Delhi High Court
Surinder Singh Bindra And Others vs M/S. Hindustan Fasteners (P.) Ltd. And ... on 5 May, 1989
Equivalent citations: AIR 1990 DELHI 32
Author: D.P. Wadhwa
Bench: D.P. Wadhwa
ORDER
1. This is a petition under Ss. 397 and 398 of the Companies Act, 1956 (for short 'the Act'). The petitioners are four in number and respondents five. The fifth respondent, Harjit Singh Bindra, is siding with the petitioners. The first respondent is the company in question. Respondents 2, 3 and 4 are brothers and are alleged to be in control of the affairs of the company. (The term 'respondents' whenever used in this judgment would mean respondents 2, 3 and 4). Various acts of oppression and mismanagement allegedly committed by them have been detailed in the petition. The petitioners claim that they have a right to file the present petition as provided under S. 399 of the Act. When this petition was filed on 18-9-1980, notice was issued to the Central Government as required under S. 400 of the Act, but it was stated by the representative of the Central Government that the Central Government had no representation to make.
2. There are three groups involved in the company. These can be appropriately called as (i) Bindra, (ii) Bhasin and (iii) Sahni groups. Bindra and Bhasin are on one side and they are in fact the petitioners.
3. The company, i.e. the first respondent, was incorporated in 1966 and its registered office is situated within the Union Territory of Delhi. The company is principally engaged in the manufacture of high tensile industrial fasteners (nuts and bolts) used in tractors, motor vehicles, tanks, earth moving equipments etc. The company has its factory at Nasik in the State of Maharashtra. The authorised share capital of the company is Rs. 30 lacs and paid up capital is Rs. 29,78,400/- if reference is made to the balance sheet of the company for the year ending 31-12-1979. The company has issued 4784 cumulative preference shares of the face value of Rs. 100/- each and has also issued 25000 equity shares of Rs. 100/- each. The petitioners are disputing the correctness of the balance sheet, as, according to them, the cumulative preference shares were never issued and further that originally the share capital of the company was Rs. 25 lacs which was unauthorisedly increased to Rs. 30 lacs by Somair Singh Sahni, the second respondent. The petitioners say that out of the original share capital, equity shares were of the value of Rs. 20 lacs and preferential shares of the value of Rs. 5 lacs.
4. The respondents in their written statement raised various preliminary objections to the maintainability of the petition and denied that there was any act of oppression or mismanagement alleged against any of them.
5. At, this stage, it may be noted that earlier also a petition under Ss. 397 and 398 of the Act was filed in this Court by Surinder Singh Bindra, who is the first petitioner in the present petition. It was Company Petition No. 83 of 1977 and was filed on 3-9-1977. There were four respondents in that petition and these were the same as in the present petition. After the respondents had filed the written statement in that petition, issues were framed and the matter was being adjourned from time to time for the purpose of settling their disputes. Thereafter, the parties were directed to produce their evidence by means of affidavits. Time and again, the petitioner took time for the purpose, and, ultimately, the petition was dismissed as withdrawn on 16-10-1979 by the following order:
'Dismissed as withdrawn with liberty to file a fresh petition as and when it becomes necessary. No costs.'
6. Issues in the present case were framed on 17-9-1981 after the petitioners had submitted their replication. These are:
1. Whether the capital of the company was not validly increased from 25 lacs to 30 lacs. If so, when was the share capital so increased? OPP.
2. Whether allotment of shares was not validly made out of the increased capital? If so, to whom was it made?
3. What was the ratio in which the original allotment of share was made? Was there any change made subsequently, If not, what is its effect? OPP & OPR.
4. Whether the land at Faridabad belonged to the company and it was sold by Hindustan Auto Corporation and the sale proceeds thereof was misappropriated by Shri Somair Singh ? OPP
5. Whether Shri Harpal Singh was re-elected Director of the Company?
6. Whether Annual General Meeting were held since 1967 till the date of the petition as required by S. 166? If so to what effect? OPR.
7. Whether Shri Somair Singh resigned from his office as Director of the Company by his letter of resignation dated 14th November 1979? OPP.
8. Whether respondents or any of them have diverted the funds, assets and services of the company to their own advantage or have misused their position or authority to the detriment of the company? OPP.
9. Whether the Managing Directors Shri Somair Singh and/or Shri Harpal Singh and/or any of the other Directors of the Company have been responsible for mismanaging the affairs of the company? OPP.
