Company Law Board
Opera Global Pvt. Ltd. vs Opera Hospital Medical And Research ... on 27 November, 2006
ORDER
Vimla Yadav, Member
1. In this order I am considering the Company Petition No. 93/2003 filed by M/s Opera Global Pvt. Ltd. holding 67.5% shares in the respondent company namely M/s Opera Hospital Medical and Research Centre Pvt. Ltd. alleging 'oppression and mismanagement' by the respondent No. 1 company and other respondents namely, Shri Mahesh Sharma (R-2) and Ors. This petition has been filed under Sections 397 and 398 of the Companies Act, 1956 (hereinafter to be referred as "the Act"). The petitioner has challenged the increase in the authorised and paid up share capital of the respondent company on 6.1.2003 from Rs. 85 lakhs to Rs. 125 lakhs by R-2; the allotment of Rs. 3,99,900 further shares to Shri Mahesh Sharma (R-2) and his family members thereby unauthorisedly and illegally reducing the petitioner's shareholding from 67.5% to 47%; the appointment of respondent No. 3 to 8 as additional directors on 6.1.2003 single handedly by the only director present namely, Shri Mahesh Sharma (R-2); besides, the change in the Regd. Office on 15.11.2002 from 3/52, Ladpura, Kota to A-1, Indira Vihar, Mahaveer Nagar-II, Kota (Rajasthan) as unauthorised and illegal. Hence this petition.
2. Undisputed facts of the case are: M/s Opera Hospital Medical Research Centre Pvt. Ltd. (R-1) was originally incorporated in the year 1996 in the name and style of M/s Shantanu Cements Pvt. Ltd. with an authorised capital of Rs. 5 lacs and a paid up capital of Rs. 400 (40 shares @ Rs. 10/- each) by Shri P.K. Sharma, Shri Sushil Kumar, Shri Prem Kumar Sharma and Mrs. Shalini Kumar Sharma as its promoter directors. The name of the company was subsequently changed to M/s Opera Hospital Medical and Research Centre Pvt. Ltd. on 15.2.1999 and necessary changes pertaining to change of name and Main Objects of business were also carried out in the Memorandum of Association. The main object of the R-l company as per the new Memorandum of Association is to carry on all or any of business of construction and running of hospital(s), Medical, Research Centre(s), Health Care Unit(s), Laboratory(ies), Testing Centre(s), Family Health Centre(s), Community Development Centre(s), Primary Health Centre(s), rehabilitation Centre(s), Centre(s), for disseminating knowledge on nutrition and health of human beings, conduct classes and or run institution(s), for education in field of medicine and community development, undertake management and maintenance of equipment, instruments and all such machines required for running of hospital, medical, research centers, etc. and assist in improving the operations of existing establishments doing the above activities including their rehabilitation, educate and train people for above, besides additional objectives. The main objects as contained in the original Memorandum of Association at the time of incorporation of M/s Shantanu Cements P.Ltd. were also included in the new Memorandum of Association. The petitioner company namely, M/s Opera Global Pvt. Ltd. is a major shareholder in the respondent No. 1 company holding approx. 67.5% of the total share capital of the respondent No. 1 company as on 31.12.2002 and is acting through its director, Mrs. Rakesh Verma duly authorised in this regard vide Board Resolution dated 24.9.03. The petitioner company had filed a tender with the Rajasthan Finance Corporation (hereinafter to be referred as RFC) for purchase of the hospital and was declared successful bidder. Opera Global Pvt. Ltd. the petitioner desired that the Hospital be transferred to M/s Shantanu Cements Pvt. Ltd. RFC agreed and at the time of issuing requisite conveyance/transfer of deed put the condition that during the currency of the loan, M/s Opera Global Pvt. Ltd. shall hold 51% of the shareholding of that auctioned hospital, the business of which stood transferred to M/s Shantanu Cements Pvt. Ltd. The name of Shantanu Cements P. Ltd. was changed to its present name by passing special resolution on 15.2.1999 and the new company was given the name of M/s Opera Hospital Medical and research Centre Pvt. Ltd. Thus, M/s Opera Global Pvt. Ltd. became major shareholder in the newly formed Respondent No. 1 company. On the date of filing of this petition the position of shareholding and appointment of directors of the company was as under:
Name As on 25.3.99 As on 31.12.2002 As on 6.1.2003
Mr. P.K. Sharma Director -do- -do-
Mr. Nakul Sharan -do- -do- -do-
Mr. Mahesh Sharma -do- -do- -do-
Additional Directors
Mrs. Rakesh Verma, -do-
Mr. Vinod Kainth -do-
Mr. Jatin Kainth -do-
Mr. Ritin Kainth -do-
Directors (Disputed)
Mr. Harish Chander Sharma,
Mr. Umesh Chander Sharma,
Mr. Anil Kumar Sharma
Ms. Sunita Kumari Sharma,
Ms. Santosh Kumari Sharma
Mr. Yogesh Kumar Sharma
The authorised share capital of Opera Hospital at the time of incorporation was Rs. 5.00 lakhs (50,000 equity shares @ Rs. 10/- each), which subsequently with the consent of all the Directors/shareholders was increased to Rs. 85.00 lakhs (8,50,000 equity shares @ Rs. 10/- each) w.e.f. 10.12.2002. The authorised share capital of Opera Hospital at present is Rs. 125 lakhs. The shareholding pattern of Opera Hospital as on 31.12.2002 and as on 6.1.2003 is as under:
Name of the company As on 31.12.2002 As on 6.01.2003(Disputed)
Opera Global Pvt. Ltd. 67.5% 5,74,000 shares 47% 5,74,000 shares+(not disputed)
100 shares allotted on 6.1.2003
Shri P.K. Sharma 10 " 10 shares
Shri Prem Kumar 10 " 10 "
Shri Sushil Kumar 7 " 7 "
Shri Harish Chandra Sharma 3 " Nil
Shri Mahesh Sharma &
Associates 32.5% 2,75.970 " 54% 6,75,873 "
---------- ------------
Total 8,50,000 " Total 12,50,000 "
3. The petitioner was represented by Shri U.K. Chaudhary. Advocate. Respondent Nos. 2 to 8 were represented by Shri Atul Sharma, Advocate. R-9 was represented by Shri Umesh Gulati, Advocate. However, R-1 has been represented by two counsels separately - by Shri Ajay Jain, Advocate on the authority given to him by Mrs. Rakesh Verma who is also the petitioner herein being one of the Directors of the petitioner company. At the same time R-1 is also represented by Shri Shyam Moorjani on the instructions of Mr. Mahesh Sharma(R-2). Considering the allegations and counter allegations by the two counsels representing R-1 at one point of time (as also indicated in my order dated 7.4.2006) I intended to ascertain as to which of the two counsels for R-1 (each representing different group) could be permitted to present the case for R-I. But on considering the inadequate material placed before CLB, I could in no way come to a definite conclusion in the matter. To avoid causing prejudice to any of the parties and in all fairness I permitted both the counsels for R-I to present their case. The counsel representing R-1 through the petitioners stood by the averments of the petitioner and categorically pointed out that the so called EOGM allegedly held on 6.1.2003 as well as the Directors meeting on 1.1.2003 were without resorting to the proper prescribed procedure and were held, if at all, illegally single handedly by the only director Shri Mahesh Sharma. Hence, the raising of the authorised share capital, allotment of additional shares and appointment of additional directors were all illegal. However, the counsel representing R-1 through the respondents stood by the averments of R-2 to R-8. R-9 impleaded at the fag end of the hearing on an injunction from the Rajasthan High Court, Jaipur also stood by the averments of R-2 to R-8.
