Company Law Board
Rajiv Mehta And Ors. vs Group 4 Securitas Hindustan Pvt. Ltd. ... on 28 July, 1998
Equivalent citations: [2000]99COMPCAS57(CLB)
ORDER
1. By this petition under Sections 397, 398 and 399 read with the Sections 402, 403, 406 and 409 of the Companies Act, 1956 (hereinafter referred as "the Act"), the petitioners are seeking appropriate orders or directions for restraining the respondents from carrying on the affairs of respondent No. 1, the company, in a manner prejudicial to the interests of respondent No. 1 and its members including the petitioners. The petitioners have also asked for a declaration that the petitioners always remained the shareholders of the respondent-company and also further declaration that the petitioners always had and continued to have ownership rights over 4,000 shares of the respondent-company, and also by virtue of the said shareholding, the petitioners should be entitled to appoint two directors on the board of directors of the respondent-company and also rectification of the register of members, reconstitution of the board of directors and others.
2. Petitioner No. 1 claims to be an individual of Indian origin and of Swedish nationality residing in Sweden. Petitioner No. 1 claims to hold 3,910 shares of a par value of Rs. 100 each 1,564 shares with repatriation benefits and 2,446 shares without repatriation benefits. Petitioners Nos. 2 and 3 claim to hold 90 shares on a par value of Rs. 100 each in the respondent No. 1-company without repatriation benefits which, along with the shareholding of petitioner No. 1, accounts for 10.43 per cent, of the issued share capital of the respondent-company.
3. Respondent No. 3, an overseas corporate body (OCR) is a company duly organised and existing under the laws of the Netherlands and is a corporation having access to know-how and personnel, necessary to perform certain services relating to the installation and operation of industry and personnel service business. Petitioner No. 1 claims to be a legal and beneficial owner of 272 shares at a par value of DFL 100 (100 Dutch Guil ders) each, comprising 68 per cent, of the issued share capital of respondent No. 3.
4. The respondent-company, according to the petitioners, is a company limited by shares, registered under the Indian Companies Act, having its registered office at New Delhi. According to the petitioners, this company was initially known as Raj Securitas Limited, which company had vast experience in the Indian market and it was on the basis of this experience that respondent No. 2, decided to offer petitioner No. 1 shareholding in Group 4 Securitas Hindustan, respondent No. 1 herein. It is the case of petitioner No. 1 that it had entered into an Indian Technical Assistance Agreement on August 8, 1989, with respondent No. 3 and under the said agreement, respondent No. 3 had agreed to provide certain technical assistance to the said Raj Securitas Limited whose name was subsequently changed to Group 4 Securitas Hindustan, respondent No. 1, herein. Subsequently, an Indian shareholders' agreement was entered into between respondent No. 1, respondent No. 3 and petitioner No. 2 in terms of which the authorised share capital of respondent No. 1 was Rs. 30 lakhs divided into 30,000 shares of Rs. 100 each. Subsequently, respondent No. 1 decided to increase its issued share capital from Rs. 5,400 to Rs. 22 lakhs and to issue additional 21,946 equity shares of which 18,000 shares were subscribed by respondent No. 3.
5. According to the petitioners, the Reserve Bank of India, by its letter dated September 8, 1989, granted an approval to respondent No. 1 to issue share capital of the value of Rs. 25 lakhs to respondent No. 3 and pursuant to the said Indian shareholders' agreement, 4,000 share certificates were issued in the name of the petitioner in the ratio as under :
(a) Rajiv Mehta (petitioner No. 1) 3,910 shares out of which 1,564 shares without repatriation benefits ;
(b) Kapil Kumar Mehta (petitioner No. 2) 11 shares and ;
(c) Dr. (Mrs.) Shyamala Mehta (petitioner No. 3) 25 shares.
6. It is further the case of the petitioner that the respondent-company increased its authorised share capital from Rs. 10 lakhs to Rs. 30 lakhs on September 10, 1989, and the Reserve Bank of India vide its letter dated May 11, 1990, granted permission under Section 19{l)(a) of the Foreign Exchange Regulation Act, to respondent No. 1 to issue equity shares. According to the petitioners, petitioner No. 1 was forced by respondent No. 2 to execute a share purchase agreement dated November 8, 1991, with the Group 4 Securitas International, respondent No. 2 in terms of which the petitioners were to sell the shares in the respondent-company for an option price of 10,000 pound sterling.
7. It is the case of the petitioners that the said share purchase agreement provided that respondent No. 2 will indemnify the petitioners against all liabilities and claims whatsoever, as a result of their continuing to be the shareholders of respondent No. 1 till the shares of the petitioners were transferred to respondent No. 2 which process was to be completed as soon as practicable but in any event within six months from the date of the share purchase agreement. According to the petitioners, it was agreed upon between the parties that pending the transfer of shares, the petitioners would continue as shareholders of respondent No. 1 and further, in view of article 3 of the said share purchase agreement, the transfer of the petitioners' shares were subject to applying for and securing permission of the Reserve Bank of India, and consequently, the said agreement was not enforceable until respondent No. 2 had secured the necessary permission from the Reserve Bank of India.