10. Whether Management of the company by Somair Singh and Harpal Singh as alleged by the petitioner prevented them from effectively participating in the management?
11. Whether the registered office of the company has been shifted from the premises 99, Sunder Nagar, New Delhi to No. 602, Gagan Deep Building, New Delhi, according to law? OPP.
12. Whether the company maintained statutory books and account books according to requirement of company law? OPR.
13. What books were in fact maintained by the company? OPR.
14. What books of the company are not available and who is responsible? OPR.
15. Whether Shri Harpal Singh is qualified to act as Secretary of the company under the provisions of the Companies Act? With what effect? OPR.
16. Whether the appointment of M/s. Maini and Company as Internal Auditor of the Company was approved by the Board of Directors of the Company? OPR.
17. Whether there is financial mismanagement by the company in paying Rs. 20,000/- only to M/s. Dharam Singh Babek Singh but showing Rs. 64,500/- paid in company's account ? If so, who is responsible ? OPP.
18. Whether the various amounts as stated in paras 10, 13, 16, 20, 21, 22, 23, 24, 25 and 26, 27, 28 were illegally and unauthorisedly misappropriated or diverted or wasted by the respondents Nos. 2 and 3? OPP.
19. Whether the respondents 2 and 3 have tampered with the share-script books and the register of the members of the company? OPP.
20. Whether no share scripts were issued to the petitioner No. 1 in spite of the fact that Rs. 4,28,500/- were paid to the company for that purpose. If so who is responsible? OPP.
21. Whether a sum of of Rs. 4. 5 lacs only was paid to M/s. Oriental Construction Company but a sum of Rs. 7 lacs is shown in Company's account as amount paid to the firm? If so, who is responsible? OPP & OPR.
22. Whether the affairs of the Company are being conducted in a manner prejudicial to the interest of the company as well as against public interest? OPP.
23. Whether the facts and circumstances of the case justify the making of winding up order on the ground that it is just and equitable that the company should be wound up ? OPP.
24. Whether the winding up of the company at this stage would unfairly prejudice the petitioner's interest inasmuch as the company is at present a running concern and it will not be conducive in the public interest as well as of the shareholders of the company to wind it up ? OPP.
25. Whether the petitioner No. 1 made an earlier O.P. 83/77 on exactly identical grounds and the same was dismissed? If so, its effect? OPR.
Five more issues were framed on 27-11-1981. These are:
1. Whether the respondent 5 withdrew a sum of Rs. 53,000/- from the company illegally for his personal use. If so, is he fit person to be appointed/act as a Director? OPR.
2. Whether the petitioner 1 owes a sum of Rs. 37,000/- to the company, if so, is he a fit person to be appointed/act as a Director? OPR.
3. Whether the petitioner 4 was an employee of the company? If not, whether the amount shown against salary was paid fraudulently? If so, how and by whom? OPR.
4. Whether 55 shares were allotted to petitioner 2 and/or his family in lieu of his giving his telephone bearing No. 352658 to the company, which he subsequently took back and did not return the consideration. If so, is he a fit person to be appointed/act as a Director? OPR.
5. Whether the petitioner 1 and respondent 5 opened illegally and account in the name of the company in the United Bank of India, New Delhi, and misappropriated the amount deposited therein by cheques collected from customers. If so, are they fit persons to be appointed/act as Directors? OPR.
Yet another issue was framed on 14-4-1982 and it is as under:
'Whether the petitioner No. 1 is not a Director of the Company? OPR.
7. Evidence in the case, which is quite voluminous, is both oral and documentary. Before I proceed to discuss the case, I may note that with the petition five annexures were filed and were marked as Annexures 'A' to 'E'. By order dt. 16-10-1981, these were exhibited and marked as Exhibits P-1 to P-5 respectively. This was on the statement of counsel for the respondents and he had said that as regards their contents he would make his own comments. Exhibit P- 1 is the Auditors Report of M/s. Dastur and Shukla, Chartered Accountants, Bombay, having audited balance sheet of the company as at 31-12-1979 and the report also contained profit and loss account of the company for the year ending on that date. Exhibit P-2 is the report dated 26-2-1980 of the Officer-in-Charge (Inspection) of the State Bank of India, Commercial Branch, Bombay, to the Chief Manager, Commercial Branch of the Bank. It pertained to the inspection of stocks hypothecated to the State Bank of India by the company as at close of 31-12-1979. Exhibit P-3 is the report dated 20-6-1977 of S. R. Batliboi and Company, Chartered Accountants, Calcutta, submitted to the company on techno-economic viability appraisal. Exhibit P-4 is again a report on techno-economic evaluation of the company of February 1980 submitted by Tata Consultancy Services. Exhibit P-5 is the minutes of the meeting of the company held at Nasik on 4-2-1980.