4. Shri U.K. Chaudhary, counsel for the petitioner strongly objecting to the delaying tactics of the respondents argued that : No notice of any Board meeting held on 1.1.2003 and on 6.1.2003, were given to or received by any of the Directors.(affidavits at pages 53 to 84) annexed to the Rejoinder dated 19.12.2003 refer); it is nowhere stated in the reply that there was any Board Meeting held on 1.1.2003. No evidence, whatsoever has been shown to the Hon'ble Board regarding any notice or meeting of board of directors purportedly held on 1.1.2003. Without a Board Meeting on 1.1.2003, no notice of EOGM could be given. Notice dated 1.1.2003 annexed to reply is not a requisition by a shareholder but is convening of the EOGM by approval of the Board. No Board meeting on 1.1.2003 was convened or held. It is admitted case of the respondent that never a Board Meeting was held outside Kota, i.e. the registered office of the respondent No. 1 company as per his own admission as per his letter dated 18.12.2003 served on the company. Hence, respondents are estopped from claiming that there was any meeting held at Jaipur on 1.1.2003. It is admitted by the respondents that on 1.1.2003 as well as on 6.1.2003, there were only 7 directors, 6 out of 7 have given affidavits on oath that no notice was received nor they attended any Board meeting on 1.1.2003 or 6.1.2003. Therefore, there could not have been a Board Meeting on these dates. That admittedly on 1.1.2003 as well as on 6.1.2003 there were seven directors out of which six directors belonged to petitioner's group. Hence respondent No. 2 Mr. Mahesh Sharma alone could not have held meeting on 1.1.2003 and or on 6.1.2003 without the concurrence and consent of other six directors belonging to petitioners group as quorum could not be completed. That a board meeting was held on 31.12.2002, whereby allotment was made of shares including to respondent No. 2 group. Hence, there is no logic that after 31.12.2002, another meeting will be held on 1.1.2003, the next day only to take such important decision, contrary to the interests of the majority shareholders. That it does not stand to reason or logic that majority of the directors of the Board and majority of the shareholders holding 67.5% shares will permit their position to be diluted from majority to minority without any reason or without any consideration. Hence it is evident that all the documents relating to increase in the authorized capital are false, fabricated and are manipulated documents and appointment of directors is also fabricated. That in any case not more than 12 directors could exist as on 6.1.2003 because Articles permit only 12 directors as on that date. Hence, even articles are allegedly amended only on 6.1.2003 (on old form) which is illegal, unauthorised and void. That manipulation of Form 32 is evident from the fact that a form signed on 6.1.2002 by Mr. P.K. Sharma is used by respondent No. 2 on 6.1.2003, that is why the date of 6.1.2003 is chosen for filing of Form 32. The malafide of the respondents is evident from the fact that on page 133 date of 6.1.2002 is mentioned on form 32 is 6.1.2002 and page 132 date mentioned is 6.1.2003.
5. Shri Chaudhry further argued: That on 6.1.2003 at an alleged Board meeting, it is shown that further 3,99,900 shares were allotted to Mr. Mahesh Sharma and his family members. Out of the 4 lacs shares only 100 shares were allotted to the petitioner company and the balance 3,99,900 shares are allotted to himself by Mr. Mahesh Sharma and his family members. It was pointed out that the said allotment was made without any fresh induction of funds and it is against the provisions of law as there was no reason or occasion for such increase as the company did not require any increase in the capital on paper without fresh induction of funds. It was reiteratd out that Form No. 2 dated 6.1.2003 filed on 10.1.2003 is a false and fabricated documents because -
i. No notice of any Board Meeting held on 6.1.2003 was either given to the directors nor received by the directors.
ii. Affidavits of all the six directors constituting absolute majority belonging to the petitioner group have denied any such board meeting or the receipt of any such notice of meeting.
iii. It is evident from the Form No. 2, a return of allotment, that the same is false and fabricated as the date of the said form on page 155 is written as 6.1.2002 and on page 157 is written 6.1.2003.
iv. This fabrication is compounded by documents being form 32 also dated 6.1.203, filed on 10.1.2003 relating to the alleged appointment of six additional directors made wherein against the date of the Form is shown as 6.1.2002. Apparently an old form is being used. In any case, form No. 32 is only an intimation of an act of the board. If there was no valid board meeting, there is no validity of the form No. 32.
v. Appointment of six additional directors is also false and incorrect as allegedly made on 6.12.2003, when there was no board meeting.
It was further pointed out that Form No. 32 dated 6.1.2003 is also fabricated and false because -
vi. There was never any meeting of the Board of Directors held on 6.1.2003. No notice of such Board meeting was ever given or received by the majority of the directors namely 6 directors belonging to the petitioners group. Hence respondent No. 2, Mr. Mahesh Sharma alone could not constitute the quorum nor hold either of the Board meetings purportedly held on 1.1.2003 and 6.1.2003.
vii. The respondent No. 2 has illegally and unauthorizedly changed the registered office of the company from 3/352, Ladpura, Kota, Rajasthan to A-1 Indra Vihar, Kota, Rajasthan w.e.f 15.11.2002. No meeting of the board is convened at all or held on this date.
viii. Form No. 18 dated 15.11.2002 was filed only on 13.1.2003. This form is also false and fabricated because -
1. That no Board meeting has taken place on 15.11.2002.
2. The Form 18 dated 15.11.2002 allegedly was filed only on 13.1.2003 even after all the fabricated forms were filed on 6.1.2003 just to suit his convenience regarding the possession of statutory records of the company.
6. Shri Chaudhry pointed out that the respondents have made no arguments on the resolutions under Challenge. It was pointed out that Shri R.K. Jain duly authorised counsel appearing for the R-1 company has also supported the contentions of the petitioners that no meetings of the R-1 company either took place on 1.1.2003 or on 6.1.2003 and all the resolutions passed by Mr. Mahesh Sharma all alone are null and void and are liable to be set aside. My attention was also brought to Shri R.K. Jain's argument that all the minutes, of the Board Meetings as well as General Meetings as per law were duly recorded and maintained (these are in the possession of R-1) and that there were no Board Meetings either on 1.1.2003 or on 6.1.2003 and similarly there were no minutes for the shareholders meeting said to have been held on 6.1.2003.
