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Dr. S. Mangalam Srinivasan vs Mani Forgings Private Limited, Smt. ... on 21 April, 2006

Equivalent citations: [2008]141COMPCAS860(CLB)

ORDER

K.K. Balu, Vice-Chairman

1. The petition in C.P. No. 27/2004 (first petition) is filed under Sections 397 and 398 of the Companies Act, 1956 ("the Act") alleging that the respondents 3 & 4 are indulging in serious acts of oppression and mismanagement in the affairs of M/s Mani Forgings Private Limited ("the Company") in a manner which are oppressive to the petitioner and prejudicial to the interests of the Company, with the following prayer:

a) to declare that the petitioner is the Managing Director of the Company, entitled to manage the affairs of the Company:

b) to declare that the fourth respondent is not a director of the Company: and

c) to direct the respondents 3 & 4 to reimburse all misappropriated monies and properties of the Company and compensate for their acts of omission and commission in the affairs of the Company.

2. The Petition in C.P. No. 30/2004 (second petition) is filed under sections 397 and 398 on the premises that the affairs of the Company are being conducted by the petitioner in the first petition in a manner oppressive to the petitioners herein and prejudicial to the interests of the Company and claiming the following reliefs:

i) to set aside the allotment of 2420 equity shares allegedly made in favour of the second respondent herein and rectify appropriately the register of members of the Company by removing the name of the second respondent in respect of the impugned shares;

ii) to restrain the second respondent from functioning as the Managing Director of the Company;

iii) to direct the second respondent to handover the statutory records and books of account and other assets of the Company kept in her possession and custody;

iv) to surcharge the second respondent in respect of fines and penalties levied by the Income Tax Department against the Company on account of her mismanagement of the Company;

and

v) to pass suitable directions for the future management, regulation and conduct of the Company.

3. The petitioner in C.P.No. 27/2004 is the second respondent in C.P.No. 30/2004. The second respondent in C.P.No. 27/2004 is the third respondent in C.P.No. 30/2004. The respondents 3 & 4 in C.P.No. 27/2004 arc the petitioners along with other shareholders in C.P. No. 30/2004. The acts of oppression and mismanagement complained of in these petitions are in relation to one and the same Company. Hence, both the petitions were heard together and are being disposed of by this common order.

4. Shri V. Ramachandran, learned senior Counsel, while initiating his arguments in C.P.No. 27/2004 submitted:

• The Company has been incorporated as a private limited Company in April, 1994 solely out of the resources of the petitioner and her own efforts, with the main object of carrying on the business of manufacturing of steel forgings. The petitioner and the second respondent being the then only shareholders, subscribed to the Memorandum of Association of the Company and are the first and only directors, who shall hold office till their life or until they resign or they cease to be directors. The petitioner holding 32.5% of the share capital is the Managing Director of the Company, ever since its commencement of business and is responsible for its administration and successful operations. She is the daughter of the second respondent herein and the sister of the respondents 3 & 4. The petitioner contributed her own funds towards the shares held in the name of the respondents 2 to 4, for the benefit of the family members. The petitioner, with a view, to help the respondents 3 and 4 employed them in the capacity of Consultants, and never appointed them as directors of the Company. However, the respondents 3 and 4, as male members of the family started interfering with the working of the Company and making false claim over the Company.

• The registered office of the Company being the residence of the respondents 2 to 4 is out of the hands of the petitioner. All statutory books are in the custody of the respondents. It is not the case of the respondents as borne out by the averments contained in the counter statement that the petitioner has taken away the Company's records. Further, the petitioner has been illegally removed from the office of director and therefore, she can no longer have any access to the books of account of the Company. The shareholders at the extra ordinary general meeting purportedly held on 16.03.2004 authorised the fourth respondent to retrieve from the petitioner the books and records of the Company. By virtue of section 114 of the Indian Evidence Act, 1872 it shall be presumed that the fourth respondent in the common course of natural events ought to have retrieved the books of accounts and the statutory records of the Company from the petitioner. If it is not so, duty is cast on the fourth respondent to prove that the books and records of the Company are not with the Company. The petitioner served notice upon the respondents to produce the books of account and the statutory records, but the respondents suppressed the evidence by non-production of the records with a view to protect their interests and therefore, they are not entitled to draw any inference as to the contents of any such documents. In these circumstances, the petitioner is constrained to produce only secondary evidence proving her claim in both the petitions.

