Company Law Board
Binod Kumar Agarwal And Ors. vs Ringtong Tea Company Private Ltd. And ... on 26 July, 1993
Equivalent citations: [1996]85COMPCAS289(CLB)
ORDER
1. Shri Binod Kumar Agarwal, his wife, Smt. Manju Devi Agarwal, and his son, Shri Rajiv Choudhry (Agarwal), all shareholders of Ringtong Tea Co. Pvt. Ltd. (hereinafter referred to as "Ringtong") filed a petition dated April 30, 1992, under sections 397 and 398 of the Companies Act, 1953, on May 1, 1992, alleging that the affairs of the company are being conducted in a manner prejudicial to public interest and the interest of the company and in a manner oppressive to the petitioners.
2. Ringtong was incorporated as a private limited company in March, 1960. The authorised capital of the company is Rs. 100 lakhs divided into 10,000 equity shares of Rs. 100 each. Petitioner No. 1 is the son of respondent No. 7, Shri Dedraj Choudhry, and petitioners Nos. 2 and 3 are the wife and the minor son, respectively, of petitioner No. 1. Respondent No. 2, Shri Sushil Kumar Choudhry, is the brother of petitioner No. 1 and respondent No. 3, Shri Sanjay Kumar Choudhry, is the son of respondent No. 2. Respondent No. 4, Smt. Sarda Devi Choudhry, is the wife of respondent No. 2. Respondent No. 5, Nirmal Choudhry, is the son of respondent No. 6 and has received shares out of the further shares issued by Ringtong. Respondent No. 6, Subhkaran Choudhry, is the brother of respondent No. 7 and is a shareholder and director of the company. Respondent No. 7 is described in the petition as the managing director of Ringtong and he and respondent No. 8, Registrar of Companies, are treated as pro forma respondents in the petition and no reliefs are claimed against them. Prior to the issue of further shares which is the subject-matter of the petition, the petitioner held 34.28 per cent. of the shareholding of Ringtong, respondents Nos. 2 to 4 and daughter of respondent No. 2 held 30.56 per cent. and respondent No. 7 and his wife held 31.93 per cent. The company is the owner of a tea estate known as Ringtong Tea Estate situated in Distt. Darjeeling.
3. It is alleged that in the early part of 1991, it came to the notice of the petitioners that serious irregularities and illegalities had been committed by respondents Nos. 2 and 3 in the matter of sale of tea as well as in connection with the procurement of fertilisers, insecticides, tea chests and components which are procured for the purpose of tea plantation. It is further alleged that respondents Nos. 2 and 3 had sold about 900 kgs. of tea by private sale at a rate much lower than the market rate. They were called upon by the petitioners to render accounts of the said objectionable transactions but by late July, 1991, it transpired that they were not really interested in rendering accounts or redressing the wrongs committed by them. Suit No. 642 of 1991, was, therefore, filed which was, however, settled by a compromise on or about September 24, 1991. On or about March 9, 1992, it again came to light that respondents Nos. 2 and 3 had purported to make private sale of tea during the new season without even depositing the sale proceeds with the Punjab National Bank, Siliguri Branch, in terms of an agreement of hypothecation with the bank. It has been further alleged that no annual general meeting in relation to the year ended on March 31, 1991, has been held by the company, nor the accounts for that period have been prepared and/or placed before the board of directors. Further, the petitioners were surprised to come across a purported notice in the newspaper Uttar Banga Sangbad on April 20, 1992, stating to the effect that respondent No. 2 was the owner of 3,805 shares as against his actual holding of 1,305 shares, respondent No. 3 was the owner of 1,070 shares as against his actual holding of 70 shares and respondent No. 4 was the owner of 650 shares as against her actual holding of 450 shares in the company. Through such purported increase in the shareholding, respondents Nos. 2 and 3 have surreptitiously and conveniently converted their minority shareholding in the company into a majority shareholding to the exclusion and gross prejudice of the petitioners and other shareholders and are now wrongfully claiming to be in control of the company along with respondents Nos. 4 to 6. The petitioners, having been put on notice, made enquiries with the Registrar of Companies, Calcutta, and came to know that a return of allotment of shares dated September 9, 1991, indicating allotment of 2,850 equity shares of Rs. 100 each in favour of respondents Nos. 2 to 6 was filed by respondent No. 2 on September 13, 1991, and another return dated September 9, 1991, showing allotment of further 950 shares in favour of respondents Nos. 2 and 3 on May 2, 1991, was also filed on the same date, i.e., September 13, 1991. Form No. 32 alleging appointment of respondent No. 4 and one Smt. Triveni Devi Choudhry as directors of the company on August 9, 1991, was filed on August 28, 1991. Another Form No. 32, dated September 9, 1991, alleging the appointment of respondent No. 6 as director on September 2, 1991, was filed on September 12, 1991. It has been alleged that the representations contained in these forms are false and fictitious and these forms have been filed as an afterthought with a mala fide view to give the purported issue and allotment of shares the colour of authenticity.
4. On May 1, 1992, Shri S. Sarkar, senior counsel, appearing on behalf of the petitioners, submitted that the increase in the issued share capital of the company and allotment of further shares to respondents Nos. 2 to 6 were in violation of article 31 of the articles of association of the company and also in violation of the terms of settlement before the High Court in Suit No. 642 of 1991. He further stated that by the purported allotment of shares, the shareholding of the petitioners has been reduced from 34.28 per cent. to 21.25 per cent. He also submitted that the company has appointed Carrit Moran and Co. (P) Ltd. as its auctioneers and brokers for sale of tea but respondents Nos. 2 and 3 were selling the tea through private negotiations for their personal gains and at substantial loss to the company. He, therefore, prayed for interim orders prohibiting the company from making any private sale of tea, restraining respondents Nos. 4 and 6 from acting as directors and restraining giving effect to allotment of shares made on. March 25, 1991, and May 2, 1991. After carefully considering the submissions made by learned counsel and the material on record, we ordered that no voting rights would be exercised in respect of allotment of shares made on March 25, 1991, and May 2, 1991, and restrained respondents Nos. 4 and 6 from acting as directors till the disposal of the matter.
5. The matter was to come up for further hearing on June 10, 1992. But in the meanwhile the petitioners moved a miscellaneous application, C. A. No. 23 of 1992, on May 21, 1992, and Shri S. Sarkar, senior counsel, appearing on behalf of the petitioners, submitted that certain developments had taken place since the issue of the order of this Bench on May 1, 1992, which required urgent hearing. He pointed out that on or before May 6, 1992, petitioner No. 1 came to know that Mr. Nirmal Kumar Bansal has been authorised to carry on the day to day affairs of the company and petitioner No. 1 and respondent No. 7 have been removed from the directorship of the company. He also came to know that the registered office of the company has been shifted to a new address, being the residential address of respondent No. 2. He further pointed out that on an enquiry, he has learnt from the bank regarding the change in the instructions for operation of the bank account and now respondents Nos. 2 to 6 are operating the bank account of the company without any check and/or concurrence of petitioner No. 1 and respondent No. 7. On or about May, 12, 1992, petitioner No. 1 further came to know that he was removed from the board of directors of the company at an alleged extraordinary general meeting purported to have been held on April 16, 1992. Shri Sarkar submitted that his clients were not aware of the holding of any such general meeting. Shri Sarkar further pointed out that these actions of the respondents are likely to affect the interest of the petitioners and, therefore, requested for the following reliefs :
(1) That cheques to be drawn by the company should be countersigned by the auditors of the company.
