Company Law Board
In Re: Cine & Supply Corporation (P.) ... vs Unknown on 15 November, 2001
Equivalent citations: [2003]115COMPCAS481(CLB)
ORDER
Banerji, Chairman
1. By means of this petition filed under section 397/398 of the Companies Act, 1956 ('the Act') the petitioners (Mondal Group) has alleged acts of oppression and mismanagement against the respondents and have inter alia sought for cancelling the allotment of 2000 equity shares made in favour of the third respondent and giving the option to the petitioners and other shareholders to acquire the said additional 2000 equity shares of the respondent-company.
2. Shorn of unnecessary details the petitioners case is that the respondent company Cine & Supply Corpn. (P.) Ltd. (Respondent 1a) was incorporated as a private limited company on 21-8-1961 initially with a share capital of Rs. 1.50 lakhs which was increased to Rs. 3 lakhs divided into 3000 equity shares of Rs. 100 each in the year 1964. The petitioners group held 708 equity shares which was about 23 per cent of the total share capital of the company. The respondent-company was owning and running a cinema hall known as Sri Rupa Cinema at Contai Distt. Midnapur, West Bengal which was the only property and business of the company. Deepak Kumar Mandal elder brother of the petitioners 1 and 2 was the director incharge from the period 20-5-1990 till his resignation thereafter the first respondent was appointed director incharge with effect from 1 -9-1995. Ever since the first respondent took over as director incharge he indulged in acts of gross oppression of the Mondal Group and mismanaged the company. The accounts of the company were not prepared and no AGM was held thereafter. The petitioner No. 1 who was one of the directors of the respondent-company was disassociated from its affairs and was not even given any notice of any Board meetings. The respondent No. 1 purportedly acting on behalf of the company entered into an agreement of licence on 7-8-1995 with the respondent No. 3 for running the cinema on licence basis for a period of 11 months on a paltry monthly premium of Rs. 2,500 only. However, the cinema could not be run due to labour trouble and a lock-out was declared. Thereafter in the year 1996 an attempt was made by the respondent No. 1 to sell the property of the cinema hall to Hijli Shawmill by transferring the entire equity shares of the company to them. However, the petitioners having come to know protested and made a representation to the bank regarding the illegal decision vide letter 18-9-1996 with the result the said effort failed. Apprehending that the respondents would transfer their shares to outside party the petitioners sent letters dated 1-10-1996, 10-10-1996 and 14-10-1996 inter alia calling upon the first respondent to lift the lock-out and start running the cinema, to call general meeting of the shareholders to discuss and sort out various issues and not to sell any property of the company or the shares to any outside party in contravention of article 10 of articles of association. Despite the said letters the first respondent neither cared to call any AGM or any other general meeting of the shareholders nor made any effort for preparation of the annual accounts of the company. Again by letters dated 9-9-1999 and 14-9-1999 the petitioner warned the first respondent not to transfer the shares in contravention of the article 10 and once again called upon him to prepare the annual accounts and call an AGM or any meeting of the shareholders. A representation on similar lines was made on 18-9-1999 to the ROC, West Bengal. In October/November 1999 the petitioners inspected the record of the company in the office of ROC and were shocked to find that an EOGM of the shareholders was purportedly held on 24-3-1999 wherein a resolution was purportedly passed increasing the share capital of the company from Rs. 3 lakhs to Rs. 5 lakhs and the entire increased equity shares numbering 2000 of Rs. 100 each were not only allotted to the third respondent on 24-3-1999 but he was also appointed as Addl. Director and Form Nos. 2, 5, 23 and 32 were filed on 1-10-1999 in the office of the ROC. According to the petitioners no meeting whatsoever of the shareholders was held on 24-3-1999 and no member of the Mondal Group of shareholders at any stage received any notice of any such meeting in spite of the fact that they were themselves repeatedly requesting for a meeting of the shareholders and also offered to purchase the shares of the company in accordance with the procedure prescribed under article 10 of the article of association. The petitioners have alleged that the meeting dated 24-3-1999 was a bogus meeting held on papers only and the first respondent has apparently fabricated the records/documents in regard to the alleged transaction which never took place. Moreover, the consideration allegedly received against the allotment of shares to the third respondent had not been deposited in the bank account of the respondent-company. It was further stated that after 17-7-1998 only the first petitioner and the first respondent constituted the board of directors and, therefore, in the absence of the first petitioner no meeting of the Board could have taken place as the quorum would not be complete. The petitioners further learned that the respondents have made the third respondent who was a rank outsider as director-in-charge and handed over the management of the company to him. On these allegations the petitioners have prayed for cancelling the allotment of the 2000 equity shares made in favour of the third respondent and giving the options to the petitioners and other shareholders to acquire the said shares and further to remove the first and the third respondent from the post of directors/director in charge and to nominate any other person as director-in-charge to run the affairs of the respondent-company.
