Company Law Board
Shri Tapas Sinha Roy And Ors. vs Linkmen Services Pvt. Ltd. And Ors. on 2 February, 2007
Equivalent citations: [2008]141COMPCAS568(CLB), [2007]78SCL75(CLB)
ORDER
Vimla Yadav, Member
1. In this order I am considering Company Petition No. 21 of 2006 filed under Sections 111, 397,398,401 and 402 of the Companies Act, 1956 (hereinafter referred to as 'the Act') wherein the petitioners have made prayers to direct the respondents to cancel, rescind and/or withdraw the purported Special Resolution dated 9.7.2004, purporting to amend the Articles of Association inserting the Clause of forfeiture illegally/to set aside the oppressive amended clause in the Articles of Association; direct the respondents to cancel, rescind and/or withdraw the Special Resolution dated 28.5.2005 of forfeiting the shares of the petitioners Nos. 1 to 17; declare that the purported forfeiture of the shares held by the petitioners Nos. 1 to 17 are bad, illegal and null and void; direct a special investigation of the audit for the purpose of ascertaining the actual accounts of the company and for rendition of accounts by the respondent Nos. 2 to 6; direct the auditors to determine the quantum of loss incurred by the company on account of misfeasance and malfeasance of the respondent Nos. 2 to 6 and consequently direct the said respondents to reimburse the losses caused by them to the first respondent company together with interest. The petitioners have also prayed for the appointment of an administrator/Chairperson for holding AGMs of the respondent No. 1 company.
2. The undisputed facts of the case are: The Respondent No. 1 namely, Linkmen Services Pvt. Ltd. incorporated on 4.6.1998 having its Regd. Office at D/7/1, Bangur Avenue, Salt Lake Town, Kolkata-700055 is a private limited Company formed by the local cable TV Operators as shareholders thereof. The company was incorporated to carry on the business of distribution of Satellite signals to the cable T.V. Operators and also to carry on the business controlling and managing the aforesaid distribution of satellite signal; to carry on the business of distribution of Internet connection; producing and telecasting telefilms and also telecasting advertisement; sale, lease, hire, maintenance and repairs of electrical and electronic equipment; software development and marketing of software; to carry on the business of courier and communication of message through E-mail, Internet and other electronic media, etc. The company as an MCR (Master Control Room) sells cable TV signals to the local cable operators who are also the shareholders of the company. The company buys signals from MSO (Multi System Operators), who in turn buy signals from the Channel Owner (Zee, Star, BBC, etc). Channel owners have uplinks and they throw their signals to the Satellite wherefrom they are beamed down to the earth. Channel owners provide decoders to Multi Service Operator(s) (MSOs) who 'buy' such signals from the channel owners. MSO gives connection to Master Control Room(s) (MCRs) who 'buy' such decoded signals from MSO. MCRs then in turn give connections to Cable Operators who buy signals from MCR. Lastly Cable Operator(s) gives connections to end user(s)/ viewers for which the end user/viewers pay money to the Cable Operator. Since the Channel owners have to pay hefty amount towards usage of Satellite they, to remain commercially viable, charge for signals from MSOs who in turn to ensure their commercial survival look for bulk consumers (MCRs) who are having a large base of Cable Operators and this is done by offering discounts to MCRs. In turn MCRs for their economic viability and sustenance in market pool together substantial number of Cable Operators, often grouping together in the form of a Company so that maximum benefit of discount is derived by all which again is in the economic interest of all the participants/cable operators. Such group of Cable Operators becomes MCR to avail the best of deal by way of discount from MSO for each of its member operator. Thus in the present case besides being shareholders, all the shareholders are also having business relation with Company for their purchasing of signals from the company. The cable operators/shareholders of the company do not get direct connections from MSO. The cable operators ultimately provide signals to the viewers. Hence all the shareholders are having dual relationship with the company, one as shareholder and the other as its customer. As a customer the shareholder pays for the signals received from the company (Master Control Room). To augment its income the company also runs its own channels through DVD/computer exhibiting movies and local programs, etc. and thereby attracting local corporate houses for telecasting their advertisements through such channels. Larger viewer base enables the company to purchase signals at considerable concessions/rebates from the MSO. Profit from the advertisements and also the concessions from MSO are passed on to the shareholders/cable operators. The authorized share capital of the company is Rs. 5,00,000 divided into 50,000 equity shares of Rs. 10/- each. As per the Memorandum and Articles of Association of the company the total paid up share capital of the company is Rs. 4,88,000 divided into 48,800 equity shares of Rs. 10/- each. The petitioners as a bulk hold/held 16800 shares out of 48,000 shares in the respondent No. 1 company constituting approx 31% of shares. Petitioner No. 12, Shivaji Rao is also a Director/Promoter of the company. As on the date of hearing petitioner No. 16 withdrew his support to the petition.
3. Shri Rana Mukherjee, Counsel for the petitioners argued that the respondent company and the management by yielding their control over management caused Articles of Association to be amended, more particularly Clause 7 thereof by two resolutions, first on 9.7.2004 and second on 28.5.2005 to the following effect:
(e) Any member who has been declared a defaulter by the company by reason of his failure to fulfill any financial engagement between himself and company and who fails to fulfill such engagement within 15 days from the date upon which he has been so declared defaulter, shall at the expiration of such period of 15 days automatically ceases to be a member and shares held by such member shall ipso fact be forfeited and any share so forfeited shall be declared to be the property of the company and the company shall sell, re-allot and otherwise dispose of the same in such manner to the best advantage for the satisfaction of all dues which may then be due and owing to the company", (amended vide resolution dated 9.7.04).
(f) A member of the company will be expelled if the member deserts the company and ceases to be a business associate/partner of the company and in such a situation, to protect the sanctity and interests of its own the company will forfeit the shares of such a member and any share so forfeited shall be declared to be the property of the company shall sell, re-allot and otherwise dispose of the same in such manner as the Directors of the company would deem fit...." (amended vide resolution dated 28.5.05).