(2) That sale of tea should be through public auction and no tea should be sold through private deals.
(3) To restrain the directors from dealing with the assets of the company except in the normal course of business.
(4) To restrain Shri Nirmal Kumar Bansal, son of respondent No. 6, who is alleged to have been appointed as director in the extraordinary general meeting held on April 16, 1992, to act as director of the company.
6. We heard Shri P. C. Sen, senior counsel, appearing for respondents Nos. 1 to 4, and Shri R. C. Nag, senior advocate, appearing for respondents Nos. 5 and 6. They volunteered that they would file all the replies by May 28, 1992, and as the case was scheduled to be heard on June 10, 1992, there was no necessity for passing any further interim orders at this stage. It was also agreed by the respondents that they would deal with the assets of the company only in the normal course of business and Shri Nirmal Kumar Bansal would not attend any meeting of the board of directors till the next hearing and if he has to act as a director in relation to the affairs of the company, it will be done with the prior concurrence of the Company Law Board. As per the directions given by this Bench, it was agreed by the respondents that they win file a statement indicating the details of all the tea sales from April 20, 1992, till the date of hearing, whether through private or public channels together with the price at which they were sold, inter alia, indicating the market price. In view of this, we did not consider it necessary to pass any further interim orders granting further relief.
7. Respondent No. 2 filed a reply on behalf of himself, the company-respondent No. 1 and also on behalf of respondents Nos. 3 and 4.
Respondent No. 6 filed a reply on his own behalf and on behalf of respondent No. 5. These replies were filed on June 5, 1992. Shri G.P.G. Sherma constituted attorney of respondent No. 7 filed a reply supporting the petition on June 9, 1992, for respondent No. 7 and also on behalf of respondent No. 1-company without indicating any authority from respondent No. 1. The petitioners filed rejoinders on June 9, 1992. The case of the respondents is that as the bankers of Ringtong were insisting from March, 1988, on increasing the share capital of the company, the respondents agreed to the suggestion of the bank and the paid-up capital of the company was raised to Rs. 10 lakhs by the issue of 3,800 equity shares of Rs. 100 each pursuant to a resolution passed in the extraordinary general meeting of the company held on May 26, 1990. The offer of shares so issued was first made to all the shareholders in accordance with the articles of the company by a letter dated July 15, 1990, according to which the offerees were required to make the requisite payment for the shares on or before January 31, 1991. Pursuant to such offer only Shri Sushil Kumar Choudhry (respondent No. 2) made an application for 600 shares for which payment by cheque was received on August 1, 1990. In view of the lack of response from the other shareholders amounting to declining the offer within the meaning of article 31 of the articles of association, the balance shares were offered by a board resolution dated February 2, 1991, to the other shareholders, family members and relatives. In terms of the provisions of articles 7, 8 and 72 of the articles of association, a board resolution authorising respondent No. 2 to offer the unsubscribed portion of shares to such shareholders, family members and relatives as he may deem fit and proper, was passed. Pursuant to such second offer, applications were received from the following respondents for allotment of shares indicated against each :
1. Respondent No. 2 1,150 shares
2. Respondent No. 3 800 shares
3. Respondent No. 4 200 shares
4. Respondent No. 5 50 shares
5. Respondent No. 6 50 shares'
8. The consideration was duly received by the company and these shares were allotted to the respondents by a board resolution dated March 25, 1991. As a result of this, respondent No. 2 came to hold 1,750 new shares. The balance 950 shares were again offered to the remaining shareholders around May 2, 1991, and respondent No. 2 again applied for 750 shares and respondent No. 3 applied for 200 shares and these 950 shares were allotted by a board resolution dated May 2, 1991, The returns of such allotment were duly filed with the Registrar of Companies. The register of members of the company had been removed by the petitioners and , as such allotment of new shares could not be entered in the said register. The respondents denied and disputed the allegations in the matter of sale of tea and procurement of fertilisers, etc., and stated that such allegations are almost identical to the allegations contained in the petitioner's suit filed earlier in the Calcutta High Court. Since October, 1991, the present management of the company had occasion to sell the company's tea by private sale on certain occasions, not at a price below the market price, but, in many cases above the market price. False allegations of private sale of tea have been made by the petitioners in the present petition with a view to cover up the petitioners' own default of acting, in the past, in violation of the hypothecation agreement by making private sale and in not depositing the entire sale proceeds with the bankers of the company. Petitioner No. Z and respondent No. 7 ceased to be the directors of the company from April 16, 1992, by reason of their removal at the extraordinary general meeting held on April 16, 1992, regarding which returns in Form No. 32 were duly filed with the Registrar of Companies on April 24, 1992. So far as respondent No. 7 is concerned, he is no longer the managing director of the company, his term of office as managing director having expired on August 20, 1990, as he was appointed for a tenure of three years with effect from August 20, 1987, as is evidenced from the board resolution dated August 17, 1987. It was also pointed out that in view of this, he was not entitled to file the reply purported to be on behalf of the company. It is further contended that the petitioners are not entitled to hold shares standing in their names by reason of a family arrangement arrived at in writing on October 18, 1991, following the settlement of the previous suit filed by them in the Calcutta High Court and an award of the arbitrator, Shri O. P. Mittal, on the same day as reflected and recorded in the said family arrangements. As per that award, the petitioners are required to transfer their shares apparently first to respondents Nos. 2 and 7 but in reality ultimately to respondent No. 2. In view of this, it is pointed out that the petitioners have ceased to be the shareholders of the company by virtue of their agreement under the family settlement and have no locus standi to maintain the present petition initiated in breach of the said agreement. The family arrangement has been acted upon by the respondents and the petitioners were allotted other family properties and businesses by virtue of the said agreement and pursuant thereto the petitioners gave up their interests in the respondent-company and the respondents are managing the affairs of the company. Respondents Nos. 4 and 6 were co-opted as directors at the board meetings held on August 9, 1991, and September 2, 1991, and returns in Form No. 32 were duly filed with the Registrar of Companies, Calcutta, and they are since then lawfully acting as directors. Smt. Triveni Devi Choudhry ceased to be a director pursuant to the said terms of settlement put in the Calcutta High Court on September 24, 1991, and the fact of cessation of such director was duly recorded in Form No. 32 filed with the Registrar of Companies, Calcutta, on October 28, 1991.