3. On behalf of the respondents one Harisadan Bhattacharya alleging to be the Constituted Attorney of the respondents has filed an affidavit in opposition to the petition. It has been stated that the company was being managed by Deepak Kumar Mondal from the Mondal Group and on account of the mismanagement the company could not be run profitably and suffered heavy losses, therefore, the said Deepak Kumar Mondal had to resign from the post of Director in charge with effect from 31-8-1995 and the first respondent was appointed in his place. In order to run the cinema business a financier had to be found out arid with that end in view the management of the company entered into a lease agreement with the third respondent. However, on the instigation of the second petitioner labour trouble started and the cinema hall had to be closed. Under the coercion and misrepresentation of the Mondal group the company had decided to sell its assets to Hijli Sawmill which decision was not given effect to as it came to light that there was some underhand dealing between the second petitioner and Hijli Sawmill. In the year 1997 the management tried to reopen the cinema hall but due to the labour unrest the same could not reopen. Under such circumstances the board of the company called an extraordinary general meeting on 24-3-1999 after due notice to all the shareholders. In the said meeting 76.4 per cent of the equity shareholders attended except the shareholders of the Moridal group who were absent. In the said general meeting the existing shareholders passed an unanimous resolution to increase the share capital to Rs. 5 lakhs and decided to allot the 2000 equity shares of Rs. 100 each to the third respondent who was made a member and a shareholder of the company with effect from 24-3-1999. After the cinema reopened it was found that the members of the Mondal Group have taken away all the documents, account books, statutory registers, etc. Consequently, an FIR was lodged with the police station on 22-2-2000. The respondents have denied the allegations made by the petitioners that no meeting of the shareholders was held on 24-3-1999 or that the minutes of the said meeting were fabricated as alleged. On the contrary it was stated that the notices were issued to all the shareholders including the Mondal Group by certificate of posting which was the usual mode followed by the company. The respondents denied having received the alleged letter sent by the petitioners dated 3-10-1996 purporting to buy the shares or the letters dated 1-10-1996, 10-10-1996 and 24-10-1996 and it was stated that the said letters were an after thought and were manufactured for the purposes of the present case. It was further stated that the consideration amount of Rs. 2 lakhs against the allotment of shares were taken into account of the company and were utilised for payment to the employees. The allotment of the shares were made in accordance with the resolution passed by the majority of the shareholders and for the benefit of the company.
4. On behalf of the petitioners a rejoinder has been filed denying the allegations made in the counter affidavit and reiterating the averments made in the petition. The alleged EOGM itself has been challenged on the ground that it could not be called as the Board lacked quorum in the absence of the petitioner No. 1. Besides one of the shareholders, namely, Smt. Jharna Bera shown to have attended the said meeting, was lying bedridden at Calcutta for the last several years, and, therefore, could not have attended the said meeting. Her signature and the minutes have been fabricated. Further since Deepa Roy one of the shareholders holding 3.3 per cent of the shares did not attend the meeting it was incorrect to state that 76.4 per cent of the equity shareholders attended the meeting and the shareholders less than 75 per cent could not have taken the alleged decision to increase the share capital. It was further averred that as per the report of the Chartered Accountants of the company the Bera, Roy and Mukherjee groups in August/September 1999 transferred their shares enbloc in favour of the third respondent which was in contravention of article 10 and as such illegal.