It was argued that in any event, the said amendments were superfluous and could not affect the petitioners in as much as under the provisions of the Companies Act, 1956, particularly Schedule 1 Table A, Article 29 thereof provides that if a member fails to pay any call or instalment of a call, on the day appointed for payment thereof, the Board may at any time, thereafter till such time as such call or instalment remains unpaid serve a notice on the member requiring payment together with interest if any accrued. The provisions of forfeiture as provided in Schedule I is not attracted in the case of petitioners in as much as the shares held by the petitioners were fully paid up and there has been no default on the part of the petitioners to pay any call money within the time stipulated or otherwise. The amendments of Article, it was contended, are clearly contrary to the provisions of the Act and in fact, go beyond the provisions seeking to authorize the company to do something which the law does not permit. The rights of a member/shareholder which are protected by the provisions of the Act cannot be diluted or whittled away by a company by resorting to actions which are per se illegal and alien to corporate jurisprudence, in any event, it is the petitioners' case that no notices of such meetings were served on them in so far as the petitioners No. 1 to 10 are concerned, the respondent No. l company, prior to filing of the instant petition, sought to forfeit the shares and re-allot them in contravention of the provisions of Section 108 of the Companies Act read with Schedule I Table A, Article 29 of the Act 1956. The shares of the petitioners No. 10 to 17 (except the shares of petitioner No. 16 who withdrew his support to the petition) have been forfeited by the company. The reasons as disclosed in the respondents' Supplementary Affidavit for forfeiture have nothing to do with the petitioners' independent rights as Shareholder(s), but is actually based on alleged non-payment of dues by the petitioners to the company in respect of commercial transactions. It was argued that rights of recovery of such monies (though allegations of dues are not admitted) can be resorted to by a company by filing Civil Suits or otherwise, but using the same as a handle to forfeit the shares is totally unwarranted and illegal.
4. Regarding the allegation of 'oppression' Shri Rana Mukherjee, counsel for the petitioners argued that the petitioners No. l to 17 were prevented from participating in any annual General Meeting or any meeting of the members of the respondent company since 2002; the respondent company was purportedly trying to take steps for forfeiture of issued share capital of the petitioners. The Memorandum and Articles of Association of the respondent company did not provide for forfeiture of any share; no notice was given by the company to any of the petitioners calling upon any of the petitioners to explain as to why the shares of the petitioners should be forfeited; the purported exercise of power of forfeiture of the shares of the petitioner by the respondent Nos. 1 to 8 had been done malafide, contrary to the provisions of law and is oppressive; the respondents deliberately with malafide intention, illegally and wrongfully tried to re-allot the shares held by the petitioners allegedly forfeited by the respondent company, the respondent Nos. 2 to 6 invited them to apply for allotment of the alleged forfeited shares so as to dilute the shareholding by the petitioners. It was argued that the purported forfeiture of the shares is in contravention of Section 100(8) read with Schedule 1 table A Article 29 of the Companies Act, 1956. Despite solemn order of the Civil Court and despite service upon the respondents, they have illegally and nonchalantly with their defiant attitude violated such order by holding the AGM (Annual General Meeting) at Hayyat Regency Hotel, Kolkota on 30.9.2005. The Civil Court's injunction passed in suit (filed by P-1 to 10) has been violated by the respondents. However, it was argued that the instant petition is of a wider nature encompassing the entire gamut of reliefs claimable under Sections 397 and 398 read with Section 402 of the Act and pendency of a Civil Suit on one of the grounds which is common is not a ground to oust the petitioners in the instant petition where reliefs claimed are of a wider nature and can be granted only by the Board (CLB). In any event such prayers and reliefs as claimed are maintainable only under the provisions of the Companies Act before the CLB and the petitioners have every right and are entitled to maintain this petition independent of the Civil Suit which of course the petitioners, upon advice have taken steps to withdraw. Without a valid and proper notice the respondents had conducted an extra-ordinary general meeting at the Administrative Office of the company, and illegally passed a special resolution regarding expulsion and forfeiture of shares of the members; the respondents illegally amended and modified the Memorandum and Articles of Association and such modification and alteration in Articles is in complete violation of Section 31 of the Act. Shri Rana Mukherjee, Counsel for the petitioners pointed out that the respondents have admitted that they have forfeited the shares in terms of the Clause 7 of the purportedly amended Memorandum and Articles of Association of the respondent No. 1 company. Pointing out to further acts of Oppression it was stated that during pendency of the instant petition the respondents have removed petitioners Nos. 11 to 15 and 17 as Members of the company on the ground that they have not paid their dues "in the usual course of business" to the respondent No. l company. The malafide of the action is writ large and the abuse of the so-called amended Article is also apparent on the face of it in as much as the dues which have nothing to do with the independent rights of a member have been sought to be clubbed and used as a handle by the respondent to forfeit the shares of the said petitioners. It was argued that dues in the usual course of business have no nexus or have nothing to do with the rights of a member qua a company. The amended Article is, therefore, nonest in the eyes of law being illegal, being a Clause fomenting oppression and is a handle which gives unwarranted power to the management to disqualified members by forfeiting the shares on specious and alien pleas, alien to corporate jurisprudence.
5. Narrating the instances of mismanagement, the counsel for the petitioners stated that the company and the respondents have accepted huge money from some new shareholders; but despite receipt of the money they did not issue any share certificates, thereby committed fraud and cheating; the company purchased a catering unit of a particular Director i.e. the respondent No. 4 at a huge consideration, which has been running at a loss and at the time of such purchase, no such special resolution was adopted in the board meeting, even if there is any resolution, all the directors like the founder Managing Director, Shivaji Roy, the petitioner No. 12 herein and Mr.Sujay Saha, the petitioner No. 11 who were the directors at that point of time, were never consulted before the purchase of such sick unit; the company had entered into an agreement with a private operator in internet business like Tata Indicom inspite of having its own internet business; without any approval or any special resolution in any extra ordinary general meeting, the respondents arbitrarily increased the monthly bill of signal charges which has since been prohibited by the TDSAR and as such the respondents have violated the solemn order of the TDSAT; the respondents had siphoned money in the name of the company in their own accounts and special patronage had been given to different directors; for making of different software lacs of rupees have been disbursed to different respondents without board's approval; the respondents did not show any transparency in their commercial activities; the company had illegally sold the Labony unit of the cable televisions business to a third party instead of offering to neighbouring operators as mentioned in the agreement with the operators within Linkmen Services; the salary or perquisites received by the Directors have not been shown in the balance sheet; the company had purchased different assets without the approval of the board at a price which is not at all genuine; the special discount in billing has been allowed to selected Shareholders; this discriminatory attitude and nepotism are, it was pointed out, per se illegal and arbitrary. The respondents allowed some operators to pay much less than stipulated amount in the monthly bill for signal charges, thereby causing loss to the company. It was pointed out that the company had purchased huge technical stocks without approval of the technical directors of the company; and that the petitioners have come across certain invoices raised by the respondent No. l company through its existing Managers and people in control namely the respondents which clearly indicate that to avoid payment of Service Tax to the Government, as required by law, Bills and Invoices vide which Service Tax is collected from its customers were without accounting for the same and/or paying the same to the Coffers of the Government. The complaints of some of the petitioners namely petitioners Nos. 10 to 16 and 17 who had been some part of the management had not been redressed to by the company instead in a vindictive manner the shares of such petitioners have also been forfeited.