9. Shri P. C. Sen, senior advocate for respondents Nos. 1 to 4, raised preliminary objections regarding the maintainability of the petition under Section 397 of the Act pointing out that the jurisdiction of the Company Law Board under Section 397 is a discretionary jurisdiction and is not for settling private family dispute which has been sought to be done in the present petition. The family dispute referred to in the petition was settled and a family settlement dated October 18, 1991, arrived at is an equitable bar to the maintainability of the petition. Shri Sen also pointed out that respondent No. 7 has filed a suit challenging the family settlement on June 18, 1992, which was dismissed by the trial court. An appeal was preferred against the order of the trial court on July 6, 1992, and in such circumstances, the family settlement cannot form the subject-matter of any petition before the Company Law Board. Shri Sen further pointed out that the replies on behalf of respondent No. 7 were filed by the holder of power of attorney, Shri G.P.G. Sherma, who is an employee of Shri Santosh Kumar Aggarwal and his brother, Sajjan Kumar Aggarwal. Shri Santosh Kumar married the sister of Shri Sushil Kumar Choudhary, respondent No. 2, Shri Santosh Kumar and Sajjan Kumar control a number of tea gardens and apparently they have an ulterior motive of controlling Ringtong Tea Estate. The present petition is apparently engineered by Shri Santosh KumaY and Shri Sajjan Kumar and there is no explanation as to why respondent No. 7 has not filed any affidavit. The persons who have knowledge about the affairs of the company are not coming forward to give affidavits but affidavits are being filed by persons holding power of attorney. Shri Sen further pointed out that, as stated in the petition, the petitioners have completely dissociated from the management of the company for a very long time. No reply to the pointed query from the Bench as to since when they had not attended board meetings was forthcoming from the petitioners.
10. Shri Sen, pointed out that as held in Maharani Lalita Rajya Lakshmi v. Indian Motor Company (Hazaribagh) Ltd. [1962] 32 Comp Cas 207 (Cal) ; AIR 1962 Cal 127, both conditions (a) and (b) of sub-section (2) of Section 397 must be fulfilled. The present petition is not maintainable inasmuch as condition (b) has not been fulfilled as nowhere in the petition, the petitioner has made out the case that it is just and equitable to wind up the company. There is only a reproduction of the section in para. 33 of the petition about just and equitable grounds. Referring to various paragraphs of Jhe petition, Shri Sen pointed out that the main allegation in the petition is only regarding the issue of further shares. In this context, Shri Sen argued that if an alternative remedy is available the petitioner cannot seek winding up on the just and equitable ground. Shri Sen pointed out that in this case relief could be obtained by way of an application under Section 111. Shri Sen referred to the decision in Gover Rustom Irani v. Property Company Pvt. Ltd. [1976] Tax LR 1682 (Cal), wherein recourse to a discretionary relief under Section 397 by a petition was not allowed in view of an alternative remedy being available under Section 186.
11. Referring to Pennington's Company Law, page 715, Shri Sen pointed out that, for obtaining a relief under Section 397 which is on the same lines as Section 210 of the English Companies Act, the petitioners must show good faith on their part and there should not be any delay in approaching the Company Law Board under Section 397. Shri Sen pointed out that the petitioners have not come with clean hands, as the family settlement is suppressed in the petition. Mentioning of the family settlement was important as the petitioners were supposed to go out of the company as per the family settlement and even the petition shows that they have not taken any interest in the affairs of the company. Shri Sen pointed out that it is a well-settled law that reliefs given under Section 397 are equitable and discretionary reliefs and utmost good faith on the part of the petitioner is necessary. Shri Sen argued that "good faith" has to be seen with reference to the conduct of the petitioner not only in the proceedings before the court but also in parallel proceedings. In this connection, a copy of the order of the appellate court in the suit filed by respondent No. 7 was filed by respondent No. 2 with the Bench.
12. Making submissions on behalf of respondents Nos. 5 and 6, Shri R. C. Nag highlighted some of the odd features of the case, especially in respect of the conduct of the petitioner and averments made in the petition. He pointed out that there is neither any complaint about the petitioner being left in the dark by the respondents nor any dispute is mentioned about the existence of the family settlement or its non-compliance. He pointed out that there is no mention in the petition about any preventive or protective action taken by the petitioner by way of a complaint under a registered letter to the company asking the company not to tamper with the shareholding or any letter to the Registrar of Companies requesting not to take returns on record. There is no mention in the petition about the petitioners asking from the cpmpany for any inspection of records either prior to or after the publication of notice in the newspaper. On the contrary there is a clear averment that the petitioners were receiving periodical returns. The only correspondence that has been referred to in the petition is about writing letters to the bank so as to protect their interest as guarantors and there is nothing to indicate that at any stage the petitioners have protested about their exclusion from the management. Shri Nag pointed out that all this clearly shows that the petitioners were aware of all the happenings and their exclusion from the company and its management was pursuant to the family settlement which was already implemented and the properties had already been identified and rent is being collected by them from the properties alloted to them.
13. Shri Nag further pointed out that while respondent No. 7 has been made a co-respondent in the petition, he has assumed the role of a co-petitioner, which, in law, he is not entitled to do. The petitioner should have filed a proper consent letter from respondent No. 7 to make an application under Section 399(3) on behalf, and for the benefit, of respondent No. 7. An action under Section 398 is a derivative cause of action giving locus standi to a member ; and under Section 397/398 a member's right as a shareholder could be agitated but a complaint regarding a "right as director" is not actionable. Similarly, disputes about a family settlement are not actionable under these provisions as the company is not a party to the family settlement and in support of this, he referred to the decision in Shanti Prasad Jain v. Kalinga Tubes Ltd., AIR 1965 SC 1535 ; [1965] 35 Comp Cas 351. Shri Nag further stated that respondent No. 7 is claiming to represent the company and a company can never be the supporter of a petition under Section 397/398.
14. Rebutting the arguments of counsel for the respondents on the maintainability of the petition, Shri Sarkar argued that, so far as the contention that no case has been made out for the winding up of the company on the just and equitable ground and thus pre-conditions mentioned in Section 397 have not been satisfied, Section 397 itself indicates the grounds for winding up, i.e., the affairs of the company being conducted in a manner prejudicial to public interest or in a manner oppressive to the members.
He pointed out that the issue of further shares for creation of a new majority itself amounts to oppression and is a ground enough for the winding up of the company on just and equitable grounds. In support of this, Shri Sarkar referred to the decision in Sindhri Iron Foundry (P.) Ltd., In re [1964] 34 Comp Cas 510 (Cal) in which the issue of shares per se was treated as oppressive and the court superseded the board of directors and set aside the illegal allotment of shares. Shri Sarkar also argued that it is enough for the petitioner to show that he fulfils the eligibility criteria prescribed, in Section 397 and that the petition contains averments and instances relating to the matters mentioned in Sub-clause (a) of Section 397 for establishing that the petition is prima facie maintainable. In any case, Shri Sarkar argued that the petition satisfies the requirement of Section 398 of the Companies Act, where there is no requirement to make out a case for winding up.
15. With regard to the submission that by reason of the family settlement of October 18, 1991, no relief should be granted, Shri Sarkar stated that the family settlement is no bar to the institution of proceedings under Section 397/398. He also pointed out that respondent No. 7 who supports the petition has already challenged the family settlement and there is no overt act to implement the same. He also drew our attention to the fact that there is no mention about the issue and allotment of impugned shares in the family settlement which has been signed after the alleged issue of shares. Shri Sarkar also pointed out that the respondent-company cannot justify acts of oppression on account of the family settlement.