8. It is alleged by the petitioners that they were made to sign certain blank documents by respondent No. 2 which included blank share transfer forms and signatures on blank papers which were presently lying in escrow with Mr. Darshan S. Desai of Nannubhai and Co., Chartered Accountants, pending approval by the Reserve Bank of India. It is the contention of the petitioners that the said share purchase agreement could not be acted upon without securing the Reserve Bank's permission which permission was to be secured within the six month period as provided for in the share purchase agreement. According to the petitioners, since respondent No. 2 had failed to secure the permission of the Reserve Bank, the said share purchase agreement could not be deemed to be completed. It is, therefore, the contention of the petitioners that they still continue to hold 4,000 shares in the respondent-company and that no rights in the said shares had been transferred in favour of respondent No. 2 which cannot act upon or enforce any rights in the said shares of which the petitioners are the legal owners. It is also the contention of the petitioners that it was admitted by the respondent in the said share purchase agreement dated November 8, 1991, that the petitioners would continue as shareholders of respondent No. 1-company, even after the agreement till the petitioners' shares in respondent No. 1 are transferred.
9. It is further alleged by the petitioners that immediately after the execution of the said agreement, the company enhanced its issued share capital on December 22, 1991, and by enhancing the issued share capital of respondent No. 1 with allotment of 16,360 shares of the company to respondent No. 3 and by raising the share capital of respondent No. 1-company, the petitioners' shareholding has been diluted in the respondent-company and its right to appoint two directors on the board of the respondent-company had been affected. It is further alleged that respondent No. 1-company, could not have increased the issued share capital of respondent No. 1 without offering to the petitioners a first option in proportion t'o the petitioners' existing shareholding, and consequently, in view of the failure by respondent No. 1-company to make this offer, such increase in the shareholding has become null and void and amounts to continuing the acts of oppression against the petitioners.
10. It is the contention of the petitioners that respondent No. 2 had the power of attorney from the petitioners to effectuate the transfer of shares and according to the petitioners such power of attorney was invalid as the same stood terminated on the expiry of the six month period within which the respondent was to secure the permission of the Reserve Bank. It is further stated that the petitioners as shareholders of the company, had not been served with notice of annual general meetings nor have the petitioners received the notices of meetings of the shareholders of the company and further the petitioners had been denied access to the books of account and records of the company. According to the petitioners, such conduct of respondent No. 1 involves serious lack of probity and amounts to oppression of the petitioners and is also prejudicial to the public interest. The petitioners, therefore, pray for the reliefs which have, already, been indicated.
11. Respondent No. 1 in its reply stated, inter alia, that the petitioners sold their shares by the said agreements dated November 8, 1991, and received generous consideration for the same. It is stated by respondent No. 1 that immediately after the signing of the agreement, the petitioners resigned as directors of the respondent-company and after having received the entire consideration, the petitioners ceased to have any beneficial interest in the said shares and had only legal interest. According to the respondent-company, the said agreement was fully acted upon by all the parties to the agreement. Respondent No. 1 takes the point of limitation as the complaints related to the year 1991, whereas, this petition has been filed in 1996. Further, according to the respondent-company, the petition does not disclose any cause of action in favour of the petitioners, inasmuch as, they had entered into an agreement, for sale of their shares and had received the consideration in full and had given up all the rights as shareholders in favour of respondent No. 2 and having done so, this present petition is not maintainable.
12. Regarding the allegation of the petitioners with regard to the increase in share capital in the company that took place in December, 1991, it is stated by the respondent-company that a decision to increase the share capital was taken by the board of directors, at a time, when petitioners Nos. 1 and 2 were the directors and the application to the Reserve Bank for permission to increase the shareholding was made by petitioner No. 2 as director of the company. Therefore, according to the respondent-company, the petitioners had acquiesced in the decision of raising the share capital.
13. Respondent No. 2 by its reply also takes the plea of limitation and also states that the entire sale consideration on the entire shareholding was paid by respondent No. 2 to the petitioner and in compliance with the terms of the agreement the original share certificates of petitioner No. 1 in respondent No. 1-company were handed over by the petitioners' counsel to the respondent counsel along with the petitioner's letter dated November 18, 1991, for forwarding to escrow agent Mr. Darshan Desai. Respondent No. 2 also states that respondent No. 2 was given to understand that the share transfer forms of petitioner No. 1 would be delivered at a later date to Desai since the requisite form was not available with the petitioners' counsel and ultimately, petitioner No. 1 failed to apply and duly execute the deed of the transfer of shares in favour of respondent No. 2. The share certificate of petitioners Nos. 2 and 3 along with the blank transfer forms duly signed were handed over to their solicitors in Delhi to the said escrow agent of Mr. Desai.
