Company Law Board
Deepak Lohia vs Kamrup Developers (P.) Ltd. on 31 December, 2001
ORDER
S. Balasubramanian, Vice-Chairman
1. The main complaints of the petitioner in regard to the affairs of Kamrup Developers (P.) Ltd. ('the company') are that there has been a creation of a new majority by issue of further shares, change in the composition of the board of directors by which equality in the Board has been disturbed and that there has been mismanagement in the affairs of the company.
2. Shri Mookherjee, Advocate for the petitioner, submitted : This company was incorporated in Feb. 1998 with an authorized capital of 5000 equity shares of Rs. 100 each. The paid-up capital was 200 equity shares of Rs. 100 each of which the petitioner held 100 shares and the third respondent, the balance 100 shares. Both were the only directors of the company. The second respondent is the father of the third and fourth respondents. The second respondent is the owner of a piece of land in Guwahati. He and his two sons desired to develop the said land by demolishing the then existing structure and to construct a new building comprising of shops, flats and offices on ownership basis. Therefore, with a view to develop this project, the second and third respondents arrived at an understanding with the petitioner to establish two companies - one for promoting the project and another for dealing in supply of cement and agency for elevators. The understanding further provided both the groups will have equal shareholding and also equal representation on the Board of these two companies. Accordingly, the respondent-company was incorporated in 1998. In terms of the understanding, agreement was executed between the company and the second respondent. As per this agreement, the company was authorized to develop the land owned by the second respondent and he was to execute an irrevocable power of attorney empowering the company to convey the said land in full or part with further power to construct shops, flats, etc. The company was to pay a sum of Rs. 16 lakhs as consideration to the second respondent. It also provided for termination of the agreement in case of breach of any of the terms of agreement. In terms of this agreement, the second respondent executed an irrevocable general power of attorney in favour of the company providing that the petitioner and the third respondent as nominees of the company were to act on the power of attorney. In addition to the share capital for 100 shares each, the petitioner group and Aggarwal Group each contributed Rs. 2.5 lakhs as share application money. In addition, the petitioner by himself and through his own companies provided a sum of Rs. 2.25 crores either as unsecured loan bearing interest or as advance against booking of space.
3. He further submitted: Since the petitioner was residing in Calcutta, the entire day-to-day management of the company was entrusted to the third respondent. He and the petitioner were joint signatories to the banking operations. Sometime in November 1999, the petitioner came to know that the cash balance with the company did not tally with the books of account and the third respondent was not in a position to explain the discrepancy due to which disputes and differences between the parties arose. To amicably settle the disputes, the same were referred to arbitration of one Shri Purshottam Khaitan, a well known Advocate of Tinsukia. Before the arbitrator, the petitioner and the second respondent agreed to settle the disputes on the basis of a Memorandum of Understanding dated 2-5-2000. As per this MOU (Annexure-PA), the petitioner was to get the entire ground floor, entire second floor and a portion of the first floor. The third respondent was to get the balance of the first floor with the right to construct the third to eighth floors. The second respondent was to hand over all the assets, receivables, etc., of the company to the petitioner. As far as the second company Kamrup Traders Services Private Ltd. was concerned, the entire management and control of the company was to be vested with the second respondent. However, both the second and third respondents dispute this arbitration award and the MOU notwithstanding the fact that there had been further correspondence between the parties in regard to this arbitration award and the resultant MOU without any challenge. Further, this MOU has been witnessed by the relatives of the respondents. The company itself, in its letter dated 2-5-2000 (Annexure P9), had agreed to abide by the terms of the MOU. Even as late as on 11-9-2000, the petitioner caused a notice to be issued (Annexure P-23) to the second and third respondents referring to the MOU. In reply to this notice, by a reply dated 19-9-2000, the advocate for the second respondent, without denying the fact of the MOU had only stated that the second respondent, not being a shareholder of the company, had no concern with the company and as such could not have entered into the MOU. This stand of the second respondent cannot be sustained inasmuch as there is absolutely no difference in the identity between the second and third respondents as they have been acting together all along. It is the second respondent who handed over the land for development by the petitioner and the third respondent and as such this is a fit case as held by the Supreme Court in New Horizons Ltd. v. UOI, [1995] 1 SCC 478 to pierce the corporate veil to establish that the second respondent and the third respondent cannot claim any separate identity. The petitioner had written a number of letters to the second and third respondents through speed post/registered AD/courier, etc., but all of them were returned undelivered either as refused or as not known. In other words, the respondents have evaded the receipt of any letter in connection with the MOU. Now, after repudiating the MOU, the second respondent has also revoked the power of attorney given in favour of the petitioner by which the entire company has been taken over by the respondents in exclusion of the petitioner who was also a promoter of the company.