16. Regarding the submission of counsel for the respondents that no relief should be granted as the reliefs prayed for by the petitioners can be obtained by an alternative remedy, Shri Sarkar referred to the decision in Bhubaneshwar Singh v. Kanthal India Ltd. [1986] 59 Comp Cas 46 (Cal) and pointed out that the powers of the Bench under Section 397 are very wide and any relief can be granted. He pointed out that in a suit the court cannot order rectification of the register of members or reduction of capital or grant a scheme for the management of the affairs of the company. Shri Sarkar also pointed out that in proceedings under Section 397, reliefs are not confined only to the pleadings and reliefs which are even contrary to the provisions of the Act and articles of association can also be granted. Shri Sarkar also pointed out that there is no proceeding pending in which the subject-matter regarding the issue and allotment of shares is being agitated.
17. Shri Sarkar also challenged the arguments advanced by counsel for the respondents that this is a matter arising purely out of a family dispute and that the petition is apparently filed by Santosh Kumar and Sajjan Kumar, with the ulterior motive of achieving control over Ringtong Tea Estate. He vehemently contested the arguments advanced by the respondents that the petitioners have not taken any interest in the management of the company and, therefore, are not entitled to any relief. Shri Sarkar submitted that this contention is belied by the averments made in the affidavit filed on behalf of respondents Nos. 1 to 4 where references have been made with regard to the management of the petitioners. Shri Sarkar stated that there is no relevance of the family settlement or family dispute in this matter. As a shareholder, he has a right to file a petition especially when his majority along with that of respondent No. 7 has been reduced to that of a minority status.
18. We have considered the various averments made regarding the maintainability of the petition. We do not consider that the suit filed by respondent No. 7 can be treated either as parallel proceedings or proceedings relating to the issue which are pending before us. In the case of Sindhri Iron Foundry (P.) Ltd., In re [1964] 34 Comp Cas 510, 531, the Calcutta High Court observed "the purpose and object of sections 397 and 398 is to put an end to acts of oppression and mismanagement promptly and speedily rather than allow the parties and the company to be involved in a costly and protracted litigation. If the facts justify interference by the court in exercise of its powers under the two sections and if the conditions of the two sections are fulfilled, in my view, the court ought not to relegate the parties to a series of protracted and costly litigations. Such litigation is a mischief which is bound to be prejudicial to the interest of the company, to prevent which sections 397 and 398 have been brought into existence, and the court ought not to allow such litigation, if it can be stopped, in exercise of its powers under the two sections". As regards the question of this being a private family dispute, we find that the matters raised in the petition relate to a company and the petitioners are members of the company, who fulfil the requirement of Section 399 of the Companies Act and, therefore, are entitled to raise matters relating to members' rights. The Supreme Court held in Needle Industries (India) Ltd.'s case [1981] 51 Comp Cas 743 ; AIR 1981 SC 1298 and Jadabpore Tea Co. Ltd. v. Bengal Dooars National Tea Co. Ltd. [1984] 55 Comp Cas 160 (Cal) that whenever there is an allegation that further issue of shares is oppressive to the petitioner shareholders, the jurisdiction of the special forum can be invoked and the oppression should be redressed. In such a dispute, certain controversies relating to family property, if involved, cannot be a bar to the members agitating their rights as members with regard to the affairs of the company. As regards the absence of good faith and suppression of the family settlement, it is no doubt true that the settlement is not mentioned in the petition but neither has any interim order been obtained by the petitioner nor is this Bench deceived by concealing this fact. Regarding the other preliminary points of maintainability of the petition, we do not think that such threshold part adjudication of the petition is warranted by the facts of the case. We, therefore, hold that the petition is maintainable.
19. During the course of the proceedings, respondents Nos. 1 to 4, filed two applications, namely, C. A. No. 55 of 1992, on August 6, 1992, and C. A. No. 66 of 1992, dated September 7, 1992, on September 9, 1992. In C. A. No. 55 of 1992, the applicants, inter alia, prayed for the production of documents relating to the inspection taken on April 9 and 13 of 1992, and relating to receipts Nos. 72721 and 72763 issued by the Registrar of Companies, Calcutta. In the hearing held from August 5, 1992, to August 7, 1992, we directed that a copy of the application be served on the petitioners and the Registrar of Companies. But till the final hearing held on March 1, 1993, the application was not served on the Registrar of Companies. We, therefore, dismiss the application because of non-service on the Registrar of Companies. In C. A. No. 66 of 1992, a prayer was made for treating certain documents as part of the record of the proceedings and to permit the applicant to rely thereupon to prove that Shri G. P. G. Sherma who affirmed various affidavits on behalf of respondent No. 7 was really an employee and a person under the control of S/Shri Santosh Kumar and Sajjan Kumar Aggarwal. During the course of hearing, the senior advocate for respondent No. 7 has already accepted the linkage between respondent No. 7 and Shri G. P. G. Sherma and as S/Shri Sajjan Kumar and Santosh Kumar Aggarwal have not been made parties, we dismiss this application also.
20. The main issue for decision is whether the issue and allotment of additional shares is in violation of the provisions of the articles of association and whether due procedure prescribed for the same was followed and whether such issue and allotment of shares is oppressive to the petitioner. Shri Sarkar, senior advocate for the petitioner, stated that prior to the allotment of the additional shares, Ringtong was a family company in which the petitioners held almost one-third, respondents Nos. 2, 3 and 4 held one-third and respondent No. 7 and his wife held one-third of the issued share capital of the company. By the illegal allotment of additional shares of 2,850 on March 25, 1991, and 950 shares on September 2, 1991, the petitioners' shareholding has been reduced to 21.25 per cent. as against the increase in the holdings of respondents Nos, 2, 3 and 4 to 55.25 per cent. Shri Sarkar pointed out that while the Punjab National Bank advised Ringtong to increase the capital base immediately as far back as on March 18, 1988, this advice was purported to be acted upon only on April 28, 1990, for the issue of the additional 3,800 shares to the existing shareholders as per the explanatory statement attached to the notice of the extraordinary general meeting held on May 26, 1990. In this context Shri Sarkar pointed out that it is not clear as to who prompted the holding of the extraordinary general meeting, as petitioner No. 1 who was a director and respondent No. 7, who was the managing director of the company had no knowledge of any board meeting held in this regard. He further stated that the resolution purported to have been passed at the board meeting on February 2, 1991, is illegal, inasmuch as article 31 required that, the unsubscribed portion of the shares can be offered only to the other shareholders and not to the family members and relatives at the complete discretion of respondent No. 2 as has been resolved, vide this resolution. He also pointed out that the resolution dated February 2, 1991, does not specify the quantum of the unsubscribed portion of shares. There is no mention either of the 600 shares already subscribed by and allotted to respondent No. 2. It will be seen from the board resolution dated March 25, 1991, that all the 2,850 shares were allotted to only one group and respondent No. 5 and respondent No. 6 who were also allotted shares were not the original shareholders and even the subsequent allotment of further 950 shares on May 2, 1991, was made to the same group. No application of respondent No. 2 for allotment of 600 shares referred to in para 24(b) of the reply of respondent No. 2 has been produced. Shri Sarkar further pointed out that in respect of the allotments made on March 25, 1991, in para 25(d) of respondent No. 2's reply, the dates of applications have been shown as "on or about March 25, 1991", whereas receipts of share application money issued to the applicants bear the dates from February 15, 1991, to April 28, 1991. In respect of Rs. 60,000 received on August 1, 1990, towards 600 shares, the statement of account of the Punjab National Bank shows credit of Rs. 60,000 on August 1, 1990, itself. Shri Sarkar further pointed out that the return of allotment in respect of allotment of 2,850 shares made on March 25, 1991, was filed with the Registrar of Companies as late as on September 13, 1991.