6. Shri Rana Mukherjee, Counsel for the petitioners argued that the falsity of the respondents' case can be found from the Supplementary Affidavit filed by the respondents in the instant proceedings, which has been replied to by the petitioners in the rejoinder to the supplementary affidavit wherein the petitioners have refuted the allegations by clearly stating that under the provisions of the Telecom Regulatory Authority of India Act, 1997 and the Regulations framed thereunder to contend that the question of recovery as sought to be projected by the respondents is totally ill-founded since under the new regime, there cannot be rivalry in the Cable TV industry. Operators have their independent area of operations with independent subscribers base. Generally, no infringement is done by other operators. In the Cable TV Industry, normally operators take the satellite cable signals from the respective MSO (Multiple Service Operator). MSO distributes the signal through respective cable operators control room for redistributing the satellite cable signals to the customers. So there exists a direct arrangement or relation with the MSO and the Operators. A group of operators, maintaining their own individuality, had lined with MSO only to get some volume related advantages like discounts in signal charges. The Linkmen Services Pvt. Ltd. also hold whole MSO signals simultaneously which proves that there cannot be any rivalry between MSO. There are many master control room holding more than one MSO Signal at a time. It is only for getting bulk discounts in the monthly billing, operators normally form MCR in each area where they club their bill in bulk and avail substantial discounts. In this case, MCR is the respondent No. l and all petitioners being shareholders/distributors get the discounted bill from the respondent company and the respondent, in turn get discount from MSO, but the cable signals are directly from MSO to each operator. MCR does not have any role in the cable signals other than collecting monthly signal charges from the individual operators for onwards payments to MSO. Thus the operators always have right to pay the MSO concerned directly if he feels his rights are denied by the MCR concern. It was argued that if the MSO accepts such payment the MCR does not have any right to object. Since as law abiding citizens petitioners felt that the concerned MCR was evading service tax which they were collecting but not paying as such evading Government revenue, some operators like petitioner No. 11 paid directly to MSO for which the MCR felt that those operators were rivals. It was argued that the petitioner No. 11 has paid directly to ICNCI i.e. Indian Cable Net Company Ltd. (MSO) when it was detected that there was ambiguity in the billing system. The petitioner No. 11 himself sent several correspondences to the MCR company asking clarifications but the respondent did not bother to reply to those letters and even nonchalantly proceeded with their illegal activities. Despite payment made to ICNCL (MSO) directly, the petitioners were given threat of disconnection of their signals for which the petitioners were forced to take signal from Cable Com Services Pvt. Ltd. which is nothing but another signal provider, but that change in MSO does not alter their identity as member/shareholder in Linkmen, which is respective operators' choice to choose MSO. MCR has no role in the choice of MSO. MCR company's structure does not get disturbed in any way with the change of MSO by the individual operator".
7. Shri Rana Mukherjee, Counsel for the petitioner argued that the share certificates issued to petitioners Nos. l to 17, were recalled by the respondent company on the ground that the same were not in proper form and contained wrong particulars. In fact, the seal appearing on the face of the share certificates showed an address of the respondent company which was not its registered address. The petitioners bona fide and in good faith made over the original share certificates to the respondent company. However, the respondent company had failed and neglected to issue fresh certificates in favour of the petitioners Nos. l to 17, in spite of repeated requests and/or demands. The respondent Nos. 2 to 6 as directors of the respondent company and in particular the respondent No. 2 as the managing director owed fiduciary duty towards the petitioners in issuing the fresh share certificates. The said respondents had acted in breach of their fiduciary duties in not issuing fresh share certificates in favour of the petitioners. Further it was argued that the respondents have illegally changed the registered office of the company from D-17/1, Bangur Avenue, Calcutta - 700 055 to 6, Old Post Office Street, Kolkata -7000001 without any intimation to the shareholders and in complete violation of Sections 17 and 146 of the Act. Regarding shifting of the Regd. Office, the respondents' stand is that since the Office has been shifted within the said city, no special resolution is required. No special resolution for change of registered office was adopted and even if such resolution for change of registered office was adopted by unfair means by suppressing the notice to all the directors. Sivaji Roy, the petitioner No. 12 and Sujay Saha, petitioner No. 11 being the Directors were not even consulted before changing the registered office of the company. As such any special resolution was adopted by unfair means may be declared by this Hon'ble Board illegal and inoperative and liable to be struck-down; It was pointed out that even the internal audit has gone against the Company during the tenure of the present Managing Director. There has been violation of the provisions of the Companies Act and Section 224(5) of the Act. From the perusal of the Audit Report it would be evident that the Company did not maintain proper Books of Accounts.
8. Shri Rana Mukherjee, further argued that there is no provision in the Companies Act, 1956 giving power to forfeit shares. Such power has to be given only by the Articles and even the Articles can confer it only in respect of non-payment of calls. The counsel relied on the dicta in Ramashankar Prasad v. Sindri Iron Foundry P. Ltd. wherein amending of articles of association designed to enlarge strength of one group of Directors to the prejudice of another, and appointment of a director pursuant to such amendment was held to constitute oppression. For oppression and mismanagement, the counsel placed reliance on the decision in the case of (Greenhalgh v. Arderne Cinemas Ltd. and Anr. 1950 All ER Vol II 1120. Amending Articles, resulting in discrimination with regard to rights of a group of shareholders is not permissible. The counsel also relied on dicta in Shanti Prasad Jain v. Kalinga Tubes Ltd. (1965) 35 Com. Cases 351 at 366, 367,(SC); Five Minute Car Wash Service Ltd. (1966)l All ER 242); H.R. Harmer Ltd. (1958) 3 All ER 289; Ramashanka Prosad ; Malleswara Finance and Investment Co. P. Ltd. ; VG. Balasundaram (1983)77 Com. Cases 324(Mad); Greenhalgh (1950) All ER Vol.11 1120; Col. Kuldip S. Dhillon (1988) Vol.64 Com. Cases 19; Albert David (1964) 68 CWN 163, 172; Tea Brokers Pvt. Ltd. (1998) 5 Comp LJ 463 (Cal).
It was prayed that in the instant case "oppression' is writ large and the petitioners' valuable property i.e. the Shares which were fully paid up and were illegally forfeited by a brute majority are therefore, to be remedied by this Hon'ble Board by declaring the forfeiture as null and void.