4. He further submitted : After having revoked the power of attorney, to gain absolute control over the company, the respondents have manipulated the records of the company to show that further shares have been issued by which the petitioner has been converted from an equal shareholder to a minority shareholder and two more directors have also been appointed by which the majority in the Board also has been taken over by the respondents. The Board has allegedly allotted shares worth Rs. 2.3 lakhs to the petitioner and shares worth Rs. 2.5 lakhs to the respondents' group. After the purported allotment the respondent group holds 2600 shares against the petitioner group holding 2400 shares. Thus, this allotment has straightway converted the petitioner from an equal shareholder to a minority and a new majority has been created. This allotment is nothing but a fabrication as is evident from the fact that Form No. 2 in respect of the allotment was filed with the ROC only on 13-7-2000, that is, after the date of MOU even though the allotment was allegedly made on 1-9-1999. These allotments are purported to have been against the share application money of Rs. 2.5 lakhs each in the name of the petitioner and the third respondent. The petitioner never attended the board meeting on 1-9-1999 when the allotment was purportedly made and the respondents have not produced any evidence to show that either any notice for this meeting was issued or this meeting was attended by the petitioner. Even though the respondents contend that on 2-9-1999 (Annexure R-1), the company had written to the petitioner and others about the allotment of shares, none from the petitioner side had received the same and as such, these letters as well as the copy of the certificate of posting in connection therewith are fabricated. The respondents, with a view to gain majority, as explicitly admitted at Page 12 of the reply of the third respondent that he was to have majority, have fabricated this allotment. This fabrication is also evident from the fact that in all the letters of the petitioner to the respondents written after the date of alleged allotment, he had pointed out the equality in the shareholding which was never denied by the respondents. Even in the letter of the second respondent dated 17-9-2000, he had not mentioned about the minority status of the petitioner. The minutes of the board meeting dated 1-9-1999 in which the presence of the petitioner is shown is nothing but a fabrication inasmuch as the petitioner would have never agreed for reducing himself voluntarily to that of a minority after having invested a sum of over Rs. 2 crores. Even assuming that the allotment was made on 1-9-1999 as claimed by the respondents, the sole purpose of the allotment was only with the view to gain control of the company by disturbing the equality in the shareholding as evident from the fact that the minutes of the meeting do not indicate the need for the allotment. In Piercy v. S. Wilson & Co. Ltd 1920 Ch. D. 77 it has been held that the directors of a company are not entitled to use their power of issuing the shares merely for the purpose of maintaining the control. Therefore, either the allotment should be cancelled or the allotment be equalized.
5. As far as the change in the composition of the Board is concerned, he pointed out that right from incorporation, the company had only two directors, namely, the petitioner and the third respondent. However, in violation of the provisions of Article 54, according to which other directors would be appointed by the first directors, the respondents had reportedly inducted two more directors on 3-2-1999. However, Form No. 32 in respect of those appointed was filed only on 13-7-2000, i.e., after the signing of the MOU. The respondents have shown the attendance of the petitioner in the Board Meeting on 3-2-1999 which is nothing but a fabrication since the petitioner did not attend this meeting for want of notice. The respondents have relied on Page 82 of the documents filed by the respondents to contend that the petitioner attended the board meeting on 3-2-1999. Page 82 is a certified copy of the resolution dated 3-2-1999 authorising the fourth respondent to operate the bank accounts. Since the petitioner was not residing in Guwahati, with the view that the banking operation of the company was not affected, a resolution was printed on the letter head of the company and signed by the petitioner and the third respondent. There was no reference to date of any resolution. Now the respondents have fabricated the said letter head to show as if there was a board meeting on 3-2-1999 just to attribute knowledge to the petitioner of the alleged meeting. If in the same meeting, two more directors had been appointed, there was no need to have authorized a non-director to operate the bank account. This contradiction would indicate that the entire minutes of that meeting are fabricated. Further, if the petitioner had attended the meeting, he would have never agreed to reduce himself to a minority in the Board. No doubt, the petitioner signed the balance sheet as on 31-3-1999, but the directors report was never shown to him to allege that he had the knowledge of the allotment of shares and appointment of directors. Therefore, the appointment of the two directors being not only a fabricated one but also had been done only with a view to gain absolute control over the management of the company. In a company where there had been equal participation in the management, any disturbance in the equality of the participation is a grave act of oppression.
