Company Law Board
Col. (Retd.) Dalip Singh Sachar vs Maa Karni Coal Carriers P. Ltd., Maj. ... on 28 December, 2004
Equivalent citations: [2006]130COMPCAS641(CLB), [2005]62SCL207(CLB)
ORDER
K.C. Ganjwal, Member
1. The petition has been filed by Col. (Retd) Dalip Singh Sajjan against M/s Maa Karni Coal Carriers Pvt. Ltd. and Ors. under Section 397/398 of the Companies Act, 1956 (Act) alleging acts of oppression and mismanagement in the affairs of M/s Maa Karni Coal Carriers Pvt. Ltd. (the company). The main grievance of the petitioner was that he was arbitrarily and malafidely removed from the post of director by this application of Section 283(1)(g) of the Act, that he was not furnished the accounts and documents of the company and that a civilian was inducted as a director contrary to the Memorandum and Articles of Association of the company and further shares were issued without making any offer to the petitioner. The petitioner has sought various reliefs as mentioned in the petition.
2. This case was earlier heard by Division Bench of this Board and the judgment was pronounced on 29.10.1999. Although the case was heard on merits but some of the issues were not examined and the petition was disposed of. The petitioner went in appeal before the High Court of Delhi. The impugned order passed by this Board dated 29.10.99 was set aside and quashed, and the matter remitted back to this Board for afresh consideration and its decision. The High Court observed that it is made clear that all the issues raised in the petition under Section 397/398 of the Companies Act and the objections taken thereto by the applicants herein shall be taken notice of, considered and a decision shall be rendered by this Board in accordance with law as expeditiously as possible, Accordingly the again was again heard afresh. Hence this order.
3. A scheme was formulated by Ministry of Defence and the Ministry of Energy in 1979 to raise ex-servicemen coal transport companies with the duel purpose of having union free captive transport companies in coal subsidiaries of Coal India Ltd. and for providing re-settlement opportunities to ex-servicemen. The Director General of Resettlement laid down certain guidelines for formation and running of these transport companies. Some of the conditions are that a minimum of 3 retired officers/JCOs are required to form a private limited company. Such companies sign a contract with a co-subsidiary for carrying the coal for a period of five years which is renewable for another 5 years. Ex-servicemen owner drivers are eligible to procure one tipping truck and attach with the transportation company. The company will take a 15% gross earning for each vehicle for administrative cover provided by them. The balance of earning will belong to the ex-servicemen owner drivers.
4. The petitioner, who is an ex-serviceman alongwith second and third respondents, who are also ex-servicemen incorporated the respondent company in 1995 with the sanction of the Director General Resettlement. The object of the respondent company was to carry on the business of transportation, transport agent for carriage of goods and passengers and allied objects. All the three ex-servicemen mentioned above, were the signatories to the Memorandum and Articles of Association and Promoter Directors. Each of them having 333 shares each of the subscribed capital of 10000 shares of Rs. 100 each. The petitioner purchased two tippers and gave the same to the company for carrying coal.