• The shareholding of the members is reflected in the annual returns for the period made upto 30.09.1996, 30.09.1999, 29.09.2000, 29.08.2001 and 30.09.2002 and the respondents have furnished the details of shareholding held by various members of the family, from which it can be seen that while several, of the family members have been allotted shares, the petitioner has been excluded, despite the fact that she is entitled for further issue of shares. The balance sheet for the periods ended 31.03.1999, 31.03.2000 and 31.03.2001 disclose the unsecured loans to the tune of Rs. 2,42,285 due and payable to the petitioner by the Company. The Company had on 03.09.2001 allotted 2420 equity shares of each Rs. 100/- to the petitioner against the outstanding unsecured loans of Rs. 2,42,285/- in the name of the petitioner, upon which the amount of unsecured loans got reduced to Rs. 285/-, as borne out by the balance sheets for the year ended 31.03.2002 and 31.03.2003. The amount due by the Company in favour of the petitioner reflected in the balance sheet for a number of years and the subsequent appropriation of such amount towards consideration of the shares allotted to the petitioner need not necessarily be pleaded, but must be proved when disputed in any proceedings. The return of allotment filed as early as on 21.09.2001 with the Registrar of Companies evidences the allotment of 2.420 shares in favour of the petitioner, but the respondents have belatedly chosen to challenge the allotment in the present proceedings. The share capital of Rs. 8 lakhs reflected in the balance sheets for the period ended 31.03.2002 and 31.03.2003 includes the amount of Rs. 2,48,000. being additional share capital brought in by the petitioner by conversion of the unsecured loans to her credit. The balance sheet for the year ended 31.03.2002 is also signed by the second respondent. The additional shares of 2420 allotted in favour of the petitioner are reflected in the annual return made upto 30.09.2002 arid signed by the petitioner as well as the second respondent, with which her shareholding in the Company accounts for 2,600 shares, constituting 32.50% of the share capital of the Company. The respondents have not denied in the counter statement, the facts and figures forming part of the annual return for the year made upto 30.09.2002. The second respondent made a complaint on 09.12.2003 with the Registrar of Companies about the impugned allotment to the petitioner, but the annual return made upto 30.09.2002 filed on 22.03.2003 and signed by the second respondent confirms the impugned allotment of shares. Section 164 envisages that the annual return shall be prima facie evidence of the petitioner's title to 2,600 shares held in her name, which has been re-inforced in M.S. Madusoodhanan and Anr. v. Kerala Kaumudi Private Limited and Ors. (2003) Vol. 117 CC19. Hence, burden is on the Company to show that the annual return or the return of allotment does not reflect the true picture. Section 81 does not apply to a private limited company and, therefore, there is no need to allot shares to all shareholders as contended by the respondents. By virtue of the impugned allotment, the petitioner does not become a majority shareholder. The defence taken by the respondents that (a) no general or board meeting was convened for the purpose of making the impugned allotment to the petitioner; and (b) signature of the third respondent in the share certificates has been forged by the petitioner, is solely to get away the question of limitation to challenge the impugned allotment of shares made as early as on 03.09.2001. Mere plea of forgery is inadequate. There is nothing to suggest that the respondents have taken inspection of the original share certificates either in respect of 180 shares originally held by the petitioner or 2420 additional shares and the respondents ought to have taken steps for verifying the signature of the second respondent in the share certificates by an hand writing expert, without which it cannot be concluded that the signature of the second respondent appearing in the share certificates issued in favour of the petitioner is forged by the petitioner. All the share certificates issued in the name of the petitioner are genuine documents and the petitioner has not forged the second respondent's signature therein. In view of this, the petitioner validly holding 2,600 shares, which constitute 32.5% of the share capital of the Company is entitled to maintain the present petition.