5. The first petitioner having died on 20-8-2000 during the pendency of the present proceedings, Misc. Application No. 242 of 2000 was filed by the petitioners stating that the first petitioner had named the second petitioner as nominee in respect of his shares in the respondent-company by signing the Form No. 2B on 6-3-2000 and, consequently, the shares stand transmitted to the second petitioner. The respondents have not disputed the said averments as no reply to the same has been filed neither any arguments were advanced in respect thereof.
6. Shri Chauhan, the learned counsel for the petitioners has submitted firstly that the minutes of the EOGM dated 24-3-1999 has been fabricated as no such general meeting was held and neither was any alleged notice regarding said EOGM were sent under Postal Certificate to the shareholders of the Mondal group, or received by them who had always been vigilant about their rights as shareholders. Besides the respondents have not given any proof of service of notice. Secondly there being only two directors since July 1998 neither any notice for holding the Board meeting was given to the first petitioner nor did he attend the said Board meeting it did not have the requisite quorum, therefore, the EOGM could not be legally convened. In the alternative assuming any such EOGM was held the decision taken was invalid. Thirdly the allotment in favour of the third respondent and the subsequent enbloc transfer of the shares by the Bera, Roy and Mukherji groups in favour of third respondent was contrary to article 10 of the articles of association, hence null and void.
7. In support of his submissions that a case of oppression of the petitioners group by the respondents group who are the majority shareholders have been made out in the facts of the present case, the learned counsel relied on the decision of the Apex Court in the case of Shanti Prasad Jain v. Kalinga Tubes Ltd. AIR 1965 SC 1535 and Needle Industries (India) Ltd. v. Needle Industries Newey (India) Holdings Ltd. AIR 1981 SC 1298 and certain other similar decisions given by the CLB, where somewhat similar questions were involved.
The learned counsel for the respondents on the other hand contended that the company was lying closed since the year 1996 to April 1999 due to labour unrest fomented by the petitioner No. 2. The company was in great financial difficulties under the circumstances majority of the shareholders in a duly convened general meeting unanimously decided to increase the authorised capital of the company from 3 lakhs to 5 lakhs and to allot the same to third respondent as none of the other shareholders were in a position or willing to subscribe the said shares. On the other hand the third respondent who had earlier taken the cinema business on lease was prepared to take the entire 2000 shares sought to be issued. The notice of EOGM dated 24-3-1999 was duly sent to all the shareholders including the Mondal group by UPC which was the usual mode but the said group did not attend as they were interested in transferring the entire assets of the respondent-company to Hijli Sawmill with ulterior motive. The decision taken by the overwhelming majority of shareholders to increase the share capital was for the benefit and in the interest of the company which needed funds and is presently running profitably. So far as the transfer of shares by certain group of shareholders in favour of the third respondent, it is contended that the same was in accordance with article 10 as the shares were transferred subsequent to 24-3-1999 and the third respondent had become a shareholder hence shares could be transferred to him as other shareholders had not accepted the offer. The petitioners had not indicated their willingness to purchase the allotted shares and the alleged letters to the said effect annexed to the petition has been manufactured by them.
8. We have heard the learned counsel for the parties and have perused the pleadings. It needs to be mentioned that though both contesting parties in their respective pleadings have tried to lay the blame for mismanagement on the other group and accused each other for trying to sell out the respondent company, the two main questions which call for determination is as follows ;
(i) Whether the purported EOGM dated 24-3-1999 was validly held and the resolution passed therein regarding the allotment of 2000 additional shares exclusively to the third respondent was legal and valid.
(ii) Whether the transfer of shares by the three group of shareholders in favour of the third respondent were violation of Article 10 of the articles of association, and if so, its effect--
As regards the first question as already noticed above the case of the petitioners is that no such notice of any alleged general meeting of the shareholders were given to the Mondal group, neither was any such meeting actually held and minutes of the said meeting has been fabricated. In paragraphs 3(xii) and 3(xiii) of counter affidavit the respondents have taken a stand that with a view to reopen the cinema hall the board of directors decided to contact people for financial help and it was in pursuance of the said decision that the EOGM was held on 24-3-1999 after due notice to the general body of shareholders which was attended by 76.4 per cent of equity shareholders except the shareholders of the Mondal group. In paragraph 17 of the said counter affidavit the allegation that no general meeting of the shareholders took place on 24-3-1999 was denied and it was stated that the same was duly held after serving notice on all shareholdings including the Mondal group under certificate of posting which was the prescribed mode under the articles of association. However, the Mondal group boycotted the meeting due to an ulterior motive.
