Company Law Board
Ms. Pushpa Prabhudas Vora And Ors. vs Voras Exclusive Tools Pvt. Ltd. And Ors. on 23 December, 1999
Equivalent citations: [2000]101COMPCAS300(CLB)
ORDER
S.Balasubramanian, Vice-Chairman
1. Voras Exclusive Tools Private Limited, in the affairs of which acts of oppression and mismanagement have been alleged under Section 397/398 of the Companies Act, 1956 ("the Act"), was being managed by the families of two brothers, namely, the late P.J. Vora and N.J. Vora from 1980 onwards. These families, among themselves held 49.98 per cent. shares each in the company. P.J. Vora was the chairman and N.J. Vora was the vice chairman. Due to heavy losses incurred by the company, a reference was made to the BIFR in 1987, which declared the company as a sick company and it approved a rehabilitation package in July, 1990. On March 15, 1994, P.J. Vora passed away. The first petitioner is the widow of P.J. Vora and the other three petitioners are the daughters. After the death of P.J. Vora, there were only two directors from the shareholders group--the first petitioner and the second respondent. In addition, there were two nominees of the BIFR on the board. In recognition of the services rendered by P.J. Vora to the company, in a board meeting held on October 29, 1994, it was resolved that the residential premises at 141, Somerset House, Bhulabhai Desai Road, Bombay, would always belong to the family of P.J. Vora and that the company did not have any claim over that property and that the legal heirs of P.J. Vora were at liberty to get the house transferred/transmitted in their name from the landlord. In the meanwhile, certain disputes arose between the parties and in January, 1996, they agreed to resolve the disputes by which the shares held by the petitioners' group would be purchased by the respondents for a sum of Rs. 3 crores and that the petitioners would get Flat No. 141, Somerset House, This settlement, however, did not materialise.
2. In this background, the petitioners have made various allegations that with a view to reduce the shareholdings of the petitioners to a minority, 65,000 shares were allotted to the respondents' group ; that additional directors were appointed on the board with a view to disturb the equality in the board ; that no notices for board meetings and general body meetings are being sent to the petitioners ; that indiscriminate treatment was being given to the petitioners' group in regard to employment in the company and disproportionate remuneration, etc. Later, after filing of the petition, an application for amendment as well as various other interim applications were filed.
3. In view of the close relationship between the parties, a lot of efforts were made by us to bring about a settlement of the disputes amicably. Originally, in the hearing held on February 19, 1997, the second respondent showed his willingness to implement the family settlement arrived at in January, 1996, and sought for time to indicate the schedule of payment. However, since the company was under the purview of the BIFR, the respondents obtained an order of stay from the High Court of Delhi due to which we could not proceed with the matter and we recorded this fact in our order dated April 4, 1997. Later, the stay order became infructuous since the company came out of the purview of the BIFR, Afterwards also attempts were made to get the disputes resolved amicably, but without any final result and as such the petition was heard on the merits.
4. A.N. Haksar, senior advocate, appearing for the respondents raised a preliminary objection on the maintainability of the petition on the ground that the petitioners do not satisfy the requirements of Section 399 of the Act. He pointed out that the issued capital of the company was of the order of Rs. 90 lakhs at the time when the petition was filed. Knowing this fact fully well, the petitioners have averred that the issued capital was Rs. 25 lakhs only. Further, almost all the shares of the petitioners' group are held in joint names with P.J. Vora as the first shareholder. So far, the petitioners have not taken any action to get the shares transmitted in their favour. On their own, they have claimed in para. 7 of the petition as if these shares stand in the names of the petitioners. In view of this, the actual holding by the petitioners in their own names is below 10 per cent. of the issued capital and they also do not satisfy the alternative requirement of being one-tenth of the total number of members and as such this petition should be dismissed as not maintainable.