• A Managing Director can be appointed as per the articles of association of the company. In the absence of any proof for such appointment, a person who has been acting as the Managing Director with the knowledge and association of the directors can also be held to be a Managing Director, provided such person acts within the limits of the apparent authority and strangers dealing bonafide with such person has a right to assume that he has been duly appointed. In support of this proposition, learned senior Counsel relied upon Freeman & Lockyer v. Buckhurst Park Properties (Mangal) Limited and Anr. (1964) 2 W.L.R. 405. The petitioner herein has signed the notices dated 02.09.2001 and 01.09.2002 convening the eighth and ninth annual general meetings and balance sheets for the year ended 31.03.1998, 31.03.1999 & 31.03.2000 and the return of allotment dated 21.09.2001. copies of which have been produced by the respondents. The annual returns made upto 30.09.1996. 22.09.1997. 29,09.1998. 30.09.1999. 29.09.2000, 29.08.2001 and 30.09.2002 describe the petitioner as the Managing Director of the Company. All statutory returns filed with the Registrar of Companies bear the signature of the petitioner, as the Managing Director of the Company. The ROC has recognized the petitioner as the Managing Director of the Company. The respondents have produced an extract of the board resolution dated 27.04.1994 authorizing the petitioner and the fourth respondent being directors to open and operate the bank account and further empowered the petitioner as the Managing Director to avail financial assistance for establishing forging plant. This indicates that the statutory records are with the respondents and that the petitioner functioned as the Managing Director. The income tax return for the assessment years from 1995-1996 to 2002-2003; the assessment order for the year 2000-2001 of the Company would clearly indicate that the petitioner is the Managing Director of the Company. This factor is within the knowledge of the respondents as borne out by the assessment order dated 25.03.2003, wherein it is clearly recorded that the Managing Director along with the fourth respondent, being Chief Executive of the Company appeared and represented the Company in the course of the hearing before the Assistant Commissioner of Income Tax. Moreover, the respondents have alleged in the counter statement [para 5(xvii)] that the petitioner has been grossly mismanaging the affairs of the Company resulting in penalties and fines being imposed by the Income Tax Department, thereby admitting the fact that the petitioner is the Managing Director of the Company. The income tax return of the Company shall be filed only by the Managing Director, tailing which, the return would become invalid. Thus, the petitioner has been functioning as the Managing Director with the knowledge and involvement of the respondents, which has never been objected to by any of the respondents at any prior point of time.

• According to the respondents, certain shareholders have deposited on 03.01.2004 the requisitions under section 169 with the board of directors of the Company, proposing to consider at the general meeting the following resolutions:

a) to appoint the fourth respondent as a director of the Company:

b) to operate the bank account with the HDFC Bank Limited jointly by the respondents 2 and 4;

c) to operate the bank account with the Karnataka Bank Limited jointly by the respondents 2 and 4;

d) to withdraw the authority of the petitioner for operation of bank transactions/any other transactions; and

e) (i) to authorise the fourth respondent to retrieve the books of account, statutory and other records from the petitioner; and (ii) to authorise the fourth respondent to take steps for cancellation of the allotment of 2420 shares impugned in the company petition.

All the above requisitions are addressed to the board of directors of the Company. The board of directors in the instant case consists of only the petitioner and the second respondent, with whom the relationship is strained. Hence, if any notice is sent to the board of directors, it is not known as to who will act on the notices caused by the shareholders. Section 51 provides that a document may be served on a company or an officer thereof by sending it to the company as prescribed therein. There has been no evidence either to show that the requisitions have been deposited with the Company in compliance with the requirements of section 51 of the Act or any acknowledgement from the Company evidencing such deposit of the requisitions. The explanatory statement forming part of the notice dated 16.02.2004 convening an extra ordinary general meeting of the Company by the requisitionists on 16.03.2004 recites that the requisitionists have deposited the requisitions with the Company on 03.01.2004, but there is no documentary proof for having deposited the requisitions with the Company. The notice of extra ordinary general meeting purportedly sent to the petitioner under certificate of posting has never been received by the petitioner. The resolutions passed at the extra ordinary general meeting being illegal and voilative of the statutory provisions are neither valid nor binding on the petitioner. Form No. 32 containing the signature of the second respondent, tiled with the Registrar of Companies, notifying the appointment of the fourth respondent as director is forged and therefore not valid.

