that group to get the resolutions passed without
any opposition. The affidavits of the directors and
share-holders who were present at that meeting state that
they had all voted at the meeting and the resolution Nos.
3 to 10 were defeated by 1122 to 66 votes. The minutes
however, record that share-holders holding 9481 equity
shares had cast their votes in favour and none against
which is obviously wrong. This means that despite the
Court injunctions preventing participation in respect of
9415 shares which stood in the name of Indreni, there was
a purported exercise of votes in respect of that
share-holding also. The entire exercise reflected from
these minutes smacks of a desperate attempt on the part
of the respondents Nos. 1 to 5 to tilt the power in
their favour in total disregard of the fiduciary nature
of the directors powers and to serve their self-interest.
16.1 The minutes of the Annual General Meeting dated
20th December, 1990 record on agenda item No.4 that a
resolution was proposed for reappointing Dr. G.M.Oza as
a director and that it was opposed and therefore the
respondent No.1 as Chairman directed that that resolution
also be put to vote. It is recorded in the minutes that
even this resolution was passed without any opposition.
This is obviously wrong, because, Dr. G.M. Oza had by
his letter dated 17.12.1990 informed the company that he
had not offered himself for reelection nor did he wish to
be reelected as a director of the company. Dr. Oza had
affirmed in his letter dated 1.3.1991 at Annexure "D"
collectively to the sur-rejoinder of the respondent No.1,
in reply to the letter dated 28.2.1991 of the respondent
No.2 that he had left the original letter of 17.12.1990
and copies addressed to other directors (also at annexure
"E" to the petition) on the table of the Secretary Mr.
M.N. Khade at the office of the company and that he had
no intention to be reelected as a Director. Mr. P.U.
Rana has in his affidavit at Annexure "5" collectively to
the rejoinder of petitioner No.1, stated that the events
took place as narrated in his letter of 30.1.1990 at
Annexure "N" to the petition. In that letter it was
stated that it was pointed out by Shri Ajitsinh Gaekwad
at the meeting that Dr. Oza had informed him that he had
already written to the company and its directors that he
did not want to be reappointed as a director of the
company and several Directors present had confirmed
having received the said letter from Dr. Oza and that
therefore that item was dropped. It was stated that the
voting took place by ballot separately but simultaneously
on each item of the agenda and that he and Shri Ajitsinh
were appointed as scrutiniser. The fact that though Dr.
Oza had written on 17.12.1990 that he did not offer
himself as Director there is stated in the minutes that
the resolution proposing him was passed without
opposition exposes the falsity of the minutes of the
Annual General Meeting held on 20.12.1990.
16.2 According to the version of Shri P.U Rana as
reflected in his letter dated 30.1.1991, which gains
support for the affidavits of the share-holders at
Annexure "5 collectively" to the rejoinder of the
petitioner No.1, when the voting was completed, while
counting the number of votes each member/proxy holder was
entitled to, the register of members was taken out from
the cupboard and the number of shares standing against
each member's name who were present personally or by
proxy were taken to be the number of his votes, the
particulars of which are mentioned therein. It was
stated that all the resolutions put to vote, except the
resolution in respect of re-appointment of Dr.Oza, which
was dropped, were defeated by a majority of 1122 votes.
It was further stated that on finding that all these
resolutions including re-appointment of various Directors
including the respondents Nos. 1 and 2 were defeated by
majority, the respondent No.1 took in his possession the
register of members, proxy register, the appeal papers,
proxy forms, attendance register etc. and threatened
others of dire consequences, if he was prevented. It was
also stated by Shri P.U. Rana in that letter that he had
done nothing wrong in supplying copies of various
documents to the share-holders. This letter dated
30.1.1991 was preceded by special notice dated 5.1.1991
convening the Extra-ordinary General Meeting of 14.1.1991
for removal of Mr. P.U. Rana and Mr. H.A.Shinde.
16.3 In the meeting of the Board of Directors held on
5.1.1991, as per the minutes, the respondent No.4
Pratapsinh's notice of his intention to move a resolution
in the General Meeting for removing the two directors Mr.