6. He further submitted: The third respondent is mismanaging the affairs of the company. No board meetings or general body meetings of the company have been held and all the minutes reflecting the holding of the meetings are fabricated. The company has not been taking any effective steps to get necessary approvals to complete the project. Further, having accounted substantial amount of money given by the associates of the petitioner as 'booking advance' in the accounts, now the respondents contend that these amounts were given as unsecured loans only with the view to deny allotment of space in the project. The facts would clearly establish that the respondents are guilty of both oppression and mismanagement. It is not correct that the petitioner is only a financier. The petitioner has another construction company through which he has gained experience in promoting building projects and that is the reason that the respondents associated the petitioner with the project as an equal partner. This company being a closely held company with only two promoters, the acts of oppression and mismanagement clearly establish that there is complete lack of confidence justifying the winding up of the company on just and equitable grounds as held in Loch v. John Blackwood Ltd. [1924] AC 124. The maximum contribution of funds for the project has come from the petitioner and his group who have not only given loans but also have advanced money towards purchase of space in that building. The respondents having approached the petitioner for implementing the project because of his expertise and having made him to invest nearly Rs. 2 crores, they have now completely sidelined the petitioner and have taken over the company both in terms of the shareholding as well as the management. Since the relief in a petition under Sections 397/398 of the Companies Act, 1956 ('the Act') should be in the interest of the company, restoration of the status quoin regard to the shareholding and management would only result in a deadlock and as such would be against the interest of the company. It has been held in Mahabir Prasad Jalan v. Debonair Agencies Ltd. [1999] 2 CLJ 71 (Cal.) that in case of a deadlock, one group of shareholder can be directed to sell its shares to the other group. Since the petitioner has contributed substantial funds, it would be in the interest of the company that the management and control of the company is handed over to the petitioner who is willing to assume all the liabilities of the company also. As held in Naini Oxyzen & Acetylene Gas Ltd v. Bisheswar Nath, [1986] 60 Comp. Cas. 990 (All.) in a Sections 397/398 proceedings for removing the oppression and mismanagement, the court can take recourse to any action which may be in the interest of the company. Even assuming that the respondents group control majority shares, they could be directed to sell their shares to the petitioner as held in Brenfiend Squash Racquets Club Limited [1996] 2 BCLC 184. Further it has also been held in A Company, In re [1990] BCLC 384 that the control of a company should be given only to those in whom the shareholders have confidence. In Naini Oxygen and Acetylene Gas Ltd. 's case (supra) the Court has held that the ultimate relief granted should be in the interest of the company. Therefore, considering the fact that without the expertise of the petitioner and funds provided by him, the company cannot complete the project and as such the respondents should be directed to sell their shares to the petitioner. However, for any reason the Bench were to decide otherwise, the respondents/company should be directed to clear all the investments made by the petitioner's group both by way of unsecured loans and booking advance together with 21 per cent interest immediately.
7. Shri Lahiri, Advocate appearing for the respondents 5 to 7, submitted : These respondents are part of the petitioner's group. Since the petitioner has contributed maximum funds to the company, as held in Suresh Kumar Sanghi v. Supreme Motors Ltd. [1983] 54 Comp. Cas. 235 (Delhi) both in the interest of the company and equitable considerations, the company should be handed over to the petitioner. The eighth and ninth respondents have invested Rs. 25 lakhs and Rs. 30 lakhs respectively for booking space in the project but the respondents claim that the same was paid as interest-free loan. Either the company should allot the space booked by these respondents or the amount should be refunded with 21 per cent interest.