5. Shri Sarkar, senior advocate, initiating his arguments on behalf of the petitioners, taking up the preliminary objection by Haksar, submitted that it is wrong to contend that the petitioners do not satisfy the provisions of Section 399 of the Act. Referring to annexure R-47, he submitted that the first petitioner is the first named shareholder in respect of 580 shares, the second petitioner is shown as the first named shareholder in respect of 1,240 shares, the third petitioner as the first shareholder in respect of 1,280 shares, the fourth petitioner as the first shareholder in respect of 1,225 shares. Thus, all the petitioners are first named shareholders in at least four joint holdings. The total number of shareholders in the company is only seven and as such the petitioners satisfy the requirement of one-tenth of membership of the company. Further, all the shares held by P.J. Vora were jointly held with one or more of the petitioners who are the legal heirs of the deceased. Since the petitioners are the legal heirs of the deceased, notwithstanding the fact that the shares have not been transmitted to them, they can maintain a Section 397/398 petition in terms of the judgment of the Supreme Court in World Wide Agencies P. Ltd. v. Mrs. Margaret T. Desor [19901 67 Comp Cas 607 ; AIR 1990 SC 737. He also relied on Mrs. Farhat Sheikh v. Esemen Metalo Chemicals P. Ltd. [1996] 87 Comp Cas 290 (CLB) and on Dipak G. Mehta v. Anupar Chemicals (India) Pvt. Ltd. [1999] 98 Comp Cas 575 ; [19991 2 Comp LJ 539 CLB wherein the Company Law Board has held that if issue of additional shares is impugned in the petition, then, the qualification under Section 399 would have to be with reference to the shares in the company before the issue of shares impugned in the petition. Since, in this petition, issue of further shares has been impugned, for the purpose of qualification under Section 399, the shares impugned should be excluded in computing the percentage shares held by the petitioners. Accordingly, he submitted that in every respect, this petition is maintainable.
6. Dealing with the merits of the case, he pointed out that this company is a family company and in the nature of a quasi partnership. Right from 1980, there was equal shareholding and equal representation on the board and all the directors were getting equal remuneration and the management of the company was carried on jointly. However, after the death of P.J. Vora, the second respondent started indulging in oppressive conduct against the petitioners, lacking in probity and fairness and against the spirit of partnership. After the death of P.J. Vora, the second respondent, with a view to get the petitioners out of the company, first offered to purchase the shares held by the petitioners for Rs. 75 lakhs which was not acceptable to the petitioners. In January, 1996, it was agreed that the petitioners will go out of the company for a consideration of Rs. 3 crores together with Flat No. 141, Somerset House. Instead of implementing the agreement, the second respondent, when the petitioners were in the USA, allotted 65,000 shares to himself, his second wife and his son. The allotment is illegal inasmuch as, no pro rata offer was made to the petitioners, the shares were allotted to non-members, the company was not in need of funds, even the allotment was made only against loans standing in the name of the respondents and no fresh funds came into the company. Thus, he contended that this allotment was made only with a view to reduce the percentage holding of the petitioners from 49.98 per cent. to 13.88 per cent. Further, without ascertaining the fair value of the shares, just to benefit themselves, the respondents issued the shares at par. According to Sarkar, such a mala fide issue of further shares resulting in reduction of equal partner to an insignificant partner, is a grave act of oppression. Even otherwise, he submitted that the issue of further shares is not legally tenable also. His arguments on this are as follows : The original authorised capital was Rs. 25 lakhs. In a board meeting held on October 29, 1994, which was not attended by the first petitioner, the board decided to get the approval of the general body to increase the authorised capital of the company to Rs. 1.5 crore. However, without giving any notice to the petitioners, in an extraordinary general meeting held on November 23, 1994, the general body attended by just two shareholders, passed a resolution to increase the authorised capital to Rs. 1.5 crores consisting of 90,000 equity shares of Rs. 100 each and 60,000 6 per cent. redeemable preference shares of Rs. 100 each. Since the board never discussed the composition of the increased authorised capital and since none of the petitioners received any notice of the general body meeting, the increase in authorised capital is null and void especially when the petitioners holding 49.98 per cent. did not have any opportunity of examining the proposal. However, the respondents have fabricated the records to show as if the petitioners were present in that meeting. Further, in the board meeting held on October 29, 1994, it was specifically recorded that the additional shares would be issued in proportion to the existing holding. No offer was made to the petitioners in this regard and all the shares were allotted to the family members of the second respondent. Further, the object of increasing the authorised capital was to bring in fresh capital into the company to liquidate the existing liabilities. Yet, the additional shares were allotted against credits standing in the name of the second respondent and thus no fresh funds came into the company. Even though the respondents have taken a stand that in a board meeting held on October 14, 1995, an offer was made to the second petitioner to subscribe for additional shares, in fact, no such offer was made as she was not present in that meeting. Even assuming that such an offer was made, as per the minutes of the meeting, she was to indicate her willingness or otherwise within three days, i.e., by October 17, 1995. However, further issue was made only in February, 1996, i.e., nearly after six months. At this time, no offer was made to the petitioners either in writing or otherwise. He submitted that the allotment of shares to one group resulting in the other group being converted into a minority is a grave act of oppression as held in Gluco Series Pvt. Ltd., In re [1987] 61 Comp Cas 227 (Cal) ; Stridewell Leathers (P) Ltd. v. Shoe Specialities (P.) Ltd. [1996] 1 Comp LJ 426 (CLB); Binod Kumar Agarwal v. Ringtong Tea Company Private Ltd. [1996] 85 Comp Cas 289 (CLB) ; Akbarali A. Kalvert v. Konkan Chemicals Pvt. Ltd. [1997] 88 Comp Cas 245 (CLB); Chand Mall Pincha v. Lettea Tea Company Private Ltd. [1999] 2 Comp LJ 40 (Gauhati).