P.U. Rana and Mr. H.A. Shinde was also considered. At
that meeting it was resolved that the respondent No.1
Shri Sangramsinh Gaekwad be made a permanent director of
the company and its permanent Chairman, subject to the
approval by the share-holders and to the compliance of
the provisions of the Companies Act. It was also
resolved to give consent to the shifting of the
registered office of the company to Surat from Baroda and
the Executive Director was authorised to take necessary
action for shifting the office records and gave
intimation to the Registrar of Companies. It was also
resolved, subject to the approval of the share-holders
and compliance of the Companies Act, to consent to the
alteration to Article 14 of the Articles of Association
of the Company as formulated. As per the alteration so
formulated it was provided therein for transfer of share
by a member to a company incorporated under the Companies
Act, provided such company continued to be owned managed
and controlled by the existing member of the company. It
would be recalled here that the respondent No.1 to 5's
transfer of 9415 equity shares in favour of Indreni which
was controlled by them had boomranged and their holding
stood reduced to 66 shares in face of the challenge
against the voting rights of Indreni company to whom the
shares were transferred by them, which transfer on a
legal opinion obtained by them was tried to be retracted
by the respondents Nos. 1 to 5. The alteration
formulated in Article 14 of the Articles of Association
was therefore obviously an exercise in the interest of
the group of the respondents Nos. 1 to 5 that had
attempted such transfer to a non-member company and does
not appear to have been done in the larger interest of
the respondent No.6 company. It was further resolved in
view of the Board deciding to remove the two Directors
Mr. P.U. Rana and Mr. H.A.Shinde, to change the Bank
accounts, operating instructions by authorising
respondents Nos. 1 and 2 to operate the Banking accounts
of the company. It was also resolved to give consent to
the removal of Shri P.U. Rana and Smt. Mrunalinidevi
Puar as Directors of Alaukik Tradings and to appoint Shri
Rohit Amin and Shri S.P. Gaekwad in their place.
16.4 On the basis of the meeting of the Board of
Directors held on 5.1.1991, notice dated 5.1.1991 for
convening the Extra-ordinary General Meeting on 14.1.1991
was issued which proposed the resolutions for (1)
appointment of respondent No.1 Shri Sangransinh Gaekwad
as a permanent Director and Chairman of the company, (2)
shifting the Registered office of the company from Baroda
to Surat, (3) amending Article 14 of the Articles of
Association to enable a member of the company to transfer
any share to a company owned, managed and controlled by
the existing member of the company or by himself together
with members of his family, (4) removal of Shri P.U.
Rana as a Director of the company and (5) removal of Shri
H.A. Shinde as a Director of the company. At the said
Extra-ordinary General Meeting held on 14.1.1991, the
respondent No.1 was the Chairman and the Executive
Director as well as other Directors Shri Bhupatsinh
Jadeja, Shri P.H. Chinoy, Shri Dilip Thakkar were
present. Respondent No.4 Shri P.S. Gaekwad was also
present. No other member was present. At that meeting,
as per its minutes, all the above resolutions were
passed. This Extra-ordinary General Meeting was convened
on 14.1.1991 by notice dated 5.1.1991 without giving a
clear fourteen days notice.
17. It will thus be seen from the above discussion
that the respondent No.1 and his group adopted the
following calculated course of conduct to achieve their
personal interest:-
(i) The respondent No.1 abusing his position as a
director converted his group into a majority by
allotting 9475 shares (6475 + 3000) to himself
and his family members respondents Nos. 2 to 5
without there being any valid decision to that
effect by the Managing Committee or the Board of
Directors;
(ii) Though the allotments of new shares were not made
to the respondents Nos. 1 to 5, their names were
entered in the Register of members prior to
10.12.1988 in respect of 9475 shares;
(iii) Allotment of shares were made in favour of
non-members i.e. the HUF of the respondent No.1
- 1475 shares, his minor son (2750 shares), his
minor daughter Priyadarshini (1750 shares), which
was not permissible under the Articles of
Association of the company or any Resolutions of
the Annual General Meeting of 17.12.1987 or the
Board of Directors on 8.1.1988;
(iv) Allotments were made beyond 10.3.1988 which was
the last date for receiving requisitions as per
the letter of 12.2.1988 endorsed at the Board
meeting of 13.2.1988 though there was no
extension given by the Board or even by the
Managing Committee;
(v) Eventhough no renunciation or decline letter was
addressed by Shrimant Fatehsinhrao Gaekwad in
favour of respondents Nos. 1, 4 and 5, 3000
shares were appropriated on that footing by the
respondent No.1 by allotting them to his minor
children the respondents Nos. 4 and 5;
(vi) The Managing Committee was removed with immediate
effect from 30.3.1990 and the respondent No. 2
Smt Asharaje, wife of the respodent No.1 was made
Executive Director to exercise all the powers of
the Managing Committee;
(vii) Transfer of 9415 shares by the respondents Nos.