7. Further, Shri U.K. Chaudhary argued that: The respondents have argued that the respondent No. 2 was running the affairs of the respondent No. 1 company. In this regard the respondents have relied on one public notice filed along with the reply. It was pointed out that the respondent No. 2 is admittedly a director of the company and he was in the management of the company alongwith other directors. However, it is incorrect to state on the basis of one notice that the respondent No. 2 was alone in the management of the company. Further, the respondents have relied on letter dated 11.6.2002 at page 26 of the reply by respondent No. 2 to 8, wherein the respondent No. 2 has made a payment of Rs. 4 lakhs to RFC. It was pointed out that the said payment was made in 2002, much prior to filing of the present petition and thereafter the respondent No. 2 has hardly made any significant contribution towards payment to RFC. Therefore, it does not lie in the mouth of respondent No. 2 to state that he was alone responsible in the management of the company. That the respondents have also argued (though the lease agreement dated 4.3.1999 with RFC provides that the petitioners will remain in majority till the pendency of the loan), that the petitioners are unable to explain, that how their money for investment in the shares in the respondent No. 1 was made and how the share capital was increased from 5 lacs to 85 lacs. Further, it was also argued by the respondents that the agreement with RFC was a private agreement and the respondent No. 1 company is not a party to it and therefore, the agreement is not binding on the respondent company. Shri Chaudhary argued that agreement dated 4.3.1999 was an agreement entered between RFC and respondent No. 1 company which was duly signed by the respondent No. 2 himself alongwith Mr. Nakul Sharan a director of the company. Therefore, the respondent No. 2 cannot say at this stage, which has also not been mentioned anywhere in the pleadings, that the same was a private agreement and company was not a party to it. Further, pursuant to the above agreement, the petitioners became a majority in respondent No. 1 company. The said fact is an admitted position in the reply filed by the respondent No. 2 to 8, wherein the respondents have admitted at various paras that there was no dispute on petitioner's majority shareholding of 67.5% (admitted reference in the reply of the respondents at page 5 para 5A, at page 16 para 2(i), at page 17 para 3(i) at page 20 para 3 and also at page 20 para (iv - v) refer). Therefore, it is an admitted case of respondents No. 2 to 8 that the authorized share capital of the company as on 31.12.2002 was 85 lacs and the petitioners were holding 67.5% shareholding of the company. That the respondents have also argued that no money actually came in the company at the time of investment by the petitioners. It was pointed out that the position as on 31.12.2002 of petitioners being majority shareholder of 67.5% is an admitted position and the counsel for the respondent No. 2 to 8 have argued contrary to their own pleadings. Further, the petitioners have already explained how the investment made by them came into the company (documents at page 24 to 50 refer). Therefore, the said argument has no merits and the same is liable to be dismissed. That the counsel for the respondents has also argued on the conduct of the petitioners in some other judicial proceedings. The counsel has also relied on various judgments in this regard. It was pointed out that the said argument has no merits and the respondents have mentioned the same out of context. Further, the conduct of the respondents in the present proceedings speaks volume, various orders passed in the present proceedings clearly show the conduct of the respondents.
8. Shri Ajay Kumar Jain, Advocate who entered appearance on behalf of the R-1 company on the authority of Mrs. Rakesh Verma argued that : It appears that Mr. Mahesh Sharma in the said EOGM held on 6.1.2003 has unilaterally(single director) resolved to enhance share capital from Rs. 85/- lacs to Rs. 125/- lacs by fresh issue of 40,000 new equity shares @ Rs. 10/- each. Simultaneously necessary changes/modifications in the memorandum of articles of association were carried out under the signatures of Mr. Mahesh Sharma(R-2). The maximum number of Directors in the Board was also unilaterally resolved to be enhanced from twelve to thirteen. Article 32 of the Articles of Association reads as under:
Article No. 32: Until otherwise determined by general meeting the number of directors shall neither be less than two nor more than twelve.
Subsequently Form No. 23 as required under Section 192 of the Companies Act was filed with the ROC, Jaipur under the sole signature of R-2, Mr. Mahesh Sharma Further, Article 50 of the Articles of Association of Opera Global reads as under:
Articles 50: The quorum necessary for the transaction of the business of the Directors shall be two or one third of the total number of Directors whichever is higher.
Proceedings of all legitimate Board Meetings and Shareholder Meetings have been duly minuted and recorded in the respective minute books which were produced before the Hon'ble Board during hearing. These Minute Books, maintained from the date of incorporation are the legitimate records, which ought to be relied upon for perusing the legitimise proceedings of the Board Meetings and Shareholder Meetings. Shri Jain pointed out that the Minute Books maintained by the company since the date of incorporation are in their custody. As per the Board Meeting Minute Book, there is no record of any Board Meeting held on either January 1, 2003 or on 6.1.2003. There is also no record of any EOGM held on 6.1.2003 in the EOGM Minute Book. There is no record of any decision of the Board of Directors at any time to shift the Regd. Office of the company w.e.f 11.11.2002. No Board Resolution was ever adopted or any authority was ever delegated to Mr. Mahesh Sharma to file Form 18 in this respect. Hence, any/all resolutions passed at the purported Board Meetings on 1.1.2003 and 6.1.2003 and purported EOGM held on 6.1.2003 held be set aside and all appointment(s) of Directors, allotment of shares, and shifting of Regd. Office pursuant to the purported EOGM and Board Meeting held on 6.1.2003 be declared null and void.
9. Shri Moorjani, the other Counsel for R-1 argued: That the petitioner has filed the present petition under Section 397 and 398 of the Companies Act alleging various acts of oppression of the petitioner by the respondents (which would include the respondent No. 1 company) and mismanagement of the respondent No. 1 company. However, the petitioner at the same time claims that it is a majority shareholder of the respondent No. 1 company and that the management of the company, the possession of hospital and its record are with the Petitioner Company's nominee Directors. The allegations made by the petitioners in the petition are false and baseless. The respondent No. 2 as the Director of the respondent No. 1 company and as the majority shareholder is in the possession of hospital and its record and is managing the affairs of the respondent No. 1 company. Thus the respondent No. 2 has the authorization and power to take all decisions on behalf of the respondent No. 1 company including the authority to appoint attorneys for and on behalf of the respondent No. 1 company and lake all necessary actions to file/defend suits and to represent the respondent No. 1 company in any court of law including in this Hon'ble Board. Without prejudice it was stated that the above claim of the petitioner company of having control over the affairs of the company would itself vitiate the present petition filed by the petitioner under Section 397 and 398 alleging oppression and mismanagement of the respondent No. 1 company. A petition under Section 397 and 398 alleging oppression and mismanagement would lie only against the person having the effective control of the company and not at the instance of the person allegedly having the effective control of the company. The petitioner cannot claim that the affairs of the respondent No. 1 are being conducted in a manner prejudicial to public interest or in a manner oppressive to the petitioner and at the same time claim that the petitioners are in management of the affairs of the respondent No. 1 company. Thus in view of the stand taken and positive assertion made by the petitioner (although denied by the respondent No. 1), that the management of the company, the possession of hospital and its record are with the petitioner company's nominee directors the remedy of Section 397 and 398 of the Companies Act, 1956 cannot be available to the petitioner and if the present petition is allowed then the same would not be in the interest of the respondent No. 1 company or its shareholders or in the interest of the public as it will be a loss to the Doctors, employees, etc who are working with the respondent No. 1 company and further a big loss to the General Public who use the facilities at Respondent No. 1 company.