9. Shri M.N. Krishnamani, and Shri M.C. Dhingra, Counsels for the respondents argued that the allegation that the petitioners were not allowed to attend AGMs or any other meeting of the company ever since 2002 is sweeping and general in nature. The petitioners were countered by referring to the relevant record of attendance, substantiating that the AGM 2002 was attended by all the petitioners or through their authorized representatives as mentioned in para (b)(ii)page 3 of counter and substantiated by Annexure-R/3 colly. It was argued that the petitioners, in their rejoinder in para 3 at page 6 have not disputed these facts, there is no denial of respondents' contention by the petitioners of having attended AGM 2002, AGM 2003 and AGM 2004 and admission of having attended AGM 2005. The petitioner's it was argued, have not approached CLB with clean hands. Like other AGMs, majority of the petitioners undisputedly attended EOGM 9.7.2004 wherein resolution was passed unanimously amending Articles of Association thereby incorporating Clause 7(e), besides other amendments. This meeting was attended by petitioners 6,7,9,10,12,13,15 and 17. In this EOGM resolution was passed with the support of more than 75% shareholders of the company in accordance with the provisions of the Companies Act. It was pointed out that the petitioners in their Rejoinder have not at all disputed these facts.
10. It was argued by the counsels that if any shareholder does not pay the dues to the company against his purchase of signals as cable operator, it causes loss to the company. Such act of cable operator/customer/shareholder is against the interest of the company. Similarly, if any cable operator/customer/shareholder ceases business with the company, it entails loss to the company in as much as the company loses viewer base resulting in loss of revenue on account of advertisements through its own run channels. It was explained that supposing if an MCR is having viewer base in 10 localities through 10 Cable Operators and 2 or 3 of them cease taking signals from the said MCR, then the same causes complete black out in those areas of the advertisements aired by the said MCR, resultantly business houses will pay less amount to the said MCR towards advertisement because of lesser viewer base. That is how the MCRs suffer business and it is not in the interest of MCR/Company. It was argued that the reduced viewer base also entails in reduction in discounts by the MSOs to MCRs. Thus, on both counts, due to cessation of business as also non-payment of dues, loss entails to the company. Further it was argued that despite repeated demands and notice dated 28.8.2003 (P-3) did not discharge his financial liabilities accrued during Sep.2002 to July 2003. To prevent recurrence of such incidences causing losses, the company, vide EOGM dated 9.7.2004, convened in accordance with law, with unanimous approval of shareholders, incorporated Clause (e) by amending the Articles thus empowering the company to forfeit shares of members committing default in discharging their financial obligations. Almost all the petitioners attended the said EOGM dt. 9.7.2004 (referred to para LXV of reply to main petition). After incorporation of Clause 7(e) the company issued demand notices dated 30.7.2004 to petitioner Nos. 3 and 4 calling upon them to discharge their liability of Rs. 86,800/- and Rs. 3,13,219/- respectively towards the company failing which appropriate action would be taken. Undisputedly, both of them did not reply to the said notices and neglected to pay the dues and ultimately ceased business relation with the company. Hence the company invoked clause 7(e) of the articles of association and forfeited their shares. For recovery of the balance amount due the company has filed suits against the said petitioners. It was pointed out that the contention that recovery of the dues through suit is the only mode available to the company, which is incorrect. Company is free to invoke its articles of association to protect its interests. The petitioners ceased their business relations with the company thereby causing loss to it and they neglected to surrender their shares despite written request dated 10.12.2003(page 159 of reply). To meet such situation the company, in accordance with law, convened EOGM dated 28.5.2005 and unanimously approved incorporation of clause 7(f) by amending the Articles thus empowering the company to forfeit the shares of those members who ceased business relations with it. Petitioners 1,2 and 5 to 10 wrote to the company informing that they had ceased business relations with the company and are purchasing signals from another company thereby leaving the company (MCR) with no choice but to invoke clause 7(f) and thereunder forfeit the shares of the said petitioners. Forfeited shares of petitioner Nos. l to 10 were offered to all the existing shareholders. P-11,14 to 17, besides other shareholders, offered to purchase such forfeited shares, which were sold to those who paid up the purchase money. P-l5 to 17 are amongst such purchasers. P-l1 and 14 did not pay the share money and as such were not allotted any such shares. The petitioners suppressed the said fact from this Hon'ble Board. It was argued that the offer to purchase such shares by petitioners 11,14 to 17 and others and subsequent purchase thereof establishes their confidence in the excellent management of the company. The counsels for the respondents also drew my attention to a chart showing declaration of steady increase of dividends under the management of respondents 2 to 6. Replying to the allegation that the EOGM 28.5.2005 was not proper in as much notices thereof were not served, it was argued that the objection is subject matter of Sections 53 and 172 of the Act. Undisputedly, the notices for EOGM 28.5.2005 were sent under Certificate of Posting to the shareholders is deemed to be effected in terms of Section 53. Moreover, Section 53(3) provides that non-receipt of notice by any member shall not invalidate the proceedings at the meeting. Without prejudice to the above, non-receipt of notice under no circumstances invalidates the holding of the meeting or proceedings thereof. Reliance was placed on the case reported at (1986 (60) CC 353 Del and Clause 10(d) of Articles of Association. It was argued that although, the company has undisputedly sent the notices to the members in conformity with law and its service is statutorily deemed, still in terms of Section 53(3) and Clause 10(d) of Articles of Association, the non-receipt of notices will not vitiate the proceedings of EOGM dated 28.5.2005 and any contention to the contrary is against the law and as such untenable. Further, the petitioners 12,13,14,15,16 and 17 attended the said EOGM 28.5.2005 - which additionally establishes, besides statutory presumption, that all the petitioners received the notices. In this EOGM resolution was passed with the support of more than 75% shareholders of the company in accordance with the provisions of the Companies Act. My attention was drawn to the copies of the relevant pages of the minutes of this EOGM. It was argued that the petitioners in their rejoinder have not at all disputed these facts. It was contended that the amended clause in EOGM 28.5.2005 was approved unanimously i.e. in presence of the petitioners who attended the meeting and they supported it, being "in the interest of the company". (2001 (105) CC 710 was relied upon). Since the petitioners repudiated service of notices through UPC in absence of any such assertion from the respondents, expose the petitioner bare because they had the knowledge of notices having been sent through UPC. The fact of serving said notices through UPC has been stated by the respondents subsequently in Rejoinder to their Supplementary Affidavit filed on 3.8.2006. It was argued that whether there was any notice served or not, it cannot be questioned by petitioners 12 to 17(who hold 6000 shares) who attended EOGM 28.5.2005. Further this issue could not be raked up by petitioners 3 and 4(who hold 2000 shares) whose shares had already been forfeited and were not shareholders on that date. Further, it was argued that without prejudice to the foregoing submissions in term of Clause (4) of CLB Regulations this Board has no jurisdiction to adjudicate upon the question of service of notice in as much as it requires receiving of evidence and as such, as held by various High Courts, it falls within the domain of the Civil Court and remedy is through Civil Suit. (Clause (4) of CLB Reg.) (1978 (48) CC 40 P&H) (1981 (51) CC 475 P&H) Lastly, in any event, even if the absentee petitioners had attended