8. Shri Banerjee, appearing for the respondents submitted : This petition is not maintainable, inasmuch as, through this petition, the petitioner seeks to enforce the alleged MOU as is evident from the fact that by a letter dated 7-8-2000, the petitioner desired implementation of the MOU and simultaneously filed this petition also. The alleged MOU is nothing but a sham document fabricated by the petitioner. Further, the company was not a party to the MOU nor the second respondent being neither a shareholder nor a director could have entered into the MOU concerning the affairs of the company. The alleged letter at page 94 of the petition, indicating that the company would abide by the terms of the MOU is a fabricated document. Since the petitioner was stationed in Calcutta, for his use as a director in emergency, the third respondent had given some sheets of papers in blank with his signatures and the petitioner has fabricated the alleged letter on one such sheet. The claim of the petitioner that the second respondent controls third respondent has no basis. Accordingly, on the basis of the MOU, the petitioner cannot seek any relief. Even though the second respondent entered into an agreement with the company regarding the land for a consideration of Rs. 16 lakhs, yet as per oral understanding he was to get a much higher amount inasmuch as the company is likely to make a handsome profit of over Rs. 5 crores on sale of the 8 floors proposed to be constructed on the land. The disputes between the parties arose due to the quantum of the consideration to be paid to the second respondent.
9. As far as issue of further shares is concerned, the learned counsel pointed out that in the board meeting held on 1-9-1999, it was decided to allot 4800 shares against the application money already available with the company. Since the understanding between the parties was that the respondents would hold majority shares, 2500 shares were allotted to the respondents' group and 2300 shares were allotted to the petitioner's group. This meeting was attended by the petitioner. The petitioner's claim that he had no knowledge of the allotment cannot be sustained inasmuch as the directors' report dated 2-9-1999 specifically records the allotment of these shares and this report was adopted in the AGM held on 29-9-1999. The petitioner has signed the balance sheet as on 31-3-1999 appended to this directors' report and, therefore, cannot disclaim knowledge of the directors' report. Further, in the same meeting on 1-9-1999, the date of the AGM was also fixed. Therefore, when the petitioner was party to the allotment of shares, he cannot now claim that by this allotment, he has been oppressed. Further, in terms of Article 5, the shares are under the control of directors with the powers to allot the shares to such persons as the Board thinks fit.
10. As far as the appointment of two additional directors is concerned, the learned counsel submitted that two additional directors were appointed in a board meeting held on 3-2-1999. This meeting was attended by the petitioners. Further, it is in this meeting that the fourth respondent was also authorized as a signatory to the bank operation. The very fact that the petitioner forwarded a certified copy of the resolution relating to the fourth respondent to the bank would indicate that the petitioner did attend this meeting wherein two additional directors were appointed. Further, these two directors were appointed as regular directors in the AGM held on 29-9-1999. This AGM was attended by the petitioner also. In addition, their appointment as additional director was also indicated in the directors' report dated 2-9-1999. Thus, it is evident that the petitioner had consented to the appointment of two other directors on the Board and as such cannot have any complaint in this regard.
11. He further submitted that the allegation of the petitioner that there had been no board meetings or general body meetings is not borne on facts. No doubt, being a company with only two shareholders and two directors, formal notices were not being issued, yet, board meetings were being held periodically by mutual consultation. Even in the petition, at page 22, the petitioner has only complained that the AGM for the year ended 31-3-2000 had not been held and that no board meeting had been held since April 2000. Having averred as such in the petition, the counsel for the petitioner now cannot allege that no board meeting or general body meeting was ever held by the company. As for the late filing of the returns relating to the allotment of shares and appointment of directors as also the annual reports, the learned counsel submitted that the company had not filed any return right from its incorporation and all due returns were filed in terms of the amnesty scheme introduced by the Government. Therefore, the late filing of the returns does not mean or indicate that all these documents have been fabricated.
12. Summing up his arguments, Shri Banerjee submitted that the prime mover behind the project is the third respondent and the petitioner was associated only in his capacity as a financier. While his clients admit the amounts of investments by the petitioner and his group at annexures P-4 and P-5, the contention of the petitioners that the loans were with interest and that his group had invested in booking space is not correct. All the loans at annexure P-4 are free of interest and the booking amount shown is also only unsecured loans without interest. If the amount shown in Annexure P-5 is for booking space, then the petitioner has played a fraud on the company by selling the space at Rs. 600 p.s.f. to his own group against the prevailing rate of Rs. 1500 psf. The cost of construction itself is about Rs. 1250 psf. The third respondent is managing the day-to-day affairs of the company and, therefore, is in complete charge of the affairs of the company. The petitioner being a resident of Calcutta did not bother about the functioning of the company. Further, his claim that he is an expert builder is also not correct. The petitioner has acted against the interest of the company in many ways. By complaining to the Guwahati Municipal Corporation regarding the project, the petitioner had stalled the receipt of necessary approvals. He also stopped the bank operations and had sabotaged negotiations with the Government departments for sale of space in the project. Finally by obtaining an ex parte injunction from this Board against proceeding with the construction, the petitioner has brought the project to a standstill. Thus, it is the petitioner who has oppressed the other shareholders by his prejudicial acts against the interest of the company. Since in a petition under Sections 397, the conduct of the parties has to be taken into account, by his conduct, the petitioner has disentitled himself from being granted any equitable relief. He distinguished the facts in the cases cited by the learned advocate for the petitioner and contended that none of the decisions cited has any application to the facts of this case. Relying on Maharani Lalita Rajya Lakshmi v. Indian Motor Co. Ltd. 32 Comp. Cas. 207 (Cal.) (sic) and Bagree Cereals v. Hanuman Prasad [2000] 41 CLA 337 (Cal.) he submitted that the petitioner should establish that the circumstances of the case warrant winding up of the company on just and equitable grounds and that such winding up would be prejudicial to him. Since he has not been able to do so, this petition should be dismissed.