10. Shri Atul Sharma, Counsel for the respondent Nos. 2 to 8 argued: That during pendency of the aforesaid petition, several applications, appeals and revision petition, etc. have been filed by the parties. These proceedings have material effect on present proceedings and their adjudication. It was pointed out that the Hon'ble High Court of Rajasthan recognized the respondent No. 2 as the promoter director of the company and allowed him to operate the bank account of the respondent No. 1 company. The petitioner through its directors were trying to remove the R-2 from operating the bank account of the R-1 company with a view to siphon away the funds of R-1 company. The R-2 in order to save the money of the R-1 company filed a writ petition being Writ petition N0.7559 of 2003 before High Court of Rajasthan against RFC and Bank of Baroda. The Hon'ble High Court vide order dated 21.1.2004 allowed only respondent No. 2 to operate the bank account for clearing the statutory dues. It is clear that the Hon'ble High Court of Rajasthan therefore, recognized the respondent No. 2 as the promoter director of the company and allowed him to operate the bank account of the company. Shri Sharma pointed out that Mrs. Rakesh Verma, the petitioner herein and being one of the directors of the petitioner filed an application for impleadment as a party in the writ petition and prayed that she may also be allowed as a signatory of the bank account in R-1. The Hon'ble Court vide order dated 28.5.04 impleaded another director (Ski Nakul Saran) of the petitioner (M/s Opera Global Pvt. Ltd.) but did not allow Mrs. Rakesh Verma to be made the authorized signatory of the bank account. The court further held that only the respondent No. 2 along with Mr. Nakul Saran who are the founder directors of the respondent company be allowed to operate the bank account. It was pointed out that Mrs. Rakesh Verma had made an application for modification of the stay, wherein she had prayed for Mr. PK Sharma to be permitted to operate the account singly. However, the Hon'ble High Court dismissed the said application after taking into consideration that there were allegations of acts of omission and commission against Mr. PK Sharma and further that he should not be allowed to operate the accounts of R-1 company. The Hon'ble High Court in the circumstances allowed the two founder directors, R-2 and Mr. Nakul Sharma to operate the accounts of R-I company. This writ petition is pending adjudication before the Hon'ble High Court of Kajasthan. It is submitted that in case the Hon'ble High Court gives a finding that the bank account of the Respondent company can be operated only by the R-2 and he will be the director who will deal with bank account then the same will have material bearing on the present company petition.
11. Shri Sharma further pointed out that Mrs. Rakesh Verma, Director of the petitioner company has filed a Civil Suit in the Court of the Additional Civil Judge (JD) and Judicial Magistrate - II, Jaipur City, Jaipur wherein the allegations and prayers were substantially the same as in the present petition and wherein the cause of action for filing the civil suit and the company petition are also the same. In the said suit an interim application for stay was filed by the petitioner, Mrs. Rakesh Verma and the same was decided by the Hon'ble Civil Court by its order dated August 20,2004. The Hon'ble Civil Court has considered all the facts and given a conclusive finding that the R-2 has not committed any illegal activity in the hospital or caused any nuisance and decided the application against the petitioner. The Hon'ble Court also held that Mrs. Rakesh Verma has retired under Section 260 of the Companies Act, 1956 and that the payment of Rs. 58 lakhs was made from Bank account of the R-2. The said judgement dated August 20,2004 has not been challenged by the petitioner and has, therefore, attained finality and thus the same issue which is being reagitated in the present petition cannot be adjudicated by this Hon'ble Board. Further, the suit was withdrawn by the petitioners without notice to the R-2. Therefore, R-2 has filed an application for review of the order allowing the withdrawal of the suit. Notice of the said application has been issued to the petitioner and the same is pending. If the Hon'ble Civil Court comes to the conclusion that the suit was wrongly withdrawn and the withdrawal order is recalled then the present petition will have to be rejected under Order 7 Rule 11 CPC. Reference in this behalf be made to the case of Dr. V.J.S. Vohra v. Mr. Hardavin Johi and Ors. 2002 (CCA) GJX-0033-CLB. It is pertinent to note that the outcome of the same will have material impact on the present petition pending before the Hon'ble Board.
12. Shri Sharma also drew my attention to the company applications Nos. 222/2000 and 234/04 in the CP. It was pointed out that Mr. Yogesh Pancholi director of R-1 company had filed an appeal being Appeal No. 1 of 2005 against the order dated 23.9.04 passed by this Hon'ble Board deciding these applications. By order dated 28.10.05, the Hon'ble High Court disposed of the said appeal directing this Hon'ble Board to hear the parties and decide the CP/application. According to Shri Sharma both applications bearing Nos. 222/2000 and 234/2004 have to be decided before the petition is decided.
13. Further, Shri Sharma argued: That the very basis of the present petition is that and the justification given by the petitioner for filing the present petition is that it was mutually agreed at all times between the parties that the shareholding pattern in the R-1 company will be maintained at the level of 67.5% in favour of the petitioner company and the rest of the shareholding of 32.5% by the R-2 and his group. It was stated that there is no such understanding/agreement between the parties either in the Articles of Association of the R-1 company or otherwise. Without prejudice to the same it was stated that even if there was such an understanding between the parties, the same would be in the nature of a private agreement which cannot be given effect to unless these provisions have been incorporated in the Articles of Association of the R-1 company. Reliance is placed on the judgment of the Hon'ble Supreme Court of India in the case of V.B. Rangaraj v. V.B. Gopalakrishnan and the judgment of the Hon'ble Bombay High Court in the case of IL and FS Trust Co. Ltd. v. Birla Perucchini Ltd. 2004 Com case Vol 121 page 335 Bom.)
14. Furthermore, Shri Atul Sharma argued: That the relief under Section 397 and 398 of the Companies Act is an equitable relief which is left to the discretion of the Hon'ble Board and the conduct and good faith of the petitioner would be a relevant consideration for exercising the discretion. Petitioners have concealed and misrepresented material facts before this Hon'ble Board and have not approached this Hon'ble Board with clean hands. The instances of suppression and concealment of material facts have been detailed in the reply filed on behalf of the R-1-8 and the affidavit of the R-2 dated 22.7.2004 filed with Hon'ble Board. Moreover, the present petition is nothing but a part of the design of the petitioner to take over the control of the management of the respondent No. 1 company after the R-2 has given his heart and soul to the R-1 company and not only this, the R-2 has paid and cleared huge outstanding dues of the RFC towards the repayments of the financial loan. The Hon'ble Karnataka High Court in the matter of Srikant Dutta Narasimharaja Wadiyar v. Sri Venkateswara Real Estate Enterprises P. Ltd. and Ors. (1991)(72) CC 211 (KAR) has held that "even assuming that the allegations of the petitioners, if proved, do make out a case of oppression and mismanagement within the scope of Section 397 and 398 of the Act, mere proof of those allegations would not entitle the petitioners to the reliefs sought for when these reliefs are discretionary reliefs and they will be granted only to persons who approach this Court on good faith". Moreover, in the case of V.M. Rao v. Rajeshwari Ramakrishnan (1987) 61 CC 20 it was held that "there must be continuous acts constituting oppression upto the date of the petition. The events have to be considered not in isolation but as a part of a continuous story". This judgment is squarely applicable to the facts of the present case as the allegations pertain to only a single act which is falsely alleged to be an act of oppression committed by the respondents. The alleged act of oppression, i.e. the increase of share capital from 85 lakhs to 125 lakhs took place on January 6,2003 which was within the knowledge of the petitioners. Moreover, the petitioners have also conducted search in the record of the ROC, Jaipur in the month of Feb-March 2003 pertaining to the R-l company whereas the present petition is filed on Sep. 24, 2003 i.e. after a delay of more than 9 months which delay has not been explained by the petitioner. The present petition is therefore liable to be dismissed on this ground alone. Moreover, the present petition is barred on the principles of waiver, acquiescence and estoppel. The alleged acts and deeds complained of in the present proceedings cannot be taken cognizance of as the same are barred as the petitioner has acquiesced in such acts and deeds and have waived their rights to raise any objections in respect thereof.