5. The petitioner argued his case in person and submitted that the disputes between the parties started when the petitioner demanded proper account of the two tippers that he had given to the company. With his persistent demand for the accounts for the tippers, the respondents No. 2 and 3 engineered and fabricated the minutes of the Board Meetings to indicate that the petitioner had not attended the three Board Meetings for the purpose of invoking the provisions of Section 283(1)(g) of the Act. He pointed out that the respondents have alleged that he had not attended the Board Meetings held on 27.6.96, 4.7.96 and 29.8.96. The petitioner had not received any notice for the meetings and as such the question of his attending these meetings did not arise. Further as per article 40(b), no director can be removed/inducted without the prior approval of Director General of Resettlement. The claim of the respondent that the petitioner avoided them by not attending Board Meeting due to the demand of the respondent to repay loans taken by the petitioner is unfounded. The petitioner submitted that the respondents have produced copies of certificates of postings but the notices were actually not posted. The certificate of posting is not a conclusive evidence of sending the communication in question. It was also submitted that the contention of the respondents that the petitioner had vacated the office in terms of Section 283(1)(g) is wrong in as much as the provisions of this Section provide that if a director does not attend three consecutive Board Meetings, or all meetings of the Board for a continuous period of three months, whichever is longer without, obtaining leave of absence from the Board, then, he ceases to be a director. The petitioner submitted that the period of three months would commence from the date of first meeting in the present case. The first meeting was called on 27.6.96, then the three months period from that date would expire on 26.9.96. The petitioner did attend a meeting held on 23.9.96 which was prior to 26.9.96. Therefore, the argument of respondent that he ceased to be a director on 29.8.96 is not legally correct as the three months period would expire only on 26.9.96. The petitioner also pointed out to the letter written by DGR to the company on 42.97 in which DGR himself had stated that the stand taken by the respondent that the petitioner had vacated his office was not in order and that he would be put back on the Board. In view of the fact that the company was incorporated by three persons including the petitioner with respondent No. 2 and 3 with equal shareholding and with equal participation in the management, exclusion of one of them from the management is an act of oppression justifying winding up of the company on just and equitable grounds. Accordingly, the petitioner prayed that the application of Section 283(1) (g) in his case was wrong and he should be put back on the Board as director.
6. The petitioner submitted that respondents had inducted a civilian businessman as a director. This fact came to the knowledge of the petitioner when he, received the notice of the Board Meeting to be held on 23.9.96 wherein an endorsement had been made to Shri Satish M. Thakur, who is a civilian businessman. As per article 32 of the Memorandum and Articles of Association of the company, only ex-servicemen can be appointed as directors with the prior approval of DGR. The dependents of Ex-servicemen can be appointed but there is no provision in the articles for appointment of a civilian. Therefore, the appointment of a civilian is against the provision of the articles and as such should be declared as null and void.
7. The petitioner further submitted that without adhering to the provisions of Article 10 of the Articles of Association which provides that at least 90% of the equity shares are to be issued only to ex-servicemen, the company had allotted 1550 shares out of 5000 shares in a Board Meeting held on 23.9.96, to a civilian. This accounted for 33% of the shares so allotted. The company first wrote to DGR seeking for allotment of shares and thereafter allotted the shares in a Board Meeting. However, there is nothing on record to show that distribution of shares has been decided in some Board Meeting before approaching DGR for permission. The petitioner was not consulted in any Board Meeting regarding distribution of shares and the permission of DGR was obtained which is against the provisions of Articles of Association. The DGR had given approval through his letter 6.8.96 for allotment of 19000 shares but the Board of Directors allotted only 5000 shares including 1666 shares to the second respondent even though the petitioner should have been allotted 3333 shares as per approval of the DGR. The Board did not do so and the entire allotment of shares should be declared illegal and void.
8. The petitioner further submitted that the company was created on mutual trust among the promoter directors but respondent No. 2 had been running it as his own company without adhering to the provisions of Articles of Association and the Act. The Annual General Meetings are not held in time and the financial position of the company is not correctly reflected as evident from the balance sheet and profit and loss account as on 31.3.96. The conduct of the affairs of the company has been oppressive, burdensome and prejudicial to the interest of the petitioner. The Respondents altered the composition on Board of Directors contrary to the provisions of Article 32 and 40(b) of the Memorandum and Articles of Association of the respondent company in the invalid Board Meetings by ulterior motives of inducting respondent No. 2's brother-in-law who is a civilian into the company for exclusive control. Otherwise, there was no need of issuing fresh shares since existing shares were already fully subscribed. The Director General Resettlement has no powers beyond the scope of Article 8(b), 32 and 40(b). The transfer and sale of pledged shares consequent to the death of Brig. F.S. Yadav to selected individuals leaving only 33 shares for the widow without the authority of Mrs. Uma Yadav is not only wrong manipulative and contrary to law and is in violation of Article 19 but is a clear indication of an invisible hand controlling the company for ulterior motives. The defective accounts, balance sheets for the year 1995-96 as on 31.3.96 of the respondent company with unaccounted gaps of Rs. 10 lakhs to 15 lakhs were pointed out in the annual general meeting but were passed despite observation on 2.11.96. The petitioner was further stated that there is gross violation of various mandatory provisions of the Act. Some of the sections quoted by him are 53, 81, 166, 171, 172, 173, 209, 210, 211, 219 and 286 to indicate gross mismanagement of the affairs of the respondent company. The petitioner submitted that the above acts amount to criminal breach of trust, mismanagement and oppression against the minority shareholders and submitted that the circumstances warrant winding up of the respondent company being just and equitable and also action under Section 247 of the Act. In the end he prayed that the appointment and induction of Shri Satish Thaper and Lt. Col Rajeev Kohli (Retd) as directors, illegal increase of equity in an invalid meeting from 10 to 15 lakhs and its motivated and ultra virus distribution, the application of Section 283(1)(g) against the petitioner, be declared as null and void.
