Bombay High Court
Shanta Genevieve Pommeret And Another vs Sakal Papers Pvt. And Others on 13 January, 1988
Equivalent citations: [1990]69COMPCAS65(BOM)
Author: S.N. Variava
Bench: S.N. Variava
JUDGMENT S.N. Variava, J.
1. This is a company petition under section 155 of the Companies Act, 1956. Before stating the facts of this petition, it is necessary to set out in brief the nature of the controversy involved in this petition.
2. The first respondent-company is a private limited company and the first petitioner is one of the founder-members thereof. Under the articles of association, the first petitioner has a right of pre- emption, i.e., a right to purchase any shares of the first respondent company in the event of the same being sold by any other member. The petitioners challenge the transfer by respondents Nos.2,3 and 4 of 3,417 shares and 93 shares in favour of respondents Nos. 5,6,8,11,12,13and 14. The petitioners also challenge t he issue and allotment of 17,666 shares in favour of respondents Nos.11,12,13,15 and 16. It must be mentioned at this stage itself that both Mr.Cooper and Mr.Chagla have, in their usual fairness, admitted that respondents Nos.11 to 16 re companies owned nd/or controlled by respondent No.5 nd that respondents Nos.6 to 9 and 11 to 16 constitute a group headed by respondent No.5.
3. At this stage itself, it must also be mentioned that at the very outset, Mr.Cooper and Mr.Chagla had on behalf of their clients made a with prejudice offer that the respondents were willing to offer to the petitioners 7,345 shares at par, i.e., at Rs.100 so that the petitioners' original share-holding of 41 per cent. in the first respondent company is still maintained. This offer was not accepted by the petitioners and the petition was argued. On a question from the court, Mr.Chagla had staged that the respondents would be keeping the with prejudice offer open for he petitioners to accept for a period of two months from the date of this order. However, as explained subsequently, this offer is in fact meaningless.
4. The facts speak eloquently:
The first respondent-company was established by the late Dr.Narayan Bhikaji Parulekar. The first petitioner is the widow of late Dr.Narayan Bhikaji Parulekar and the second petitioner is the daughter of the later Dr,Parulekar. The late Dr.Parulekar started the Sakal newspaper in the year 1933. On February 16,1948, the first respondent-company was incorporated to take over and run the business of newspaper `Sakal'. In this company, the late Dr.Parulekar was and the first petitioner is a permanent director.
5. Dr.Parulekar expired on or about January 8, 1973, leaving behind him a will dated December 3, 1972. Respondents Nos.2,3,4 and the first petitioner are the executors named in the will. Probate of the will has been granted to these executors on September 11, 1975. After making various bequests, the will provides that out of the rest and residue of the estate, a trust is to be created. It is an admitted position that 3,417 shares of the first respondent-company form part and parcel of the residue of the estate of the late Dr.Parulekar.
6. It is also an admitted position that, after the demise of Dr.Parulekar, in the share registry of the first respondent- company, the names of respondents Nos.2,3,4 and the first petitioner were jointly entered in respect of these 3,417 shares. At the relevant time, apart from being executors, the first petitioner nd respondents Nos.2 and 3 were also directors of the first respondent-company. The third and fourth respondents, in their personal capacity also, held 93 shares of the first respondent-company.
7. Articles 57A to 65 of the articles of association of the company provide for the manner of transfer of shares belonging to members of the company. These articles re important and have a great bearing on the facts of this particular case. Article 57A provides that , in the event of any member of the company desiring to transfer his/her shares, he/she is bound to offer the same either to Dr.Parulekar or to Madam Shanta Parulekar or such other person or persons as Dr.Parulekr or Madam Parulekar may direct or nominate and in which event the transferee shall pay such price as may be certified by the auditors of the company. It is admitted that articles 58 to 65 come into effect only in the event of Dr.Parulekar or Madam Parulekar or any nominee named by them not purchasing the shares. Under these articles, no shares can be transferred so long as any member or any person selected by the directors is willing to purchase the same. The articles also provide that the person proposing to transfer shares shall give a notice in writing to the company of his/her intention to transfer the shares. The directors of the company re bound to offer the same to the members of the company and if no member is willing to take up the shares, the directors have an option to select some other persons for the purpose of having the shares transferred to that person. The price to be paid was to be fixed by the auditors of the company. If the directors do not find any member or other person to purchase the shares within 30 days of the notice, the member concerned could, within 30 days thereafter, sell the shares to ny person, at any price. Article 65 provides that the directors may, at their absolute and uncontrolled discretion, refuse to register any transfer of shares without giving any reasons for such refusal.
8. At a meeting of the executors held on November 27, 1984, respondents Nos.2,3 and 4 resolved to sell the 3,417 shares. It was further resolved that any one of the executors could implement the resolution and take steps to execute the transfer form and/or complete the transaction. It is an admitted position that the first petitioner was not present at the meeting. It is, however, not denied that the first petitioner was aware of this resolution.
9. By a letter dated November 10, 1984,respondents Nos.3 and 4 offered to the first petitioner the 93 shares standing in their names. By a letter November 29, 1984, respondent No.2, for and on behalf of the executors, offered to the first petitioner the 3,417 shares in one lot. BY the same letters, these respondents also gave notice to the board of directors of their intention to sell the shares and to treat the letters as notices under the provisions of articles 58 to 64 of the articles of association. As explained alter, it is significant that respondents Nos. 2,3 and 4 purport to give notice under the provisions of article 57 A and articles 58 to 61, but end the letters by stating that, in the event of the first petitioner not taking the shares, the respondents would be free to sell to any other person. This is in spite of the fact that under articles 58 to 64, the second petitioner is, in her own right, entitled to purchase the shares in the event of the first petitioner not exercising her right under article 57A.
10. The first respondent-company, by its two notices both dated November 29, 1984, addressed to all members asked the members to indicate if they were willing to purchase these shares in the event of the first petitioner not purchasing them.
11. The first petitioner, by her letter dated December 14, 1984, accepted the offer of the respondents and nominated the second petitioner as the person entitled to purchase the 3,417 and 93 shares at a price which may be fixed by the auditors of the company. The auditors fixed the price at approximately Rs.2,261 per share. Pursuant thereto, certain correspondence ensued. This correspondence is considered in detail at a subsequent stage. The substance of this corresponds is that, initially, the petitioners do not accept the price as fixed by the auditors and challenge the price fixed by the auditors. The petitioners' offer to deposit Rs.20 lakhs as and by way of their bona fides and state that they would only purchase at the price to be fixed by the auditors provided the same was fixed in a reasonable and unbiased manner. The petitioners also filed a complaint against the auditors with the Institute of Chartered Accountants.