14. It is contended by respondent No. 2 that whether such agreement is binding or not, whether it was acted upon or not were issues that cannot be raised under Sections 397 and 398 of the Act. It is the contention of this respondent No. 2 that with a sale of such shares, upon receiving the entire sale consideration, the petitioners as transferors had ceased to have any right in the shares and in any event, the transaction is a past and concluded transaction which cannot be challenged in a proceeding under Sections 397 and 398 of the Act.
15. It is further stated that respondent No. 2 has assigned all its rights in favour of its nominee Group 4 Holdings Private Limited. Regarding the petitioners' claim to be shareholders, the case of respondent No. 2 is that the petitioners from November, 1991, till July, 1996, never acted as or claimed to be the shareholders of respondent No. 1-company and respondent No. 1-company has also not treated them as shareholders. Regarding the increase in shareholding, the case of respondent No. 2 is that a decision to increase the shareholding was taken in July, 1990, when the petitioners were the directors and the petitioners participated with acquiescence. Further, the petitioners never paid for the additional shares when offered.
16. Regarding non-service of notice to the shareholders, it is stated by respondent No. 2, that the petitioners having sold their shares and having given up their rights in favour of respondent No. 2 or its nominee, they are not entitled to receive notice nor are they entitled to any access to books of account and records of the company. It is stated by this respondent, that the petitioners have resigned as directors without reserving any right.
17. Respondent No. 3 by its reply reiterated more or less the stand taken by the other two respondents. It is the contention of respondent No. 3 in its reply that the main grievance of the petitioners is with regard to the alleged non-performance of the share purchase agreement dated November 8, 1991, and this respondent is not a party to the said transaction nor the beneficiary. Therefore, this respondent is not a proper party to the present proceedings. It is also stated by this respondent that before the petitioners sold their shares and when they were in the management, the petitioners, at no point of time, held more than 18 per cent, of the shares approximately in the company and the balance shares were with this respondent. It is also the contention on behalf of this respondent, that the petitioners were given a fair chance to manage the company but the petitioners' acts were detrimental to the interests of the company, the shareholders and the creditors and that the petitioners had refused to contribute the share allotment money when required by the company.
18. Petitioners Nos. 1 to 3 in their rejoinder have more or less reiterated their case sought to be made out in the petition. It is stated by the petitioners that the respondent could never have acquired any right to shares without the permission of the Reserve Bank which was not only a condition precedent to the agreement but is required under the laws of the land. They also reiterated that such share purchase agreement was subject to the condition that the permission should be taken from the Reserve Bank of India within six months from the date of the agreement and in the absence of such permission, the agreement would become void. It is also their contention, inter alia, that since that condition precedent was not fulfilled, the resignation letters procured from the petitioners as directors were not of any consequence and could not be acted upon. Regarding the point of limitation, it is their contention that though the cause of action first arose in 1991, such cause of action has been continuing and the petitioners admittedly have been continuing as members of respondent No. 1-company. It is also the petitioners' contention that they are still the original owners of the shares which are the subject-matter of the said share purchase agreement. Regarding the raising of the share capital, the petitioners' stand is that they could not object to the increase in the share capita] for the simple reason that they were never aware of the meeting at which such decision of raising the share capital was taken.
19. From the above narration some undisputed facts emerge. It is a fact that the said share purchase agreement was duly executed on November 8, 1991. It is also an undisputed fact that the petitioners received the full consideration for the share transactions and petitioners Nos. 2 and 3 submitted their blank transfer forms duly signed, together with the share certificates to the said escrow agent Mr. Darshan Desai. Petitioner No. 1, as alleged earlier, who wanted to deliver to Darshan Desai share transfer forms together with the share certificates could not do so as the requisite form was not then available with the petitioners. It also appears that as per the terms of the said agreement dated November 8, 1991, the petitioners had received the entire consideration for their shares which is neither disputed by the petitioners nor counsel appearing for them at the hearing. The petitioners, in accordance with the terms contained in article 6 of the agreement had given up their rights as shareholders in favour of respondent No. 2. The decision to increase the shareholding was taken by respondent No. 1-company on July 23, 1990, in the presence of petitioners Nos. 1 and 2 who were the directors of the company and pursuant to the decision taken by the board of directors, petitioner No. 2 as director of the company, had applied to the Reserve Bank for permission to allow additional shares. This however, does not appear to be disputed by the petitioners.