15. Shri Sharma pointed out that in view of the notices/letters for repayment of loan amount from RFC and initiation of legal proceedings under Section 29 of the State Financial Corpn. Act, the Directors decided to hold a Board Meeting to take some decisions in this regard. A Board Meeting was held on 6.1.2003, where the directors decided that the Respondent company requires funds to repay the loan and save the company from being taken over by RFC. It was discussed in the meeting that although the share capital was increased last month but no actual funds were infused in the company as the shares were issued in respect of the loan given by certain persons to the respondent company. Therefore, the Board decided to hold an EOGM and increase the authorised and paid up capital of the R-1 company. It was also decided that since all the Directors of the company are not placed in Kota except, R-2, the Respondent company should have directors who are based at Kota and who can look after the day to day affair of the company. In view of this, six additional directors were appointed and Form 32 was filed by Respondent company with the ROC which was signed by R-2 as well as by Mr. PK Sharma. It was argued that if the present petition is allowed then the same would not be in the interest of the R-1 company or its shareholders or in the interest of the public as it will be a loss to the doctors, employees, etc who are working with the R-1 company and further a big loss to the General Public who use the facilities at R-1 company.
16. Shri Umesh Gulati, Counsel for Respondent No. 9 who entered appearance after final arguments had commenced argued: That the petitioner has filed the present petition whereby it has alleged that the increase in the authorized share capital of the respondent company from Rs. 85,00,000 to Rs. 1,25,00,000/- and also the appointment of six additional directors by Board Meeting dated 6.1.2003 and the subsequent form No. 32 filed with the Registrar of Companies was unauthorized, unlawful and illegal. It was pointed out that Form No. 32 filed before the Registrar of Companies bears signatures of Mr. P.K. Sharma, the majority shareholder and Mr. Mahesh Sharma Respondent No. 2. It has also been alleged that the increase in the authorized share capital of the respondent No. 1 vide Form No. 5 dated 6.1.2003, giving the notice of the increase in the authorized capital was not with consensus, done without the support of majority shareholders and was done without authority. It has been alleged that respondent No. 2 for personal gain is indulging in unfair and inequitable activities and has made illegal and unauthorized appointments of Additional Directors and illegally allotted shares in favour of himself and his family members. It has been alleged that the activities of respondent No. 2 are prejudicial to the interest of the respondent No. 1. It was pointed out that the respondent No. 2 has interest of respondent company in mind. Every action taken by respondent No. 2 has been taken in the interest of Respondent No. 1. The respondent No. 1 had acquired the movable and immovable property from RFC in an open auction vide Conveyance deed dated 4th March 1999 for a sum of Rs. 2,40,00,000/-. The respondent No. 1 was required to pay 25% of the total auction money i.e. Rs. 60,00,000/- at the time of execution of the conveyance deed and the balance amount was to be paid in equal instalments of 7 years. The bid for the auction was made by the petitioner but as per the understanding between the petitioner and the respondent company out of the total of Rs. 60,00,000/- payment of Rs. 58,00,000/- was made by respondent No. 2 out of his own account. It has been practice in the industry, that the bidders in the industry do not incorporate a company and then bid for an acquisition of a business or property, rather they bid for the business and property through some other company or individual and once the bid is accepted, they form a new company to take over the business or property. In the present case also the bid was made through the petitioner company and once the bid was accepted, the respondent company which had no money was completely restructured in terms of the shareholding and the directorship, to acquire the business carried on by the respondent company from RFC. The Investment of Respondent No. 2 along with his group of investors was Rs. 57,68,600/- which was more than investment of the petitioner which was Rs. 57,40,000/- All the investment of the respondent was not in cash but by transferring assets of Opera House Export P. Ltd. The respondent No. 2 with bonafide intention and in the interest of Respondent No. 1 paid Rs. 58,00,000 to RFC out of his own account on 12.2.1999. The respondent N0.2 has the best interest of the respondent No. 1 in mind and has proved his bonafide throughout. It is submitted that the respondent No. 2 has not done any act which is illegal or which can prejudice the interest of respondent company, whereas it is the petitioner who with malafide intentions with personal benefit in consideration has instituted the present petition. The intention of the petitioner is not for the benefit of the respondent company or public interest but to assume the control and management of the respondent company and make personal benefit. It was pointed out that the company petition under Section 397/398 of the Companies Act, 1956 as filed before this Hon'ble Board is not maintainable in as much as that no cause of action has arisen against the respondents There have been no instances ever wherein it can be construed that any such act has been conducted in a manner which is prejudicial to public interest or in a manner oppressive to any manner or members. The real purpose of the petitioner herein is not what they are seeking from this Hon'ble Board but the real objective is to achieve a collateral purpose i.e. to take over the company that too after the respondent has contributed huge money to pay the outstanding dues of RFC . In such circumstances petition be dismissed by this Hon'ble Board. Shri Umesh Gulati, Counsel for Respondent No. 9 further argued: That a Board Meeting was held on l.1.2003 and the notice of the same was given to the all the directors of the respondent company including Mr. P.K. Sharma and it was decided in this Board meeting that considering the problems being faced the respondent company it was important to convene an Extraordinary General Meeting. The EGM was held on 6.1.2003 to consider various problems being faced by respondent company, as the shares of the respondent No. 2 did not reflect the investments made by respondent No. 2 and also as respondent No. 1 has a huge amount of loan outstanding to RFC, RFC had issued various reminders to the respondent No. 1 for the payment of the outstanding amount. Further, RFC had even threatened to initiate proceedings against the respondent company under Section 29 of State Financial Corporation Act if the outstanding amount is not paid in time. It was decided in that meeting that there was a need for increase in the capital of the respondent company to prevent it to be taken over by RFC. It was also decided that there was a need for the Directors who were based in Jaipur as all other Directors were not residents of Jaipur and who could look after day to day affairs of the respondent company and accordingly six Additional Directors were appointed as under:
a. Mr. Harish Chander Sharma b. Mr. Umesh Kumar Sharma c. Mr. Anil Kumar Sharma d. Ms. Sunita Kumari Sharma e. Ms. Santosh Kumari Sharma f. Mr. Yogesh Kumar Sharma
17. The contention of the petitioner that the share application money of Rs. 73,23,000/- as shown in the balance sheet was put in by the petitioner and respondent No. 2 is wrong and misleading. Whereas it is submitted that the present petition is motivated by the greed and the personal benefit of the P.K. Sharma. Shri P.K. Sharma along with his group of investors is only interested in reaping maximum benefit for them. After the increase in the share capital the respondent company has paid more than 25 lakhs to RFC and has also purchased CRAM equipment of Rs. 700,000/- for the hospital. This fact discloses that the respondents company is being run bonafidely and the steps which have been taken are legal and to save the company. It can be said that the petitioner herein is misusing the jurisdiction of this Hon'ble Board and as well as the statute. The petitioner with malafide intentions had called board meeting outside the jurisdiction of Jaipur instead of the Registered Office and had not given Notice of the same to respondents. The petitioner has tried their best to take over the Hospital and via a board resolution has banned the entry of respondent No. 2 into the hospital. The respondent No. 9 being a small shareholder but if this petition is allowed then the same would not be in the interest of the shareholders and as well it will be a loss to Doctors, employees, etc who are working with the Respondent No. 1 and further a big loss to the General Public who use the facilities at Respondent No. 1.