8. At the outset an objection was raised by Mr. K. D. Verma, learned counsel for the respondents, that the present petition would be barred by limitation though no specific issue had been raised that the present petition filed after the prescribed period of limitation had to be dismissed and that limitation had not been set up as a defense. He referred to S. 3 of the Limitation Act, 1963 in this connection. Mr. Verma's argument was that the alleged acts of oppression and/or mismanagement referred to in the petition pertained to a period which was more than three years before the date of filing of the petition as Art. 137 of the Schedule to the Limitation Act, 1963 was applicable in the instant case.
9. It cannot be disputed that provisions of the Limitation Act, 1963 would apply to the present proceedings and under Art. 137 a petition under S. 397 and/or S. 398 of the Act has to be filed within three years when the right to apply accrues. In Art. 137 ' the word 'application' is used but under S. 2(b), "application" includes a petition as well. In the Kerala State Electricity Board v. T.P. Kunhaliumma, , it has been held that the provisions of Art. 137 are not confined to applications under the Civil P.C. but would apply to any petition or application under any other Act. In support of his submission Mr. Verma also referred to a decision of the Calcutta High Court in Hungerford Investment Trust Ltd. Re v. Turner Morrison and Co. Ltd., 2nd (1972) 1 Cal 286. In this also the Court took the view that Art. 137 would apply to a petition under S. 397 or S. 398 of the Act and it further held that if the events that had been complained of happened more than three years before the date of filing of the petition, those would not be looked into. This is how the Court observed: -
"As a present advised, I would hold that Art. 137 of the new Limitation Act, 1963, applies to an application under S. 397 or S. 398 of the Companies Act. I would, therefore, hold that events that happened prior to Nov. 28, 1964, will be barred by the application of Art. 137 of the Limitation Act of 1963, being more than three years before the date of the filing of this petition on Nov. 28, 1967, but others are within the limitation."
10. Before I proceed further to discuss the preliminary objection as to limitation, let me set out the scope of the provisions of S. 397 and S. 398 of the Act. Section 397 gives a right to members of a company who comply with the conditions of S. 399 to apply to the Court for relief under S. 402 of the Act or such other relief as may be suitable in the circumstances of the case, if the affairs of a company are being conducted in a manner oppressive to any member or members including any one or more of those applying. The Court then has power to make such orders under S. 397 read with S. 402 as it thinks fit, if it comes to the conclusion that the affairs of the company are being conducted in a manner oppressive to any member or members and that to wind up the company would unfairly prejudice such member or members, but that otherwise the facts might justify the making of a winding up order on the ground that it was just and equitable that the company should be wound up. The law, however, has not defined what is oppression for purposes of this section, and it is left to Courts to decide on the facts of each case whether there is such oppression as calls for action under this section. Section 398 provides that any members of a company who have rights to apply in virtue of S. 399 may complain (i) that the affairs of the company are being conducted in a manner prejudicial to the interests of the company, or (ii) that a material change has taken place in the management or control of the company and that by reason of such change, it is likely that the affairs of the company will be conducted in a manner prejudicial to the interest of the company. On such application being made, if the Court is of opinion that the affairs of the company are being conducted as aforesaid or that by reason of any material change as aforesaid in the matter of management or control of a company, it is likely that the affairs of the company will be conducted as aforesaid, the Court may, with a view to bringing to an end or preventing the matters complained of or apprehended, make such order as it thinks fit. This section only comes into play as the marginal note shows, when there is actual mismanagement or apprehension of mismanagement of the affairs of the company. (See : Shanti Prasad v. Kalinga Tubes Ltd., ). In this the Supreme Court also observed as under : -
".......................and the question in each case is whether the conduct of the affairs of a company by the majority shareholders was oppressive to the minority shareholders and that depends upon the facts proved in a particular case. As has already been indicated, it is not enough to show that there is just and equitable cause for winding up the company, though that must be shown as preliminary to the application of S. 397. It must further be shown that the conduct of the majority shareholders was oppressive to the minority as members and this requires that events have to be considered not in isolation but as a part of a consecutive story. There must be continuous acts on the part of the majority shareholders, continuing up to the date of petition, showing that the affairs of the company were being conducted in a manner oppressive to some part of the members. The conduct must be burdensome, harsh and wrongful and mere lack of confidence between the majority shareholders and the minority shareholders would not be enough unless the lack of confidence springs from oppression of a minority by a majority in the management of the company's affairs, and such oppression must involve at least an element of lack of probity or fair dealing to a member in the matter of his proprietary rights as a shareholder."