20. Mr. S. Ganesh, learned counsel appearing for the petitioners submits that it is not disputed that the petitioners have received the entire consideration for the shares agreed to be sold in terms of the said share purchase agreement dated November 8, 1991. He submits that the petitioners have now been advised to repay the consideration money so received. Mr. Ganesh, however, submits that till date, the petitioners are the registered members of respondent No. 1-company. Learned counsel submits that it may be construed from the terms of the said share purchase agreement of November 8, 1991, that under article 6 of the said agreement, the petitioners granted an irrevocable power of attorney to Group 4 to exercise the voting rights. He submits that such rights to be exercised under the said irrevocable power of attorney have come to an end due to non fulfilment of a condition precedent to the agreement. In other words, the said agreement has become void. Learned counsel has drawn our attention to article 3 of the said share purchase agreement dated November 8, 1991, which, inter alia, provides that completion of sale and purchase herein shall be subject to the approval of the Reserve Bank of India which shall be applied for by the buyer. The seller shall co-operate and assist in obtaining such approval but the purchase price shall not be repayable to Group 4 in any event. Referring to the said article 3, Mr. Ganesh argues that the completion of sale and purchase in terms of the said share purchase agreement was subject to the approval of the Reserve Bank of India and it was the obligation of the buyer to apply for such permission. Mr. Ganesh has also drawn our attention to article 13 of the said share purchase agreement which, inter alia, provides that Group 4 shall indemnify the sellers (petitioners) against the liabilities and claims and whatsoever as a result of their continuing as the shareholders of Hindustan (the company) after the date of the agreement and Group 4 shall use its best endeavour to procure that the shares are transferred, as soon as it is practicable, and in any event, within six months from the date of agreement. Mr. Ganesh referring to the terms of the said article 13 submits that the shares should be transferred as soon as it is practicable, and in any event, within six months from the date of the said agreement. It is the argument of Mr. Ganesh that if one reads article 3 and article 13 together then the conclusion would appear to be that the entire transactions relating to transfer of shares and obtaining permission of the Reserve Bank of India should be completed, in any event, within six months from the date of agreement, i.e., six months from November 8, 1991.
21. Mr. Ganesh argues that obtaining a permission of the Reserve Bank of India is a condition precedent to the share transfer in terms of the said share purchase agreement and if such permission is not obtained by the buyer being the respondent within a period of six months from the date of the said agreement, then the entire transaction relating to transfer of shares fails. It is the argument of Mr. Ganesh that it is the primary obligation of the buyer, namely, respondent No. 2 to take steps for obtaining permission of the Reserve Bank of India which is the condition precedent to the said share transaction and if the entire transaction is not completed within a period of six months from the date of the said agreement then, neither party under the said agreement would have any respective obligations to perform and the entire transaction relating to transfer of shares as envisaged by the said share purchase agreement would be ineffective and fall through.
22. It is also the submission of Mr. Ganesh that in the absence of such permission from the Reserve Bank of India, the share transfer cannot be effected under the laws governing the transactions and it is also a fact that the petitioners still remain as registered members of respondent No. 1 since no transfer has yet been effected in terms of the said share purchase agreement.
23. Mr. Ganesh argues that in view of the failure in obtaining permission from the Reserve Bank of India, the sale and transfer of shares under the terms of the said agreement, the said share purchase agreement dated November 8, 1991, has become non-workable and entirely ineffective and the respondent cannot take recourse to the said agreement to enforce the alleged rights in respect of shares being the subject-matter of the said share purchase agreement. Mr. Ganesh argues that since the petitioners are the registered shareholders of respondent No. 1-company, the petitioners are entitled to exercise all rights under the law as shareholders of respondent No. 1-company. It is the submission of Mr. Ganesh that since the said agreement dated November 8, 1991, is not enforceable and the petitioners resignation as director of respondent No. 1 would also stand ineffective and the petitioners are entitled to and should be re-inducted on the board of directors and further a person designated by the petitioners should be re-appointed as managing director and put in charge of the day-to-day affairs of respondent No. 1-company.
24. Mr. Ganesh argues that the petitioners by virtue of their shareholding are entitled to appoint two directors on the board of directors and further the issue'of shares as on November 8, 1991, remain unaltered and allotment to the respondents should be declared as null and void and necessary rectification of the register of members should be referred to the shares issued on or after November 8, 1991. He also submits that a direction should be given on the petition for pursuing the extraordinary general meeting of the respondent-company.