21. Elaborating the point regarding the false entries in relation to allotment of shares, Shri Sarkar pointed out that the trial balance as on May 31, 1990, shows three entries relating to the account of Sushil Kumar Choudhry, B. K. Agarwal and share capital application money. Comparing these entries with the individual account of Shri Sushil Kumar Choudhry as on March 31, 1990, and October 31, 1990, Shri Sarkar pointed out that it is clear that the amount of Rs. 60,000 was given by way of an unsecured loan by Shri Sushil Kumar Choudhry to Ringtong and not as share application money. He also pointed out that if the unsecured loan was treated as share application money, the same treatment should have been given to the outstanding unsecured loan of the petitioner and shares allotted to him. Shri Sarkar also pointed out that there is no reference to the allotment made on March 25, 1991, in the family settlement dated October 18, 1991, which indicates that the documents relating to allotment are false. He also pointed out that the allotment of shares has been made to altogether a new wing of the family which is against the provisions of the articles of association. In support of his arguments, Shri Sarkar pointed out that in a petition before the Calcutta High Court (Petition No. 642 of 1991) annexure "A", indicating the shareholding pattern was filed which was not denied or controverted by the respondents. Even in the family settlement dated October 18, 1991, though by that time the impugned allotment had already taken place, only three parties have been mentioned and no name of any shareholder is disclosed therein.
22. Shri Sarkar then referred to the decision in Howard Smith Ltd. v. Ampol Petroleum Ltd. [1974] AC 821, wherein the Privy Council set aside the allotment of shares, though the need of the company to have capital resources was established, on the ground that the primary object of such allotment was to destroy the existing majority and to create a new majority. Shri Sarkar pointed out that the directors' power is a fiduciary power and it has to be exercised for the benefit of the company. He then referred to the decision in Clemens v. Clemens Brothers Ltd. [1976] 2 All ER 268 (Ch D) in which in a dispute between the aunt who was a director holding 55 per cent. of shares and her niece who held the balance shares of the company, it was held that though the resolution passed by a majority for the issue of shares was legal, it ought to be set aside as it was considered oppressive because the issue of shares resulted in further reduction of the shareholding of the niece. Shri Sarkar argued that following this decision, even if a resolution allotting further shares is legal, if it results in oppression, it ought to be set aside as a majority shareholder was not entitled as of right to exercise the majority votes in any way and it is subject to equitable considerations, which might make it unjust to exercise it in a particular way. Shri Sarkar pointed out that similarly in the case of Jadabpore Tea Co. Ltd. v. Bengal Dooars National Tea Co. Ltd. [1984] 55 Comp Cas 160 (Cal), the increase in share capital was struck down as the allotment of further shares was mala fide and for converting the majority shareholder into a minority shareholder. Shri Sarkar also referred to the decision in Needle Industries (India) Ltd.'s case [1981] 51 Comp Cas 743 ; AIR 1981 SC 1298, wherein it has been observed that the directors have a fiduciary relationship with the company and their powers have to be exercised for the benefit of the company and the court has to see whether it was exercised solely for the benefit of the directors or for the benefit of the company. He further stated that in Piercy v. S. Mills and Co. Ltd. [1920] 1 Ch 77 the power to issue shares to raise funds was considered to be a fiduciary power. Shri Sarkar then pointed out that the decision of the courts in various cases supports his contention that the directors cannot raise capital when it is not necessary and any allotment of shares made, even after following the due procedure, if there is no justification for increase in capital, such an increase has to be set aside. He also referred to the decision in Sindhri Iron Foundry's case [1964] 34 Comp Cas 510 (Cal), in which it was held that if the court is satisfied that the conduct arising from a single wrongful act is such that its effect will be a continuous course of oppression and there is no prospect of remedying the situation by the voluntary acts of the party responsible for the wrongful acts, the court is entitled to interfere under Section 397 of the Companies Act. He also pointed out that under Sections 397 and 398 of the Companies Act, the Bench has wide powers and even if the petitioner fails to establish a case of oppression, if the Bench comes to a conclusion that it is necessary in the interest of justice and equity to redress the grievances of the petitioner, it can give relief. He then pointed out that the reliefs given by the courts in various cases includes setting aside the allotment of shares, restoring status quo prior to the allotment and calling an annual general meeting of shareholders to decide who should be in the management. Shri Sarkar pointed out that in the present case, the majority as represented by the petitioner and respondent No. 7, supporting the petition, has been converted into a minority by allotment of shares exclusively to one group without following the prescribed procedure and, therefore, relief should be given by cancelling the allotment of shares, restoring status quo prior to such allotment and ordering the calling of an annual general meeting to decide who should be in the management.
23. On behalf of respondent No. 7, Shri Mukherjee stated that respondent No. 7, father of the petitioner and respondent No. 2, is the founder of the company and by the allotment of shares which is under challenge, his shareholding has been reduced. He further pointed out that respondent No. 7 was the managing director of the company, but now he has been removed from the board of directors. Shri Mukherjee challenged the increase in the share capital on the grounds that no notice was given of the board meetings in which increase of share capital was considered, no board meetings were held and the calling of extraordinary general meeting was also done without following the due procedure prescribed under the Companies Act. He pointed out that the Supreme Court has already held that a resolution passed in a board meeting of which no notice was sent to the directors, is bad and void. He also pointed out that the need for increase in share capital is an ostensible reason, as the board has relied on the letter of the Punjab National Bank, which came in 1988 and if the capital was to be increased for urgent need of finances, there is no justification for keeping the issue open for six months. He also pointed out that Article 7 of the articles of association does not allow shares to be allotted to outsiders. He also argued that, as held by the Supreme Court in Needle Industries (India) Ltd.'s case [1981] 51 Comp Cas 743, a private company cannot issue shares to persons who are not existing shareholders. He further pointed out that Article 31 of the articles of association of the company clearly requires successive offers to be made to the existing shareholders. It was further argued that it is unthinkable, if the offer was made to respondent No. 7 and the petitioner, that they would not accept it, as they were very much interested in retaining their existing percentage of shareholding in the company. He further argued that the voting power of the petitioner and respondent No. 7 was such that if they had attended the extraordinary general meeting that was called to decide the issue of increase in the share capital and allotment of shares, they would have been able to muster the majority to decide the issue. Regarding the service of notice of the board meeting/extraordinary general meeting, he pointed out that as decided in L. M. S. Ummu Saleema (Mst.) v. B. B. Gujral, AIR 1981 SC 1191 ; [1983] 53 Comp Cas 312, if a notice has been given under certificate of posting at the most, a presumption can be drawn, but in the face of denial by the recipient, the company claiming such presumption has to give evidence to prove the same. In the present case, Shri Mukherjee argued that no such evidence has been brought forward to show that notices of the board meeting/extraordinary general meeting were served on the directors/shareholders and the probability of the situation is such that no notice was served on the concerned persons. Shri Mukherjee pointed out that we have to take into consideration the totality of circumstances relating to fulfilment of the procedure prescribed and completion of formalities prior to the allotment of shares and post allotment of shares. In this context, he pointed out that there is no evidence given -regarding completion of several consequential steps, after the decision to increase the share capital was taken, like issue of letter of offer, letters of successive offers, payment of share application money, decisions of the board regarding successive offers, timely filing of return of allotment, etc.