9. The Managing Director of the respondent company appearing on behalf of respondents in reply submitted that this Board had passed orders permitting filing of additional documents, to support the contention put-forth by the petitioner that the respondent had committed certain acts after the orders of Delhi High Court dated 23.7.2003. It is submitted that all documents filed by petitioner except letter dated 12.2.2004 are pertaining to period prior to passing orders by Delhi High Court. The present affidavit is yet another attempt by the petitioner to distort facts to serve his malicious intentions. The affidavit has not been attested and therefore ineligible. The petitioner had filed certain documents with the Director General Resettlement (DGR) prior to the interview on 24.10.94 to meet the requirement of possessing his eligibility and financial worth.
10. The petitioner had submitted documents to support both his capacity as well as his willingness to invest Rs. 4.90 lakhs during the interview for preliminary selection and he also signed memorandum and articles of association indicating his willingness to continued 3333 shares, each valued at Rs. 100 and be one of the first directors. The petitioner had also applied to DGR for sponsorship for financial assistance to purchase two tipper trucks involving a financial investment of Rs. 1.70 lakhs as margin money for the loan to be sanctioned. The petitioner was thus required to deposit a total of Rs. 5,03,300.00 (i.e. Rs. 333.00 +100.00) as part of equity and margin money respectively before the company could be sponsored by the DGR. The petitioner offered excuses and expressed his inability to invest any money and consequently the other directors were to safeguard the sponsorship by the DGR temporary loans was arranged and the required amounts deposited on behalf of the petitioner. The petitioner has acknowledged this fact in his letter dated 26.10.95 in his own handwriting. The petitioner has not paid a single penny till date and he has been making various efforts to blackmail the company and reap the fruits of labour and investment of others. The petitioner has submitted in his petition No. 22/97 of 5.2.97 alleging the following:-