12. The petitioners, thereafter, on or about March 2, 1985, filed before the Civil Judge, Pune, a suit bearing No.624 of 1985 for an injunction restraining respondents Nos.2,3, and 4 from selling these shares. It must be mentioned here that while the body of the plaint contains averments regarding 3,417 shares as well as the 93 shares, in the prayer, ultimately, an injunction is sought only in respect of 3,417 shares. In the affidavit in reply to the interim application, the respondents aver as follows;
"...the plaintiffs have not made any prayer for purchasing of the share and they cannot merely prevent the defendants from selling the shares without purchasing the shares by themselves."
13. In the said affidavit, the respondents also contend:
"...that the procedure for transfer of shares as laid down under articles of association of the company have been duly completed by the defendants. Hence, the executors of the will of the late Dr.Parulekar are now free to sell the shares to anybody other than Madam Parulekar and/or her nominee."
14. The respondents also contended that the subject-matter of the suit was beyond the pecuniary jurisdiction of the court. On August 5, 1985, an ex parte order was passed where under the learned judge returned the plaint for presentation to the proper court on the ground that the subject-matter of the suit was beyond the pecuniary jurisdiction of that court. The petitioners filed a review application on or about October 31, 1985. On or about November 7, 1985, the earlier order dated August 5, 1985, was set aside and the court held that it had jurisdiction. As against this order, respondents NOs. 2,3 and 4 filed in this court a civil revision application bearing No.730 of 1985. I am informed orally that an order has been passed on the civil revision application where under the matter has been referred back for rehearing the arguments on jurisdiction.
15. Respondents Nos.2,3 and 4, in the meantime, on or about September 9, 1985, sold the 3,417 and the 93 shares to respondents Nos.5,6,8,11,12,13 and 14.
16. A notice dated September 16 was issued calling a board meeting on September 21, 1985. At the meeting held on September 21, 1985, the petitioners lodged a note of protest to the effect that the notice received by them is not sufficient and walked out of the meeting. The minutes show that, at this meeting respondent No.9 stated that on September 20. 1985, transfer forms have been received by them in respect of the 3,417 shares and the 93 shares. The question of transferring the shares to the names of the purchasers is then taken up under the heading "any other business with the permission of the chair". Respondent No.9 stated that he has examined the transfer forms and the relevant share certificates and found them to be in order. The second respondent, thereafter, stated that the procedure laid down under article 57A has been complied with. All directors present, viz., respondents Nos.2,3,7 and 9, examined the transfer forms and found the same to be in order and resolutions were passed to register the transfer of the 3,417 shares and the 93 shares in favour of respondents Nos.5,6,8,11,12,13 and 14 in the manner as set out in the resolutions.
17. At this stage, it must be noted that the only persons were respondents Nos. 2 and 3 who were also executors and interested parties and respondents Nos. 7 and 9 who now admittedly form part of the group headed by respondent No. 5. Further, the share transfer forms in respect of 3,417 shares bear the name of the first petitioner as one of the transfers, but are signed only by respondents Nos. 2,3 and 4. the forms also show that the same are not even signed "for and on behalf of the first petitioner". the shares stood in the names of four parties, viz., respondents Nos. 2,3,4 and the first petitioner. There was. therefore, clear non-compliance with the provisions of section 108 of the Companies Act. the share transfer forms were clearly onto in order. One really fails to understood how the secretary and the directors of the company, having examined the forms, found them to be in order. Again, respondents Nos. 2 and 3 are aware that on august 5, 1985, by the ex parte order, the plaint in Suit No.624 of 1985 is only returned for presentation to the proper court. therefore these respondents are aware that the petitioners are still invoking article 57 and contending that respondents Nos. 2,3 and 4 and 4 cannot sell the shares to anybody else. this fact is not brought to the notice of respondents Nos. 7 and 9. Also, respondent No. 2, being an interested party, cannot, under these circumstances, decide and state that the procedure under article 57A was complied with.
18. What is further pertinent to note is that immediately thereafter at the same meeting, resolutions are also passed where under respondents Nos. 5 and 10 are appointed as additional directors of the company. when put to Mr. Cooper as to why, merely on receipt of share transfer forms, an important question of inducting outsiders on the board of a private limited company was taken up without the same forming part of the agenda, Mr. Cooper stated (and Mr. Chagla subsequently concurred) that it was pursuant to an understanding entered into by respondent No. 5 at the time when he purchased the shares, that he and his nominees would be taken on the board of directors. Mr. Cooper submitted that it is reasonable to expect a man, who is investing Rs. 80 lakhs and getting a controlling interest in the first respondent-company, to want to come on the board of directors and to have a say in the management of the company. What this this argument over looks is that Rs. 80 lakhs was not being paid to the fist respondent- company, but was being paid to respondents Nos. 3 and 4 personally and to respondents Nos. 2,3 and 4 as executors for the purpose of creating a trust. respondent No. 3 personally and/or the executors can have no right or business and are failing in their duty as directors of first respondent -company by arriving at such an understanding without consulting the other and sooty. What is more pertinent is that it is these executors, acting in their capacity as directors, who have now got passed all the above-mentioned resolutions. whilst Mr. Cooper does not admit it, it is clear that the understanding between respondent No. 5 and respondents Nos. 2, 3 and 4 went beyond merely taking respondent No. 5 and his nominees on the board of directors. This is clear form the subsequent events.
19. Thereafter, certain correspondence again ensued. the petitioners, by a letter dated September 30, 1985, addressed to respondents Nos. 3 and 4 personally and by a letter dated October 1, 1985, addressed to respondents Nos. 2,3 and 4 as exactors agreed to pay the price as fixed by the auditors. Respondent No. 2, by her letter dated October 2, 1985, and respondent No. 3 by his letter dated October 3, 1985, pointed out to the said letters, these respondents do not mention that in the meeting held on September 21, 1985, the transfers have already been registered by the first respondents and/or that the purchaser has been appointed as a director of the first respondent-company.
20. A notice dated October 13, 1985, is therefore, issued calling an annual general meeting of the first respondent-company on November 16, 1985. the agenda for this annual general meeting as well as the explanatory statement annexed thereto do not contain any item regarding increase in share capital and/or issue and allotment of the further shares. The petitions attend this meeting and proved against respondents Nos. 5,6 and representatives of respondents Nos. 11,12 13 and 14 and 14 being present at the meeting. However, their objections are overruled. at this meeting one f the items on the agenda was declaration of dividend by the first respondent company. the minutes show that at the time this item was being considered, respondent No. 6 requested the second respondent (who was the chairman of the meeting) to allow him to express his view on this item. Respondent No. 6, thereafter, suggests dividend may not be declared as the first respondent-company is considering importing begger machinery and the, therefore, the dividend should be ploughed back to the general reserves. Respondent No. 5 supports this and further suggests that usually companies face problems of working capital during October to December and that, therefore, dividend should not be declared. Then respondent No. 5 suggests that a letter received by the company on November 7, 1985, form respondent No. 12 be considered. This letter states that the share capital of the company be increased and that all the unissued shares be issued and allotted. At this stage, respondent No. 2 states that the company is experiencing great difficulties in borrowing monies form banks. Respondent No. 9 reads out a letter dated November 5, 1985, form the Ministry of Finance and a letter dated November 11, 1985, received form the United Western bank Ltd. On the basis of the letter dated November 7, 1985, received form respondent No. 12 and these two letters dated November 5, 1985, and November 11, 1985, a suggestion is made that the capital should be increased and that the legal formalities of notice be overcome. therefore, against the protest of the petitioners, a resolution is passed increasing the share capital and authorising and directing the board of directors to issue additional shares immediately.