EOGM 28.5.2005 and had opposed the resolution, still the resolution would have been carried with overwhelming majority as per law provided under Section 189. It was pointed out that Affidavit of petitioner 16 is on record saying that he is not a party to the petition as his signature on Vakalatnama was obtained by other petitioners by misleading him. Petitioners misled this Hon'ble Board by stating that the shares of all the petitions were forfeited before filing of the petition. At the time of filing of the company petition shares of petitioners 11 to 17 were not forfeited. Petition suffers from the vice of mis-joinder of parties as also mis-joinder of causes of action and also absence of cause of action. Shares of petitioner 12 have not been forfeited till date. Petitioners have not come with clean hands before this Hon'ble Board as they have made false assertions on oath, and on this ground alone the petition may be dismissed. However, during pendency of above petition the shares of petitioners 11, 13 to 15 and 17 were forfeited by invoking Clause 7(f) as they in writing informed the company of having ceased business relations with the Company and purchasing signals from another company. The respondents contended that notices of all the meetings were duly served in accordance with law but also the majority of the petitioners attended all the meetings, wherefore, the petitioners, at the time of hearing gave up their contention of notices not being served' of meeting as was falsely alleged in the petition. Absence of notices was also pleaded in support of alleged 'oppressive' conduct of the company, which stood 'given up' by the petitioners at the time of hearing. It was argued that forfeiture of shares in the event of (1) (clause 7(e)) not discharging financial obligations towards the company, and (2) (Clause 7(f)) cessation of business relations with the company are aimed at protecting the interest of the company. It was an unanimous decision of the shareholders to incorporate both the said clauses in the Articles of Association, which were for the benefit of the company and for equal good of the members as a whole, and the burdens and benefits of the said clauses fall upon all the members alike without discrimination. R-l is a close knit company. Its shareholders (cable operators) are also its business partners/customers. Company runs its business by selling signals(commodity) to them for consideration. By non-payment of consideration a shareholder/cable operator eats away the funds of the company jeopardizing its interest. If no action is taken against the defaulter(s) the other shareholders will be tempted to follow the suit and the company shall ultimately have to shut shop. Undisputedly the burden of clause 7(e) applies equally to all shareholders without discrimination. Simultaneously, its consequential benefits are also enjoyed equally (by way of dividends) by every shareholder. Shareholders/cable operators are in virtual 'partnership' with each other and a defaulter has to be weeded out by invoking Clause 7(e) to protect the interest of the company and its shareholders. Thus, incorporation of Clause 7(e) is justified and valid.
11. Further, it was reiterated by Shri M.N. Krishnamani and Shri M.C. Dhingra, Counsels for the respondents that Cessation of business with Company by a shareholder as an incidence leading to forfeiture of shares is justified and valid in as much as cessation of business by a shareholder entails loss to the company due to reduced viewer base and consequential loss of revenue on account of loss of advertisements. If forfeiture of shares is not provided for then a situation may arise wherein the company would be having shareholders but no business, thereby jeopardizing its very existence. It is in the business interest of the company that the shareholders ceasing business relations with the company should be weeded out. Presence of such cable operator as shareholder will be a continuous loss to the company and even if the company manages to earn profits, it will be shared by the erring shareholders by way of dividend. The shareholders present in the EOGM, representing more than 75% of the total shareholders of the company, unanimously passed the special resolution incorporating Clause 7(f) in the Articles of Association to burden and benefit all the shareholders equally and without any discrimination. Clause 7(f) burdens an erring shareholder with the loss of his shares by forfeiture without any discrimination. Thus, it was argued, Clause 7(e) the Clause 7(f) are justified and valid. It was argued that the petitioner Nos. 11 to 17 cannot challenge such forfeiture clause since they either attended EOGM 28.5.2005 or purchased/offered to purchase the forfeited shares of 1 to 10 and enjoyed dividend thereon. Petitioners suppressed the said fact from this Hon'ble Board. The petitioners can not be allowed to approbate and reprobate in the same break. Petitioners Nos. 1 to 10 have already moved before the Civil Court challenging forfeiture of their shares and the said case is still pending. It was pointed out that petitioners' challenged forfeiture of their shares inter-alia on the grounds that (1) the shares are property of the holders and they cannot be forfeited by the company, (2) at the time when shares were taken the forfeiture Clauses were not there and subsequent incorporation of forfeiture Clause can be prospective in operation and cannot be applied to the prior holders of shares. (3) forfeiture can only be effected in the event of non-payment of call money as provided in the statute and not otherwise, and (4) forfeiture is in violation of principles of natural justice as no prior notice was given to them before forfeiting their shares. Responding to these allegations it was argued that shares are held subject to the statutory power of the company for altering the articles. Articles of the Association can be freely amended/altered as provided in Section 31: Alteration of Articles by Special resolution: (1) Subject to the provisions of this Act and to the conditions contained in its memorandum a company may, by special resolution, alter its articles:
(Provided that no alteration made in the articles under this sub-section which has the effect of converting a public company into a private company shall have effect unless such alteration has been approved by the Central Govt).
(2) Any alteration so made shall, subject to the provisions of this Act, be as valid as if originally contained in the articles and be subject in like manner to alteration by special resolution.
Thus, any alteration in the articles shall relate back to the date of incorporation of the Company (incorporated article is statutorily retrospective in its operation.) Referring to the Law as settled through catena of judicial pronouncements the counsels pointed out that it is not necessary to show to validate an alteration that a particular member will get some benefit out of it, but it would be necessary to show that the alteration is needed for the equal good of the members as a whole and that the burdens and benefits of the alteration will fall upon all the members alike. The alteration should not discriminate between members by conferring privileges on some and depriving others of their rights e.g. depriving members of their pre-emptive rights or increasing their liability. A member may, however, be subjected to a sacrifice if it is for the good of the organization e.g. expelling a member and acquiring his shares at a fair value if his personal competing business is causing harm to the company. Further, it was argued that all majority powers have to be exercised in absolute good faith for the benefit of the organization as a whole, but good faith is not lost merely because the alteration operates to the disadvantage of some members. Reliance was placed on the following extract from Halsbury's Laws of England, 381 554(Vol.7(1)4th Edn. Re-issue (1988) as under:
Any alteration must be in good faith for the benefit of the company as a whole, that is, of the cooperators as a general body. Subject to this, articles may be freely altered. It is for the shareholders and not the Court to determine whether or not the alteration is for the benefit of the company and the court will not readily interfere with an alteration made in good faith. Unless it is of such a character that no reasonable person could have regarded it as made for the benefit of the company. The alteration may affect the rights of the member as between himself and the company by retrospective operation, since the shares are held subject to the statutory power of altering the articles.