9. It is noteworthy that the respondents have not produced any evidence in support of their stand by producing/annexing even a single postal certificate evidencing the sending of the notice to the shareholders as alleged. Though it is alleged in the counter affidavit that the EOGM was held in pursuance of the decision of board of directors neither the minutes of the said Board meeting nor any particulars regarding the date on which it was held or how the petitioner No. 1 who was the only other director was served with the notice or whether he participated in the said meeting of the Board and was party to any such resolution, has been disclosed. The learned counsel for the respondents has contended that as the records had been taken away by the petitioners, therefore, the respondents were not in a position to file any paper or document or support of their stand regarding the sending of notices. Our attention has been drawn to R-3 annexed to the counter affidavit which is a copy of a FIR dated 22-2-2000 lodged with the police alleging that certain books, registers and documents specified therein has been stolen during the period of lockout. Attention has also been drawn to a letter dated 23-6-2000 addressed to petitioner No. 2 by the first respondent to hand over all the documents pertaining to the respondent-company. Both of these documents are of a date much after the filing of the petition and in none of them it has categorically been stated that the documents have been taken away by the petitioners. Assuming it to be so, soon after the opening of the cinema hall (in April 1999 as disclosed in the counter affidavit) the respondents should have taken necessary action for recovery of the records. The petitioners have denied in the rejoinder as well as in their reply to the letter of the respondents dated 23-6-2000 to have taken away the records.
10. That apart, according to the respondents due to labour unrest there was a lock-out declared and the cinema was lying closed between the period 1996 to April 1999 when the lock-out was called off. According to the petitioner during the lock-out period both the management as well as the employees had put their locks in the cinema premises. If this was the position how could the documents and records pertaining to the EOGM dated 24-3-1999 be kept in the cinema premises and could be taken away from there the respondents have failed to explain. It had been held in a catena of cases by different High Courts as well as by us that in case of despatch under postal certificates a general presumption of posting could be drawn, however, such presumption was rebuttable (see Kanak Lata Ghase v. Amal Kumar Chose AIR 1970 Cal. 328; Achamma Thomas v. E.R. Fairman AIR 1970 Mys. 77; Akbarali A. Kalvert v. Konkan Chemicals (P.) Ltd. [1994] 3 Cornp. LJ 102 (CLB). Here in the present case the petitioners have denied receipt of the notice alleged to have been sent under postal certificate thereby rebutting the presumption. The onus, therefore, was on the respondents who have failed to discharge the burden by not only failing to produce the postal by failing to produce any other proof like relevant extract from the despatch register or any other record. Similarly the respondents have failed to produce the postal certificate or any other evidence in respect of the Board meeting by which the EOGM was allegedly called to consider the increase in the authorised capital. The Supreme Court has held in the case of Partneshwari Prasad Gupta v. Union of India AIR 1973 SC 2389 if notice was not given to even one of the directors the resolution passed in such a Board meeting is not valid.
There is another aspect of the matter. In the counter affidavit affirmed by one Harisadan Bhattacharya claiming to be the constituted Attorney of the respondents it has been stated that the notice of the Board meeting as well as the EOGM were duly sent. The power of attorney, however, had not been filed despite the point been specifically taken by the petitioners in the rejoinder affidavit to the effect that the person affirming the counter affidavit was not duly authorised. Paragraphs 1 to 18 of the counter affidavit has been verified as, 'true to my knowledge'. It has not been disclosed whether the knowledge of the deponent was on the basis of personal knowledge or knowledge derived from the records. It is nobody's case that Harisadan Bhattacharya was a director of the company, neither has the source of knowledge being disclosed, therefore, unless specifically disclosed it could be presumed that he did not have any personal knowledge of the allegations made in the counter affidavit especially regarding the sending of the notices to the shareholders. According to the respondents the records of the company were not available as the same were missing. In this view of the matter the deponent could not have derived knowledge from the records. Therefore, there appears to be force in the submission made by the petitioners that the contents of the counter affidavit cannot be taken into consideration and the averments made in the petition specially with regards to the notice and the holding of the EOGM stands non controverted. Moreover, the EOGM was called to transact a special business under section 173 of the Act. This being so an explanatory statement had to be annexed with the notice. According to the respondents over 76 per cent of the shareholders of the respondent-company attended the said meeting on 24-3-1999. Assuming that the records of the company were missing, any of the shareholders who attended the meeting and who are supposed to be in the respondents group could have filed a copy of the notice along with the explanatory statement. This was not done and there is no record of the EOGM except the copy of the minutes.