7. Sarkar pointed out that the stand of the respondents that the increase in the capital was on account of certain directions given by the BIFR in the hearing held on September 13, 1995. Referring to the said order, he pointed out that there is no such directive in that order. Further, he submitted that when a scheme under Section 17(2) of the Sick Industrial Companies (Special Provisions) Act was submitted to the BIFR, it was specifically mentioned that no increase in the capital was contemplated. Therefore, the entire allotment was only with a view to reduce the petitioners to a negligible minority from equal shareholding.
8. He also submitted that not having been satisfied with reducing the shareholding of the petitioners into minority, the second respondent has also taken over the complete management of the company by inducting his second wife (respondent No. 4) and his son (respondent No. 3) as director's on the board in an alleged meeting held on February 29, 1996. It is in spite of the fact that in a meeting held on February 22, 1996, the Bank of India nominee objected to the appointment of additional directors in the absence of the first petitioner who was at that time in the USA and was to return on March 1, 1996. The appointment of additional directors was purportedly made on the basis of some legal opinion and hastily made on February 29, 1996, even though the second respondent was fully aware that the first petitioner was returning to India on March 1, 1996. He pointed out that even though it is claimed that notice for the meeting on February 22, 1996, was sent by certificate of posting on February 16, 1996, it is only for the purposes of creating evidence as the second respondent fully knew as the company itself had arranged for tickets, etc., that the petitioners were in the USA at that time. He also pointed out that even otherwise since these two were appointed only as additional directors, they would have ceased to be directors on the day when the next annual general meeting should have been held. Since no annual general meeting had been held after this date, they could no longer continue as directors of the company. If that be the case, there will only be two directors in the company, namely, the first petitioner and the second respondent. He submitted that it is a settled proposition of law that board meetings held without notice to the directors are invalid. On this proposition, he relied on Panneshwari Prasad Gupta v. Union of India, AIR 1973 SC 2389 ; [1974] 44 Comp Cas 1, Dipak G. Mehta v. Anupar Chemicals (India) Pvt. Ltd. [1999] 98 Comp Cas 575 ; [1999] 2 Comp LJ 539 (CLB) and a few other cases.
9. He further submitted that the oppressive conduct of the second respondent extended to even revoking the board resolution dated October 29, 1994, wherein it was resolved that the flat at 141 Somerset House would be transferred/transmitted in favour of the family of the first petitioner. This revocation took place in a board meeting held on December 12, 1996, i.e., after this petition was filed as is evident from exhibit R-48. This revocation, Sarkar submitted, exhibits the vindictive attitude of the second respondent against the petitioners.
10.Sarkar further pointed out that, in complete violation of the family arrangement by which both the groups would have the benefits of employment in the company, the fourth petitioner who had been in employment of the company was served with a notice of termination of service on May 1, 1996, even though the son of the second respondent (R-3) was continued in employment. Further, while the respondents' group gets a total remuneration of Rs. 90,000 per month, the petitioners' group, is getting only Rs. 5,000 per month, i.e., being paid to the first petitioner. This disproportionate enjoyment of benefit by the respondents' group is a grave act of oppression against the petitioners in a family company.