1 to 5 was sanctioned at the behest of the
respondents Nos. 1 and 2 in favour of a
non-member company Indreni without issuing
transfer notice and its name was entered in the
Register as member contrary to the Articles of
Association;
(viii) Though the name of Indreni continued in the
Register of members even on 10.12.1990, as per
the notarised copies of the Register folios, and
shares were not retransferred to the respondents
Nos. 1 to 5, minutes of a meeting alleged to
have taken place on 9.,8.1990 were manipulated by
the respondents Nos. 1 and 2 and their group to
show as if those shares were transferred back to
respondents Nos. 1 to 5 though no such transfer
notice was given as per the Articles of
Association nor was it recorded in the Register;
(ix) The right of preemption guaranteed by the
Articles of Association to the share-holders was
thrown to winds by the group of respondents Nos.
1 to 5 and they effected transfers to Indreni
without offering the shares to the members first
or even without giving a transfer notice to the
company which was a must;
(x) The respondent No.1 tried to adopt an ingeneous
device for nullifying the effect of the decision
to issue 51% of the new shares to Shrimant
Fatehsinhrao P. Gaekwad, taken at the Managing
Committee meeting of 21.3.1988 which decision was
also referred in the minutes of the meeting held
on 10.12.1988, were chaired by the respondent
No.1, by creating a story that Shrimant
Fatehsinhrao Gaekwad had renounced his allotment
in favour of the respondents Nos. 1 and his
children and on that footing managed to allot
3,000 shares to his minor children on 10.12.1988;
(xi) The minutes of the meeting of Annual General
Meeting held on 20.12.1990 prepared under the
signature of respondent No.1 as Chairman, did not
disclose the correct state of affairs about the
outrcome of voting by the share-holders and
proxies present and voting (even in the pursis
filed by the respondents in the Suit at 3 P.M on
20.12.1990, it was not disclosed by them that the
resolutions were passed but it was only generally
stated that the voting was done);
(xii) The respondent No.1 was made a permanent Director
and Chairman though there was no such provision
for a permanent Director under the Articles of
Association;
(xiii) Mr. P.U.Rana and Mr. H.A.Shande were removed as
Directors and Mr. Khade as the Company Secretary
because they did not toe the line of the
respondents Nos. 1 to 5;
(xiv) The Registered office of the respondent No.6
company was resolved to be removed from Vadodara
to Surat after the Annual General Meeting of
20.12.1990; and
(xv) The Registers and other records of the company
were authorised to be removed from the Registered
office by the respondent No.2.
18. It is at once clear from the above course of
conduct of the respondent Nos. 1 to 5 that they have
acted in a high-handed manner and in gross breach of the
fiduciary duty of the respondents Nos. 1 and 2 as the
Directors of the company, treating the company as their
private affair and trying to gain a total control over it
by improper means to the detriment of the interests of
other share-holders including the petitioners and the
respondents Nos. 12 and 13. Such engineered take over
of the respondent No.6 company by the respondent Nos. 1
to 5 and their group cannot be recognised. A Director of
a company is precluded from dealing on behalf of the
company, with himself, and from entering into engagements
or arrangements in which he has a personal interest
conflicting, or which possibly may conflict, with the
interests of those whom he is bound by fiduciary duty to
protect, and this rule is as applicable to the case of
one of several directors as to a managing or sole
director and any affirmance or adoption by the company of
any such dealing, engagement or arrangement , brought
about by unfair or improper means which is illegal,
fraudulant or oppressive towards the share-holders who
oppose it, cannot be recognised. Power of the Directors
to issue shares to the members of the company is a
fiduciary power to be exercised by them bonafide for the
general advantage of the company and the directors are
not entitled to use their power of issuing shares merely
for the purpose of maintaining their control over the
affairs of the company or merely for the purpose of
altering a majority shareholding. Breaches of fiduciary
duty by the controlling directors would entitle a
minority share-holder to bring an action against them and
the Court would be justified in redressing the wrong. If
the persons in control of the company have acted in their
own interest by allotting shares to themselves or to
their associates so as to enable themselves to control
the voting at the General Meetings or to enhance their
power or position, the members who are unfairly
prejudiced by such conduct would become entitled to have
the affairs of the company properly conducted according
to law. The Court's reluctance to examine business
decisions would disappear if it were shown that the
directors or controlling share-holders concerned did not
make the decision in good faith in the interest of the
members of the company as a whole. The Court has ample
powers to make such order as it thinks fit to give relief
in respect of the matters complained of, and can fashion
the remedy to suit the circumstances of a particular
case. The Court's jurisdiction in such matters is
equitable in character although originating in a
statutory provision. In a matter of this type, the Civil
Courts would be wholly ill-equipped in power to deal with
this gross case of oppression and mis-management by the
contesting respondents. There is also no substance in
the contention that the relief against allotment of 6475
shares to respondents Nos. 1 to 5 was not initially
prayed and should therefore not be countenanced. The
contest from the entire record shows that the parties
were at issue even on this relief which was prayed for by
an amendment.