11. The only independent record available to us in regard to this meeting is the Form No. 23 which incidentally contains the Explanatory Statement. This Statement relates only to the increase in authorized capital. However, from the minutes of the EOGM on 24-3-1999, we find that besides the resolution relating to increasing the authorized capital, the general body had also resolved to allot all the 2000 shares to the 3rd respondent and also to appoint him as an additional director. Thus, certain businesses which had not been proposed in the notice for the meeting appear to have been transacted in that meeting. Thus, we find that not only the company has not established that notices for this meeting had been sent to the petitioners, certain businesses other than notified had also been transacted. Therefore, there is full justification in the petitioners' complaint taken in the alternative that this meeting had not been properly held and the decisions taken thereat are invalid.
12. On behalf of the petitioners it has been further contended that in fact no general meeting took place on 24-3-1999 and the minutes of the alleged meeting are fabricated, as one of the shareholders Smt. Jharna Bera who is alleged to have participated in that meeting was lying bedridden at Calcutta for the past several years and, therefore, could not have attended the meeting or signed her attendance. We are of the view that as the petitioners have failed to substantiate the said allegation and from the material on record before us, we are unable to hold that the meeting was not held or the minutes were fabricated. It is noteworthy that none of the shareholders who are alleged to have attended the meeting have come forward to deny his/her presence in that meeting and on the contrary they had acted on the resolution passed therein and accepted the 3rd respondent as a shareholder. Subsequently, the 3 groups of shareholders, namely, Bera, Roy and Mukherjee had transferred their shares to the said respondents. Similarly, a Form No. 32 was though filed belatedly after about 6 months on 1-10-1999 with the ROC, it cannot be assumed that the meeting of 24-3-1999 and the minutes recorded of the said meeting were fabricated.
13. After having held that the petitioners are fully justified in questioning the validity of the EOGM and also the decisions taken thereat, the question that arises for our consideration is whether the allotment of 2000 shares to the 3rd respondent should be declared as null and void as being not in accordance with legal provisions. The settled law is that an illegal act need not be oppressive and vice versa. It is on record that except the petitioners' group, all other shareholders had attended that meeting and from the minutes we find that the members were conscious of the financial crunch faced by the company and, therefore, had decided to allot the shares to the 3rd respondent who had been looking after the company as a licensee from the year 1995 onwards, In other words, the members had taken decision to allot the shares in the interest of the company. Even though the provisions of Section 81(1A) of the Act are not applicable to the company, nor there is any provisions in the articles for proportionate allotment, yet, substantive majority of the shareholders had approved allotment of the entire 2000 shares to the 3rd respondent. Since the shareholders have taken the decision to allot the shares in the interest of the company to an outsider, notwithstanding the infirmities that we have noticed in the conduct of the EOGM, we do not propose to nullify this allotment on the ground that it is an act of oppression. Even though the petitioners have relied on certain letters written by them to the 2nd respondent indicating therein their desire to take further shares in the company, yet, the factum of their sending the letters has not been conclusively established.
14. This takes us to the next question whether the transfer of shares amongst 3 groups of shareholders in favour of the 3rd respondent was in violation of article 10 of the articles of association of the company and its effect. It is to be noted that in the petition, the main allegation was that of issue and allotment of 2000 additional shares and there was no allegation in regard to the transfer of shares. Even the respondents had not indicated in their reply any information relating to the transfer of shares. By an application dated 30-5-2000 (CA No. 128 of 2000), the petitioners brought on record, the matter relating to the transfer, on the basis of a letter from B. Roy Choudhary Associates, Chartered Accountants stating that 1787 shares held by the families of Shri Bera, Shri Roy and Shri Mukherjee had transferred their shares to the 3rd respondent during the months of August and September 1999. In that application, however, they have not sought for rectification of the register of members and instead they have only sought for certain interim relief in regard to the management of the affairs of the company. The prayer relating to rectification of the register of members was made orally on the ground that the provisions of article 10 of the articles of association of the company had been violated.