11. He further pointed out that the petitioners are subjected to various kinds of acts of discrimination and thus are not in a position to exercise the rights of the shareholders. The powers of attorney given by these shareholders are not being registered by the company, their proxies are not registered, notices are not being sent by registered post in spite of specific instructions, etc.
12. Summing up his arguments, he submitted that the only way by which the matters complained of could be put an end to is that the shares held by the petitioners should be directed to be purchased by the respondents on a fair valuation to be made by an independent valuer. Since the petition was filed on December 3, 1996, the date of valuation should be that date as held in Scottish Co-operative Wholesale Society Ltd. v. Meyer [1958] 3 All ER 66 ; [1959] 29 Comp Cas 1 (HL) and Yashovardhan Saboo v. Groz-Beckert Saboo Ltd. [1993] 1 Comp LJ 20 CLB ; [1995] 83 Comp Cas 371. As far as the method of valuation is concerned, he submitted that since the proceedings under Section 397 are alternative to winding up, the method of valuation should be on the basis of break up value of shares. On this proposition, he relied on CWT v. Mahadeo Jalan [1972] 86 ITR 621 (SC) and Ramashankar Prosad v. Sindri Iron Foundry Pvt. Ltd. [1966] 1 Comp LJ 310.
13. Haksar, senior advocate, appearing for the respondents, submitted that it is wrong to contend that there was equal shareholding in the company. When the share capital was Rs. 25 lakhs, 10 shares had been allotted to one Vora Techno Consultants Private Limited in which the respondents held majority shares and as such the respondents controlled more than 50 per cent. shares in the company right from 1978. The company became sick in 1987 and afterwards the operation of the company was being carried on under the supervision of the two nominee directors by the BIFR. No board meeting could be held without the presence of the nominee directors and all the decisions taken were with their concurrence and approval. It is the respondents who had put in their money and efforts to get the company out of the purview of the BIFR and the petitioners had not contributed anything towards the revival of the company. With the efforts of the respondents, the accumulated loss of Rs. 117 lakhs was wiped out and dues of creditors to the extent of Rs. 229 lakhs have been paid off. No doubt, there were negotiations regarding family settlement and proposals were discussed but nothing could be finalised due to the non-co-operative attitude of the petitioners. He further submitted that there could be a few lapses in regard to compliance with the provisions of the Act which were due to the pre-occupation of the respondents with the revival of the company and due to the financial difficulties of the company to engage competent secretarial staff. Nothing has been done with a mala fide intention. - He submitted that the purpose of filing this petition is to get the alleged family settlement executed through the Company Law Board, even though the Company Law Board has no jurisdiction in this matter. He contended that this is the oblique motive to file the petition and not with a view to get redressal of the alleged acts of oppression. For this submission, reliance was placed on the application for interim relief wherein the petitioners have sought for various personal benefits for themselves at the interim stage. He also pointed out that right from the beginning, the petitioners were only seeking for implementation of the 1996 family agreement ignoring the allegations made in the petition. Thus, it is the family dispute that has prompted the petitioners to file this petition and not on any shareholders grievances of oppression. He further pointed out that at the relevant time the board consisted of four directors--the first petitioner, the second respondent and two nominees of the BIFR. All the decisions were taken by the majority and as such a lone director being in minority cannot allege oppression.
14. Dealing with the merits of the case, he submitted that the authorised capital was increased only on the suggestion of the operating agency in July, 1990, that the promoters should contribute Rs. 50 lakhs (page 204 of the reply). The proposal to increase the capital was approved in a board meeting held on October 29, 1994, and this meeting was attended by the first petitioner and she was assisted by the second and fourth petitioners. In this meeting, the matter relating to the flat at Somerset House was also taken. While the petitioner relies on the decision of the board regarding the flat, her contention that she did not attend this meeting in regard to increase in the authorised capital cannot be given any credence. In the annual general meeting on November 23, 1994, which was attended by all the petitioners, the general body also approved the increase in the authorised capital and the annual reports made up to November 23, 1994, and October 30, 1995, show the increase in the authorised capital and these returns have been signed by the first petitioner. Even the annual accounts for 1994-95 signed by the first petitioner indicate the increase in authorised capital. Therefore, it is wrong to contend that the petitioners were not aware that the authorised capital had been increased. The BIFR nominees were party to this decision to increase the authorised capital. This issue has been raised now only to malign the conduct of the respondents.