1. Removal as director of the Company .
2. Non production of accounts for tipper trucks
3. Induction of a civilian as director
4. Increase of share capital without offer being made to the petitioner.
11. The respondent submitted that regarding restoration to the post of director, the petitioner had vacated office by operation of law as provided in Section 283(1) (g) of the Act and had not been removed as alleged by the petitioner. The notices of the meetings have been served and the computation of three months was required to be done in terms of calendar months as provided in Section 285 of the Act and clarification issued through departmental channel. The respondent also submitted that directors complaint cannot be agitated while submitting a petition under Section 397/398 of the Art. The petitioner attached a letter of DGR dated 4.2.1997 with his petition wherein DGR had issued instruction restoring the petitioner to the post of Director. It is submitted that DGR is neither a statutory body nor vested with quasi-judicial powers to overrule the provision of Section 283 of the Act. The petitioner had managed to obtain the letter dated 4.297 from DGR and filed the said petition on 5.2.97 before the contents of the said letter could be challenged in any court of law. Although the petitioner has relied on Article 40(b) of Articles of Association, which deals with removal and induction of directors. Such induction of directors is covered by Section 260 and removal under Section 284 of the Act whereas the petitioner vacated office under the provisions of Section 283(1)(g) of the Act. The Hon'ble High Court in their order quashing and setting aside the CLB order dated 29.10.99 relied upon the Supreme Court decision in Hanuman Prasad Bagri's case and reproduced para 11 which reads as under:
The last and the most important point urged is in regard to continuation of directorship of the first petitioner. The first petitioner joined the company in or about 1971 and he is a Director. It was noticed that the last Board meeting which he appears to have attended was held on 19.8.85 but apparently he did not thereafter attend the meeting of 16.11.1985. Thereafter there was no material to show that he went to the corporate office or attended any Board meeting. Petitioner 1 pleaded that the Respondents could not have treated him as ceased to be a director in terms of Section 283(1) (g) of the Act. Form 32 had been filed by' the company with the Registrar of Companies on 15.1.88 showing that petitioner 1 had ceased to be a director with effect from 21.12.87 and since then it is maintained throughout that petitioner 1 ceased to be in the office of the director of the company. The Division Bench noticed that the position that petitioner 1 ceased to be a director is seriously disputed and the Division Bench ultimately concluded that the termination of directorship would not entitle such person to ask for winding up on just and equitable grounds in as much as there is an appropriate remedy by way of company suit which can given him full relief if such action had been taken by the company on inadequate ground. The Division Bench found that if a director even if illegally terminated cannot bring his grievance as to termination, to winding up the company for that single and isolated act, even if it was doing good business and even if the director could obtain each and every adequate relief in a suit in a count."
12. It was also pointed out even though the affidavit with the original petition was signed on 5.1.97, the petition was filed only on 24.2.97, when the matter in a civil suit filed by the petitioner on the same allegations, was pending before the High Court. Para 28 to 56 of the petition are verbatim of the plaint in the suit before the High Court. Accordingly, the petitioner is indulging in forum shopping which should not be encouraged. The respondents also pointed out that in the petition there is no prayer that the petitioner should be put back on the Board. With regard to the claim in the petition that company should be treated to be in the nature of partnership as claimed by the petitioner, the question of considering of partnership principle does not arise in view of the judgment of the Supreme Court in the case of Hanuman Prasad Bagri quoted above. Dealing with the merits of the case the respondent submitted that the petitioner ceased to be a director by operation of law in terms of Section 283(1)(g). Inspite of notices given to him under certificates of posting at pages 73 to 88 of the reply the petitioner did not attend Board Meeting held on 27.6.96, 4.7.96 and 29.8.96. The production of copies of the certificates of posting is conclusive evidence of posting of notices as held in Parmanand Chaudhary v. Smt. Shukla Devi (67 Comp. Cases 45-MP). The question of seeking permission of DGR in terms of Article 40(b) does not arise as the petitioner was not removed as a director but by operation of law, he ceased to be a director. Form No. 32 was filed with the Registrar of Companies on 8.10.96 indicating that the petitioner ceased to be a director on 23.9.96. The respondent further submitted that the period of three months 25 specified in that section refers to calendar months and as the petitioner did not attend the meetings held in June, July and August, 1996, he ceased to be a director. He referred to the clarification issued by the Deptt. of Company Affairs in terms of Section 285 of the Act, according to which the term 'month" as used in that section refers to a calendar month. He also pointed out that the main reason as to why the petitioner avoided attending more meetings inspite of notices was that the second respondent was demanding repayments of loans given to the petitioner. The respondent company had written to DGR wherein the company explained the legal position in this regard and the DGR was satisfied with the explanation. Therefore, the respondent submitted, the petitioner cannot have any grievance when he ceased to be a director due to his own conduct.
13. In regard to rendering of accounts relating to the tippers given by the petitioner to the company, the respondent submitted that this matter was discussed in a Board Meeting held on 25.4.96 which the petitioner attended and it was brought to the notice of the Board that since the rate contract with the principle employers had not been finalised and inspite of that the company was able to repay the installment due to the tippers, the profit and loss account for the period Jan. 95 to 31.3.96 included the accounts of tippers belonging to the petitioner. In the Annual General Meeting held on 2.11.96 the complete information relating to the tippers was explained to the petitioner stating that the tipper account was in debit and no amount was payable till rate contract was finalised and all arrears received. He further submitted that in addition to the petitioner, others had also given tippers to the company and no one has made any complaints regarding non rendering of accounts. The respondent mentioned that curlier CLB did not proceed with this issue since a separate petition had been filed in Delhi High Court (since transferred to District Court, Tis Hazari, New Delhi) and is awaiting adjudication.