19. In view of what we have said hereinabove, we are,
with respect, unable to accept the findings of the
learned Single Judge or the contentions which have been
raised on behalf of the contesting respondents in these
appeals in support of that decision.
20. As a result, the appeals are allowed and the
impugned order passed by the learned Single Judge on
17.4.1995 in Company Petition No. 51 of 1991 is hereby
set aside and the Company Petition is allowed with the
following reliefs:-
1. It is hereby declared and ordered that all the
allotments of shares from the additional share
capital increased pursuant to the resolution of
the Extra-ordinary General Meeting held on
17.12.1987 and the resolution of the Board of
Directors dated 8.1.1988 and the decisions for
such allotments, of the Managing Committee be
treated as invalid and ineffective for all
purposes and the share-holdings of all the
members of the respondent No.6 company hereby
stand restored to the original 425 shares held by
the members ignoring such subsequent allotments.
The Register of members and other record of the
company will stand rectified accordingly.
2. The Registered office of the respondent No.6
company is hereby declared to be continuing at
the same place i.e. "Indumati Mahal" at Baroda,
irrespective of the resolution to shift it to
Surat and the respondent Nos. 1 and 2 are
directed to forthwith restore the entire record
of the company to its Registered Office at
Baroda.
3. All the Directors or purported Directors of the
respondent No.6 company stand removed forthwith.
They will from today, not deal with the affairs
of the company in any manner.
4. An Extra-ordinary General Meeting of the
share-holders of the company will be convened on
14th October, 2000 at 11.00 A.M, at the
Registered office of the Company at Baroda, for
appointing Directors of the Company on the basis
of the existing share-holding of 425 shares of
the members of the company, in accordance with
the Articles of Association.
5. The aforesaid meeting scheduled to be held on
14th October, 2000 will be conducted under the
Chairmanship of the Additional Registrar of the
High Court Shri V.B.Gandhi. All the
share-holders of 425 shares including the
petitioner No.1 as the sole heir of the deceased
Shrimant Fatehsinhrao P. Gaekwad in respect of
the shares which stood in his name in the
register of the members of the company at the
time of his demise out of the said 425 shares in
respect of which he had voting rights, will be
entitled to vote by themselves or through their
proxies at the said meeting for appointing the
Directors of the company. No outsider will be
allowed to remain present at the meeting except
the Additional Registrar who will Chair and
conduct the meeting with his official assistants.
The Additional Registrar will be assisted by a
Section Officer of the High Court of his choice
in the said work.
6. All the share-holders who are parties to the
present proceedings are hereby put to notice
about the date of the said Extra-ordinary General
Meeting to be held on 14.10.2000 at 11.00 AM at
the Registered office of the respondent No.6
company at "Indumati Mahal", Baroda. The
Additional Registrar will however, get published
the notice of the meeting in one English daily
and one Gujarati daily having circulation in the
area. The Additional Registrar will also
immediately issue individual notices of the said
meeting to the share-holders. The Additional
Registrar is authorised to seek assistance for
conducting the meeting from all or any of the
parties to these proceedings and/or the officials
of the company who shall be bound to assist him
in that regard. No adjournment motion will be
entertained at the said meeting.
7. The Additional Registrar will on completion of
the said meeting, prepare and sign the minutes of
the meeting recording its outcome and declare in
writing the names of persons who are appointed by
the share-holders as the Directors of the
respondent No.6 company at the said meeting, and
thereupon such Directors shall assume the
management of the company on such declaration
being made.
8. The remuneration of the Additional Registrar is
fixed at Rs. 10,000 and the remuneration of the
Section Officer will be Rs. 3,000, for the said
purpose. The respondent No.6 is permitted to
withdraw the said amount and also a further
amount towards the expenses for publishing notice
etc. totalling Rs. 30,000/- from its Bank/s for
the purpose of depositing it in the registry.
The learned Counsel for the respondent No.6
company states that the respondent No.6 will
deposit the amount of Rs. 30,000/- in the
Registry of this Court within 15 days.
9. The learned Counsel for the respondent No.6
company has agreed to supply the names and
present addresses of all the share-holders of the
425 shares of the company, to the Additional
Registrar on or before 19th August, 2000.
10. There shall be no order as to costs.
The learned Counsel of the respondent No.6
company prays for the respondent No.6 company as well as
for the respondents Nos. 1 to 5 that this order be
stayed for three months to enable the contesting
respondents to approach Hon'ble the Supreme Court in the
matter. In the facts and circumstances of this case,
this request cannot be acceded to and is therefore,
rejected.
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*/Mohandas
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