• The second respondent is said to have issued a notice dated 21.03.2004 convening a meeting of the board of directors of the Company on 05.04.2004, pursuant to the special notice dated 17.03.2004 received from certain shareholders for removal of the petitioner from the office of director in accordance with section 284 under certificate of posting, but no such notice has been received by the petitioner. The board of directors has not authorised the second respondent to convene any board meeting as per the notice dated 21.03.2004, but she acted unilateraly and without any authority. The said notice has not referred to the fourth respondent as director of the Company. The resolution of the board of directors dated 05,04.2004 would indicate that the second respondent has been authorised to sign and issue the notice calling for an extra ordinary general meeting to consider the special notice for removal of the petitioner from the office of the director of the Company. However, the second respondent caused the notice as early as on 21.03.2004 convening the extra ordinary general meeting for removal of the petitioner as director of the Company, much prior to the authority bestowed on her by the board of directors on 05.04.2004. Further, the notice dated 05.04.2004 calling for an extra ordinary general meeting of the Company on 11.05.2004 for the purpose of removing the petitioner from the office of director reportedly sent under certificate of posting has not been received by her. The petitioner, by virtue of Article 12(d), shall hold the office of director till her life or until she resigns or ceases to be a director under any provisions of law for the time being in force in this behalf. The resolution of the members passed at the extra ordinary general meeting held on 11.05.2004, removing the petitioner from the office of director is violative of Article 12(d). which does not contemplate removal of the first directors. The articles are binding contract among the shareholders and therefore, the removal of the petitioner in breach of Article 12(d) is not binding on the petitioner. The petitioner can be removed only when she resigns or ceases to be director of the Company. Section 284 not containing any obstinate clause does not come into operation in the facts and present circumstances of the case. Without altering Article 12(d), the petitioner being director for life cannot be removed. Therefore, the action of the respondents in removing the petitioner unilaterally from the office of director is illegal.

• The respondents 3 and 4 - (a) assaulted and prevented the petitioner in March. 2004. from entering the factory premises of Unit 1 and Unit 11, forcibly taken Unit I from her custody, removed the valuable materials worth over Rs. 15 lakhs lying in the Units and threatened the workers of the Company, which lead to filing of a police complaint by the petitioner: (b) illegally removed the petitioner from the office of director and excluded her from day-to-day management; (c) siphoned of substantial funds, assets and business of the Company, thereby enriching themselves; (d) assumed falsely the office of director, opened bank accounts in the name of the Company and surreptitiously started collecting the cheques and funds from various customers of the Company to the tune of not less than Rs. 60 lakhs, thereby interfering with day-to-day management and affairs of the Company; and (e) diverted the business of the Company to M/s Forge Tools, a family business run by the fourth respondent as a partnership concern. These acts of oppression and mismanagement in the affairs of the Company would justify the making of a winding up order against the Company on just and equitable grounds. There is. therefore, no need going by the spirit of the provisions of section 397 for specific averments that the facts would justify making of a winding up order of the Company on just and equitable grounds and that any such winding up order would unfairly prejudice the Company and its members. This Bench by an order dated 20.10.2004 in the course of the present proceedings, categorically held the provisions of sections 397 do not mandate the requirement of averments that the facts would justify the making of a winding up order of the Company on just and equitable grounds, and that in order to be successful on the grounds specified in section 397(2) (a) & (b). the petitioner must make out a case for winding up of the Company on just and equitable grounds and it is for the CLB to form opinion, in this behalf. The order dated 20.10.2004 has become final and it is not open to the respondents to re-agitate the very same proposition of law whether or not specific pleadings are essential to succeed on the grounds specified in section 397(2) (a) & (b). Shri Ramachandran. learned senior Counsel, reiterated by referring to a decision of the apex court in Sangramsinh P. Gaekwad and Ors. v. Shanthadevi P. Gaekwad and Ors. (2005) Vol.123 CC 566 that while it is necessary for an aggrieved shareholder to plead the alleged acts of oppression and mismanagement in the conduct of majority share holders in a petition under section 397, it is for the court to arrive at a conclusion upon analysing the materials brought before it, whether the requirements of section 397(2) (a) & (b) are duly satisfied or not to provide any relief. The petitioner has specifically sought for appropriate reliefs to secure and safeguard the interests of the Company as well as the petitioner, which according to learned Senior Counsel would imply that the circumstances existing in the present case would warrant winding up of the Company which would however, cause prejudice to the interests of the Company and its members. In view of this, the CLB may explore the possibility of any other alternative remedy claimed by the petitioner with a view to bringing to an end the acts complained of in the company petition.