14. In regard to increase of equity and allotment of shares the respondent submitted that Southern Eastern Coal Fields Ltd. with which the company has been doing business, sought for increasing the number of tippers from 13 to 20. Accordingly the company had to increase the share capital for which the permission of DGR was taken to increase the authorized capital from Rs. 10 lakhs to 15 lakhs. Before approaching the DGR, the matter was discussed in board meeting held 26.4.96 in which the petitioner expressed his unwillingness to make any contribution as is evident from the copy of the minutes at page 36 of the petition which has been signed by the petitioner himself. Thereafter, the company took up the matter with BMC Bank Ltd. vide letter dated 4.7.96. For grant of loan to purchase one pay loader and nine tippers. In the same way the company also wrote to DGR requesting for sponsoring ex-servicemen for attachment of 9 uppers. The DGR did not sponsor any ex-serviceman but permitted the company to increase its share capital. While giving approval to the proposal, DGR himself approved allotment of 1500 shares to Shri Satish Thaper, a civilian and accordingly 1500 shares were allotted to Shri Satish Thaper in the Board Meeting held on 29.8.96 but deferred the allotment for getting concurrence of the founding directors. Notice was issued for holding the Board Meeting on 23.9.96 to consider allotment of shares worth Rs. 5 lakhs. The notice was sent on 30.8.96 to all the directors including the petitioner as per copy of the certificate of posting at page 88 of the reply. The petitioner participated in the Board Meeting on 23.9.96 by invitation. The respondent submitted that the allotment was made in a transparent manner with the approval of DGR and with the knowledge of the petitioner. It was also submitted that Article 5 of articles of association empowers Board of Directors, with the sanction by ordinary resolution at a General Body Meeting to increase the equity capital. That process was gone through where the petitioner had also been issued with appropriate notice but failed to attend the General Body Meeting. Section 81 of the Act deals with further issue of capital and pre-emptive offer of shares but this is not applicable to a private company as per Section 81(3) of the Act. The petitioner has not even paid for the shares held in his name for the past 9 years and has pledged those in favour of respondent No. 2 for the loan arranged for the petitioner. Again the petitioner did not respond the offer of 1666 shares ordered by Company Law Board vide their order dated 29.10.99 and is unnecessarily raising hue and cry to harass and blackmail the company. In regard to the provisions of Article 10 which provides that not more than 10% of shares shall be allotted to persons other than ex-servicemen the respondent submitted that since the total number of shares in the company is 15000, civilians could be allotted upto 1500 shares. Accordingly, the share allotted to Shri Satish Thaper are not in violation of the provisions of Article 10.
15. In regard to appointment of a civilian director namely, Shri Satish Thaper, the respondent submitted that Article 40(b) provides that no director shall be removed or inducted without the prior approval of DGR. Shri Thaper was appointed as a director in the Board only after getting approval of the DGR conveyed by a letter dated 6.8.96. Although the Board of Directors had approved his appointment on 4.7.96 but form No. 32 was filed with Registrar of Companies only after receipt of approval from the DGR for his appointment which became effective only after the receipt of approval from DGR. It was further submitted that this issue had also not been proceeded with by this Board since the same was within the realm of DGR. The petitioner has been totally relying on the words "adult children only" contained in Article 32 and conveniently ignored the provisions of other Articles of Association.
a. Article 10.--Atleast 90% of the equity shares will be issued and acquired only by ex-servicemen and the balance of the shares may be issued to persons other than Ex-servicemen. No ex-servicemen director will have more that 33.33% shares.
b. Article 33--The qualification of a director shall be holding of atleast 25 (Twenty five) equity shares of Rs. 100 (hundred) each in his own name..."
c. Article 40--The Board of Directors shall have powers to appoint from time to time any other persons to additional director or directors but so that total number of directors shall not at any time exceed maximum number fixed by the Articles.
d. Article 40(b)--No director shall be removed/inducted from the Board of directors without the prior approval of the Director General Resettlement.