25. Mr. RKP Shankardass, learned senior advocate, appearing for respondent No. 1-company and respondent No. 2 submits that the petitioners by virtue of the said agreement dated November 8, 1991, have ceased to have any rights as the shareholders by the said share purchase agreement and the petitioners have sold their shares in question, and received the entire consideration and have also granted an irrevocable power of attorney to the respondent in respect of voting rights attached to the shares and further the petitioners as directors in the board of directors tendered resignations after the execution of the said agreement. Mr. Shankardass submits that it is true that the completion of the sale and purchase in the said agreement was subject to the approval of the Reserve Bank of India which approval was to be applied for by the respondent in terms of the said agreement. The sellers (the petitioners) were obliged to co-operate and assist in obtaining such approval from the Reserve Bank of India. It is the submission of Mr. Shankardass that in the requisition form for obtaining the approval, there are certain particulars to be furnished by the seller being the petitioners and the petitioners never cooperated or assisted in furnishing those particulars. He submits that in the absence of such necessary particulars to be furnished by the petitioners, the respondent could not make necessary application for the permission from the Reserve Bank of India and the petitioners from time to time were requested to furnish the necessary particulars which the petitioners have failed to do. Mr. Shankardass has also argued that it is a wrong way of interpretation of the agreement that the said agreement has become ineffective or has come to an end after the expiry of the period of six months if within such period approval of the Reserve Bank of India was not obtained or the transaction relating to share transfer was not completed as sought to be made out by learned counsel for the petitioners.
26. Mr. Shankardass has drawn our attention to the relevant clauses of the agreement and referring to articles 6 and 13, he has argued that it is not the tenor of the said agreement that it would only come into effect after the approval of the Reserve Bank of India was obtained. In other words, as he argues, the said agreement did not stipulate any such condition of prior approval of the Reserve Bank of India. Mr. Shankardass also submits that it is not the term of the said agreement that the approval is to be obtained within six months from the date of agreement or that the entire transfer should be effected and registered within the period of six months. Mr. Shankardass has drawn our attention to article 13 of the said share purchase agreement dated November 8, 1991, and submits that it is stipulated therein, that the respondent Group 4 should use its best endeavour to procure that the shares are transferred as soon as it is practicable, in any event, within six months from the date of the agreement. It would appear therefrom that the respondent would use its best endeavour. If it is contended that such transfer was subject to the approval of the Reserve Bank of India, then such stipulation by any stretch of imagination cannot be construed as a mandatory provision and failing compliance therewith makes the entire agreement ineffective or void as sought to be argued by learned counsel for the petitioners. Mr. Shankardass referring to the provision contained in article 3 of the said agreement submits that it was specifically stated in the said article that for avoidance of doubt, the purchase price shall not be repayable to Group 4 in any event, and that would indicate that the parties should be held to their bargain as agreed to by the said share purchase agreement and the entire transaction would be taken as complete upon payment of the consideration money. Mr. Shankardass has argued that it is not denying the fact that the petitioners have given up all rights attached to the shares being the subject-matter of the said agreement after receiving the consideration money and after submitting the transfer forms together with the share transfer form duly stamped and executed to the escrow agent or the nominee of the respondent Group 4.
27. Mr. Shankardass has drawn our attention to article 4 of the said agreement by which the sellers were obliged to deliver to Mr. Desai of Nan-nubhai and Co., Chartered Accountants, duly endorsed certificates, duly stamped and executed by the petitioners being the sellers transferring unrestricted ownership of the shares to Group 4 or its nominees and the said Nannubhai and Co. should keep these documents in escrow pending the receipt of the Reserve Bank's approval referred to in article 3 and shall release the documents to Group 4 as soon as such approval has been obtained. It is, therefore, the submission of Mr. Shankardass that reading the said share purchase agreement in its entirety, it would appear to be the clear intention of the parties that the petitioners would transfer unrestricted ownership of the shares to Group 4 and would also grant irrevocable power of attorney to Group 4 for exercising the voting rights attached to the shares. Mr. Shankardass submits that it was only stipulated in the said agreement that the parties, particularly the respondent Group 4 should use its best endeavour to effect the transfer of the shares as soon as it is practicable and in any event within a period of six months. He submits that there has been no stipulation nor any provision in the said agreement that failing to obtain the approval of the Reserve Bank or completion of the transfer of the shares within a period of six months from the date of the agreement, the agreement would come to an end and the parties are absolved from their respective obligations as is argued by learned counsel for the petitioners.
28. According to learned counsel for the respondent, the said agreement has been fully acted upon by the parties and in terms of the said agreement, and in the implementation of the said agreement, the petitioners paid full consideration money, granted irrevocable power of attorney in favour of the buyer (the respondent) for exercising voting rights attached to the shares pending completion of the sale and purchase, and also ceased to be the directors on the board of directors of the respondent-company. Mr. Shankardass has also argued that the petitioners after the execution of the said agreement in November, 1991, have not participated in the management of the affairs of the company and they have not exercised their alleged rights under the said agreement as claimed now with the presentation of this petition after five years from the date of such execution of the agreement. Mr. Shankardass submits that the petitioner had never before at any point of time after the execution of the said agreement till the date of filing of the present petition made any grievances either as to the management of the company or the alleged denial, of their alleged rights if any, in respect of the shares which were sold by the petitioners to respondent No. 2, in terms of the said agreement.