24. Regarding the contention of the company and respondent No. 2 about removal of respondent No. 7 as director, he pointed out that the documents filed on behalf of Ringtong clearly show that respondent No. 7 signed the power of attorney as managing director on April 1, 1991, while the company now claims that he has been removed as director in August, 1990. He also pointed out that reliance of respondent No. 2 on the alleged family settlement cannot be taken into consideration as he has challenged the family settlement in the Calcutta High Court.
25. Shri P. C. Sen, appearing on behalf of respondents Nos. 1 to 4, stated that as per the petitioner, the provocation for the present petition was the newspaper advertisement dated April 20, 1992, but it is unbelievable that on the same date the petitioner obtained a certified copy of Form No. 2, which was copied and checked in the Registrar's office on April 20, 1992, itself as would be seen from page 52 of the petition. Shri Sen further stated that no case of deadlock is made out and not a single averment as to how deadlock could not be resolved in a domestic forum has been made. No extraordinary general meeting has been called to resolve the deadlock, if any. Shri Sen pointed out that the petitioners' group has not been converted into minority because of the issue and allotment of additional shares. Shri Sen then referred to the history of the dispute between the petitioner and the respondents about the management of the company and how the petitioner had misused the powers given by the board to him in the past, cases instituted against the petitioner including one relating to stealing of record of the minutes of the board meetings instituted with S.H.O., Siliguri, on September 12, 1989, and ultimately the matter being resolved by signing a family settlement on October 18, 1991. Shri Sen also pointed out that the petitioner was not able to give any information to the Bench when the Bench asked a pointed question which was the last board meeting attended by him. According to Shri Sen, the only object of the petition is to regain management control of Ringtong. He pointed out that though the central cause of action is the issue of additional shares, there is no averment in the petition about violation of directors' fiduciary powers and mala fides are not specifically pleaded. With regard to the further issue of shares, Shri Sen pointed out that in the petition, the petitioner has challenged the factum of holding of the board meeting and the extraordinary general meeting, and alleged absence of any notice of the meeting and shares being offered to others in violation of Article 31. In this context, Shri Sen pointed out the following important dates :
(i) 24-4-1990 Board resolution was passed.
(ii) 26-5-1990 Extraordinary general meeting held.
(iii) 25-7-1990 Offers were made.
(iv) 1-8-1990 600 shares allotted to respondent No. 2.
(v) 2-2-1991 Board resolution passed to approve offers of further shares. (vi) 5-3-1991 2,850 shares allotted.
26. Shri Sen pointed out that while at the extraordinary general meeting, the petitioners and respondent No. 7 were not present, it is an admitted fact that they were present at the board meeting held on April 24, 1990. He further stated that the question whether other board meetings were held or not and what resolutions were passed at these meetings can "be resolved only by referring to the statutory records or by recording evidence. With regard to violation of the articles, Shri Sen mentioned that considering the language of article 7 and Article 31, Article 31 does not apply. Even if it is presumed that it is applicable, since the offers were not accepted by the existing shareholders, the matter goes to the domain of article 7. Shri Sen further pointed out that as held in Holmes v. Keyes (Lord) [1958] 28 Comp Cas 419 (CA) articles are to be regarded as a business document. In this connection, Shri Sen also referred to a clarification issued by the Department of Company Affairs, vide its letter No. 2(27)/ 56-PR, dated October 4, 1976, according to which any allotment of the unsubscribed portion of issued shares will not amount to an increase in the subscribed capital of the company by issuing new shares. According to Shri Sen, Article 31 applies to cases where the authorised capital is increased and it does not apply to further issue of capital within the authorised capital. Referring to the various resolutions passed by the board of directors, in which reference is made to Article 31 as if it is applicable, Shri Sen pointed out that a wrong presumption or interpretation of the articles by the board of directors will not change the legal position. With regard to conversion of the loan of Rs. 60,515.66 into share application money, Shri Sen referred to the affidavit in rejoinder dated June 8, 1992, and the trial balance as on October 31, 1990, and pointed out that there is no averment in the petition that the loan has been converted into share application money. On the merits, Shri Sen referred to the affidavit in reply of Shri Shushil K. Choudhry and stated that as per the letter of offer dated July 25, 1990, the time limit for subscription of shares was January 31, 1991, and on August 1, 1990, Shri Choudhry paid Rs. 60,000 for subscription by cheque and the receipt has been annexed to the reply at page . 235. He referred to the audited balance-sheet as on March 31, 1991 (at page 215 of the reply), and explained that there is no column in Schedule VI to the Act to indicate separately share application money and in trial balance as on October 31, 1990, the money received as subscription towards shares had to be shown in some form.
27. Shri Sen then referred to the cases cited by counsel for the petitioner and respondent No. 7 and pointed out that so far as the decision in Sindhri Iron Foundry (P.) Ltd., In re [1964] 34 Comp Cas 510 (Cal) is concerned, this decision was the subject-matter of an appeal before a double member Bench in Ramashanhar Prosad v. Sindri Iron Foundry (P.) Ltd., AIR 1966 Cal 512, and though the case of oppression was proved, the appeal was dismissed and the only relief given was ordering the purchase of shares of the complainant as the court came to the conclusion that the company cannot function properly if two warring groups continue to hold the shares. Thus, following the decision of the appeal court, in case the Company Law Board comes to a conclusion that the petitioners have made out a case of oppression,'the relief that they can seek is only to compel the respondents to buy the shares of the petitioners, after deciding the procedure for valuation of shares as on the date of the petition. Shri Sen pointed out that the decisions in Howard Smith's case [1974] AC 821 (PC) and Clemens v. Clemens Brothers Ltd. [1976] 2 All ER 268 (Ch D), cited by Shri Sarkar were suit matters and are not squarely applicable to this case as the facts differ. As regards the decision in Parmeshwari Prasad Gupta v. Union of India, AIR 1973 SC 2389 ; [1974] 44 Comp Cas 1 cited by Shri Mookherjee, in respect of notice of the board meeting, Shri Sen pointed out that any subsequent meeting can ratify a decision taken in an earlier meeting.