21. It might be pertinent at his stage itself to test this sudden urgency. the letter dated November 5, 1985, form the Ministry of Finance is a routine letter in reply to a letter dated October 24, 1985. This letter refers to a sanction which has been granted to the company as far back as in January, 1985. Thus, it is clear that this permission to import was given as far back as January, 1985, but the sudden urgency to import arises only in November, 1985. Whilst it is correct that this letter states that the validity period is only up to November 30, 1985, however it is common knowledge that these validity periods are extended if properly pursued. Further, at this stage, the reserves of the company are to the tune of Rs. 89.41 lakhs and, therefor, machinery can be imported even without any increase in the share capital. the letter dated November 11, s1985, form the bank is addressed for the kind attention of respondent No. 7. this letter only says that in view of an expansion program, the first respondent company is requested to consider the possibility of increasing the share capital. No particulars are given even now as to for how long the expansion program has been under consideration, the exact nature of the expansion program and when applications were made to the banks and/or financial institutions. Further, it is rather stangee that the bank writes one or two letters suggesting an increase and the company immediately rushes to implement that suggestion without at all considering in great depth or detail the post and cons of that suggestion. That everything was in fact preplanned and all these reasons trotted out at his meeting are merely excuses is clear form what happens at the meeting of the board of directors held immediately after this annual general meeting.
22. On the same date, after the conclusion of the annual general meeting, the board of directors meets. At this, the item regarding the increase of share capital is taken up immediately on the ground that the same has been sanctioned by the general body. It need not be mentioned, but it is interesting to not that the general body consisted of exactly the same people who are now there at the board meeting (except for respondent No. 6 who had represented respondent No. 12 at the general meeting). what is very significant is that in spite of the protest of the petitioners, the board passed a resolution increasing the share capital by Rs. 17,66,600. Mr Cooper has submitted that the petitioners were asked whether they wished to take any shares, but the petitioners refused. This is not borne out by the minutes themselves and , as is being subsequently pointed out, the respondents have vehemently argued that all the minutes must be taken as being true. But what is most significant is that at this meeting, the additional 17,666 shares are issued and allotted to the following companies:
SL. Name of the Number of Total value
No. Company shares Rs.
1. Panhala Investments Pvt. Ltd. 5,000 5,00,000
(respondent No. 15)
2. Modualr Finance and Consult-
ancy Pvt. Ltd.(respondent
NO. 2) 3,410 3,41,000
3. Tamblai Investments Pvt. Ltd.
(respondent No.16.) 5,000 5,00,000
4. Namratta Investment Pvt. Ltd.
(respondent No.13) 2,000 2,00,000
5. Yashad Hospital Pvt. Ltd .
(repondent No.11) 2,256 2,25,600
----- --------
17,666 17,66,600
It is today the admitted position that these parties are all companies owned and/or controlled by respondent No.5.
23. Thus, it is to be see that respondent No. 5 who purchased 3,417 and 93 shares on September 9, 1985, now also has additional 17,666 shares. What is also most pertinent to note is that these 17, 666 shares were issued at par, that is at the rate of Rs.100 each. Thus, shares which the auditors had certified to be of the market value of Rs 2,261 were allotted to respondent No. 5 and his companies at the meager sum of Rs. 100 per share. therefore, respondent No. 5 and his group are by November, 1985, the owners of 21,176 shares, for which a total price of Rs. 97,66,600 has been paid amounting to a per share cost of approximately Rs. 460 only. It is to be remembered that the petitioners were expected to pay Rs. 2,261 per share.
24. The respondents are well aware that this issue and allotment of additional shares is done in an illegal manner and that the same has been pushed through on th basis of th majority thy now enjoy . Therefor, notice is issued of an extraordinary general meeting to be held on January 31, 1986, the resolutions passed earlier authorising the issue and allotment of these additional share capital is ratified and/or confirmed. the earlier resolution is ratified by the sue of the 3,417 93 and the 17,666 shares which are by now issued and allotted.
25. On these facts, Mr. Dada has argued that th sal of 3,417 and th 93 shares is contrary to and in violation of the articles of association. He submitted that it is, therefor, illegal,null and void and not binding on the petitioners. Mr. Dada has also argued that this transfer in favour of respondents Nos. 5,6,8,11,12,13 and 14 is not a bona fide transfer and has been made with thee intention of transferring the controlling interest in the company to respondent No. 5 and to defeat the right and in respect of the petitioners Mr. Dada has also argued that the transfer forms in respect of 3,417 shares have not been signed by all the transferors and that there being no validly executed transfer forms, the first respondent-company could not have transferred the shares.
26. Mr. Dada has referred to the case of Mannalal Khetan v. Kedar Nath Khetan [1977] 47 Comp 185 (SC) for the proposition that the provisions of section 108 of the companies act are mandatory . Mr Dada also relies upon the conservations in Palmer's Company Law, 23rd edition, in paras 39,34 at page 495 and Halsbury's Laws of Rngland, forth edition, in volume 17, para 1082, page 562, to the effect that only one of a number of executors registered as shareholders cannot transfer. In this behalf, Mr. Dada has also relied upon the case of Barton v. London and North Western Railway Co. [1890] 24 QB 77 (CA).
27. Mr Dada has also argued that the whole manner of the increase in share capital by Rs. 17,66,600 is illegal and contrary to law. Mr Dada has argued that the subsequent issue and allotment by the board of directors in the meeting of the board of directors held on that same day is also illegal and should, therefore, be set aside. It also argued that the shares have been sold at a gross undervalue, thereby causing loss to the first respondent- company. the extraordinary general meeting held in January, 1986, and the resolution passed therein are also challenged by mr. Dada on the ground that the explanatory statement annexed to the notice of that meeting is lacking in relevant particulars and that the very same shares, i,e,3,417,93 and the 17,666 shares, were used for the purpose of ratification.