16. The perusal of all the relevant Articles of Association will illustrate that 1500 shares i.e. 10% of the equity shares of 15000 could be subscribed to by a civilian. Similarly, only 25 shares were the qualifying shares to be a director and any other person, which would include a civilian could be inducted as a director on the Board of Directors. The Prospective directors are interviewed by DGR prior to according his approval. Therefore, the contention of the petitioner is totally misplaced.
17. Regarding other miscellaneous issues raised by the petitioner like keeping of books (Section 163 of the Act) holding the Annual General Meeting (Section 166) recording of minutes of meeting (Section 193) and inspection of account books (Section 209) are being strictly followed and the petitioner has made vague allegations without specific proof. All these issues had been raised by the petitioner with the Registrar of Companies, NCT of Delhi & Haryana and the Respondents had adequately replied to Registrar of Companies. Accordingly the Respondents submitted that the petition be dismissed with costs.
18. I have considered the pleadings and arguments of both the parties who appeared in person. The main allegation in the petition relates to vacation of office by the petitioner as a director and an increase of shareholding and non allotment of shares to him. The other allegations are in regard to appointment of a civilian director, allotment of 1500 shares to the civilian and rendition of accounts for tippers.
19. Let me examine the first allegation relating to vacation of office by petitioner as a director. Before going into the main issue the provisions of Section 283 & 285 of the Act needs to be looked into which have been relied upon by both the parties and have a bearing on this case. The Respondents contented that in computation of three months, the calendar months should be taken into account. The petitioner had not attended the meetings in June, July and August 1996, and therefore, he ceased to be director and vacated his office in terms of Section 283(1) (g). I do not agree with this contention. The plain regarding of Section 283 for completion of period of three months would commence from the date of first meeting which a director absent himself from three consecutive meetings of the Board of Directors, or from all meetings of the Board for a continuous period for a three months whichever is longer without obtaining leave of absence from the Board. The word "whichever" is longer in Section 283(1) (g) clearly indicates that the three consecutive meetings of the Board of Directors should be computed from the date of the meeting and not from the calendar months whereas all meetings of the Board which is second part of the section indicates a continuous period of three months which means three calendar months. The Respondents relied on clarification issued by the Department of Company Affairs according to which month "as used in that section refers to a calendar month". I am not inclined to accept this proposition as in an ample number of cases the company Law Board has consistently held that the three meetings should be computed from the date of first meeting and not three calendar months. The clarification of Ministry of Company Affairs in respect of Section 285 of the Act is not relevant to Section 283. The clarification given for Section 285 is clearly for Board Meeting which are required to be held every three calendar months whereas the completion of computation of time in Section 283 has to be taken from the date of first meeting of the Board of Directors.