15. In regard to the issue of further shares, Haksar pointed out that this further issue was made in February, 1996. Referring to the board minutes dated October 14, 1995, he submitted that the first and second petitioners who were present in that meeting were asked to confirm their willingness to subscribe to additional shares by October 17, 1995. The minutes itself record the need for raising the share capital of the company. The petitioners remained silent on this issue for nearly four months. Instead, they withdrew all their deposits from the company. In the meanwhile, negotiations for settlement were going on by which the shares of the petitioners were to be purchased by the respondents. Further, the Bank of India asked the company to increase the share capital to Rs. 19 lakhs (page 256 of reply). Accordingly, notice for the board meeting was issued to all the directors on February 16, 1996, convening a board meeting on February 22, 1996. The first petitioner did not attend the meeting. In that meeting, the board allotted further shares of Rs. 65 lakhs to respondents Nos. 2, 3 and 4 and accordingly filed a return of allotment on March 18, 1996. The BIFR was also informed of this. He submitted that the provisions of Section 81 are not applicable to the company nor the articles provide for proportionate allotment. Even otherwise, the first petitioner did not react to the offer made to her in the board meeting on October 14, 1995. The allotment was with the approval of the BIFR nominees on the board. Therefore, the shares were allotted for the benefit of the company with a view to make its net worth positive and as such cannot be considered to be an act of oppression just because the petitioners' group was not allotted any further shares. By the time the respondents had pumped in substantial funds to the tune of Rs. 71 lakhs and accordingly out of this amount Rs. 65 lakhs were converted into share capital.
16. In regard to the appointment of the third and fourth respondents as additional directors, he submitted that they were appointed as additional directors in a board meeting held on February 29, 1996. He pointed out that during the period 1978 to 1981, the petitioners' group had three directors while the respondents' group had only two directors. Likewise, between 1981 to 1987, out of six directors, the petitioners had four and the respondents two. From 1987 to 1989, there were two directors each from both the groups. Later, after the death of P.J. Vora, each group had one director on the board. Thus, he pointed out that for a number of years, it was the petitioners' group which had majority on the board and both the groups were not equally represented on the board. In view of the substantial investment made by the respondents' group by way of loans and share capital, it was proposed to appoint respondents Nos. 3 and 4 and accordingly with the consent of the BIFR nominees, these two were appointed as additional directors.
17. Regarding the allegations relating to non-issue of notices for the board meetings, he submitted that after the BIFR nominees came on the board, all the board meetings were held only after proper notice and the directors signed the attendance register. The first petitioner had attended all the board meetings except the one on February 20, 1996 and February 29, 1996, even though notices were sent to her by certificate of posting. Therefore, he submitted that it is wrong to allege that no notice for the board meetings are being sent to the first petitioner. In regard to notices for the general body meetings, he submitted that there is no system of sending notices for the general body meetings by post. Normally, the notices are hand delivered at the time of board meeting. Since, the dates for general body meetings are fixed in the board meetings, the petitioners were always in the knowledge of the dates of the general body meetings. Therefore, it is not correct to say that the petitioners have no notice of the general body meetings.
18. Summing up his arguments, Haksar submitted that it is not correct to claim that the company is in the nature of a quasi-partnership. Even though, the company was promoted by family members, yet, there is nothing on record to show that the company would be run as a family business. Of the four family promoters, the only survivor is the second respondent. Even though, the late P.J. Vora and the second respondent continued with the business of the company from 1978, yet, in view of the majority shares held by the second respondent in Vora Techno Consultants Private Limited, which holds ten shares in the company, the second respondent controlled the majority shares in the company. He also submitted that after the company became sick in 1987, the petitioners' group did not evince any interest in the company by investing further funds and as a matter of fact, they withdrew their deposits. All the bank guarantees have been given only by the respondents' group while the petitioners got their personal guarantees released. Further, there was no agreement for active participation by both the groups. He submitted that the petitioners having not acted in the spirit of partnership while the company was in difficulty, cannot ask for the same principles to be applied now. He further submitted that in view of the management of the company by the respondents' group, the net worth of the company has become positive enabling the company to come out of the purview of the BIFR. In view of this, it cannot be said that the affairs of the company are being carried on in a manner prejudicial to the interest of the company, shareholders or public interest warranting winding up of the company on just and equitable grounds. Therefore, he prayed that the petition be dismissed.