From the above legal position, it was argued that it is clear that (1) although the shares are properties of the holder(s) but they are held subject to articles and in given circumstances the shares can be forfeited by invoking relevant articles in the interest of the company, (2) subsequently incorporated forfeiture Clauses 7(e) and 7(f) are legally deemed to be in the registered Articles of Association (have retrospective effect vide Section 31(2) of the Companies Act) and by invoking the provisions thereof, the shares of erring members can be forfeited, (3) forfeiture is not confined to the instance of non-payment of call money as has been held by the Hon'ble Supreme Court in 1971(1)SCC 50 Naresh Chandra Sanyal's case, and (4) forfeiture without notice is not in violation of principles of natural justice because the petitioners admittedly wrote to the company of having ceased business relations with the company and purchasing signals from another rival company, and as such no notice was required to be served upon them by the Company before invoking Clause 7(f) to forfeit shares of petitioners 1,2,5 to 11, 13 to 15 and 17. Shares of petitioners 3 and 4 were forfeited by invoking Clause 7(e) for their undisputed wilful neglect in discharging their huge financial liabilities towards the company despite notices. ( reliance was placed on the decisions at AIR 2000 SC 301; AIR 2000 SC 2783; AIR 1984 SC 273). It was pointed out that even the forfeited shares of petitioners 11, 13 to 15 and 17 have been re-allotted to other shareholders but they are not parties before this Hon'ble Board and they cannot be condemned unheard. Moreover, such allotted shares cannot be reversed in view of Article 34(4), Table-A, Schedule-I read with Section 28 of the Companies Act, which reads as under:
Section 28. Adoption and application of Table-A in the case of companies limited by shares:- (1) The articles of association of a company limited by shares may adopt all or any of the regulations contained in Table-A in Schedule-I. (2) In the case of any such company which is registered after the commencement of this Act, if articles are not registered, or if articles are registered, in so far as the articles do not exclude or modify the regulations contained in Table-A aforesaid, those regulations shall so far as applicable be the regulations of the company in the same manner and to the same extent as if they were contained in duly registered articles.
Article 34(4). The transferees shall not be bound to see to the application of the purchase money, if any, nor shall his title to the share shall be affected by any irregularity or invalidity in the proceedings in reference to the forfeiture, sale or disposal of the share.
Thus, a transferee of such shares is provided statutory immunity from the challenges of erstwhile owners of the shares. In such situation the forfeited shares cannot be restored to the petitioners and the entire exercise embarked upon by the petitioners is futile. It was reiterated that the Petitioners' reliance on Malleswara's case is clearly misplaced. In as much as the facts of that case pertained to "pledging of shares" and not transfer/sale thereof. Further, it was pointed out that the alleged 'oppression' was based on so called 'absence of notices' for the meetings which was given up at the time of hearing by the petitioners and therewith vanished the allegation of 'oppression'. Alleged 'mismanagement' is undisputedly bereft of details and this Hon'ble Board cannot be engaged by the petitioners to make a fishing and roving enquiry on behalf of the petitioners in the hope that something may turn up (reliance was placed on (1965)(2)SCR 720 : 2004(119) Company Cases 803). It was vehemently reiterated that the company petition filed by the petitioners is not only misconceived but bereft of merits as well. The petitioners have suppressed the material facts. The actions of the company are supported by law and judicial pronouncements. The imputations, against the company, are totally frivolous and devoid of merits. The frivolous company petition merits dismissal with exemplary costs.
12. I have considered the pleadings and the documents filed therewith as well as the arguments of the counsels for the petitioners and the respondents. The petitioners' case is that the insertion of clauses 7(e) and (f) in the Articles of Association providing for and forfeiting the shares of the members is bad, illegal and invalid; the reasons given for forfeiture have nothing to do with the petitioners' independent rights as shareholders; the act of forfeiting the shares is contrary to the provisions of the Act besides being in gross violation of the principles of natural justice; the shares have been forfeited without due notice for the resolutions made in this regard and without providing an opportunity of being heard to the petitioners, such acts of the respondents are per se illegal and alien to corporate jurisprudence; and that recovery of monies on account of cessation of business; and/or non-payment of dues (though the allegations of dues are not admitted), can be done by way of filing of Civil Suits or otherwise. Further the petitioners' have justified direct payment to the MSO on the ground that the respondents were evading service tax which was allegedly collected by them but not paid to the Govt. and that there was ambiguity in the billing system. Furthermore, the petitioners' case is that the respondents had acted in breach of their fiduciary duties in not issuing fresh share certificates submitted to the respondent No. 1 company in good faith as the seal appearing on the share certificates issued earlier showed an address which was not its registered address. The respondents' case is that the petitioners or their representatives have attended the AGMs, EOGMs and that the CLB has no jurisdiction to adjudicate upon the question of service of notice in as much as it requires receiving of evidence and as such it falls within the domain of the Civil Court; in the present case the Members also have commercial dealings with R-l company, and that their cessation of business as also non-payment of dues causes loss to the company on account of reduced viewer base which in turn results in loss of revenue on account of advertisements through its own run channels, besides reduced viewer base entails in reduction of discounts by the MSOs to MCRs; Clauses 7(e) and (f) were inserted to stop recurrence of cessation of business and non-payment of dues, recovery of dues through suit is not the only mode available to the company and though the company has also resorted to filing of suit against the recovery of the balance amount due company is free to amend and invoke the Articles of Association to protect its interests; the petitioners have not come with clean hands in that the shares of all the petitioners were not forfeited before filing of the petition, shares of petitioner Nos. 11 to 13, 15 and 17 were forfeited during the pendency of the petition; the petition suffers from the vice of mis-joinder of parties as also mis-joinder of causes of action and also absence of cause of action.