18. I have considered the pleadings and the documents filed therewith as well as arguments of the counsels for the petitioners and the respondents. Petitioner's case is that of gross oppression - being the original bidder for the hospital and having 67.5% shares having been reduced to 47% shareholding by R-2 single handedly by allegedly, illegally and unauthorisedly increasing the share capital of the respondent No. 1 company from Rs. 85 lakhs to Rs. 125 lakhs; by allotting Rs. 39.99,900 shares to R-2 and his family members; and by appointing 6 additional directors of R-2's group in the EOGM alleged to have been held on 6.1.2003 without having any Board meeting on 1.1.2003, without sending any notices for the meetings, without the presence of other directors, without any quorum. The whole exercise allegedly being in R-2's nefarious design to grab and gain control of the Respondent company; increasing of authorized share capital and allotting of additional shares having been done in violation of proper prescribed procedure being allegedly malafide besides not being in the interest of the company; and that though it is a fit case for winding up, the winding up order would clearly prejudice the interest of the petitioners because of the fact of illegal reduction in their shareholdings and further that the respondent company being a hospital which is also running a school for nurses, closure would not be in the interest of the general public as well. The respondents case is that the petition is not maintainable as the petitioner has not come with clean hands; there is delay of 9 months in filing of the petition before CLB, (cause of action accrued on 6.1.2003 and the petition was filed on 24.9.2003); the petitioner has acquiesced to the whole development which took place on 6.1.2003 (as Form No. 32 bears signatures of Shri P.K. Sharma) hence principles of waiver and estoppel apply; R-2 had been in the management being the authorized signatory in the bank taking all major decisions; increase in the share capital was necessary and justified for the purpose of saving the respondent company from being taken over by RFC under Sections 29 and 30 of the State Financial Corporation Act, 1951 (SFC); appointment of 6 additional directors based at Kota was necessary; allotment of shares was duly made from the loan account of R-2 ; no case has been made out for winding up of the company on just and equitable grounds; to be entitled for relief under Section 397 the act of oppression must be of continuous nature, no such case has been made out; in view of the pendency of petitioner's suit with the Hon'ble Civil Court, if the Hon'ble Civil Court comes to the conclusion that the suit was wrongly withdrawn and the withdrawal order is recalled then the present petition will have to be rejected under Order 7 Rule 11 of CPC.
19. This case has a very chequered history. Hearing in this company petition had been concluded as early as on 21.4.2005. As per CLB's order passed by the then Member on 21.4.2005, it was recorded as under:
Arguments concluded. Written submissions to be submitted in three weeks by both parties. The petitioner can reply to the application filed today by respondent in their written submission.
Thereafter, on 16.6.2005 CLB passed the following order:
The respondents have filed an application CA No. 131/2005 enclosing the order of Hon'ble Rajasthan High Court dated 31.5.2005. The operating part of the order of last para reads as under:
meanwhile the operation of the order dated 23.9.2004 of the CLB, Principal Bench, New Delhi in CP No. 93/2003 shall remain stayed.
The final arguments in this case were concluded on 21.4.2005 and orders were reserved with liberty to parties to file the written submissions in three weeks time.
The learned Counsel for respondents submitted that in view of the High Court order dated 31.5.2005 and also as stated in para 3, the application for recalling the order by the petitioner, the High Court has stayed the proceedings pending before this Bench. The learned Counsel for the petitioner submitted in reply that the order passed by Hon'ble High Court dated 31.5.2005 has become infructuous as the arguments have already been concluded in his case on 21.4.2005 and matter was already reserved for orders. The learned Counsel for petitioner further submitted that they have already filed another application before High Court amending para 3 of the application No. 116/04 dated 1.6.2005 wherein it is wrongly stated that the proceedings before this Board have been stayed. The effect of the High Court order is nothing and becomes infructuous as the petitioner has already withdrawn the cases pending before the Civil Court in compliance with the order of CLB in question dated 23.9.2004.
In view of the above submission made by the learned Counsel for both parties, the petitioners are directed to seek clarification from the Hon'ble High Court of Rajasthan. The matter is, accordingly, adjourned to 29.6.2005 at 2.30 p. m. for reporting/directions.
Thereafter in Company Appeal No. 1/2005 the Hon'ble Rajasthan High Court, Jaipur passed the following order on 28.10.2005:
The appeal has been filed praying therein that the order dated 23.9.2004 passed by the Company Law Board Bench, New Delhi in Company Application No. 93/2003 may be quashed and set aside and the proceedings before the Company Law Board may be dropped and the company appeal pending before the Company Law Board may be dismissed. In the order Annexure 2 dated 23.9.2004 it has been ordered as under:
5. I have heard the arguments of Learned Counsel for both sides and it is admitted that Mrs. Rakesh Verma is common Director in the Respondent Company as well as in the petitioner company. She is aware that suit filed in the Civil Court, Jaipur and the allegations and prayers made in the present petition are substantially the same.
6. In order to avoid conflicting decision, I am inclined to accept the arguments of the Learned Counsel for Respondent that the petitioner to withdraw the case pending before Civil Court, or the case may be stayed till the disposal of the suit by the Civil Court, Jaipur. Accordingly, I direct that the petitioner to withdraw the pending Civil Suit at Jaipur immediately.
7. The case will come up for final hearing on 25.11.2004 at 10.30 a. m.
8. With above directions, the CA No. 222/2000 and 234/2004 filed by the petitioner and respondent are disposed of.
An application has been filed by the respondent and it has been submitted that the civil suit filed by the Opera Hospital Medical and Research Center Pvt. Ltd. against the Registrar of Companies and other in the court of Civil Judge (JD) No. 2, Jaipur City, Jaipur has been withdrawn by moving an application dated 11.10.2004 vide order dated 28.10.04 the order sheet to that effect has been filed an Annexure R/2/2 by the respondent, it has thus been submitted that the respondent has since withdrawn the suit and as such there is no impediment for the Company Law Board to decide company petition No. 93/2003 or the applications No. 222/2000 and 234/2004.
Having heard the learned Counsel for the parties, in the facts and circumstances of the present case, more particularly since the Company Law Board has only deferred the adjudication of the dispute between the parties till the withdrawal of the suits in the facts and circumstances of the withdrawal of the suit pending before the court at Jaipur by the order dated 28.10.2004 there remains no impediment for the Company Law Board to adjudicate the matter in accordance with law.
Consequently, this appeal stands disposed of and it is hereby directed that the CLB shall provide an opportunity of hearing to the parties and after hearing the same would proceed to decide the company petition/applications. Subject to the above this appeal stands disposed of.
In view of the aforesaid, the stay application also stands disposed of. The interim order passed by this Court stands vacated.
However, the counsel for the respondent Nos. 2 to 8 still contended that the Civil Suit in the Court of Civil Judge, Jaipur was pending and its disposal according to the respondents, may result in the rejection of this Company Petition under Order 7 Rule 11 of CPC. Further, the respondents still insisted on disposal of applications No. 222/2000 and 234/2004. It is noticed that the Company Applications No. 222/2000 and 234/2004 have already been disposed of by CLB vide its Order dated 23.9.2004 and this order also been considered by the Rajasthan High Court, Jaipur in its order dated 28.10.2005 reproduced above. I find that in pursuance of CLB's directions, the petitioner has already withdrawn the suit from the Court of the Civil Judge, Jaipur vide order dated 28.10.2004 and this withdrawal renders applications No. 222 and 234 infructuous. Further it is noticed that the writ petition No. 7559/03 has been filed by the respondents for seeking injunctions for operation of bank account wherein the Hon'ble High Court of Rajasthan, Jaipur has already allowed one director of the petitioner's group alongwith one director of the respondents' group and the pendency of that writ petition, in my view, is no impediment in CLB's exercising its jurisdiction under Sections 397 and 398 of the Act. The petitioner repeatedly drew my attention to the respondents delaying tactics. Respondent No. 9 got himself impleaded in this petition when the petitioner had already argued the matter in the second round of final hearing. The matter has been reagitated towards the finalisation of the hearing by way of filing Company Applications even after the arguments had been commenced not once but twice despite the Hon'ble Rajasthan High Court's direction to the parties to attend the proceedings before the CLB as there was no impediment for the CLB to decide the aforesaid petition.