19. We have considered the pleadings and arguments of counsel. In regard to the arguments on the maintainability of the petition in terms of Section 399, we do not propose to examine the same in detail. All the petitioners hold a certain number of shares in their personal names as indicated at annexure R-47. The total number of members in the company is below ten. Section 399 provides that 1/10th of the total number of members would have the right to move a petition under Section 397/ 398 of the Act. Since there are four petitioners before us, they satisfy this condition. In view of this, there can be no question in regard to the maintainability of the petition and as such we hold that this petition is maintainable.
20. Even though, a large number of allegations have been made in the petition, the important allegations which merit grant of appropriate relief relate to the increase in authorised capital, allotment of further shares and appointment of additional directors. To decide these issues, we have to first examine the nature of the company--whether it is a family company and whether it is being managed on quasi-partnership principles. The Vora family consisting of cousins had a number of independent companies with most of them as shareholders. The second respondent is the brother of the late P.J. Vora. There seems to have been a family settlement some time in 1980 by which there was a parting of ways between the cousins. The respondent-company came under the control of the late P.J. Vora and the second respondent each holding 50 per cent. shares. Later, both the sides transferred five shares each to one Vora Techno Consultants Private Limited. Afterward, the shareholding never changed for nearly 15 years. Both the groups were in active management of the company. Till the death of P.J. Vora, even though the number of directors from both the groups till 1987 was not equal, after 1987, there was equality in the number of directors representing both the groups. The board even passed a resolution to transfer the flat in Somerset House to the family of P.J. Vora after his death in recognition of the services rendered by him to the company. Now the petitioners' group is without any male member to represent their group and they had shown their willingness to go out of the company. It is on record that both the second respondent and the first petitioner jointly addressed a letter to the Bank of India on January 15, 1996 (exhibit U) stating that after protracted negotiations between the two groups, they had arrived at an agreement by which the second respondent would make a total payment of Rs. 3 crores to the family of the late P.J. Vora of which Rs. 1.5 crores will be paid immediately after signing of the agreement and the balance in six months from that date in instalment. They have further stated in paragraph 8 of that letter that "an understanding has been arrived at between the two groups of the family and an arrangement for family settlement is being prepared and considered by the respective solicitors". This letter was written for the purpose of repaying Rs. 9 lakhs kept as deposit in the company by the petitioners' group, to meet the expenses for the marriage of one of the daughters of the late P.J. Vora. In the same letter, there is a mention about a Fiat car and the flat in Somerset House being transferred irrevocably to the petitioners' group. Thus, it is crystal clear that in spite of the corporate status, the company was being managed as a family company and managed in the garb of a quasi-partnership.
21. Under these circumstances, we have no hesitation to come to the conclusion that the company is a family company, managed at least till 1994 in the garb of a quasi-partnership. Most of the arguments advanced by Haksar to substantiate his stand that the company cannot be considered to be a quasi-partnership are based on events subsequent to 1994/1995 by which time there had been some discussion of parting of ways between the two groups.