13. Considering the facts and legal submissions of the case I find that the facts of the case of each petitioner may be at variance in that some of them have received the notices of meetings, some of them have even attended one or the other meeting, some of them have even opted for buying of the forfeited shares, but what remains is the fact of the insertion of Clauses 7(e) and (f), which in reality is alien to corporate jurisprudence, and the fact that such a provision was not there in the Articles of Association when these petitioners became shareholders and members of the R-l company. The general grievance that no proper notices have been given to them before passing such resolutions by the respondents being in majority and forfeiture of their shares is an act of retaliation subsequent to their pointing out the acts of mismanagements in the affairs of the company appears to be true. To further add to their grievance, the shares have been forfeited without even providing them a reasonable opportunity of being heard in the matter. The shares of some of the petitioners were forfeited even during the pendency of this petition. The petitioners have correctly contended that the reasons given for forfeiture of shares have nothing to do with the petitioners' independent rights as shareholders. Both the reasons i.e.,- (i) cessation of business (ii) and also nonpayment of dues cannot provide justification for forfeiture of shares. Such a forfeiture is contrary to the provisions of the Act as well. Recovery of monies (though allegations of dues are not admitted) can be made by filing Civil Suits or otherwise. The malafide of the action is writ large and the abuse of the amended Article is apparent on the face of it. Dues in the usual course of business have nothing to do with the rights of a member qua a company. Amendment done to the Articles of Association deliberately to oust the petitioners is oppressive.
14. In the present case I find that the respondents who hold 69% shares have proceeded to forfeit the shares of the some of the petitioners by amending Articles of Association with malafide intention to oust the petitioners who had raised objections to the acts of mismanagement in the respondent company. The procedure adopted has been in the pretence of being in the interest of the company giving the justification that cessation of business and also non-payment of dues has resulted in loss to the respondent company and hence the action of amendment of the Articles as also forfeiture of shares of the defaulting petitioners. The respondents' contention that the company is free to invoke its Articles of Association to protect its interests is right. It is also right that the Articles of Association can be freely amended/altered as provided in Section 31. Further it is also right that any alteration in the Articles shall relate back to the date of incorporation of the company. But what is not right is the malafide intention with which the alteration has been done with Articles of Association discriminating between members by depriving them of their rights as members qua a company. The fact that the members also have commercial dealings with the company too cannot justify the action of the respondents. The action of the respondents is a counter blast to the petitioners' allegations against the mismanagement in the affairs of the respondent company. In this process the respondents have not even bothered to infringe the rights of the shareholders. They have totally glossed over the fact that the dues in the usual course of business have nothing to do with the rights of a member qua a company. The right course of action available to the respondents was to file civil suit for recovery of dues which admittedly has also been done. Such an action of providing for forfeiture of the shares of members on the grounds of cessation of business and non payment of dues is, in fact, alien to the corporate jurisprudence. It is also true that some of the petitioners have received the notices for the meetings calling for resolutions to be passed for amending the Articles of Association. But their presence as such does not justify the illegal action taken by the respondents who are in majority. Even otherwise there has been gross violation of the principles of natural justice as the shares of some of the petitioners have been forfeited without even giving them a reasonable opportunity of being heard. The doctrine of natural justice consists principally of two rules, namely, nemo debet esse judex in propria causa: no one shall be a judge in his own cause, and audi alteram partem: no decision shall be given against a party without affording him a reasonable hearing. The principle of audi alteram partem which mandates that no one shall be condemned unheard. This rule is a highly effective tool devised by the courts to arrive at a just decision and it is calculated to act as a healthy check on abuse or misuse of power and hence its reach should not be narrowed and its applicability circumscribed. It is true that since the right to prior notice and opportunity of hearing arises by implication from the duty to act fairly, or to use the words of Lord Morris of Borth - y - Gest, from 'fair-play in action', it may equally be excluded where, having regard to the nature of the action taken, its object and purpose and the scheme of the relevant statutory provision, fairness in action does not demand its implication and even warrants its exclusion. There are certain well recognized exceptions to the audi alterm partem rule established by judicial decisions. But in the present case it is not excluded even by implication. This rule is intended to inject justice into the law and it cannot be applied to defeat the ends of justice, or to make the law 'lifeless, absurd, stultifying, self-defeating or plainly contrary to the common sense of the situation'. The audi alteram partem rule may be excluded only if importing the right to be heard has the effect of paralysing the administrative process of the need for promptitude or the urgency of the situation so demands. This is a rule of vital importance in the field of administrative law and it must not be jettisoned save in very exceptional circumstances where compulsive necessity so demands. It is a wholesome rule designed to secure the rule of law and the persons at the helm of affairs should not be too ready to eschew it in its application to a given case. Every effort must be made to salvage this cardinal rule to the maximum extent permissible in a given case. The core of it must, however remain, namely, that the person affected must have a reasonable opportunity of being heard and the hearing must be a genuine hearing and not an empty public relations exercise. That is why Tucker, L.J. emphasised in Russel v. Duke of Norfolk (1949) 1 All ER 109 that "whatever standard of natural justice is adopted, one essential is that the person concerned should have a reasonable opportunity of presenting his case". What opportunity may be regarded as reasonable would necessarily depend on the practical necessities of the situation. It may be a sophisticated full-fledged hearing or it may be a hearing which is very brief and minimal: it may be a hearing prior to the decision or it may even be a post-decisional remedial hearing. The aim of the rules of natural justice is to secure justice or to put it negatively to prevent miscarriage of justice. If the purpose of the rules of natural justice is to prevent miscarriage of justice I fail to see why those rules should not be made applicable to the functioning of the respondent company. What particular rule of natural justice should apply to a given case must depend to a great extent on the facts and circumstances of the case. Whenever a complaint is made before a Court that some principle of natural justice had been contravened the Court has to decide whether the observance of that rule was necessary for a just decision on the facts of the case. What is objectionable in the present case is that the decision is actually tainted with bias and the circumstances are such as to create a reasonable apprehension in the mind of others that there is a likelihood of bias affecting the decision. The basic principle underlying the rule of principle justice is that justice must not only be done but must also appear to be done. This rule of natural justice is not confined to cases where judicial power stricto sensu is exercised. It is appropriately extended to all cases where an independent mind has to be applied to arrive at a fair and just decision between the rival claims of the parties. Justice is not the function of the courts alone; it is also the duty of all those who are expected to decide fairly between contending parties. To prove violation of this rule it is not necessary even to establish bias but it is sufficient to invalidate the process if it could be shown that there was reasonable likelihood of bias. The likelihood of bias may arise on account of proprietary interest or on account of personal reasons, such as, hostility to one party