13. In regard to the suggestion of the learned counsel for the petitioner that the management and control of the company should be handed over to the petitioner, the learned counsel submitted that it is only the respondents who could complete the project, especially when the second respondent, being the owner of the land, has the right to revoke the licence granted to the company. In case the company is handed over to the petitioner, then there is every likelihood that the second respondent would revoke the licence in which case the entire project would be jeopardized. Further, as this Board has itself decided in a number of cases, the petitioner being in minority should be directed to sell their shares to the respondents and in that case, to enable the company to pay all the investments made by the petitioner and his associates, sufficient time of at least 2 years should be given to the company. Otherwise, he submitted that this petition should be dismissed.
14. We have considered the pleadings and arguments of the counsel. When this petition was mentioned on 20-9-2000, we passed an ex parte order restraining the respondents 2 to 4 from carrying out any further construction and also from dealing with any of the space already constructed. Thereafter, we passed another order on 28-9-2000 directing that no further shares should be issued and that there shall be no change in the composition of the board of directors. By an order dated 30-10-2000, taking into account the interest of the company, we permitted the third respondent and the petitioner to negotiate for sale of space in the proposed building on behalf of the company without entering into any formal agreement. Thereafter, by an order dated 31-10-2000, we allowed the oral prayer of the petitioner to implead all those to whom shares had been allotted and also those who were appointed as directors. Again, by an order dated 17-1-2001, we permitted the petitioner to make inspection of records of the company. Thereafter, the matter was heard from time to time and concluded on 26-9-2001.
15. Even though the learned counsel for the petitioner, at the outset submitted, that he was not seeking enforcement of the alleged MOU dated 2-5-2000 other than to prove that the company was to come to the petitioner, yet, elaborate arguments were advanced on the same. Since it is an issue beyond the scope of Sections 397/398, we do not propose to examine this issue, notwithstanding the claim of the petitioner, on the basis of the letter by the company dated 2-5-2000 (Annexure P-9), the authenticity of which has also been questioned by the respondents, that the company had agreed to abide by the terms of the MOU.