22. In this background, we shall examine the allegations. As far as increase in authorised capital is concerned, the allegation of the petitioners is that it was done without their knowledge and consent while it is the stand of the respondents that the petitioners had given their consent both in the board meeting as well as in the general body meeting. We feel that it is unnecessary to go into this aspect as increase in authorised capital by itself cannot be considered to be an act of oppression unless otherwise such increase has been used to allot further shares to one group in exclusion of the other group. Mere increase in authorised capital without any further issue of shares consequent to such increase, even assuming that the same has been done without the knowledge of one of the groups cannot be impugned in a petition under Section 397/398. In this case, perhaps, the increase in authorised capital has been impugned, since, without such increase, further shares could not have been allotted. Since it is the issue of further shares that has reduced the petitioners from equality in shareholding to a minority, we shall examine only whether such issue could be considered as an act of oppression. It is an admitted position that no offer was made to the petitioners in writing to subscribe to additional shares. One of the justifications given by the respondents for not offering shares to the petitioners in writing is that the first and second petitioners were asked to indicate their willingness or otherwise to subscribe to additional shares in a board meeting held on October 14, 1995, within three days thereafter. This, according to us, cannot be considered to be a valid offer for the simple reason neither the quantum of shares offered nor the consideration at which the shares had been offered had been indicated in that meeting. Further, this offer was made only to the first and second petitioners even though there are two other shareholders from the petitioners' group. Counsel for the respondents contended that since it is a private limited company, there is no need to offer shares on rights basis in terms of Section 81 and that the articles also do not provide for the same. May be so, but in the board meeting in which it was decided to increase the authorised capital, it was decided to offer shares on a rights basis. Further, in a company of this nature--a family company--wherein there had been equal shareholding between the two groups right from 1980, any change in the shareholding parity without mutual agreement, is definitely an act of oppression. It is on record that the shares were allotted in a meeting which was not attended by the first petitioner--the only other shareholder director--besides the second respondent. We are of the firm view that written offer should have been to the petitioners or the decision to allot shares should have been taken in a meeting attended by the first petitioner. It is immaterial as to under what circumstances these additional shares were issued--whether to revive the company, whether as per the directions of the BIFR and whether with the consent of the BIFR nominees. We would also point out, even assuming that the petitioners would not have taken the additional shares, in view of their willingness to go out of the company, yet, from the records placed before us it is crystal clear that no formal offer to all the petitioner shareholders had been made. We have, in a number of cases, decided that issue of shares in a family company run in the guise of a quasi-partnership, to one group of shareholders in exclusion of the other group is an act of oppression meriting winding up of the company on just and equitable considerations. Therefore, the act of the respondents to have issued shares to their own group is unjustified. In regard to the appointment of additional directors, it is to be noted that at the relevant time, there were only two shareholder directors--the first petitioner and the second respondent in addition to two BIFR nominees. In other words, there was equal participation in the management by both the groups getting equal remuneration. It is on record that when the additional directors were appointed, the first petitioner was not present in that board meeting. By appointing two additional directors from the respondents' group, the equality in participation in the management has been disturbed. It is contended that for a long time, the petitioners' group had a majority on the board and as such the respondents' having majority cannot be questioned. It is to be noted that the petitioners' group had that majority with the consent and approval of the respondents. But, in the present case, such appointments were made in a meeting not attended by the petitioner, that too when the respondents knew fully well that the first petitioner was abroad and could not have attended the meeting. As we have observed in the case of allotment of further shares, the appointment of additional directors, without the consent and knowledge is an act of oppression. Further, by such appointment, even the remuneration received by the respondents' group has gone up disproportionately higher than the remuneration received by the petitioners' group. Thus, the disturbance in the board by appointment of two additional directors is unfair and against the interests of the petitioner.
23. In regard to the other allegations, we do not propose to deal with them in detail in view of the directions that we propose to give later. Having come to the conclusion that the issue of additional shares as well as taking over the management by appointing two additional directors are clear acts of oppression, the issue for consideration is about the relief to be granted.
24. It is an admitted position that the two groups of family members had been managing the company from 1978 onwards till the death of P.J. Vora in 1994. It is evident that after the death of P.J. Vora, the petitioners evinced their interest to dissociate themselves with the company and negotiated for separation. Even though, there is a dispute as to whether the family settlement as indicated to the bank at annexure U was finalised or not the proceedings before us indicate without any shadow of doubt that the respondents were not averse to settle the disputes amicably either by implementing the 1996 settlement or otherwise. In this connection, we may beneficially refer to certain orders passed by us in this regard. As early as on February 19, 1997, the respondents were willing to abide by the family settlement and accordingly we passed an order on that day as follows : "the respondents will give a schedule of payment pursuant to the family settlement on May 5, 1997, at 4.00 pm for our consideration". In the hearing held on March 10, 1999, again, the respondents .expressed their desire to implement the family settlement but had certain reservations on the issue relating to the flat in Somerset House. In view of this, we passed an order on that day as follows : "to arrive at an amicable settlement, as a first step, the value of the property occupied by petitioner No. 1 will be valued by one of the approved valuers of the Bombay High Court. The valuation is to be on the date when the tenancy was started, in January, 1996, and in March, 1999. The company will get the valuation on all the three dates within 15 days from today and give a copy of the report to the petitioner immediately thereafter. The report of the valuer will be considered on March 31, 1999, at 2.30 pm". In the further hearings held, the same issue was being discussed but before any finality could be reached, the respondents expressed their unwillingness to settle the matter amicably.