(Para 19) In Needle Industries (India) Ltd. v. Needle Industries Newey (India) Holding Ltd., , the Supreme Court observed that an isolated act, which was contrary to law, might not necessarily and by itself support the inference that the law was violated with a mala fide intention or that such violation was burdensome, harsh and wrongful. But a series of illegal acts following upon one another could, in the context, lead justifiably to the conclusion that they were a part of the same transaction, of which the object as to cause or commit oppression of persons against whom those acts were directed. The Court also observed that on a true construction of S. 397, an unwise, inefficient or careless conduct of a Director in the performance of his duties could not give rise to a claim for relief under that section and that the person complaining of oppression must show that he had been constrained to submit to a conduct which lacked in probity, conduct which was unfair to him and which caused prejudice to him in the exercise of his legal and proprietary rights as a shareholder. In re Sindhri Iron Foundry (P.) Ltd., (1964) 34 Corn Case 510 (Cal), the Court held that S. 397 neither contemplated nor required a continuous course of oppressive wrongful conduct over a period of time and that if the Court was satisfied that a single wrongful act was such that its effect would be a continuous course of oppression and there was no prospect of remedying the situation by the voluntary act of the party responsible for the wrongful act, the Court was entitled to interfere by an appropriate order under that section.
11. It is thus clear that there have to be continuous acts complained of continuing up to the date of the petition showing that the affairs of the company are being conducted in a manner oppressive to some part of the members or in a manner prejudicial to public interest or in a manner prejudicial to the interest of the company. Examined in this view, it, therefore, cannot be said that the events which occurred three years prior to the date of filing of the petition cannot be looked into if those events form continuous acts complained of continuing up to the date of the petition. Therefore, though I am of the view that provisions of Art, 137 of the Schedule to the Limitation Act, 1963 are applicable to a petition under S. 397 and/or S. 398 of the Act. I am in respectful disagreement with the view expressed by the aforesaid Calcutta High Court decision that the events prior to the period of three years of the date of filing of the petition cannot be looked into.
12. These can be looked into if they form part of a continuous process continuing up to the date of petition showing that the affairs of a company are being conducted in a manner stipulated in Ss. 397 and 398 of the Act. This, in fact, is the requirement of these provisions. Further, if the acts complained of form part of the same transaction constituting oppression or mismanagement these acts can also be looked into even if they occurred three years prior to the institution of the petition. Same will be the case if the conduct arising from even a single wrongful act in a given case is such that its effect will be a continuous course of oppression or mismanagement though the wrongful act occurred three years earlier to the date of filing of the petition. It is something akin to the terminology 'continuing cause of action'. Whether events complained of form part of continuous acts or not or form part of the same transaction constituting oppression or mismanagement or effect of a particular wrongful act is continuous course of oppression or mismanagement or the wrongful act is stale or is an isolated event, would all be different questions to determine. To this extent, therefore the preliminary objection regarding maintainability of the present petition on the ground of limitation is overruled. This exercise about the applicability of the provisions of the Limitation Act. 1963 to the application under Ss. 397 and 398 of the Act, would now appear to be academic as after the Companies (Amendment) Act, 1988, applications under these sections lie before the Company Law Board.