16. The main grievance of the petitioner is that his group has been converted from equality in the shareholding and in the Board to a minority notwithstanding the fact that as per the agreement between the parties there was to be equality. According to the respondents, the understanding was that the respondents would have majority. Neither of them has been able to substantiate his stand on the basis of any written document and the articles of the company is also silent on this issue. Normally, no agreement, the terms of which are not reflected in the articles, could bind a company nor could be taken note of by a court. However, in exercise of its equitable jurisdiction, to do justice between the parties, this Board has been taking into consideration the facts and circumstances of a case in moulding appropriate relief. In the present case, not only the petitioner and the third respondent are the signatories to the memorandum with 100 shares each, in terms of Article 54, they were the first directors. The fact that each group had contributed Rs. 2.5 lakhs as share application money would indicate that shares had to be allotted equally at least upto this amount. If, as contended by the respondents, that they were to have majority shares in the company, contribution of equal amount of share application money by the petitioner does not arise. According to the company, out of the share application money, 2500 shares for Rs. 2.5 lakhs were allotted to the respondent's group and 2300 shares for Rs. 2.3 lakhs were allotted to the petitioner's group. The minutes of the Board meeting on 1-9-1999 do not indicate the reasons which prompted the directors to allot shares. Since the share application money was already available with the company, need for funds could not have been the reason for the allotment of shares. Therefore, we find substance in the complaint of the petitioner that the allotment was made only to gain majority in the shareholding by the respondent group. The petitioner has not only challenged this allotment as oppressive, he has also questioned the factum of allotment alleging that the entire record relating to this allotment is fabricated as, according to him, if he had attended this meeting, he would have never agreed to get reduced to a minority. Considering the fact that he had also contributed equal amount of application money, this stand of the petitioner appears well-founded. There is no independent evidence either in the form of his signature evidencing his attendance in that meeting or otherwise. The only evidence relied on by the respondents is the signature of the petitioner in the balance sheet as on 31-3-1999 to which the directors' report is annexed in which there is a mention about increase in the share capital. Further, according to them, the petitioner attended the AGM on 29-9-1999 when the directors' report was adopted. The petitioner has denied his attendance in this meeting for want of notice. As per the minutes of the AGM, 4 shareholders from the respondents' group along with the petitioner attended this meeting. We find from the board minutes of 1-9-1999 that sixth and seventh respondents from the petitioner's group had also been allotted shares. If so, in the normal circumstances, they should have also attended this AGM. Further, even though, the company has taken a stand that no formal notices were being issued, yet, in regard to the allotment of shares, it had reportedly sent communication by way of certificate of posting on 2-9-1999, i.e., immediately after the alleged allotment on 1-9-1999 asking the allottees to collect the share certificates. If the petitioner had attended this meeting, there was no need to issue letters, that too, through a certificate of posting. One basic document which could have established the factum of allotment, viz., Form 2 was also filed after a delay of nearly a year, thus, creating a doubt about the factum of allotment. Recently this Board has observed in Deepak Shriram v. General Sales Ltd. [2001] 45 CLA 310 that to substantiate a case of a shareholder voluntarily getting his shareholding percentage reduced, the respondents should produce irrefutable evidence. Anyway, the issue as to whether there was actual allotment or not loses its relevance, since disproportionate allotment, when both the sides had paid equal amount towards share application money, is an act of oppression against the petitioner as the same has upset the equality in the shareholding.
17. As far as the appointment of two additional directors in the board meeting on 3-2-1999 is concerned, the petitioner has raised the same objections as related to the meeting on 1-9-1999 that he had not attended that meeting and that the minutes indicating his attendance is fabricated. The respondents have relied on Annexure R-2 wherein the petitioner has signed a copy of the board resolution dated 3-2-1999 authorising the fourth respondent to operate bank account. This also, according to the petitioner, is a fabricated one as explained as a part of the arguments. The same observation that we have made in regard to the allotment of shares, that if the petitioner had attended this meeting, he would have agreed to the appointment of 2 more directors, thus, upsetting his equality in the Board. Further, as rightly pointed out by the learned counsel for the petitioner, if two directors had been appointed, there was no need, on the same day, to pass a resolution to authorize the fourth respondent to operate the bank accounts. Since the appointment of the 2 directors has marginalized the position of the petitioner, who is one of the two promoters of the company, the petitioner is justified in taking exception to these appointments.
18. As far as the allegations of the petitioner that the company has not held any board meeting or general body meetings, we note the contradictions between the pleadings and the arguments as pointed out by the learned counsel for the respondents. Further, if no board meetings or general meetings had been held, the petitioner claiming equality in the shareholding and management is equally responsible for the same.