29. We have heard the submission of counsel appearing for the parties. Several decisions were also cited by counsel appearing for the parties and we shall deal with the appropriate decisions, if necessary, in the later part of our judgment. There is no quarrel to the propositions laid down in those decisions, since we are dealing with this matter on the facts we do not feel it necessary to discuss these decisions. The decisions mainly cited are Life Insurance Corporation of India v. Escorts Ltd. [1986] 59 Comp Cas 548 (SC); Balkrishan Gupta v. Swadeshi Polytex Ltd. [1985] 58 Comp Cas 563 ;
[1985] 2 SCC 167 ; D. I. Lal v. S. Ganguli [1990] 68 Comp Cas 576 (Delhi) and Akbarali A. Kalvert v. Konkan Chemicals Pvt. Ltd. [1997] 88 Comp Cas 245 (CLB).
30. As we have indicated above, the main thrust of the arguments made on behalf of the petitioners is that the said share purchase agreement dated November 8, 1991, by virtue of which petitioners Nos. 1 and 2 sold away their shares numbering 4,000 to respondent No. 2 together with an irrevocable power of attorney embodied in the said agreement to respondent No. 2 or its nominees to exercise all rights attached to the shares has now become ineffective or void as submitted on behalf of the petitioners by reason of not obtaining the requisite approval from the Reserve Bank of India as agreed to by the parties, the same was a condition precedent to the implementation of the said agreement.
31. We have already indicated above that it is a fact that petitioners Nos. 1 and 2 agreed to sell and sold the shares numbering 4,000 to respondent No. 2 upon receipt of full consideration in respect of the shares. It will appear further that all the petitioners in accordance with the terms of the said agreement had submitted resignations as directors from the board of directors and agreed to give up all rights attached to those shares and fur ther an irrevocable power of attorney as embodied in the agreement itself granted by the petitioners in favour of respondent No. 2 or its nominees, to exercise the voting rights attached to the shares which being the subject-matter of the said agreement. The said agreement was entered into in November, 1991, and until 1995, the petitioners had not been asserting any rights as shareholders nor had they been attending any board meetings or participating in the management of respondent No. 1-company. It will also appear that pursuant to the terms of the said agreement, the petitioners handed over or agreed to hand over the share certificates in question, through the escrow agent one Mr. Desai together with the blank transfer forms duly signed and executed by all the petitioners.
32. Now, let us examine the purport of the said agreement dated November 8, 1991, in the background of the situation mentioned above, not being disputed, by the parties. It has been argued by learned counsel appearing for the petitioners that there was a specific stipulation in the said share purchase agreement itself that the completion of the sale and purchase shall be subject to the approval of the Reserve Bank of India which should be applied for by the buyer meaning respondent No. 2. Learned counsel appearing for the petitioners argued that it is an admitted position that no approval of the Reserve Bank of India has yet been obtained by respondent No. 2 or its nominee and according to learned counsel appearing for the petitioners that under the terms of the said agreement, respondent No. 2 should do its best to procure the approval as soon as it is practicable, in any event within six months from the date of the said agreement. Learned counsel for the petitioners stressing upon those stipulation as contained in article 13 of the said share purchase agreement, submits that if the entire transaction is not completed as soon as it is practicable, in any event, within six months from the date of the agreement, then the agreement would become ineffective and also void after the expiry of the period so stipulated in the agreement. It is the argument on behalf of the petitioners that since the petitioners are still the registered shareholders of respondent No. 1-company, they should enjoy all the rights and benefits of the said shares agreed to be sold by the petitioners to respondent No. 2 and denial of such rights by the respondent-company to the petitioners would amount to oppression within the meaning of Section 397 of the Companies Act and further restructuring of the share capital of the respondent-company pursuant to the said share purchase agreement, would affect the interests of the petitioner, still continuing as the registered shareholders of the company.
33. In these proceedings we, however, cannot make any pronouncements as to the validity or otherwise of the said share purchase agreement which has been entered into between the petitioners as the shareholders and respondent No. 2 as the other shareholder and admittedly the company is not a party to this agreement. In exercising the power under Section 402 of the Companies Act, we could terminate, or set aside or modify the agreement to which the company is a party. Anything arising out of the said share purchase agreement is essentially a lis between the two parties, the petitioners on the one hand and respondent No. 2 on the other. If there is any breach of obligation arising out of the said agreement by any of the parties, the parties aggrieved thereby may sue the other for damages or for other reliefs. We feel ours is not a forum where any of the parties if aggrieved, in respect of the said agreement can challenge the same.