28. A glance at the share transfer forms confirms that they are not in compliance with section 108 of the companies Act. Further, it is clear that till the petitioners' rights under article 57A have come to an end, any sale contrary thereto would be invalid and void. That the issue and allotment of 17,666 shares has been done in a manner that cannot be sustained is not disputed at all. All that the respondents have argued is that the act could whilst considering latter whether, in fact, thee is any valid ratification, all that need be noted at this stage is that if the sale land transfer of 3,417 and 93 shares cannot be sustained and is set aside, then there can be no ratification of the increase in share capital and the issue and allotment of 17,666 shares and the petitioners would automatically be entitled to relief as prayed for tin respect thereof.
29. Mr. Cooper has argued that, under section 108 of the Companies Act, the transfer forms could be signed by the shareholders or anybody authorised on their behalf. He has submitted that at the meeting of the executors held on November 27, 1984, it was resolved that the 3,417 shares be sold and that it was further resolved that any one of the executors may take steps to execute the transfer forms and to complete the transaction Mr. Cooper submits that even though the first petitioner was not present at the meeting this resolution has, at no stage, been challenged by the petitioners, Therefore, the authority to sell the shares and the right of any one executor to execute the transfer deed is not in question. According to Mr. Cooper, it is pursuant to this decision that he shares were offered on the first petition under the provisions of article 57A. Mr. Cooper submits that it is under these circumstances that the other three executors have signed the transfer forms. Mr.Cooper submits that the forms must be deemed to have been signed for and on behalf of the first petitioner also. He points out that the second respondent in her affidavit in reply dated April 7, 1987, to this petition has stated that the forms have been signed for and on behalf of the first petitioner. He submits that this statement has not been denied by the petitioners and, therefore, must be deemed to have been admitted. I am afraid it is not possible to accept this contention of Mr. Cooper. The forms are available before the souct and it is clear form the forms. this contention is, therefore, against the tenor of the forms. Further, the second respondent had, in her affidavit dated October 8, 1986, in reply to Company Application No. 235 of 1985, averred that the majority of the executors could act by themselves and that the transfer forms signed by three of the executors were vailed. it is thus clear that this contention, now taken up of the first time in this affidavit, it clearly an after thought. Also, it must be remembered that the petitioners had filed a suit for an injunction restraining respondents Nos. 2,3 and 4 form transferring the shares. the petitioners had all along contained that respondents Nos. 2,3 and 4 were not authorised to sell the shares to any body also. therefore, it is clear that respondents Nos. 2,3 and 4 could not and did not have the authority to sign for and on behalf of the first petitioner. In any case, the authority, if any, was revoked.
30. Mr. Cooper then urged strenuously that under the Indian Trust Act, the majority of the executors could act by themselves. He also submits that,, in any event, by reason of the resolution passed on November 27, 1984, respondents Nos. 2,3 and 4 are entitled to execute the forms form and on behalf of the first petitioner also. He submitted that even now respondents Nos. 2,3 and 4 could sign the forms for and on behalf of the first petitioner. He further submits that some of the directors of the fist respondent-company were the same as the executors. therefore, according to Mr. Cooper, the first respondent-company was aware that these shares were held by respondents Nos. 2,3 and 4 and the first petitioner as executors. He submits that the first respondent-company had knowledge of the authority to sell and, therefore, there was nothing wrong in the first respondent- company accepting the transfer forms and acting on them. Mr. Cooper submits that at meeting of the board of directors, they were entitled to take up the item regarding transfer of shares even though the same did not form part of the agenda. He cites the cases of La Compagnie Dee Mayville v. Whitlty [1996]1 Ch |||D 788, Abnash Kaur v Lord Krishna Sugar Mills Ltd [1974] 44 Comp Cas 390 (Delhi) and Suresh Chandra Marwaha v. Lauls Pvt. Ltd. [1978] 48 Comp cas 110 (P&H) in support of the proposition that directors can, at a meeting of the board, deal with all affairs of the company and that no notice or agenda is necessary. Mr Cooper submits that all that would be required would be for the respondents to submit fresh forms duly and properly executed. Mr. Chagla has further submitted that the sale in favour of respondent No. 5 and his group cannot and is not impugned and, therefore, there respondents will remain the beneficial owners of the shares and will call upon respondents Nos. 2,3 and 4 to rectify the defect. If is, therefore, submitted that, merely on a technicality , the transaction cannot be set aside and the court should not order rectification of the register as it would be a futile exercise. In this behalf, the authority in the case of Unit Trust of Indian v. Om Prakash Berlia [1983] 54 Comp |Cas 723 (Bom) was relied upon and it was submitted that relief under section 155 being discretionary even if a transfer is bed, rectification can still be refused.
31. In my view, the above arguments overlook the fact that if the sale is in contravention of article 57A, it would be illegal and void. Respondent No. 5 and his group would not remain beneficial register, the petitioners are in fact challenging the sale. The question of execution of fresh forms would not and cannot then arise. Mr. Dada is also right when he contends that respondents Nos. 2, 3 and 4 have in fact not acted on the basis of the resolution dated November 27, 1984, and therefore, now the same cannot be of any assistance to the respondents. As a general rule, it cannot be denied that the board could have taken up the item of transfer of shares without the same being on the agenda. However, in this case, the question was one of transfer of the controlling interest in a private limited company. the first petitioner had a right of per-emption. the petitioners were asserting and claiming that right . As now admitted, respondents NOs. 2,3 and 4 had entered into an understanding under which respondent No. 5 and his nominee were to be taken on the Board. Were these not matters of which notice should have been given to all other directors? was it not prudent and/or wise that something as essential as this be considered by all concerned?
32. The next submission of Mr. Cooper was that respondents Nos. 2,3 and 4 were entitle to sell the shares to respondent No. 5 and his group. Mr. Cooper submitted that the petitioners cannot be said to be ready and willing to purchase the shares. He submitted that the petitioners themselves had repudiated the contract and that the petitioners them selves had repudiated the contract and that the petitioners' act in challenging the sale at the this late stage is mala fide. Mr. Cooper submits that admittedly the price to be paid by the petitioners was the price as fixed by the auditors. He submits that by challenging the price and filing a complaint against the auditors, the petitioners were declining to pay the price. Mr. Cooper submits that the price fixed by the auditors was the correct price and that this is admitted by the petitioners as they have, on October 1, 1985, accepted the price as fixed by the auditors. He submits that the earlier objections raised by them were merely with a view not to pay the same. In this behalf, Mr. Cooper has taken me in detail though the correspondence between the parties and it is necessary to consider this correspondence.