19. Having held that by issue of disproportionate shares against the share application money and by appointment of two directors the respondents have acted in a manner oppressive to the petitioner, the question of relief arises. The learned counsel for the respondents urged that unless and until it is established that the company is liable to be wound up on just and equitable grounds, no relief can be granted. On this proposition he relied on the case of Bagree Cereals case (supra) and Lalita Rajya Lakshmi's case (supra). The admitted position in this case is that the company was incorporated by the petitioner and the third respondent with 100 shares each and both of them have contributed Rs. 2.5 lakhs each as share application money and both of them were the first directors. This indicates that the company was envisaged to be a company controlled and managed by two groups of shareholders. Within a short span of 6 months of incorporation, the composition of the Board had been changed and thereafter by issue of further shares, the parity in the shareholding has been affected. The proceedings have brought out complete lack of confidence between the two groups, each alleging fabrication of documents by the other side. Both are found to be acting in a manner prejudicial to each other resulting in the company's welfare being affected. The project in which substantial amount had been spent has come to a standstill. Under these circumstances, there is every justification to wind up the company on just and equitable grounds which obviously would not be in the interest of any of the shareholders. As far as the relief is concerned, restoration of parity in the shareholding and the Board would only result in a deadlock as is evident from the fact that even when we had permitted both the sides to negotiate for sale of space, no progress was reported. Therefore, this is a fit case wherein, in the interest of the company, one of the groups should go out of the company. The learned counsel for the petitioner strongly urged that in view of the expertise of the petitioner and also in view of his group having invested substantial funds in the company, the control and management of the company should be handed over to the petitioner. The learned counsel even urged on the basis of certain decided cases that even the majority could be asked to sell the shares to the minority. Even though the usual course of order passed by courts has been to direct the minority to sell the shares to the majority, it is not uncommon, in facts of a case to order the majority to sell the shares to the minority as has been done by this Board itself in Praful M. Patel v. Wonderweld Electrode (P.) Ltd. [CP No. 28 of 1999]. In that case, the minority shareholders were majority on the Board and were carrying on the day-to-day affairs of the company, while the majority shareholders were either abroad or living in a far off place. Since the company was being managed by the minority shareholders, this Board directed the majority to sell the shares to the minority. In the present case also, the admitted position is that the petitioner is not a resident of Guwahati and it is the third respondent who has been carrying on the day-to-day affairs of the company. Further, the company does not own the land on which the project of the company is coming up. As per the lease agreement entered into with the second respondent, he has the right to terminate the lease to which the learned counsel for the respondents very clearly pointed out that the second respondent would do so if the company were to go to the petitioner. Therefore, we consider that it would in the interest of the company that the control and the management of the company is vested with the third respondent. In other words, it is the petitioner's group which has to go out of the company. In addition to their investment in 2400 shares, the petitioner's group admittedly invested substantial amount either as loans or as booking advance as indicated in Annexures P-4 and P-5 and the amount so invested is not disputed by the respondents. Since this money has been utilized for the project and since the petitioner and his group would go out of the company once for all, these amounts would also have to be repaid to the petitioner/his group with appropriate rate of interest. During the hearing, the learned counsel for the respondents also indicated that it could be done provided sufficient time is given to the company.
20. Accordingly, we direct as follows : The company should repay all the amount of unsecured loans and booking advance taken from the petitioner, his associates, relatives, etc., as indicated in Annexures P-4 and P-5 together with an interest as specified hereinafter. As far as the period of time to make the payment is concerned, the demand of the petitioner is for immediate payment while the respondent has sought for a period of two years. Since the project is in the implementation stage which has also been delayed due to our restraint order, we recognize that the company would not be able to make immediate payment. At the same time, we consider that the period of two years is too long. Therefore, to be equitable to both the sides and also considering the practicality, we consider that a period of about eight months should be given to company to repay all the amount due to the petitioner's group. As far as the rate of interest is concerned, the stand of the third respondent, in his reply, is that all the investment by the petitioner and his associates was interest-free loans, while, according to the petitioner, the unsecured loans of about Rs. 75 lakhs were with interest at the rate of 21 per cent while the other investment was for booking space. Since the petitioner has not got any benefit out of his investment in view of his going out of the company and that the company has utilized this amount on the project for which it would have otherwise raised funds on interest, we consider it appropriate that the company should pay an interest at the rate of 20 per cent (simple) from the date of receipt of the funds by the company till the date of payment. While fixing the rate of interest, we have noted the submission of the learned counsel for the respondents that the project is likely to yield a profit of about Rs. 5 crores. The entire principal and interest should be paid, in one or more instalments on or before 31-8-2002. In addition, the company will also purchase the shares held by the petitioner and his group at par value and pay the consideration by the same date. Till such time as the entire amount is paid, the petitioner will continue to be a director on the Board of the company and the shareholders from his group will exercise all the rights as shareholders. They should be given notices for general meetings by registered post. Proper notices with agenda for all board meetings should be given to the petitioner by registered post with at least 7 days notice. The third respondent will have the full right to continue the construction and also book and sell the space without any interference by the petitioner. The company will furnish a monthly statement of receipts and payments to the petitioner by the fifth of each month for the previous month, till payment of all the dues to his group.
21. With the above directions the petition is disposed of without any order as to cost. All the interim orders are vacated and liberty given to the parties in case of any difficulty in implementing this order and for any consequential directions.