20. The respondents have pointed out that the very basis of the present petition is the so called mutual agreement at all times between the parties that the shareholding pattern of the petitioner will be maintained at the level of 67.5% and that of the respondents at 32.5%. According to the respondents, the petitioner's such claim is wrong and baseless. Without prejudice, it has been stated, that even if there was any such understanding between the parties, the same would amount to only a private agreement which cannot be given effect unless these provisions have been incorporated in the Articles of Association of the R-1 company. The respondents relied on the Supreme Court's dicta in V.B. Rangaraj's Case (Supra). The petitioners have strongly objected to this. It was pointed out that the respondents' reply amounts to perjury. Petitioner is the original bidder with the ROC for the Hospital and the agreement in this behalf is already annexed at page 90 of the rejoinder. Normally private agreements unless and otherwise made part of the articles are not binding on a company. However, in some cases the CLB has taken a view that even if they do not form part of articles, if the company has acted in terms of such agreements, then, the same is binding on the company in so far as those terms which have been acted upon by the company. In the present case, till 31.12.2002 the respondent company has acted as per the agreement placed at page 90- of the rejoinder.
21. On consideration of the facts and circumstances of the case, I find that the respondents have failed to refute the allegations levelled against them. Preliminary objections raised by the respondents are not tenable. As regards the respondents' contention that the company petition has been filed on 24.9.2003 after a delay of more than 9 months as the cause of action accrued on January 6, 2003 which was very much within the knowledge of the petitioners and that the delay has not been explained by the petitioner, equity does not fix a specific time limit but considers the circumstances of each case in determining whether there has been such delay as to amount to laches. The doctrine of laches is based on equitable consideration and depends upon general principles of justice and fair play. To be laches the delay should be such that it could be said that the petitioner is not entitled to relief on account of gross negligence or inaction or for want of bonafide imputable to him or that he has given up (waived) his right by acquiescence or by his conduct or neglect. In the present case I find that there has been no negligence, nor inaction nor want of bonafide which could be imputed to the petitioner. There is no presumption that delay in approaching CLB is deliberate. The petitioner has sought the remedy quite promptly within six months after discovery of the state of affairs in Feb-Mar 2003 from the record of the ROC, Jaipur. The Petitioner has thus not waived its right nor acquiesced and is not impeded by the doctrine of estoppel as claimed by the respondents. Further, the respondents reiterated reliance on the doctrine of waiver, acquiescence and estoppel on the ground that Form No. 32 filed with the ROC bears Shri P.K. Sharma's signatures stands rebutted by the petitioner's categorical statement about the fabrication of this document. In any case Form No. 32 is only an intimation to the ROC and not conclusive evidence.
22. Further, I agree that it is a settled proposition of law that the conduct of the parties is a very relevant factor to be considered in the equitable proceedings under Sections 397/398. In Sri Kanta Datta Narasimharaja Wadiyar v. Venkateshwar Real Estates Private Ltd. (1991) 3 Comp. LJ 336 (Karn) : (1991)72 Comp Cas 211 (Karn), it was held that the petitioner seeking equitable relief must come with clean hands and good conduct, failing which the petitioner would constitute a gross abuse of the process of Court, and the petitioner is not entitled for any relief under Sections 397 and 398. It also held that the conduct of the parties in other proceedings could also be taken into consideration. However, it was held that the conduct of the petitioner before filing of the petition may not be a relevant factor. Regarding the principle of equity in Shrimati Abnash Kaur v. Lord Krishna Sugar Mills Ltd. 44 CC 390 the Division Bench of Delhi High Court has held that while exercising equity jurisdiction, which clothes the Court with discretionary powers "...the discretion cannot be exercised arbitrarily or according to one's own will or whim. It has to be regulated by law, allay its rigour advance the remedy and to relieve against abuse. The court, therefore, exercising equity jurisdiction, cannot ignore the well known maxims of equity. Two such maxims are that he who seeks equity must do equity and he who comes into equity must come with clean hands." There have been allegations and counter allegations in the petition. The civil suit filed by the petitioner in the court of the Additional Civil Judge and Judicial Magistrate II, Jaipur City, Jaipur wherein the cause of action for filing the Civil Suit and the company petition were alleged to be the same, already stands withdrawn by order dated 28.10.2004 in consequence of CLB's order dated 23.9.2004. Instead, it is the respondents who have been resorting to the dilatory tactics. I find no reason to dismiss the petition at the threshold.
23. Considering this case on merits, I find that except answering the issues in the petition the respondents have endeavoured to justify their case by raising preliminary objections and resorting to delaying tactics seeking reliance from the alleged pendency before the High Court and the Company Applications. No answers have been provided to the specific instances of oppression contained in the petition. From the facts and circumstances of the instant case which have been elaborately set up herein above, I am of the view that the respondents have acted with a nefarious design to reduce the petitioners to minority. The continuous act of oppression in this petition is raising of share capital from Rs. 85 lakhs to Rs. 125 lakhs and allotment of 4 lakh shares to the respondent group and appointing of six additional directors in violation of the provisions of the Act and ignoring the Articles of Association and the agreement with the RFC. It is settled law that in a case of oppression, a member has to specifically plead on five facts - (a) what is the alleged act of oppression; (b) who committed the act of oppression; (c) how it is oppressive; (d) whether it is in the affairs of the company; (e) and, whether the company is a party to the commission of the act of oppression. On considering the present case on merits, I find that all the five aspects of oppression stand proved. The acts of oppression in the affairs of the company have been listed in detail highlighting how these are oppressive. There is specific averment as to who committed the act of oppression. It is an admitted case that the bid to have this hospital as a going concern from RFC was made through the petitioner company and after acceptance of the bid the respondent company was restructured in terms of shareholding and directorship giving 67.5% shares to the petitioners by 31.12.2002. The dispute started when RFC moved under Section 29 of the SFC to take possession of financial assets for recovery of its dues. To avoid prolixity, I refrain from narrating the events and the circumstances of this case. Two main allegations in the petition i.e. holding of Board Meeting on 1.1.2003 and holding of EOGM on 6.1.2003 followed by allotment of 3,99,900 shares whereby reducing the petitioners from shareholding of 67.5% to 47% have not been explained and proved. For holding EOGM on 6.1.2003 Board's Meeting has allegedly been shown to have been held on 1.1.2003 for which no notice has been given or received by any of the directors as stated in their affidavit dated 16.12.2003. Respondents do not state in their reply that they held any meeting on 1.1.2003. No evidence in this regard whatsoever has been placed before CLB. Similar is the position regarding issuing of notice for EOGM purported to have been held on 6.1.2003. It is noticed that the Board of Directors had already met on 31.12.2002 and hence the necessity of meeting on the very next day has not been explained. I fail to appreciate as to how R-2 all alone would have held this meeting on 1.1.2003 and EOGM on 6.1.2003. The single director all alone was not even in a position to pass an ordinarily resolution, question of passing the special resolution does not arise. Without a Board Meeting on 1.1.2003 no notice of EOGM could have been given. Furthermore, it was noticed that the so called meeting on 1.1.2003 and 6.1.2003 were held not at the Regd. Office but at Jaipur which is outside Kota, the