33. The corresponds starts with the letters dated November 10, 1984, and November 29, 1984, form respondents Nos. 3 and 4 and respondent No. 2, respectively, to the first petitioner as well as to the first respondent-company, intimating the offer to sell the shares and the company's letters dated November 29, 1984, to all members. the first petitioner, by her tow letters dated December 14, 1984, addressed to these respondents accepted the offer and agreed to purchase 3, 417 and 93 shares herself or by her nominee, i.e., petitioner No. 2, at a price that may be certified by the auditors of the company. On January 29, 1985, the auditors of the company wrote to the first petitioner stating that they have received the memorandum and articles of association, copies of audited statements of account and certain other materials for the purposes of fixing the price and called upon the first petitioner to submit any information which she considers necessary. it would seem that the first petitioner applied for some time. the auditors, by their letter dated February 7, 1985, addressed to the first petitioner extended time up to February 20, 1985. the first petitioner there after by her letter dated February 20, 1985, addressed to the auditors for the first time contended that it was not correct for the auditors to call upon her to submit to anything and that they should first send her a draft certificate stating therein the reasons and grounds for the determination of the price and that, thereafter, she would make her submission. The first petitioner also,m by her two letters dated February 21, 1985, addressed to the auditors, asked the auditors to supply to her the copies of the documents furnished by the first respondent company to the auditors. The auditors, however, fixed the price and issued their certificate on February 21, 1985, which reads as follows :
"As requested by Shri Jaswantlal Matubhai, Shri Arun Jaswantlal Smt. B.J.Gohaji and the company secretary, we hereby certify as required by article 57 A of the articles of association of Sakal Papers Private Ltd. that the prices to be paid for the transfer of shares are as under :
For 93 shares, Rs. 2,10,273 (rupees two lakhs ten thousand two hundred and seventy-three only) and for 3,417 shares, Rs. 77,25,837 (rupees seventy-seven lakhs twenty-five thousand eight hundred and thirty-seven only).
Respondent No. 3 by his two letters dated February 21, 1985, called upon the first petitioner to pay the entire amount and complete the transaction on or before March 2, 1985, i.e. respondent No, 3 purported to make time the essence of the contract. In the meantime, the first petitioner, by her letter dated February 27, 1985, addressed to the respondents, inter alia, contended as follows :
"....If and when the certificate of the company's auditors is issued in a just, fair and impartial manner, then alone the question of payment will arise. We further wish to make it clear that after such a certificate is issued by the company's auditors, the time and modalities of payment will have to be negotiated and settled between the buyers and the sellers.
.....Without prejudice to all that has been stated in the foregoing paragraphs and also without prejudice to out legal rights to take such action relating to the certificate dated February 21, 1985, issued by the auditors, we are wiling to deposit with any shareholder of our mutual choice an amount of Rs. twenty lakhs as an earnest of our bona fides and genuine desire to purchase the said shares. the said amount will be paid to the stockholder within three days form the receipt of your confirmation that you are ready and willing to accept this interim arrangement. the stockholder shall hold these monies until such time, but later than one month within which we hope the company's auditors will submit a just, fair and impartial certificate and it will be accepted by us. in case a just, fair and impartial certificate is not issued by the company's auditors within the said period, then the stockholder shall return the said monies to us without any objection immediately on a written demand by us.
You are, therefore, advised not to make any attempt to sell or to actually sell these shares to any other persons and also not to give us any threats in that regard."
34. To this letter, respondent No. 3 merely sent a telegram to the effect that the respondent will communicate action and that nothing in the letter must be deemed to be admitted. It is an admitted position that the respondents did not in fact reply to this letter.
35. Thereafter, as stated earlier, the petitioners filed a suit in the court at Pune. On 5th August, the plaint was returned for presentation to the proper court and on September 9, 1985, respondents Nos. 2,3 and 4 claim to have sold the 3,417 and the 93 shares. It would seem form the petitioners' subsequent letters that the petitioners were not aware not aware of the plaint having been returned for presentation to the proper court. thereafter, on September 21, 1985, the petitioners lodged a not of protest and walked out of the meeting. the petitioners then addressed a letter dated October 1, 1985, to respondents Nos. 2, 3 and 4 stating , inter alia, that the civil suit was pending and that the letter was being sent without prejudice to the civil suit and that they were ready and willing to pay the price and that they were ready and willing to purchase the shares at the price and by the auditors and called upon the respondents to inform the petitioners second respondent by her letter dated October 2, and the third respondent by his letter dated October 3, informed the petitioners that the shares had already been sold.
36. In my view on the above mentioned correspondence, the petitioners could not be said to have repudiated the contract. In my view, the petitioners were all along ready and willing to purchase the shares. Merely because they initially did not accept the price fixed by the auditors would not mean that they had repudiated the contract. thee can be no doubt that, on the auditors fixing the price, a concluded contract had come into existence. this being the position, the provisions of articles 58 to 64 could not and did not apply. Under the articles, the remedy of respondents Nos.2,3 and 4 was clearly to claim specific performance. thus, the sale in favour of respondent No. 5 and his group was clearly contrary to the articled of association and is, therefore, illegal and void. Further , the only right to sell to anybody else is under article 63. Under that article, such sale could only take place within 30 days of the members not taking up or the directors not finding anybody else or in this case on the petitioners not accepting the price. Clearly, the sale to respondent. No. 5 and his group is not within those 30 days. For this reason also, the the sale is contrary to the articles.
37. At this stage, an argument advanced by Mr. Parekh may be noted. mr. Parekh had argued that repondent No. 5 and his group had purchased the shares with full knowledge of the articles and of the correspondence. according to Mr. Parekh, therefore, the proper remedy for the petitioners was a suit for specific performance only. according to Mr. Parekh, the petitioners should be asked to file such a suit and no reliefs should be granted in this petition. In my view, Mr. Parekh is right when he contends that respondent No. 5 and his group cannot be said to be bona fide purchasers for value without notice. Respondent No. 5 in his affidavit dated September respondents Nos. 2, 3 and 4 had informed and showed him the articles of association. he was aware that respondents Nos. 2, 3 and 4 along with the first petitioner were executors, that the shares stood in the name of an of them. He had been shown the correspondence exchanged. thus, respondent No. 5 and his group were well aware of the claims of the petitioners. Further, respondent No. 5 and its group had accepted the transfer forms in which the name of the first petitioner appeared as a transfer even though they were not signed by the first petitioner or on her behalf. How ever, I do not agree with Mr. Parekh that the only remedy of the petitioners is to file a suit for specific remedy. Wherever more than more than one remedy is available to a party , the party can choose any one of such remedies. In my view, the remedy under section 155 of the Companies Act, is equally effeciacious, definitely more speedy and certainly appropriate.