13. Though the company is in red from the very beginning it can boast of having leading companies in the country as its customers, some of those being Tata Engineering the Locomotive Company Ltd. (TELCO), Heavy Vehicles Factory, Jabalpur, Escorts Group, Bajaj Auto (Tempo) and Hindustan Machine Tools Ltd. The petitioners have complained that the affairs of the company had all through been conducted by Somair Singh Sahni and rather mismanaged by him. Their brunt of attack is on Somair Singh Sahni and his group. It is the admitted case that there are three principal groups in the company, namely, Sahni Group (Somair Singh Sahni, Harpal Singh Sahni and Birinder Singh Sahni, respondents 2, 3 and 4 respectively), Bindra Group (Surinder Singh Bindra and Harjit Singh Bindra, petitioner 1 and respondent 5 respectively), and Bhasin Group (Balbir Singh Bhasin, petitioner 2). There are a few shareholders outside these three groups. In its report, para 8, (Ex. P-3), M/s. S. R. Batliboi and Co. stated that the company was being run under the direction, superintendence and control of Somair Singh Sahni, its Managing Director. The Board of Directors at that time constituted of Somair Singh Sahni as Managing Director (respondent No. 2) and petitioner No. 2 and respondents 3, 4 and 5. The report pointed out that no document could be shown regarding holding of Board meetings or minutes of the meetings and it appeared that although there was a Board, Somair Singh Sahni controlled all the activities of the company. Tata Consultancy Services in their report (Ex. P-4), in para 4, also pointed out that the control of the company from its inception was virtually in the hands of Somair Singh Sahni and that this was 'due to the force of his personality as well as his status as the promoter of the company and the fact that his family members were the majority shareholders'. It is in this background that various acts of oppression and mismanagement alleged by the petitioners and the fifth respondent have to be viewed.
14. As noted above, there are numerous issues and voluminous record. I do not think that in proceedings under Ss. 397 and 398 of the Act, the Court is required to return finding on each and every issue. It is even otherwise not appropriate.
15. It was contended that the share capital of the company was unauthorisedly increased from Rs. 25 lacs to Rs. 30 lacs in an alleged annual general meeting of the company on 30-6-1971, which, in fact, was never held. Various documents have been brought on record by the petitioners to show that even after the date 30-6-1971 Somair Singh Sahni had in various correspondence stated that the share capital of the company was Rs. 25 lacs and further that the annual general meeting could not have been held on 30-6-1971. For the purpose of the present petition, I do not think it is necessary for me to go into the question specifically if any annual general meeting was held on 30-6-1971 and any resolution passed increasing the share capital of the company from Rs. 25 lacs to Rs. 30Lacs. In the earlier petition (CP 83/77), which was filed by Surinder Singh Bindra (first petitioner in the present petition), not much grievance was made of the increase in capital. In para 6 of that, petition, it. was ' stated that authorised capital of the company was Rs. 30 lacs out of which Rs. 29.82 lacs had been fully paid up. Shareholding pattern in the company was also given and it was as under: -
Rs. in lacs "(a) Mr. Somair Singh his family, relatives and friends 15.59
(b) Mr. H. S. Bindra and his associates 7.85
(c) Mr. S. B. Singh. Bhasin and his associates 5.38
(d) Unattached 1.00 29.82"
16. In fact in para 3 of the earlier petition, it was particularly averred that authorized share capital of the company was Rs. 30 lacs out of which Rs. 29.82 lacs had been fully paid up. It was also averred that the company had issued five thousand cumulative preference shares of Rs. 100/- each and two thousand equity shares of Rs. 100/- each and further that the liability of the members was limited. Then, in para 11 of that petition, it was again mentioned that as on 30-6-1974 the accumulated losses aggregated to Rs. 35,26,420/- as against the share capital of Rs. 27,30,400/-. The petition was supported by an affidavit of Surinder Singh Bindra, now also the first petitioner. Along with the petition, pro forma balance sheet as on 31-12-1974 was filed which showed the authorized share capital of the company as Rs. 30 lacs and subscribed capital as Rs. 29,78,400/-. Then, again with the Report on Techno Economic Viability Appraisal of M/s. S. R. Batliboi and Company, which was also an annexure to the petition, there was balance sheet of the company as on 31-12-1976. Here also, the position of the authorised share capital and subscribed share capital of the company was the same. Thus, the position as regards authorised and subscribed share capital of the company, as above mentioned, had been accepted by the petitioners. It was reaffirmed in the rejoinder filed by the petitioners in the earlier petition. In Para 21 of that petition how ever, it was mentioned that acting in violation of law and contrary to the company's articles of association and without any resolution having been passed by the Board, Somair Singh Sahni increased share capital from Rs. 25 lacs to Rs. 30 lacs and issued shares to his family members without any consideration with a view to illegally gain control over the company ' s affairs. No other particulars were given. Rather in the rejoinder filed by the petitioners in the earlier petition, it was reaffirmed that authorised capital of the company was Rs. 30 lacs and subscribed capital Rs. 29.82 lacs. Then, in answer to a question as to why the increase in the share capital was not challenged in the earlier petition, Bindra replied:"In that petition I had