Registered Office of the Respondent company. All other directors of the Board as on that date were not available for that meeting as is borne out from their affidavits placed on record. Out of the total 7 directors 6 have filed their affidavits on oath stating that no notice was received nor did they attend any Board Meeting on 1.1.2003 or EOGM on 6.1.2003. Increase in the share capital from Rs. 85 lakhs to 125 lakhs has been said to have been made for the necessity of avoiding the action against the company under Sections 29 and 30 of the State Financial Corporation Act of Rajasthan Government so as to enable the R-l company to repay the loan and save the company from being taken over by the Rajasthan Financial Corporation. Similar explanation is provided for allotment of 3,99,900 shares to R-2 and his family members and 100 shares to the petitioners. Admittedly the capital of the company as on 1.1.2003 was Rs. 85 lakhs which is no issue at all. For allotment of additional shares of 3,99,900 no money was brought in. Bringing in money on 31.12.2002 was not an issue. Petitioner had debts in the books. Allotment made is bad. Impugned allotments to the exclusion of the petitioners with a nefarious design to convert petitioners shareholding from 67.5% to 47% whereby conversion of majority into minority is a grave act of oppression. The respondents claim of the urgency and necessity of increasing the share capital has not been substantiated with documentary evidence with their paying off the dues to the RFC. Rather the facts of the case reveal a different scenario. RFC has already proceeded under Sections 29 and 30 of the SFC Act to take possession of the financial assets of the company. In view of the doctrine of "proper purpose", it follows that in the matter of issue of shares, Directors owe a fiduciary duty to shareholders of the company to issue shares for a proper purpose. The fiduciary capacity within which Directors have to act enjoins upon them a duty to act on behalf of the company with utmost care and skill and due diligence and in the interest of the company. They have a duty to make full and honest disclosure to shareholders regarding all important matters relating to the company. Shares issued for maintenance and acquisition of control over the company is an extraneous purpose, and, therefore, cannot be upheld. In Needle Industries' case the Supreme Court referred to some old English decision with approval. Punt v. Symons was quoted (at SCC P. 394, para 105) in which it was held:
Where shares had been issued by the Directors, not for the general benefit of the company, but for the purpose of controlling the holders of the greater number of shares by obtaining a majority of voting power, they ought to be restrained from holding the meeting at which the votes of the new shareholders were to have been used.
Piercy v. S. Mills and Co. Ltd. applied the same principle while holding: (All ER p. 316E-E).
The basis of both cases is, as I understand, that Directors are not entitled to use their powers of issuing shares merely for the purpose of maintaining their control or the control of themselves and their friends over the affairs of the company, or merely for the purpose of defeating the wishes of the existing majority of shareholding.
The principle deduced from these cases is that when powers are used merely for an extraneous purpose like maintenance or acquisition of control over the affairs of the company, the same cannot be upheld. In the present case the conclusion is inevitable that neither was the allotment of additional shares in favour of respondents bonafide nor was it in the interest of the company nor was a proper and legal procedure followed to make the allotment. The motive for the allotment was malafide. On facts, impugned allotment of additional shares was done with the sole object of gaining control of company by becoming majority shareholder was clearly an act of oppression on the part of the respondents. Moreso, as the meetings passing such resolutions were held (if at all held) at the back of the petitioners without giving proper notices and without following proper procedure. Keeping the above circumstances in view I come to the inevitable conclusion that all the additional issue of shares totalling 4 lakhs on 6.1.2003 is unauthorised and invalid.
24. As regards appointment of six additional directors of the respondents' group on 6.1.2003, the respondents have failed to make their case. It has not been explained as to how a director(R-2) all alone can appoint six additional directors. On the facts of the case, the appointments made are unauthorized and illegal. The appointments have been made in gross violation of the Companies Act and in contravention of the Articles of Association of the respondent company. Form No. 32 filed with the ROC is only an intimation. Form No. 32 alone does not prove the respondents' case The petitioners have alleged that Form No. 32 filed with the ROC is a fabricated document. They have drawn my attention to the two dates on From No. 32 annexed to the petition at pages 131 and 132. At page 132 the date mentioned is 6.1.2002 whereas page 131 shows that the form No. 32 was filed on 6.1.2003. This form 32 bears signatures of Shri Mahesh Sharma and Shri P.K. Sharma. The petitioners have strongly contended that this was a blank form signed by Shri P.K. Sharma on 6.1.2002 for the information to be filed for that year which has been misused by the respondents to show the change in the Board of the R-1 company. It was further pointed out that Form No. 2 and 5 in respect of the respondent company have also been filed on 6.1.2003 but these forms bear the signatures of Shri Mahesh Sharma only and not of Shri P.K. Sharma. It has been questioned as to how Shri P.K. Sharma did not sign the other two forms. The respondents have not answered that question. Besides, appointment of the additional directors has nothing to do with the necessity of increase in the share capital. It was only in the chain of events with the intention to deprive the other shareholders of their rights. Scrutiny of the circumstances reveals that the allotment of additional shares have disturbed the existing balance of power in the company. 25. The petitioners, in my view, have made out a case of oppression within meaning of Section 397 and are entitled to appropriate relief. Relief to be granted depends on the facts of a particular case. The facts of the present case are so manifestly against the respondents that two opinions are not possible on the aspect of relief. This is a case where the respondent company is running a hospital besides a Nursing School and a Technician Lab affiliated to the hospital. These institutions are providing an essential service in that area. Closing down of this endeavour would deprive the general public of this necessary basic facility besides being detrimental to the interest of the shareholders. RFC has already initiated proceedings under Sections 29 and 30 of the SFC, Act. Keeping these circumstances in view, to safeguard the interest of RFC and to do substantial justice between the parties, I order as follows:
I. The increase in the authorised share capital of the respondent company from Rs. 85 lakhs to Rs. 125 lakhs is hereby declared null and void and status quo ante is restored.
II. The issue and allotment of 4 lakh equity shares on 6.1.2003 is hereby declared null and void. The allotment is cancelled and status quo ante as on 31.12.2002 is hereby restored. The Register of Members be rectified accordingly forthwith.
III. Appointment of respondent Nos. 3 to 8 as additional directors on 6.1.2003 is hereby declared null and void, the resolution being illegal and unlawful. Status quo ante as on 31.12.2002 is hereby restored.
IV. To safeguard the interest of RFC, I hereby direct the RFC to nominate two directors on the Board of the respondent company with immediate effect. Such nominee directors would continue to be on the Board of the respondent company till the funds due to it are recovered/paid. The minimum quorum for Board Meetings would comprise four directors one of which must be from the RFC.
V. The Board of Directors constituted in compliance of this order at (IV) above in its first meeting to be held within three weeks of this order shall prepare a scheme of repayment of the dues of RFC either by bringing in sufficient funds by the members or by application of monthly receipts of the respondent company (after providing for essential payments on account of salaries, etc.) on monthly basis or by any other repayment schedule which may be decided by the Board of Directors unanimously.
VI. The resolution purporting to change the Regd. Office of the company is declared null and void.
26. With the above directions, I dispose of this petition vacating all interim orders. No order as to cost.