38. Mr. Chagla and Mr. parekh have also argued that the first petitioner was an executrix alone with respondents Nos. 2,3 and 4 was to be a trustee in the trust which was to be created. It is argued that an executor/ trustee can never take benefits and purchase the shares herself without first relinquishing the post of an executor/trustee. it argued with reference to the correspondence that it was the first petitioner who had agreed to purchase the shares herself or though her nominee, the second petitioner. It was argued that there was a conflict of interest and duty. in this behalf. reliance was placed upon an unreported judgment dated July 27, 1987 in appeal No. 772 of 1987 where a Division Bench of our court has stated as follows:
"9. there was also another contention urged on behalf of the appellant which requires serious consideration. It was urged that the plaintiff being one of the trustees cannot enter into an agreement for purchase of the trust property. reference was made to a passage form Chapter 41 of Lewin on Trusts, where it is observed that a trustee is absolutely and entirely disabled form purchasing trust property, and the principle under -lying the rule is that a man who who undertakes to act for another in any manner cannot, in the same matter, act for himself. the principle is based on the well-known rule that duty and interest should not conflict with each other. Reference was made in this connection to section 53 of the Indian Trusts At, which, inter alias. prescribes. that no trustee shall, without the permission of the civil court, bid for or become a mortgagee or a lessee of trust property or any part thereof. the contention is that if the plaintiff cannot even become a mortgagee or a lessee, much less can the palintiff purchase the property. In our judgment, this is one of the obstacles in the way of the palintiff of r seeking enforcement of the agreement."
39. Reliance in this behalf was also placed on the case of Wringht v. Morgan[1926] AC788(PC).
40. It is, therefore, argued that the first petitioner hot having relinquished her position as executrix, even if there was a concluded contract in favour of the petitioners, the same would be void and could not be enforced.
41. This argument coming form respondents Nos. 2,3 and 4, exhibits great significance. It must be considered in the light of the fact that respondents Nos. 2, 3 and 4 had offered the 3,417 shares to the first petitioner and/or her nominee. At the time that they so offered, they so offered, they were aware that she was an executrix along with them. They were aware that she could not have purchased the same herself or nominated anybody else to purchase the shares unless she resigned form her executorship. In the correspondence carried on by these respondents, it is not averred that the first petitioner could not exercise her rights under article 57A without first giving up her excutorship. the second petitioner could have, under the provisions of articles 58 to 64 taken up these shoes as a member and/or director of the company. it is an admitted position that no other shareholder or member was desirous of taking up these shares. therefore, very cleverly, respondents Nos. 2, 3 and 4 invoke the provisions of articles 57A and 58 to 61 at the same time. the fist petitioner being almost 90 years old at the time of the offer, it was natural (and it is now clear that it was correctly anticipated by respondents Nos. 2,3 and 4) that she would nominate the second petitioner. The second petitioner being nominated naturally does not state that she is purchasing not only as a nominee but also also in her own right under the other articles. that this was also anticipated is clear form the fact that the letters of offer dated November 10, 1984, and November 29, 1984 end by saying that, in the event of the first petitioner not purchasing, respondents Nos. 2, 3 and 4 would be free to sell to anybody else. Unless the above was anticipated, the offers being both under article 57A and articles 58 to 64, the respondents could never have ended the letters in this manner. This clearly indicates the pre-planned scheme of by-passing the provisions of articles 57A to 64. This also now brings into significance the fact that these respondents make time he essence of the contract and give a very short period to the petitioners to pay a sum amounting to almost Rs. 80 lakhs. It is thus clear that there was in fact no intention of selling to the first petitioner or her nominee, but that only a show of complying with the articles was being made. This argument clearly shows that respondents Nos. 2,3 and 4 had all along wanted to sell to somebody else. In cases where a third party fixes a price and the buyer shows a reluctance to pay that price, the normal conduct of the seller would be to assert that the buyer is bound to pay that price. In the present case, very significantly, the moment that the price is challenged, it is asserted that the respondents are free to sell to anybody else and the shares are sold off without any insistence that the petitioners are bound to pay the price. In my view, therefore, this argument that the contract, if any, is void, coming from respondents Nos. 2,3 and 4 clearly shows mala fides. There can be no denial that the second petitioner had, independently of article 57A, the right to purchase the shares. This court, being a court of equity, the interest of justice requires that her rights cannot be allowed to be affected by this pre-planned and devious ,method. The offers being both under article 57A and articles 58 to 64, the acceptance by the second petitioner must be deemed to be not only as a nominee, but also as a member of the first respondent-company entitled to take up the shares in her own right. There is a concluded contract to sell the shares to the second petitioner. The second petitioner was and is not an executrix or a trustee. This contract cannot, therefore, be said to be void or unenforceable.
42. That the provisions of articles 57A to 64 have been completely by-passed even for all future sales of shares is also clear from one further factor. It is to be seen that apart from 50 shares purchased in the name of respondent No. 5 and 43 other shares purchased in the name of respondent No.6 (probably as qualifying shares) all the other shares,i.e., 3,417 shares and the 17,666 shares are purchased in the names of private limited companies (admittedly owned and controlled by respondent No.5). There- fore, in future, respondent No. 5 has to sell off or transfer only his share-holding in a private limited company/private limited companies and auto-matically the ownership in the shares of first respondent-company would be transferred without articles 57A to 65 having been invoked. Thus, the petitioner have been deprived of their right for all time to come. In this context, the with prejudice offer made by Mr. Cooper and Chagla only means that whilst petitioners would continue to hold 41% of the controlling interest in the first respondent-company would for all times be lost(sic). Can the petitioner be faulted for not having accepted the offer?
43. Thus, the arguments of the respondents that the right of the petitioners had come to an end cannot be accepted. It must be held that there is a valid and concluded contract in favour of the second petitioner. Respondent No. 5 and his group having full knowledge of the same have no equities in their favour. Their only remedy, if any, would be to file a suit for damages against respondents Nos. 2,3 and 4.
44. However, before any order is made, the arguments of Mr. Chagla on the question of delay, acquiescence and estoppel have to be dealt with. Mr. Chagla has argued that in September, 1985, the sale of 3,417 and 93 shares in favour of respondents Nos. 5,6,8,11,12,13 and 14 has taken place. That at last by October, 1986, the petitioners were aware of the sale. Mr. Chagla has submitted that between October, 1985, and August, 1986, nine board meeting and five annual and /or extraordinary general meetings have been held. Mr. Chagla has taken me in great detail through the minutes of the various meeting which are annexed to the affidavit dated October 15, 1986, of respondent No.5 in reply to Company Application No. 235 of 1986. He has submitted that the petitioners have been regularly participating as directors in the affairs of the company. Mr. Chagla submits that, to their knowledge, respondent No.5 and his group have also been participating and exercising their votes. Mr. Chagla submits that, only at initial stage, the petitioners had objected to respondent No.5 and his group participating and that at all subsequent meetings on and after November, 1985, no objections have been raised to the respondents participating in the affairs of the company and in fact certain resolutions have been passed unanimously with the petitioners also giving their consent to those resolutions. Mr. Chagla also points out that respondent No.5 was originally appointed as a director and them appointed as the joint managing director along with the second petitioner. Mr. Chagla argues that respondent No. 5 has been authorised to act on behalf of the company, that the second petitioner has in fact accepted office as the joint managing director and has participated in the activities of the first respondent-company as the joint managing director, Mr. Chagla, also relies upon a declaration published under the provisions of the Newspaper Central Rules, 1956, wherein the names of the respondents have been shown as directors and shareholders of first respondent company and states that the first petitioner as publisher has published this declaration in the newspaper. Mr. Chagla, therefore, submits that the petitioners have acquiesced and/or are stopped from now contending that the respondents have no rights. Mr. Chagla also submits that, in any case, that the 3417 and 93 shares were transferred as far back as September, 1985, and no action was taken by the petitioners till this petition was filed in August, 1986. Mr. Chagla, therefore, submits that the petitioners are guilty of gross delay and laches and are not entitled to any relief on grounds of acquiescence and/or estoppel.