28. With regard to the allegation about the illegal increase in share capital in violation of Article 31, Shri Nag, appearing on behalf of respondents Nos. 5 and 6, argued that issues, coming within the directorial, domain cannot be interfered with by members. According to him, the need for capital, mode, manner and timing of issue of capital are management activities, which cannot be challenged by members unless mala fides are proved and as alternate remedy is available under Section 111, the impugned issue of shares cannot be a just and equitable ground for winding up under Section 397/398 which is the extraordinary remedy. He pointed out that there is no pleading in the petition that there was any understanding/agreement about maintaining the shareholding of the petitioners in a particular proportion/manner and there is no article to that effect. Explaining the scope of Article 31, Shri Nag stated that Section 81 does not apply to a private company in view of Section 81(3)(a) and the policy of the Legislature is that protection of Section 81 is not available to private companies. He pointed out that there is no averment in the petition that because of the impugned allotment, the petitioners' power to block special resolutions has indirectly been taken away. As per articles 6, 7 and 8, the directors of the company are in exclusive control of the shares of the company to allot to anyone, even without application and have unfettered power to refuse applications. According to him, Article 31 applies to newly created shares and does not apply to allotment of the unsubscribed portion of issued shares. He then referred to the decision in Mahalaxmi Mills Co. Ltd. v. State, AIR 1968 Raj 331 ; [1969] 39 Comp Cas 347 (Raj), in which it was held that an increase of share capital within the meaning of section 97(1) takes place by creation of new shares simpliciter and it is not necessary that the new shares should have been offered, allotted or the names of the shareholders be registered in the books of the company. So even though the shares have not been offered or allotted to any one they are still "issued" within the meaning of section 94(2)(a) when they have been created by a special resolution of the company. Shri Nag further argued that since the impugned allotment is out of unsubscribed shares, the matter will not be covered by Article 31. Shri Nag also referred to the decision of the High Court of Australia in Whitehouse v. Carlton Hotel Pvt. Ltd. (70 Australian Law Reports 251) and a decision of the English Court in Musselwhite v. C. H. Musselwhite and Sons Ltd. [1962] 32 Comp Cas 804 ; [1962] LR 964 to 988 (Ch D), to point out how similar articles have been interpreted by courts in other countries. He then referred to Ramaiya's Commentary on the Companies Act, 12th edition, pages 432 and 433, wherein the Department of Company Affairs clarification dated October 4, 1976, has been given about what constitutes new shares. Referring to the various provisions in the articles relating to issue and allotment of shares, Shri Nag pointed out that the doctrine of harmonious construction should be followed in order to resolve, if there is any apparent or otherwise inconsistency in the provisions. He argued that while considering the interpretation of two articles, the latter article should be ignored if there is any drafting defect in the articles leading to any ambiguity or inconsistency. He argued that the articles of association govern internal management and have to be treated like a business document and should be construed to give business efficacy.
29. In reply to the arguments advanced by S/Shri P. C. Sen and R. C. Nag, counsel for the respondents, Shri Sarkar referred to the rejoinder filed by the petitioners and contended that the documents relied on by the respondents with regard to the issue and allotment of further shares and co-option of directors are fabricated and this is clear from the pleadings filed in the suit instituted in the Calcutta High Court as there is no denial with regard to shareholding indicated therein or composition of the board of directors as on September 6, 1991, the date of institution of proceedings before the High Court. The respondents' claim that all the changes have taken place before September 6, 1991, is, therefore, not tenable. Shri Sarkar pointed out that the respondents did not disclose about the holding of the board meetings in the first affidavit of respondents Nos. 1 to 4 but now the same is sought to be introduced as an afterthought in a second affidavit to advance their case. He also stressed that no case of personal service of any notice was made out in the first affidavit. Referring to the letter of offer and receipt of share application money, Shri Sarkar pointed out that the respondents have failed to produce copies of offer letters to all the petitioners or any evidence about the service of such offer letters. He also pointed out that though several board meetings were held and the petitioners' group and respondent No. 7 were not represented at such board meetings, yet no case for cessation of office of the first petitioner and respondent No. 7 is made out and instead, a case of removal of both of them as directors has been sought to be made out in the course of hearing. No question would have arisen of their removal, if such board meetings, relied on by the contesting respondents were actually held. There is no mention about receipt of written applications for allotment of shares in the first affidavit of respondents Nos. 1 to 4 ; however, two applications were produced along with the subsequent affidavit. Shri Sarkar further pointed out that in the alleged family settlement between the parties, there is nothing to indicate that the family settlement was acted upon and there is no mention of shares of respondents Nos. 5 and 6 in the family settlement or steps to be taken up in respect of such shares. He pointed out that respondents Nos. 5 and 6 are not parties to the family settlement, although, according to the family settlement, they would have no shares and, therefore, would not remain as direetors of the company. Significantly, no transfer of shares by respondent No. 2 and his group has been contemplated in the family settlement although on that date, according to respondent No. 2, his group is in the majority having more than 50 per cent. shares and the shareholding of respondent No. 2 and his group and respondent No. 7 and his group, as per the family settlement, is supposed to be 50 : 50.
30. Dealing with the cases cited by the respondents, Shri Sarkar contested the argument that no relief should be granted as the reliefs prayed for by the petitioner can be obtained by alternative remedy by filing a suit. Shri Sarkar pointed out that the reliefs contemplated in Section 397 like a scheme of management, etc., cannot be granted in a suit and the petitioner has not filed any suit in respect of the issue and allotment of shares. He also challenged the submissions made on behalf of the respondents that if at all any case for relief is made out, the relief to be granted would be by way of purchase of shares of the petitioner and in this respect the respondents have relied on the decision given in Ramashankar Prosad v. Sindri Iron Foundry (P.) Ltd., AIR 1966 Cal 512. Shri Sarkar pointed out that sale of shares is not the only remedy in such case, where oppression is proved. In the case of illegal issue and allotment which is oppressive, generally the relief that is granted is of cancellation of such allotment and then holding the meeting of the members on the basis of shareholding existing prior to such illegal allotment. Shri Sarkar also pointed out that the contention of the respondent, that by reason of the family settlement of October 18, 1991, no relief should be granted, is wholly misplaced as neither the family settlement is a bar to the proceedings under Section 397/398 nor the family settlement is implemented or acted upon.
31. We have carefully considered the arguments advanced by the learned advocates for the petitioners and the respondents and also various documents like statutory records, notices of the meetings, annual returns, articles of associatioh of the company and the family settlement. It is an admitted fact that further 3,800 shares have been allotted in two instalments on March 25, 1991, and September 2, 1991, resulting in the reduction of the petitioners' holding from about 33 per cent. to 21.25 per cent. and increase in the holding of respondents Nos. 2, 3 and 4 from 33 per cent. to 55,25 per cent. The justification that has been given for increasing the share capital is the advice given by the Punjab National Bank in March, 1988, for increasing the capital base immediately. This advice was acted upon only on April 28, 1990, after a lapse of two years and the procedure of allotment was completed after a further one year. It was argued by the learned senior advocate for the petitioner that such a delay in implementation of the advice of the bank creates doubt about the real intention behind capital increase. According to the company, the board of directors have followed the due procedure by passing the necessary board resolution, holding an extraordinary general meeting and making successive offers as per the provisions of the articles of association. One major issue raised before us is whether Article 7 or Article 31 will govern the issue and allotment of 3,800 shares. The text of both these articles is given below :
Article 7 :
The shares of the company shall be under the control of directors who may allot or otherwise dispose of the same to such person on such terms and conditions and at such time as they think fit.