20. It is alleged that the petitioner has not attended the Board Meetings held on 27.6.1996, 4,7,1996 & 29.8.1996. No notices for these meetings were received by the petitioner and as such he did not attend these meetings. The stand of the Respondents is that the petitioner ceased to be a director by operation of law in terms of Section 283(1)(g). I have already discussed the provisions of this Section which stipulates that if a director absents himself without obtaining the leave of absence from three consecutive meetings of the Board and /or from all meetings of the Board for a continuance period of three months, wherever is longer then he vacates the office of the director. There are inconsistencies in the stand of Respondents as to on which of the two alternative grounds, the petitioner ceased to be a director. In page 90 of the reply it is mentioned that the petitioner did not attend three Board Meetings. In the minutes of the meeting held on 29.3.1996, it is recorded that the petitioner attended the same by invitation and that the Board did not condone the absence of the petitioner in the three previous meetings. Hence the stand of the company appears to be that the petitioner ceased to be a director on 28.9.1996 being the last of the three meetings, which he did not attend. During the arguments, the Respondent submitted that he petitioner did not attend all the Board Meeting held in three continuous calendar months. Form No. 32 indicates the date of cessation of office as on 23.9.1996 whereas in the minutes of the Board Meeting dated 23.9.1996, it is recorded that the petitioner should vacate office w.e.f. 29.8.1996. The company is therefore not clears as to how the petitioner ceased to be a director-whether due to absence from three consecutive months. The examination of the notices of the Board Meeting and the certificate of posting indicates that the notices have been addressed only to the petitioner and not to other directors. Secondly, the certificate of posting is from Patel Nagar Post Office on 27.6.1996 which is quite far from Munirka. The stamp on other two UPC's are not clear. In ample number of cases the people have been able to obtain false certificate of postings from the various post offices. In the instant case also the post office chosen is Patel Nagar where generally a person will not go to obtain certificate of posting when the post office is within the colony. This does raise an element of doubt and the benefit should go to the petitioner. This Board had been closely scrutinizing such cases as the entrepreneurs are finding an easy route to get rid of a director who is not convenient to them by falling on the provisions of Section 283. Nonetheless it should be beyond doubt that notices were issued to the parties concerned, which is not so in this case as discussed above.
21. The Respondents have taken a stand and relied on the judgment on Hon'ble Supreme Court in the case of Hanuman Prasad Bagri v. Bagri Cereals Pvt. Ltd. and Ors. (2001) 4 SCC 420 wherein it is held that " even if a director illegally terminated cannot bring his grievance as to termination, to winding up the company for that single and isolated act even if it was doing good business and even if the director could obtain each and every adequate relief in a suit in a court. As such, this Board should not interfere or go into the legality of termination of a directorship under the provisions of Section 397/398 of the Companies Act for grating such relief. It is noteworthy to mention that the judgment of Hon'ble Supreme Court in the case of Hanuman Prasad Bagri (Supra) and decision therein speaks of single and isolated act of termination of directorship. Obviously, if the petitioner would have filed a petition in relation of termination of his directorship the same would not be maintainable Under Section 397/398. If such termination was done under Section 284 of the Act then the above case would apply but in the present case of termination of directorship is under Section 283(1((g) where the question of issue of notices, its validity etc has to be examined by the Board. If the valid notices were not issued it would tantamount to oppression against the minority shareholder, which is so in this case. Similarly, this Board has been relying on the judgment of SC Kilpest Pvt. Ltd. v. Sekhar Mehra (1196) VII ADSC 730) wherein it is held that in a company can be treated in the nature of partnership but has cautioned that the claim of partnership should not be easily accepted Thus, applying the principle of partnership would depend on the facts of a case. In the present case it is found that there is justification in applying the principles of partnership. If so, then, Directorial complaint can also be agitated. As already stated while as a general Principle, the allegation relating to vacation of office by a director cannot be agitated under Section 397/398, yet, this Board has taken a view that in case of family companies and those which are in the nature quasi-partnership wherein more or less equal shareholding and equal participation in the management have been agreed and acted upon or provided in the Articles, the exclusion of any of the shareholders from the management could be considered an act of oppression justifying winding up of the company on just and equitable grounds. In the present case, the company was incorporated as per guidelines issued by DGR for the welfare and rehabilitation of ex-servicemen. On of the condition, was that there should be a minimum three retired officers/JCO's and there should be minimum three directors. The admitted position is that the company was incorporated by the petitioner, respondent No. 2 and 3 who were also signatories to the Memorandum and Articles of Association. All the three were named as first directors. None of the directors was retired by rotation and they were not to be removed without the prior permission of the DGR. All the three were allotted equal number of shares except that second respondent was allotted one share extra. It is admitted by respondent that they all joined together with a view to have long standing association on mutual trust and confidence. They were also equal partners in the management as directors.
22. In view of the above discussions as already stated the principle of partnership company would apply in this case and having examined the notices of the meeting and certificates of posting from various post offices. I am of the view that the stand of the respondent that the petitioner vacated the office in terms of Section 283(1)(g) is not correct when it is on record that the petitioner did attend a meeting on 23.9.96. Accordingly, I direct that the petitioner should be taken back on the Board of Directors immediately. The notices for all future Board Meetings should be sent to all directors by Registered Post acknowledgement due with 7 days notice.