45. Mr. Dada, on the other hand, relies upon the case of Unit Trust of India v. Om Prakash Berlia [1983] 54 Comp Cas (Bom). Mr. Dada points out that after considering the entire law on the question of acquiescence, ratification and laches, the Division Bench of our High Court has ultimately held that these defences could only be available to the respondents provided the action of the petitioners was such that it gives rise in the mind of the respondents to a notion or an idea that the petitioners were accepting their action and were not going to challenge their action. Mr. Dada denies that the first petitioner has published the declaration under the provisions of the Newspaper Central Rules. Mr. Dada in fact points out that he statement of Mr. Chagla that no protests have been raised is not correct. He points out that, in fact, at all stages, the petitioners have protested about the respondents participating in the affairs of the company and he takes me through the various notes of protests which have been lodged by the petitioners in almost all the meetings. He points out that in respect of the last few meetings also there were notes of protest and seeks to rely upon the same. Mr. Chagla objects on the ground that they have not been referred to and relied upon by the petitioners. He asserts that the petitioners have not challenged the correctness of any minutes and that the minutes do not show that any protest were lodged. He submits that, therefore, the minutes must be taken as correct and that these notes of protest cannot be looked at. I have accepted Mr. Chagla's contention on this point. Mr. Dada points out that the respondents were, at any event, well aware that the petitioners were challenging the transfer in their favour and that in their affidavit in reply, the respondents themselves state that the petitioners "only formally objected ". Mr. Dada submits that this clearly shows that the petitioners had not given up their objection and contention. He submits that respondent No. 5 and his group were aware that the petitioners were not accepting them and that at no stage have the petitioners given any indication to the contrary, Mr. Dada also argues that merely because the petitioners have come to court after a period of about eight months but well within the period of limitation, there cannot be said to be acquiescence and/or estoppel. Mr. Dada points out that the provisions of section 155 are equitable provisions and equitable reliefs are to be granted.
46. In my view, Mr. Dada is right, in a case like this, where clearly the petitioners have been deprived of their just dues and rights, it cannot even be argued that merely because of some delay, they are not entitled to any relief. The petitioners have, at no stage, given any indication that they were accepting he respondents or accepting the transfer or allotment of shares. They had in fact filed a suit in the Pune court which suit is still pending. Therefore, to my mind, it cannot be said that the petitioners have not availed of any remedy or that the petitioners have given up their claim or right. Nor can it be said that the petitioners have given any indication to respondent No.5 and his group that they were accepting the respondents as shareholders.
47. Further, merely from the fact that the petitioner have continued to participate in the management of respondent No.1, it cannot be presumed that the petitioners have acquiesced and/or that they are now estoppel. It must not be forgotten that the petitioners have an interest in the first repondent company. The arguments of the respondents amount to meaning that merely because against their wishes and consent respondent No.5 and his group and/or nominees have started participating in the management of first respondent company, the petitioners must now take no interest in the company and/or refuse to participate along with them and hand over the management of the first respondent company to them absolutely. It is difficult o accept this argument. It is enough that the petitioners had made it clear that they were not consenting to respondent No.5 and his group being members. The petitioner then being out-voted were then bound to continue to participation in the management if they did not want to hand over the first respondent company to respondent No.5 and his group. In such participation, it is butt natural that resolutions are likely to be passed unanimously or acts done jointly they being in the interest of the company. It is also likely that the petitioners will participate in functions organised. This still cannot and does not amount to acquiescence and/or estoppel.
48. Mr. Chagla has also taken through paragraph 5 to 7 of the affidavit of respondent No.5 dated October 15,1986, in reply to Company Application No.235 of 1986, wherein figures regarding increased profitability, circulation, investment in machinery are given. It was also submitted that the first respondent company has, during 1985-86, taken steeps by way of huge financial investments and has negotiated loans and other facilities. I fail to see the relevance of all this. The result of this petition cannot be determined by any of these things. It is not averred or submitted that the loans sanctioned are only on the basis of respondent No.5 and his group being in control. Admittedly, from the figures shown, there has been a steady and continuous increase in circulation for the past number of years (even before respondent No.5 and his group purchased the shares). In para 2 of the above mentioned affidavit, respondent No.5 himself states that for at least three years prior to 1986, the expansion program and importation of new machinery were under active consideration. It is clear that these proposals have now been implemented and would have, no doubt, been implemented even in the absence of respondent No.5 and his group. Therefore, no exclusive credit can be claimed for any of this by respondent No.5 or his group.
49. Mr. Parekh has, however, submitted that respondent NOs.2,3 and 4 as executors and trustees are interested in receiving the highest possible price for the 3,417 shares. Of course Mr. Parekh does not state that respondent Nos.3 and 4 are also personally interested in getting the best possible price for the 93 shares. Mr.Parekh submits that executors have received a sum of Rs. 78,59,100 for the said 3,417 shares, He states that the executors have made an application for registration of the trust as per the directions given in the will. He submits that the first petitioner has filed objections to the registration of the trust, inter alia, on the ground that the sale was illegal and would be set aside and that, therefore, there would be no corpus of the trust. Mr. Parekh has submitted that the trust established for charitable purposes should not be allowed to suffer. He has submitted that, in any vent, he petitioners must be asked to bring in the sum of Rs. 78,59,100. In my view, Mr. Parekh is right on this last point. It is now absolutely necessary to test the bona fides of the petitioners. Any order which can be passed on this petition will have to be conditional on the petitioners bringing monies into the court.
50. This being the position, it is difficult for the respondents to sustain the issue and allotment of the 17,666 shares. This is because it has not even been contested that issue and allotment of the 17,666 shares at th annual general meeting and the board meeting held, thereafter, can be sustained. The only argument that was made in this behalf is that the action has been validly ratified at the extraordinary general meeting held on January 31, 1986. However, it must be note that even at this extraordinary general meeting held on January 31,1986, the ratification was by the use of the 17,666 shares and the 3,417 and 93 shares. Mr. Coper has argued that presuming that 17,666 votes should not have been used and are not canted, the respondents still have a majority and there is a valid ratification.