15. While the respondents admit transfer of shares to the 3rd respondent, yet, according to them the transfer is in accordance with article 10 of the company. According to the petitioners, they had written to the company various letters expressing their desire to purchase the shares held by the three groups and as such they should have been offered the shares in accordance with the articles. Article 10 has Sub-clauses (a) to (h) dealing with transfer of shares by shareholders.
Article 10 reads :
"(a) Save as provided as hereinafter provided in sub-clause (g) of this clause, no share shall be transferred to any person who is not a member of the company so long as any member is willing to purchase the same at fair price which may be determined by the company at the annual general meeting every year and in default thereof any valuation assessed by the company's auditors will be considered as the fair value.
(b) In order to ascertain whether any member is willing to purchase a share at a fair value, the person proposing to transfer the same, (hereinafter called the retiring member) shall give in writing (hereinafter described as a sale notice) to the company that he desires to sell the same. Every sale notice shall specify the denoting number of the shares which the retiring member desires to sell and appoint the company as agents of the retiring member for the safe of such shares at a fair value.
(c) If the company shall within three months after service of a sale notice find a member willing to purchase any share comprised therein (hereinafter described as the purchasing member), they shall give notice thereof to the retiring member and the retiring member shall be bound upon payment of the fair value to transfer the share to such purchasing member who shall be bound to complete the purchase within seven days from the service of such last mentioned notice. The Directors shall with a view to find a purchasing member offer any share comprised in said notice to the existing members of the company (other than the retiring member) as nearly as he in proportion to their holding of shares in the company and shall limit a time within which such offer if not accepted will be deemed to be declined and the Directors shall make such arrangements as regards the finding of a purchasing member for any shares not accepted by a member to whom they shall have so offered as aforesaid within the time so limited as they shall think just and reasonable.
(d) If the directors do not within the space of three months after the service of a sale notice find a purchasing member for all or any of the shares comprised therein and give notice in the manner aforesaid or if through no default of the retiring member the purchase of any share in respect of which such last mentioned notice has been given shall not be completed within three months from the service of such notice the retiring member shall at any time within three (3) months thereafter be at liberty to sell and transfer the shares comprised in the sale notice (or such of them as shall not have been sold to a purchasing member) to any person and at any price.
(e) The instrument of transfer of shares shall be executed both by the transferor and the transferee and transferor shall be deemed to remain the holder of the share until the name of the transferee is entered in the register of members in respect thereof.
(/) Any share transferred in contravention of the above regulations share be forfeited to the company and the forfeited share may be sold or otherwise disposed of at the option of the directors.
(g) Shares transferred by a member to his or her legal heirs, father, mother, brother, sister, son and heir adopted according to the Hindu Law, daughter, husband or wife as the case may be, shall not require previous approval of the directors."
16. As per article 10(a), no member can transfer shares to a non-member as long as any other member is willing to purchase the said shares. Article 10(b) deals with a situation wherein a notice of intention to sell has to be given to the company to ascertain as to whether any member is willing.