34. It is the contention on behalf of the petitioners that in view of not obtaining the necessary approval from the Reserve Bank of India by respondent No. 2 or its nominees within a period of six months, then the entire agreement has become void and inoperative. It will appear that the said agreement entered into and executed by the parties in November, 1991, was complete in all respects, so far as the parties thereto are concerned. The petitioners also withdrew themselves from the board of directors, ceased to participate in the management of the company, and also ceased to exercise any rights as shareholders, in respect of those shares. It was agreed between the parties that the purchase price should be paid in full without any adjustments, or deductions. The parties further agreed to, as stipulated in article 6 of the said agreement, that pending completion of the sale and purchase the seller (petitioner) should grant an irrevocable power of attorney to Group 4, respondent No. 2 or as it directs to exercise the voting rights attached to the shares. It was, further, stipulated in the said agreement, as would appear from article 4 that upon execution of the said agreement, the petitioners should deliver to one Mr. Desai being the escrow agent, endorsed certificate of shares and transfer forms duly stamped and executed by the seller (petitioner) transferring the unrestricted ownership of the shares to Group 4 (respondent No. 2) or its nominees as would appear from article 3 of the said agreement. It was stipulated that the said transaction would be subject to the approval of the Reserve Bank of India which should be applied for by the buyer and respondent No. 2, the seller (the petitioner) should co-operate and assist in obtaining such Reserve Bank of India approval.
35. From the tenor of the above agreement, it would appear that the transactions were complete in all respects subject to the approval of the Reserve Bank of India. It is also stipulated in the said agreement that respondent No. 2 would make all endeavours to ensure that the shares are transferred, as soon as it is practicable, in any event, within six months from the date of the said agreement. There is, further, no stipulation in the said agreement, nor was there any clear intention reflected in the said agreement that it was the intention of the parties that if the consequential transfer in favour of the buyer is not effected within six months or the necessary approval of the Reserve Bank of India was not obtained by the petitioner, the transaction would fall through and the said agreement would become inoperative. It would appear in clear terms, that the purchase price should be paid in full and the transactions would be subject to the approval of the Reserve Bank of India and the seller (petitioners) should co-operate and assist in obtaining such approval but the purchase price shall, in no event, be repayable to Group 4. It would appear that the said agreement was fully acted upon by the parties and taking it as a fait accompli, the petitioners also gave up all their rights in respect of the said shares, voluntarily ceased to be directors of the board of directors of respondent No. 1-company. The petitioners never asserted any rights as shareholders until a few months before filing of the present petition under Sections 397 and 398 of the Companies Act. It will also appear that there has been an irrevocable power of attorney granted by the petitioners in favour of respondent No. 2 under which respondent No. 2 or as it directs would exercise voting rights attached to the shares. So, for all purposes, there has been transfer of unrestricted ownership of the shares by the petitioners to Group 4 (respondent No. 2) or its nominees. It would, therefore, appear that the transferee being respondent No. 2 or its nominee would have all the benefits in respect of the said shares sold and transferred by petitioner No. 1 to respondent No. 2.
36. It has been very strenuously contended on behalf of the petitioners, that since no permission has been obtained from the Reserve Bank of India as yet, the entire transaction relating to the shares in question has become void and the petitioners being still the legal owners of the shares should have all rights attached to the shares and they are not bound by the said purchase agreement which has now become void. If there is any permission required to be obtained from the Reserve Bank of India under any relevant law of the land including the Foreign Exchange Regulation Act, the company is restrained from registering the transferees as shareholders of the company. But so far as the sale is concerned, the same is complete between the transferor and transferee. While registering the shares in the names of transferees, on transfer of shares by the transferor to the transferee, the company is bound to register the transferees as shareholders if the share certificates are duly endorsed together with duly stamped transfer forms and executed by the parties.
37. If the transferee happens to be a non-resident Indian then, some permission would be required under the Foreign Exchange Regulation Act from the Reserve Bank of India and until such permission is obtained, the company cannot register the transfer of shares in respect of such non-resident transferee. But, once the permission is obtained whether before or after the purchase of shares, the company cannot refuse to register the transfer, nor is it open to the company or anyone else to decide whether permission is rightly granted by the bank or not. Therefore, it appears that the question of obtaining permission will only be relevant, at the time of the registration of the transfer. The rights and obligations of the respective parties, i.e., seller and the buyer are governed by the terms of the agreement between the seller being the transferor and buyer being the transferee. In our view, the six month period was only contemplated as respondent No. 2 being the buyer, could require some time to identify a nominee for whom the approval from the Reserve Bank of India would be obtained and also the seller being the petitioner should co operate and assist by furnishing the requisite particulars to be mentioned in the requisite forms for obtaining such approval. It would, therefore, appear that both the sides agreed to take some time in order to enable the parties to complete the formalities. It cannot be said that there was a time limit by which the entire transfer including registration had to be effected. It was not the intention of the parties, nor would it appear from the agreement, that if for any reason, the said approval was not obtained within such time which is stipulated in the agreement as six months, then the agreement would fail or would become inoperative. The said time period was only incorporated as the parties thought that the buyer could use its best endeavour to procure approval of the Reserve Bank of India as soon as it is practicable, in any event, within six months from the date of the agreement. It was stipulated in the agreement that respondent No. 2 being the buyer uses its endeavour to complete the transfer and obtain the requisite permission upon clear obligation on the petitioner to co operate and assist the buyer in obtaining such permission. This requisite permission in our view is only required to complete registration and such permission as has been settled by the Supreme Court in Life Insurance Corporation of India v. Escorts Ltd. [1986] 59 Comp Cas 548 ; AIR 1986 SC 1370, can be obtained any time prior to the registration of transfer of shares.