51. In support of the argument that there can always be a ratification, the authorities in the case of Parmeshwari Prasad Gupta v. Union of India, and Bentley-Stevens v. Jones merely [1974] 2 All ER 653 (Ch D) are relied upon. Mr.Cooper also argues that merely because an action is initially invalid does not mean that action cannot be ratified and in support thereof an authority in the case of Firestone Tyre and Rubber Co. v. Synthetics and Chemicals Ltd. [1971] 41 Comp Cas 377 (Bom), p. 381, is relied upon. Mr.Cooper, therefore, submits that if a thing can be done legally by the majority, then it is possible for the same to be ratified and the court should not interfere. In this behalf, Mr.Cooper cites the authority in the case of Macdougall v. Gardiner [1875] 1 CH D 13.
52. There can be no dispute about the general proposition that if an act could have been validly done and could be subsequently ratified, the court would not, normally, interfere. In this case, however, the use of the 17, 666 shares renders invalid the entire action of ratification and it is no use to now argue that these votes should be ignored. The fact remains that till date there is no valid ratification and it is now not possible to ratify this action. This is so because in the view that I have now taken the respondents clearly do not have a majority. The majority is now with the petitioners.
53. Therefore, normally, the issue and allotment of 17,666 shares would have to be set aside. However, Mr.Cooper is right when he argues that the fact that it was ultimately necessary for the first respondent company to increase its share capital is not disputed. Mr.Cooper has argued that, accordingly, the issue of the 17,666 shares cannot be set aside. He submits that under article 8, the directors could, in any case, decide on the question of issue and/or allotment of shares. He submits that, in any case, therefor, the action of the board of directors in issuing and allotting the 17,666 shares cannot be challenged. This argument overlooks the fact that the board of directors have, firstly, acted in pursuance of the resolution passed by the general body which resolution is invalid. Secondly, the board of directors is one which was constituted on the basis of shares then held. In fact, except for respondents Nos.2 and 10, on a rectification, all other respondents will not hold qualifying shares and will have to quit office as directors. Further, even presuming they have or manage to get qualifying shares, the board will, in any case now, have to be reconstituted. The earlier board is constituted without the consent of the p;petitioners and against their wishes. Mr.Dada states that the petitioners shall adopt steps to have the board of directors reconstituted. All that is necessary at this stage is to state that a decision taken by a board which is not properly constituted cannot be sustained. Further, the action in allotting these shares to respondent No.5 and his group at face value was mala fide. In this behalf, Mr.Cooper had sought to argue that the shares were being allotted to other members of the first respondent-company only and that, therefore, the market value cannot be the basis for the same. He also submitted that the share capital was to be increased, therefore, merely because some directors had also personally benefited was not a relevant consideration and Mr.Cooper relied upon the observations of the Supreme Court in the case of Needle Industries (India) Ltd. v. Needle Industries Newey (India) Holding Ltd. [1981] 51 Comp Cas 743 (SC) in support of this contention. What this argument ignores is that whilst it may be open to the directors to allot shares at such price as they deem fit and to such parties as they deem fit, there cannot be the slightest doubt that the action taken dents, the company required finance urgently, when the market value of the shares admittedly was Rs.2,210 per share, one fails to understand as to how these shares could have been allotted to respondent No.5 nd his group. There was no discussion or consideration as to what is the best price that can be realised or what is really in the best interest of the first respondent-company. No attempts are made to find out parties willing to take up the shares and if shares were to be given to outsiders, whether they were desirable or fit to be admitted to the membership of the company. It must be noted that respondents Nos.15 and 16 were not members of the company. There is not the slightest doubt that the whole purpose was to corner the shares. NO court can encourage this. However the only argument that apples to the court is that on the basis of this increase, certain facilities have been granted by financial institutions. It is not denied by the petitioners that these facilities are granted on the basis of this increase. Whilst that initial increase may not be justifiable, the fact remains that now to order the first respondent-company to reduce its shares capital may result in these facilities being withdrawn. Under these circumstances, in my view, it would be more appropriate not to order a reduction in the share capital, but to rectify the register merely to the extent of the allotment of shares in favour of respondent NO.5 and his group. In view, these shares should then be allotted to such person or persons and at such price as the board of directors (after it is reconstituted) may decide.
54. Under these circumstances, the petitioners succeed and the petition is made absolute in terms of prayers (a),(b) ,(c) and (d). It is, however, clarified that now the second petitioner (in whose favour there is a valid contract) must bring into court the sum of Rs.80,73,000 within a period of six weeks. It is clarified that this order shall become operative only on this amount being deposited in court within the time aforesaid. Till that time, there will be an order against the respondents in terms of prayers (e),(f) and (h) except the bracketed portion, i.e., "or closing down the Bombay and Kolhapur UNits of Sakal or taking any steps in respect thereof or to start new units at places other than Pune or to do any acts which will prove detrimental to the interest of the company;" and with the addition after the words "assets of the company" the following words: "except in due course of business". On the amount being deposited, the petitioners' advocates to immediately intimate the advocates for the respondents about the same. On receipt of such intimation, the first respondent-company to comply with the orders and directions under prayers (a) and (b) and respondents Nos.5,6,8,11,12,13,14,15 and 16 a sum of Rs.17,66,600 in respect of the 17,666 shares returned to the company as per prayer (d). respondent No.1 company as per prayer (d). The 17,666 shares to remain in the custody of the first respondent-company till such time as the board of directors, which will be constituted after rectification, decide the manner, price at which and the parties to whom they are to be allotted. Further, respondents Nos.2,3, and 4 and the first petitioner as executors are at liberty to withdraw from this court the sum of Rs.78,59,100. These respondents may, if they so desire and agree, authorise respondents NOs.5,6,11,12,13 and 14 to withdraw the said sum of Rs.78,59,100. Similarly, respondents Nos.3 and 4 at are liberty to withdraw from the court the sum of Rs.2,13,900 or if they so desire to authorise respondents NO 5 and 6 to withdraw the said sum of Rs.2,13,900.
55. In the event of the second petitioner not depositing the sum of Rs.79,36,110 within the time aforesaid, the petition shall stand dismissed.
57. The petition stands disposed of accordingly. There will, however,be no order as to costs.
58. Mr.Cooper, Mr.Chagla and Mr.Parekh apply for stay of the operation of the order for a period of six weeks.
59. Operation of the order under prayers (a), (b), (c) and (d) is stayed for a period of six weeks, i.e., up to first March, 1988. It is, however, clarified that the order regarding the deposit of Rs.80,73,000 and orders under prayers (e),(f) and (h) are not stayed.