Articles 10(c) to 10(f) deal with th'e'proc'edural aspect after a notice under article 10(b) is issued to the company. We do not find any provision in article 10(a) prohibiting a member from identifying a willing member on his own and negotiate the price for the shares. In the present case, since we have already held that the allotment of shares to the 3rd respondent was in the interest of the company, he became a shareholder on 24-3-1999. Therefore, since he was willing to purchase the shares offered, as is obvious from the facts of this case, in terms of article 10(a), the other members were at liberty to sell the shares to the 3rd respondent. Article 10(b) has no application in the present case as it would be applicable only when a shareholder is not able to identify a member willing to purchase the shares. Even assuming, as contended by the petitioners, that, in terms of article 10, they should have been offered shares, we find that in such a situation they would have been entitled, in terms of article 10(c) only to 23 per cent of the shares transferred. Therefore, their claim that all the shares should have been transferred to them is not in conformity with the articles. As we have observed, in relation to the allotment of shares, when the majority of the shareholders take a decision to transfer their shares with the view to protect the interests of the company which is in financial difficulties, then, even if there is violation of the provisions of the articles, the same cannot be considered to be an act of oppression. In the case of Pushpa Katoch v. Manu Maharani Hotel [2001] 31 SCL 97 (CLB - N. Delhi), three of the four sisters managing the company, transferred their shares to an outsider in view of the dire financial position of the company, The fourth sister filed a petition under section 397/398 challenging the transfer on the ground that there was an MOU among the sisters by which if any of the sister were to sell the shares the same should be offered to the other sisters proportionately. Taking into consideration that the company was in real financial difficulties and that the transferee was financially sound to revive the company, the Bench held that in transfer ring the shares to an outsider, the three sisters had not acted in an oppressive manner and had done so in the interest of the company. The same decision is applicable in the present case also, as the facts reveal that till the 3rd respondent took over the company, the cinema hall was not functioning for nearly 3 years due to financial crunch.
17. Even though we have held that neither the allotment of shares nor the transfer of shares could be considered to be an act of oppression against the petitioners, the same was based on the facts of this case that the company was in financial difficulties and the other shareholders had acted in the interest of Ihe company in allotting and transferring the shares. However, if we take into consideration the nature of the company in which there were 4 identifiable group of shareholders whose shareholdings had remained the same from 1964, in all fairness, the willingness of the petitioners holding 23 per cent shares in the company, in regard to the revival of the company should have been ascertained before handing over the majority control of the company to an outsider. To this extent we are of the view that the petitioners have been wronged meriting grant of appropriate relief to them. Under section 402 of the Act, the Board has wide powers to pass any order with a view to put an end to the matters complained of. In the present case, we find that the individual rights of the petitioners' group as shareholders have been directly imperilled as every shareholder is entitled to attend the meeting and subscribe to the additional share capital to meet the percentage holding. However, it is also seen that after the 3rd respondent took over the company, the cinema hall had started functioning and lately it had also generated some profits. Therefore, it would not be in the interest either of the company or the shareholders if a resolution passed in the EOGM on 24-3-1999 are declared as null and void and all the transactions that had taken place subsequent to that are quashed. To winding up the company would also not be in the interest of the company and the shareholders. From the proceedings, it is crystal clear that the strained relationship between the parties would affect the smooth running of the company. Under the circumstances we are of the view that to put an end to the complaint of oppression the appropriate solution is for the respondents to buy out the petitioners. This is in line with the numerous decisions passed by different High Court and this Board following the decisions in the case of Scottish Co-operative Wholesale Society v. Meier [1958] 3 All ER 66 and the Division Bench of the Calcutta High Court in Rama Shanker Prasad v. Sindri Foundry (P.) Ltd. [1966] 1 Comp. LJ. 310 which were passed in similar circumstances, and also in line with the provisions of section 402.
18. In view of what has been stated above we direct that the petitioners group Will go out of the company on receipt of proper consideration for the shares held by them. The company will get the valuation of the shares done by the statutory auditors of the company on the basis of the balance sheet as on 31-3-2000 within 3 months from the date of this order. However, before submitting the final report on the valuation, the auditors concerned will give a draft of the same to the parties who shall file their objection thereto if any within one month from the date when received. The auditors shall after considering the objections if any give final report. The auditors fees for valuation will be negotiated and paid by the company. On the basis of the valuation, the consideration worked out for the shares held by the petitioners group shall be paid either by the respondents or by the company, who shall be bound to purchase the shares. In case the respondents desire to purchase the shares, the petitioners will execute blank transfer forms and handover the same to the respondents on receipt of consideration. In case the company desires to purchase the shares, the same shall be cancelled on payment of consideration and the share capital of the company shall be reduced to that extent. The whole exercise shall be completed within six weeks from the date of receipt of the valuation report,
19. The petition is disposed of in the above terms with no order as to cost.