Article 31 :
The company in general meeting shall have the power and right from time to time to increase its share capital by the creation of new shares of such amount as may be deemed expedient. The new shares shall be issued upon the same terms and conditions as in these articles. The then existing shareholders shall be entitled to acquire these shares in proportion to their respective holdings. The company shall in the first instance offer the newly created shares to the then existing shareholders in the aforesaid proportion and, if any of the shareholders declines to acquire any of the shares thus offered to him, the company shall again offer the shares declined to the remaining shareholders in proportion to their respective holdings and in this way by successive offers when necessary the shares will be distributed.
32. Considering the language of both these articles, various court decisions cited by the learned advocates and following the rule of "harmonious interpretation" of apparently conflicting provisions, we are inclined to agree that Article 31 will apply to the cases where authorised capital is increased and further shares are allotted out of the increased authorised capital. It will not apply for further issue of capital within the existing authorised capital which is in the domain of Article 7. Articles of association are to be regarded as a business document and have to be given a meaningful interpretation considering the various provisions in the articles of association as well as in the Companies Act. In this connection, we find that Section 105C of the Indian Companies Act, 1913, which contained substantially all the provisions that are to be found in Section 81(1)(a), (b) and (d) of the Companies Act, 1956, applied to all companies. By Act 65 of I960, an amendment was introduced by adding Section 81(3) which exempted the private companies from the applicability of Section 81 relating to "further issue of capital" and the protection of Section 81 is, therefore, not available to the existing shareholders of private companies which was the case prior to the amendment of 1960. The board of directors have proceeded on the basis as if Article 31 is applicable. However, we are inclined to agree with the arguments advanced by Shri Sen that a wrong presumption of the interpretation of the articles of association by the board of directors will not change the legal position regarding the issue and allotment of additional shares. A lot of arguments were advanced regarding the validity of the board meetings in which the decision to increase the share capital and allotment was taken. However, it is an admitted position that the petitioner and respondent No. 7 did not attend these meetings. Based on the fact that there has been a considerable delay in filing the return of allotment, the petitioners have tried to make out a case that the allotment is fictitious and the board resolutions and other records in respect of the issue and allotment of shares is created in order to adversely affect the rights of the petitioners. In support of this, he has also pointed out that the family settlement dated October 18, 1991, and documents filed before the Calcutta High Court indicating the shareholding pattern do not reveal such allotment of additional shares. However, it is not the legality or the illegality of the issue or allotment of additional shares that is the main issue before us. The main issue is whether such an issue and allotment of additional shares, whether legal or illegal, has resulted in oppression of the petitioner. In this case, the petitioner was already a minority shareholder prior to the issue and allotment of additional shares. While the petitioner has not made respondent No. 7, who supports the contention of the petitioner, a co-petitioner to claim that the majority shareholding of the petitioner and respondent No. 7 together has been converted into a minority, while advancing the arguments on behalf of the petitioner as well as respondent No. 7, counsel made submissions as if the petitioner and respondent No. 7 are jointly fighting this matter against respondents Nos. 2 and 3. The family settlement dated October 18, 1991, is signed by the petitioner, respondent No. 2 and respondent No. 7. This fact of signing and arriving at the settlement is not denied by the parties. However, respondent No. 7 has challenged the family settlement and while the trial court has dismissed it on July 3, 1992, an appeal against the order is filed before the Calcutta High Court on July 6, 1992. The arguments advanced by the respondents, to point out that the affidavits supporting the petition and the affidavit filed on behalf of respondent No. 7 are filed by persons who were not in the know of the affairs of the company but are filed by somebody who has nothing to do with the business of the company and for some other ulterior motive, are not effectively met by the petitioner. The petitioner was earlier in the management and according to respondent No. 7 he has signed the documents as managing director as late as April 1, 1991, i.e., after the allotment on March 25, 1991, for which the process was started as early as on April 24, 1990. The petitioners were unable to state what was the last occasion when they participated in the meeting of the board of directors.
33. While neither any allegation about creation of a new majority nor any allegation about violation of fiduciary duties of directors is made in the petition, it is an admitted fact that with the issue and allotment of further shares a new majority has been created. It is a well accepted principle that in the proceedings under Section 397/398, it is always open to a court to give a general or other relief "as it deems just" to the same extent as if it had been asked for, provided that granting of such a relief does not prejudice the other side. If anything is lacking in the petition, it may be made good by the subsequent affidavits and, therefore, it is necessary for us to consider the entire evidence that has been placed before us in order to do justice between the competing rights of the parties. The case of justice will not suffer if reliefs are granted after the consideration of all the evidence before us, even though the original plaint was lacking in particulars. In our view, the creation of a new majority without allowing the petitioners to participate in the further issue of equity is definitely an oppressive act, especially considering the circumstantial evidence which clearly points out that the factum of issue and allotment of such shares is not beyond doubt. Before we decide what reliefs can be given, we have to take into consideration that it is an admitted position that there were disputes between the petitioner and the respondents regarding the management and control of the company for the last few years. It is also on record that the respondents have filed complaints against the petitioner regarding theft of records of board minutes by the petitioner. These disputes continued even after reaching an out of court settlement dated September 24, 1991, filed before the Calcutta High Court in Suit No. 642 of 1991. However, disputes continued and efforts were made again to settle the disputes which culminated in the signing of the family settlement dated October 18, 1991, which is signed by petitioner No. 1 and respondents Nos. 2 and 7, according to which the petitioner was to have nothing to do with the Ringtong matters and in lieu of his shares he was to get other family property and cash. We have no doubt that considering the conflict between the two groups of shareholders, in our opinion, the company cannot function properly if these two warring groups continue to hold the shares and also share the management powers. The facts in this case also clearly point out that there is no chance of redressal of the grievances in the domestic forum of the company. While granting the reliefs under Section 397, the wide powers that are given to the Bench are to be exercised with the purpose of "bringing to an end the matters complained of". The respondents have laid a great stress on the factum of family settlement arrived at between the parties according to which the shares belonging to the petitioner were to be transferred to the other parties to the dispute. During the hearing, respondents Nos, 2 and 3 have categorically stated that if ordered, they are ready to buy the shares of the petitioner. However, the petitioner was not willing to sell the shares and insisted on granting a relief for the cancellation and issue of allotment of 3,800 shares and calling a shareholders' meeting to elect a new board of directors to run the company. In our opinion, such a course of action would not result in putting an end to the dispute which cannot be settled in the domestic forum of the company and continuation of such a dispute will not be in the interests of the company and the shareholders in general. Therefore, the relief that can be granted, considering the objectives of Section 397, is for the shares of the oppressed to be bought by the oppressor. However, we find that a dispute relating to the family settlement dated October 18, 1991, which also deals with the transfer of the shares of the petitioner, in lieu of the other family properties, to the respondents in the present case, is pending before the Calcutta High Court and all the parties including Ringtong Company are parties to the dispute before the Calcutta High Court and the decision therein will bind all the parties. In view of these facts, we do not think that the circumstances warrant invoking the discretionary powers of this Bench in this matter and, therefore, the petition is disposed of accordingly. No order as to costs.