5. Shri T.K. Seshadri. learned Senior Counsel appearing for the respondents 1, 3 & 4 (C.P. No. 27/2004) submitted:

• There are 16 shareholders in the Company and the petitioner does not constitute one-tenth of the total number of its members. The annual returns for the period made upto 30.04.1996 and 29.08.2001 filed on 31.12.1996 and 28.02.2002 respectively with the Registrar of Companies contain details of 16 shareholders holding 5580 equity shares, out of which the petitioner's share holding account for only 180 equity shares constituting 3.2% of the total shareholding in the Company. Thus, the petitioner neither constitutes one-tenth of the total number of members nor one-tenth of the issued capital of the Company, qualifying her to make the petition under sections 397 & 398.

• The Company has been incorporated in April 1994. when the petitioner's father was alive. The petitioner and the second respondent are subscribers to the memorandum of association. The petitioner got married at the age of 32 years in October, 2001 and she did not have any resources of her own to make any substantial investment in the Company and never made any contribution in the name of any of the respondents. The petitioner claims the impugned allotment of 2420 shares exclusively in her favour, but has not chosen to give any particulars in respect of the impugned shares made in September, 2001 and failed to produce any direct evidence including the minutes of the board meeting, approving the allotment of shares in favour of the petitioner, inspite of the fact that she took custody of all books of accounts and statutory records of the Company. The petitioner has fabricated the records and filed the statutory returns, as if 2420 shares were allotted in her name. It is not the case of the petitioner in the petition (C.P. No. 27/2004) that the hooks of account and other records of the Company are under the custody of the respondents 3&4. Further the respondents would not retain the records, which would otherwise prejudice their interest. There is no averment made in the rejoinder that the petitioner has' been prevented from having access to the registered office of the Company. The petitioner claiming to be the Managing Director, must be in possession of the books of account and statutory records of the Company, but she failed to produce them before the Bench to prove her claim. While the petitioner complained of physical force and assault exercised by the respondents 3 & 4 against her, the petition does not whisper about the grievances in regard to the hooks of account and records of the Company. The petitioner never sought the Commissioner appointed by the Bench to take custody of the Company's records and not even urged for any ad-interim reliefs in this behalf, notwithstanding her claim made in the rejoinder that the books of account and statutory records are "located in the Registered office of the company which is the residence of the Respondents herein and the records continue to remain there".

• The return of allotment filed with the Registrar of Companies shows that 2420 shares were allotted for cash consideration, but it is contended in the course of arguments that the unsecured loans were converted into equity. There is no pleading that loans were converted into equity, which must be proved by production of the books of account but not merely the balance sheets of the Company. The balance sheet for the relevant period does not offer any explanation on reduction of the unsecured loans into equity in favour of the petitioner. No monies were infused by way of consideration for the impugned shares. There was no need for any funds on the part of the Company. The notes forming part of the accounts for the year ended 31.03.2002 only speak of the allotment of 2420 shares, but do not indicate the conversion of loans into equity. The averments made in the rejoinder that the allotment of 2420 shares had been validly made and after complying with all procedural requirements are quite bald and without any specific particulars. The alleged allotment has not been made at a validly convened board meeting. The purpose of such allotment is also not stated in the rejoinder. Therefore, there is no concrete evidence supporting the payment of consideration for the impugned shares. The allotment of shares by conversion of loan into equity is null and void. The return of allotment and the annual return alone are not adequate to establish the validity of the impugned allotment. The share certificates in respect of 2420 shares are fabricated and created for the purpose of the petition. The purported signature of the second respondent in the alleged share certificate being forged cannot confer any title in respect of 2420 shares.