not challenged the increase in the capital. (Volunteers to say): This was because I do not know of the increase in the capital at that time". The respondents have brought on record documents from the record of the company in the office of the Registrar of Companies to show that the first petitioner himself filed form No. 6 (Ex. PW 1/ 11) and form No, 23 (Ex. PWI/12) showing respectively the meeting of the Board of Directors of the company in connection with the increase in the share capital and the extract of the resolution passed in the general body meeting of the shareholders of the company regarding increase in the share capital. If reference is made to two office memos of the company dt. 19-7-1971 and 9-10-1971 (Ext. RW 11/4 and RW1/5) signed by petitioner 1, it is apparent that he admits having filed the aforesaid two documents and claimed expenses incurred thereby in that connection. Various annual returns filed by the company also show the increase in the share capital. It could not be the case of the petitioners that they were unaware of the record in the office of the Registrar of Companies showing increase in the share capital, particularly when various documents bad been signed by them. Annual return and the balance sheet of the company are statutory documents required to be filed by any company within a certain period default whereof entails penalties. When such a document is filed with the Registrar of Companies, it is open to any shareholder or creditor to inspect such document and even to obtain a copy thereof that is the only method for any shareholder or creditor to find out the affairs of the company and its financial condition. I therefore, cannot accept the contention of the petitioners that increase in the share capital as alleged by them, constitutes an act of oppression in the circumstances of the present case. Moreover, even if it is held that the share capital was not validly increased but then the course of events shows that the petitioners were party to the irregularity or illegality and acquiesced all through and did not object thereto at the appropriate time or within a reasonable period. It is, therefore, difficult to hold that the act complained of could be termed as oppressive.
17. But, then that is also not the end of the controversy. Somair Singh Sahni respondent even after 1971 had been writing letters mentioning the authorised share capital of the company as Rs. 25 lacs. For Example, in letter dt. 4-7-1974 to the Controller of Capital Issue (Ex. PW3/5). Somair Singh Sahni has sought permission to raise the share capital from Rs. 25 lacs to Rs. 50 lacs. A copy of this letter was endorsed to Surinder Singh Bindra asking him to meet the Controller. Respondents have raised an argument that no reliance can be placed on these letters. The question, however, arises why these letters were at all written particularly when Somair Singh Sahni was in control of the affairs of the company and well versed with the increase in the authorised share capital of the company, I have not been shown the notice calling the meeting of the shareholders for increasing the share capital of the company, the meeting said to have been held on 30-6-1971 at Delhi. No minutes or other record of the company have also been produced to show even the allotment of shares after the increase in the share capital, It was, however, submitted that any shareholder could subscribe to the increased share capital but that the petitioners did not do so because investment in the company was not a profitable proposition though now they are raising objection both to the increase in the share capital and the allotment of shares. Though I have held that increase in the share capital as alleged by the petitioners did not constitute an act of oppression, the absence of the record of the company and the letters of Somair Singh Sahni would go a long way to show that he had been acting as if running of the company was his private affair. As a matter of fact, the petitioners have complained about the overbearing act of respondent Somair Singh Sahni and his attitude as an oppressor. Record also shows that the company is not maintaining the statutory records and is, in default in delivering the statutory reports to the Registrar of Companies. It is also in default in holding the statutory meetings. Prosecutions are pending against the company and its Directors for contravention of the provisions of the Act. There is default in payment of statutory dues as well. Petitioners are certainly entitled to require that proper procedure under the Act be followed in running the company though earlier they might have acquiesced in certain acts of Sahni Group headed by Somair Singh Sahni.
18. Though there is no record to show that there was any agreement between the various groups to have share capital in the company in the ratio of 40% (Sahni group): 40% (Bindra group): and 20% (Bhasin group), as alleged by the petitioners, yet I find that there was certainly an arrangement or understanding between these groups that Bindra and Bhasin groups would participate in the running of the company. They have been sidelined and their association in the running of the affairs of the company is merely in name. The control of the company wholly vests in the Sahni group; Board has been reduced to a non-entity. Circumstances, therefore, exist which would justify the making of an order that the company should be wound up. But, any such order would affect hundreds of employees of the company which is a running concern, and its chances of turning the corner are not bleak. State Bank of India is a creditor of the company for lacs of rupees and is not praying for winding up of the company and with the Court's permission a nominee of the State Bank of India has been brought on the Board of Directors of the company.