38. It would also appear from the correspondence exchanged between the parties that the petitioners had been keeping quiet until 1995, although, the six months, which according to the petitioners, a mandatory period expired sometime in May, 1992. It would also appear as a fact that after execution of the said agreement, the petitioners had not been participating in the management of the company, nor have been asserting any rights as shareholders of the company. It will also appear as a fact that the petitioner has granted an irrevocable power of attorney in favour of respondent No. 2 or its nominee to exercise all the rights as shareholders in respect of the shares being the subject-matter of sale under the said share purchase agreement. We have, therefore, to take the said share purchase agreement as it is and we cannot make any pronouncement as to the validity of the said agreement. The only observation we would make is that it would appear from the said agreement that the petitioner agreed to transfer the unrestricted ownership of the shares to respondent No. 1 or its nominee followed by grant of an irrevocable power of attorney by the petitioner to Group 4 as embodied in the agreement itself. We do not say anything more as to the validity or otherwise of the said agreement, which if challenged, may be the subject-matter of the other forum.
39. The other grievance of the petitioners is that the petitioners have not been served with the notices of annual general meetings nor the petitioners have been supplied with the copies of the annual returns or semiannual returns which according to the petitioners are required to be filed with the Reserve Bank of India. The petitioners did not have notices to attend the board meeting of respondent No. 1-company held on January 18, 1995. According to the petitioners, such conduct of the respondent-company involves serious lack of probity when dealing with the affairs of the shareholders.
40. Another grievance of the petitioners is that they did not have any access to books of account and records of the company and the apprehension of the petitioners is that there would be some falsification of the accounts of respondent No. 1-company and also the misappropriation and siphoning off of the monies of respondent No. 1-company.
41. According to the respondents, the petitioners having ceased to have any interest in the shares sold by the petitioner to respondent No. 2, are not entitled to receive any notice of the shareholders meeting nor can they have any access to the books of account and records of the company.
42. We have already indicated above that by the share purchase agreement dated November 8, 1991, petitioners Nos. 1 and 2 had sold their shares being the subject-matter of the said agreement. The petitioners have received the entire consideration money being purchase money in respect of the said shares, after the execution of the share purchase agreement. They resigned from the board of directors and since then they have also not been participating as shareholders in the affairs of respondent No. 1-company. The registration of shares could not however be made in the absence of the approval of the Reserve Bank of India as required to be obtained by the buyer being respondent No. 2. It is the case of the respondents that the petitioners under the said agreement, are obliged to co-operate and assist the buyer by furnishing necessary particulars as required of them. The petitioners, however, failed to furnish requisite particulars and consequently respondent No. 2, could not make the necessary application for approval.
43. It seems'to us that after the execution of the said agreement in November, 1991, the petitioners for all practical purposes ceased to take any interest in the affairs of respondent No. 1-company and by virtue of the said irrevocable power of attorney as granted by the petitioners in favour of respondent No. 2 as provided in the agreement, respondent No. 2 has been exercising all rights, including voting rights, relating to the said shares being the subject-matter of the said agreement. The petitioners, until a few months before the presentation of the present petition, did not assert any rights whatsoever as shareholders of respondent No: 1-company.
44. In our view the petitioners have not been able to substantiate any case for oppression nor have they indicated any grounds for winding up of the company a prerequisite to a case alleging oppression. There are no materials before us as to whether there are any just and equitable grounds for winding up of the company nor can we form any opinion as to whether in the interest of the company and in the interests of the shareholders, the company should not be wound up as it would unfairly prejudice member or members but that otherwise the facts would justify a winding up of the company.
45. We are, therefore, unable to make any finding as to any oppression or any lack of probity as alleged by the petitioners in the absence of any cogent materials.
46. In the premises, we are not inclined to grant any reliefs as asked for in this petition. This petition is, therefore, dismissed. No order as to costs.