23. In regard to rendition of accounts for the tippers given by the petitioner the transaction in question with the company in this regard has nothing to do with his membership rights, which alone can be agitated in a petition under Section 397/398 of the Act. Secondly, the petitioner has already filed a civil suit, prior to the date of this petition.
24. In regard to allotment of shares the petitioner has agitated that a civilian has been 1 allotted more than 10% of shares in violation of the provisions of Article 10 of the Articles of Association. The stand of the petitioner that the percentage should be computed with reference to each and every allotment independently, is not tenable. Article 10 indicates that at any point of time, the shares held by a civilian should not exceed 10% of the shares in existence and it has nothing to do with such percentage being maintained in every allotment. Accordingly, the number of shares allotted to Shri Thaper being 1500 shares, comes only 10% of the total number of shares in existence at that point of time i.e. 15000 shares. The claim of the petitioner is therefore not tenable and unacceptable. Regarding the grievance of the petitioner that even though DGR approved allotment of 3333 shares to the petitioner vide letter dated 6.8.96 the company has not allotted any shares to him. The respondents have submitted that the petitioner was not willing to subscribe and they have relied on the minutes of the Board Meeting held on 25.4.96. Since the approval of DGR was received much after this Board Meeting, the company should have offered in writing to the petitioner to ascertain his willingness or otherwise to subscribe to the shares. As the DGR has allotted 3333 shares to the respondent directors, it would be appropriate that the company offers 1666 to the petitioner. The company should ascertain in writing the willingness of the petitioner to subscribe to 1666 shares and in case he expresses his willingness to accept the same, it should be allotted to the petitioner and consequently, the authorized capital of the company will stand increased to that extent. The offer should be made within 30 days by Regd. post from the date of this order and petitioner should respond together with necessary remittance of money within 15 days from the date receipt of the offer. Incase the petitioner does not respond within the stipulated time the offer will lapse.
25. In regard to the appointment of additional directors the petitioner has submitted that additional directors were appointed in a meting on 4.7.66 and the approval of the DGR was received only later vide letter dated 6.8.96 and thereby violating the provisions of article 40(b), according to which prior permission of DGR is necessary for induction of any director. Similarly the appointment of a civilian as a director is in violation of the provisions of Article 31 The DGR has been vested with the authority to approve the removal/induction of directors on the board of directors of the company as per article 40(b) while incorporating this company. The petitioner is directed to take up the matter with DGR, if he so desires and DGR shall dispose of the matter within one month from the date of receipt of such complaints/request. Before I close this case, it is pertinent to mention that during the oral arguments the petitioner has accepted that he has not paid invested a single penny till date in the company. Respondent No. 2 arranged loan to meet the requirement on his behalf and since 26.10.95 he has not back this loan which was bearing 18% interest per annum. The hand written letter of 26.10.95 of the petitioner is on record. It is interesting that the petitioner is not willing to invest any money and he wants to enjoy the benefits since its inception on the loan provided by respondent No. 2 Even on the last occasion provided to the petitioner by this Board's order dated 29.10.99, which has been set aside by the High Court, he failed to respond to the offer of subscribing to 1666 shares.
26. In order to end the dispute, 1 am of the view that the petitioner should be given liberty to sell his shares and go out of the respondent company on return of his investment in shares, as he feels oppressed by the majority shareholders. In case the petitioner is willing to part with his shares, then the DGR should allot these shares as per their rules and procedures, on valuation to be made by an independent valuer. The loan of respondent No. 2 taken by the petitioner shall be deducted as agreed to by the petitioner vide his letter dated 26.10.99 and the balance shall be paid to the petitioner. The valuation will be based on the balance sheet of the respondent company as on 31.3.2004. In case the petitioner desires to go out of the company, then on an application made by him, a suitable valuer will be appointed by this Board in consultation with both the parties.
27. With the above directions, the petition is disposed off. There are no orders as to cost.