19. I find that the present Board of Directors of the company is also not properly constituted. The first petitioner was appointed a member of the Board of Directors by an interim order dt. 15-5-1978 in C.P. No. 83/77. It was stated in that order that appointment of the first petitioner would take place immediately but he would be put on the Board as an Additional Director till further orders. This interim order could not have survived after the petition (CP 83/77) was dismissed on 16-10-1979. Similarly, it is trite to say that Somair Singh Sahni resigned only as a Managing Director of the company. The effect of his letter to the Registrar of Companies with a copy to the company is that he resigned as a Director of the company.
20. The company has not declared any dividend. Members have been deprived of their rights as share-holders of the company in the conduct of the affairs of the company. Parties have made allegations and counter allegations against each other. The frame of issues on these allegations would in any case show malaise afflicting the company and serious differences existing between various groups. There is lack of probity and fair dealing on the part of Sahni group in the conduct of the affairs of the company to the prejudice of some of its members.
21. My task has been much simplified and I need not discuss the issues in any further detail as Mr. K, D. Verma, learned counsel for the respondents, conceded that it was a case for allowing the petition u/Ss. 397 and 398 of the Act though he said he did not agree to all the allegations made by the petitioners. He also said that any directions u/s. 402 of the Act be made after giving parties further opportunity of being heard, I am also of the opinion that the affairs of the company are being conducted in a manner oppressive to some of the members of the company and also in a manner prejudicial to public interest and to the interest of the company.
22. I would, therefore, allow this petition.
23. The question now arises as to what directions are to be given under S. 402 of the Act. One thing is apparent that the three principal groups do not see eye-to-eye Sahni group on the one side and Bhasin and Bindra groups together on the other side. To me, it appears that for regulating the conduct of the affairs of the company in future, the company should be run by one group only by purchasing the shares of the other group and at the same time indemnifying that groups from any past and future liability and also discharging the Directors representing that groups from the bank guarantees and other securities given by them. In the earlier petition (CP 83/77) also, attempt was made to arrive at some settlement between the various groups. Proceedings of 15-5-1978 in that petition would be quite relevant on this aspect and I would reproduce the same :-
"The petition has been adjourned several times to find a way in which the disputes between the petitioner and the other share holders can be settled. Suggestions have been made on 1st Feb and 22nd Feb. 1978, that shares could be bought or sold at par value. Today, the petitioner has even offered to sell the shares at 50% but the respondents are not willing to buy, Similarly, the respondents are not willing to sell the shares at 50% as offered by the petitioner, but they are ready to sell at par which was the offer made on 22nd Feb, 1978. I may recall that there was a suggestion from the petitioner that lie wished to buy at par which was acceptable to the respondents, but from that stage the petitioner wanted to find out if there were some outstanding dues, because he did not want to take over the company along with certain excessive dues. There was a difference between the parties that the petitioner's offer was unconditional and therefore should not depend on the examination of the books of account. Later, due to this difference, this proposal did not fructify and there -were several adjournments. The up-shot of this whole discussion is that the parties reasonably settle unless the petitioner has a proper in-sight into the present financial status of the company.
xx xx xx xx."
I may note here that in this context Surinder Singh Bindra was appointed as an Additional Director or, the Board till further orders.
24. Mr. Arun Jetley, learned counsel for the petitioners, stated that the best course would be that the two principal warring groups bid each other and buy the other group. I do not think that I should adopt this course. From the record. it would appear that it is the Sahni group which had been the promoter of the company and throughout had been at the helm of affairs and controlling the company. It appears, therefore, appropriate that Sahni group should buy the shares of Bhasin and Bindra groups and indemnify them as aforementioned and in this view of the matter I am further of the opinion that the petitioners must be held bound to their stand as to the authorised and subscribed share capital of the company and the share holdig of various groups as mentioned in the earlier petition (CP 83/77). I order accordingly, Then the question arises as to how the shares are to be evaluated. I think that the valuation of shares should be done both, on asset basis and maintainable profit basis so as to enable the court to decide at what price the shares should be offered to the Sahni group. As to what should be the value of the shares at which these are to be offered to the Sahni group and what further directions are to be given would be decided after the receipt of the report of the valuers. Till such further directions are given, the interim orders made earlier including that in C.P. No. 83/77 shall continue to operate.
25. Order accordingly.