or personal friendship or family relationship with the other. Forfeiting the shares of the petitioners without affording them a reasonable opportunity of presenting their case in the given circumstances of this case is in gross violation of the principles of natural justice they violating the action of the respondents. The respondents contention that forfeiture without notice is not in violation of principles of natural justice because the petitioners admittedly wrote to the company of having ceased business relations with the company and were purchasing signals from another rival company has no merit in it. The respondents' action of amending the articles of association to forfeit the shares of the petitioners with the intention of ousting them is malafide and uncalled for besides being illegal. The reasons given for forfeiture i.e. cessation of business and non payment of dues do not provide proper justification for amendment of the articles and forfeiture of the shares. In the given circumstances, the respondents have no provision and justification for amending the articles of association. Further, even if one accepts the respondents' contention that the articles of association can be amended retrospectively (the respondents have no proper grounds for amendment and no provision for such amendment) in the present case retrospective effect of the amendment cannot deprive the petitioners' of their right of reasonable opportunity of being heard. The respondents' act is vitiated and required to be set aside to do substantial justice between the parties. Further, the respondents had alternative remedies available if the members ceased business with them or did not pay the dues. And, in fact, the respondents have filed civil suits as well for the recovery of the dues. The petitioners have rightly contended that the reasons given for forfeiture have nothing to do with the petitioners' independent rights as shareholders. In these circumstances, proceeding to take a drastic step of amending the articles and forfeiting the shares was totally unwarranted. Dealing with the legality of the alteration of the articles of association conferring the power on the company to expel one of the shareholders, the Court of Appeal in the case of Sidebottom v. Kershaw (1920) Ch.D 154 at p. 162 held that such a power is subject to one limitation. Lord Sterndale MR. in his judgment at page 162 held as follows: '....The limitation is also stated by Astbury, J, in Brown v. British Abrasive Wheel Co.(1919) 1 Ch.290, to which I shall have to refer later on, and it is stated by Lord Wrenbury in the 9th Edition of his book on the Companies Act, at p. 25, that "possibly the limitation on the power of altering the articles may turn out to be that the alteration must not be such as to sacrifice the interests of the minority to those of a majority without any reasonable prospect of advantage to the company as a whole...".
In my view, the same test applies in deciding whether in a given case the power was bonafide exercised or not. Applying this test, I do not find any material on record to hold that the decision of the respondents to expel the petitioners shareholders is with any reasonable prospect of advantage to the company as a whole nor is it established that all the activity of the petitioners resulted in any tangible damage to the company. In the circumstances, I am of the opinion that the action of the respondents herein in cancelling the membership of the petitioners will achieve no benefit or advantage to the company as a whole; consequently, the same must be held to be illegal.
15. Furthermore, the respondents' contention that the CLB has no jurisdiction to adjudicate upon the issue of service of notice which requires receiving of evidence and as such it falls within the domain of the civil court is misconceived. While adjudicating on the company petitions under Sections 397, 398, which involve issues of oppression and mismanagement, the CLB has to invariably ascertain the facts of service of notices for the various meetings in which the resolution made are oppressive to the petitioner or reveal mismanagement in the affairs of the respondent companies/respondents. It is essential to decide Question of Service of notice in such matters. It is very well within the jurisdiction of the CLB which exercises quasi-judicial power as original authority, it may not be a court but it has all the trapping of a court.
16. The respondents' contention that the petitioners have not come with clean hands in that the shares of all the petitioners were not forfeited before filing of the petition is true to the extent that forfeiture of the shares of petitioners Nos. 11 to 13,15 and 17 were forfeited during the pendency of the petition. But the respondents have not realized that this is a petition under Sections 111,397,398,401 and 402 wherein the petitioners have not only complained of forfeiture of their shares but have also alleged certain acts of oppression and mismanagement. It is a composite petition. In these circumstances of the case, the respondents plea that the petition suffers from the defect of misjoinder of causes of action and also absence of cause of action also fails. In so far as the respondents contention that the petition suffers from the vice of misjoinder of parties (the persons who have purchased the forfeited shares have not been made parties) is unacceptable in view of the fact that the respondents grievances and cause of action is against the present respondents and also that the petitioners could in no way be conversant with the facts and details of the purchasers of the impugned forfeited shares. As regards the respondents' contention that the petitioners have also filed Civil Suit in this matter, it has not been denied that despite Civil Court's injunction the petitioners were not allowed to attend the AGM on 30.9.2005 on the ground that they were no longer the members. I find that the reliefs claimed in the petition are of wider nature and, however, as stated during the hearing the petitioners have taken steps to withdraw the Civil Suit. On consideration of the facts and circumstances of the fact a different picture is revealed. It is rather the respondents whose conduct in the present case required to be looked with suspicion. 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. Considering the argument of the parties, and in view of the facts and circumstances of this case, I find that it is infact, the conduct of the respondents which has been detrimental to the interest of the company and its shareholders including the petitioners. Respondents cannot take advantage of their own wrongs.
17. 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 have been proved. I find that the respondents have failed to refute the allegations levelled against them. No answers have been provided to the specific instances of mismanagement contained in the petition. To avoid prolixity, I refrain from narrating the events and the circumstances of the case. Preliminary objections raised by the respondents are not tenable. The counter allegations of the respondents and the case laws relied upon have been squarely met with by the petitioners as elaborately set up herein above.
18. 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. The conduct of the respondent group towards the minority shareholders was oppressive, burdensome, harsh and wrongful. The conduct of the respondents has resulted in justifiable lack of confidence on the part of the petitioners in the conduct of the affairs of the company. Such lack of confidence had been caused by lack of probity in the conduct of the affairs of the company. Such lack of confidence in the present case has sprung from oppression of the petitioners by the majority in the management of the company's affairs, and oppression in this case involves an element of lack of probity or fair dealing to the members in the matter of their proprietary rights as shareholders. And these acts of oppression have been continuous - even during the pendency of the petition shares have been forfeited. In view of the above I find that there is just and equitable cause for winding up of the company. Though it is a fit case for winding up the winding up order in the present case would clearly prejudice the interests of the petitioners and the company.
19. In view of the foregoing, CP No. 21/06 succeeds. The petitioners' prayers at page 23 of the petition as contained in paras 8(c);8(d);8(e); and 8(h) are hereby granted. Further, the respondent company is hereby directed to issue proper share certificates to the petitioners who have submitted the share certificates in good faith to the company as the seal appearing on the share certificates issued earlier showed an address which was not its registered address. The respondent company is hereby further directed to reconsider shifting of its Regd. Office in its next EOGM to be held within a month of receipt of this order. All interim orders stand vacated. All Company Applications made in CP No. 21/06 stand disposed off. No order as to cost.