25. In these circumstances, even though, by cancelling the additional issue of shares and the appointment of, additional directors and giving appropriate directions regarding notices for the meetings, the acts complained of could be put an end to, yet, such an order could only pave the way for future escalation of disputes which would not be in the interest of the company. In a similar case of disputes, wherein two brothers--one holding 40 per cent. shares and the other 60 per cent. shares but with equal participation in the management for over a long time, we observed as follows, which according to us could relevantly be applied in this case : "we have held that only two allegations in the petition, viz., transfer of shares and appointment of additional directors are found to be acts of oppression in view of the company being a family company run on partnership principles. These two acts have completely marginalised the petitioner in such a way that the petitioner's presence is not necessary either in the board meetings or in the general body meetings, which could not have been held earlier without his presence. Equal participation in the management, which has been in vogue right from the incorporation of the company, has been upset. These acts, in view of the application of partnership principles, would definitely warrant winding up of the company on just and equal grounds. Under these circumstances, the question is about the reliefs to be granted. Reference may be made to the cases cited by learned counsel for the petitioners, viz., Bhubaneshwar Singh [1986] 59 Comp Cas 46 (Cal) ; Kuldip Singh Dhillon (Col.) (1986] 60 Comp Cas 1075 (P & H) ; Bhajirao G. Ghatke [1984] 56 Comp cas 428.(Bom) cases. In case we declare the transfer and appointment as invalid, then the status quo in relation to the number of members and directors would be restored as it stood before the disputes started between the two brothers. In view of the strained relationship between the two shareholders who are also directors, there is every likelihood of a deadlock in the management which is not in the interest of the company. The remedy under Section 397 is alternative to winding up, which means that the interest of the company is paramount in moulding the relief. Normally, in a family company like this, where both the shareholders are also directors, once mutual trust and confidence between them is lost, one of them going out of the company is the only way, which could protect the interest of the company". (Vinod Kumar v. Sigmalon Equipment (P.) Ltd.,....). After observing so, in view of the insistence of the petitioner that he should continue with the company, he was given the option of being with the company or to go out of the company after selling his shares on a proper consideration to be determined by an independent valuer. Since one of the complaints of the petitioner was that his brother's group was getting more remuneration in view of induction of directors from his group, the following direction was given : "It is on record that as a 40 per cent. shareholder the petitioner was getting two-thirds of the remuneration/perquisites paid to the second respondent who was the only other director fill 1997. Now with the addition of the family members of the second respondent as directors/vice chairman, they are also getting certain remuneration. Therefore equity demands, that the petitioner should get 40 per cent. of the total remuneration/perquisites paid to the respondent group". Since the petitioner chose to go out of the company, he later filed an application for appointment of an independent valuer and accordingly, this board appointed an independent valuer. The facts of the above case are practically similar to the present one and as such, we are of the view that the decision in that case can appropriately be applied in the present case also.
26. Accordingly we order as follows :
1. The respondents/the company will purchase the shares held by the petitioners' group at the value to be determined by an independent valuer. In case the company decides to purchase the shares, then consequent reduction in the share capital will be effected ;
2. As this board has held in a number of cases, the date of valuation will be the balance-sheet date proximate to the date of the petition. Since the petition was filed in December, 1996, the valuation date will be March 31, 1997. Additional shares issued in February, 1996, will be excluded from the number of shares in existence on that date ;
3. The allotment of additional shares will remain as it is ;
4. The additional directors will continue ;
5. Till such time the shares are purchased, the first petitioner, being a director, will be given 15 days notice for all board meetings together with agenda and she will have the right to participate in all meetings ;
6. The first petitioner will continue to enjoy the same salary and perquisites that she was getting before the dispute started till the shares held by her group are purchased by the respondents. In the same way, the fourth petitioner whose services were terminated will be eligible to draw the same amount of salary and other perquisites which she was getting during the employment, till the shares are purchased by the respondents. The arrears of salary and other perquisites from the date of her termination till date will be paid by the company within a month from the date of receipt of this order.
The parties will appear before us on January 7, 2000, at 2.30 p.m. to suggest a mutually acceptable valuer to determine the fair value of shares and we shall pass an order appointing the valuer and giving appropriate directions in regard to the valuation.