• The Company is closely held by the family members of the petitioner's deceased father. Nonetheless, no shares have been allotted to any other family members at the time of allotting 2420 shares in favour of the petitioner, for which there has been no explanation forthcoming from the petitioner. The right of directors to issue shares has to be exercised bonafide for a proper purpose and in the interests of the Company, failing which such allotment is liable to be set aside as held in Dale & Carrington Investment (P) Ltd. v. P.K. Prathapan . This has been followed by the CLB in Gautam Kapur v. Limrose Engineering Works (P) Limited (2005) 128 Com. Cas 237. The petitioner tailed to justify that the exclusive allotment of shares in her favour is in the interests of the Company. Any allotment without reasons is not permissible, as held in Sangramsinh P. Gaekwad and Ors. v. Shanthadevi P. Gaekwad and Ors. (2005) Vol.123 CC 566. Thus, the impugned shares issued exclusively to the petitioner have not been validly issued.

• The petition does not set out any oppressive acts or grounds to make an order of winding up of the company on just and equitable grounds and further that any such winding up order would unfairly prejudice the Company and its members. In the light of the decision in Hanuman Prasad Bagri v. Bagress Cereals (P) Limited (2001) 105 Camp, Cas. 493, the pleadings are essential to form opinion for the CLB whether - (a) the Company's affairs are being conducted in a manner prejudicial to public interest or in a manner oppressive to any member or members; (b) the facts of the case would justify the making of a winding-up order on just and equitable grounds; and (c) any such winding up order against the Company would unfairly prejudice the members. These are the three distinct causes of action, material facts of which must necessarily be pleaded. Section 433 contemplates five grounds for winding up of a company, out of which one of the grounds is 'just and equitable' and therefore, there must be specific pleading to show that the winding up order of the Company would cause prejudice to the members. The apex court held in Sangramsinh P. Gaekwad and Ors. v. Shanthadevi P. Gaekwad and Ors. (2005) Vol.123 CC 566 that the court must grant relief on basis of the pleading. The Supreme Court in Harkirat Singh v. Amrinder Singh page 2461 held that all material facts must be pleaded and failure to plea even a single material fact is fatal to a petition under the provisions of the Representation of the People's Act, 1951. In the absence of any pleading, no amount of evidence could be adduced to form any such opinion, as envisaged in section 397(2)(a). The Orissa High Court in Kalinga Tubes Limited v. Shanti Prasad held thus: "In a petition under Sections 397 and 398 of the Companies Act. all material facts must be pleaded. If the facts transpiring on the date of the petition and alleged in the petition are not sufficient to make out a case for winding up on just and equitable ground, then facts arising subsequent to the filing of the application cannot be resorted to for the purpose, and the absence of allegations in the pleadings cannot be substituted by further evidence either by affidavits or oral and documentary evidence. "

• All family members are not parties to the petition in C.P. No. 27/2004 and therefore, the petitioner cannot claim any remedy on the concept of the family company. The shareholding between the parties is not more or less equal. There is no dead lock situation in the affairs of the Company on account of lack of probity in its management. Therefore, the principles of dissolution of partnership cannot he applied in the facts of the present case as held in Hind Overseas Private Limited v. Raghunath Prasad JhunJhunwala .

• Section 2(26) defines "managing director' to mean a director who. by virtue of an agreement with the company or of a resolution passed by the company in general meeting or by its board of directors or by virtue of its memorandum or articles of association, is entrusted with substantial powers of management and includes a director occupying the position of a managing director. The petitioner has not fulfilled any of these requirements to claim herself to be the Managing Director. Section 2(26) requires a resolution of the general body or the board of directors for the appointment of a Managing Director. Section 192 (4)(e) specifies that a copy of every resolution of the board of directors of a company relating to the appointment of Managing Director shall within thirty days of the passing be filed with the Registrar of Companies, who shall record the same. The minutes of proceedings of the board of directors, as mandated in section 193 being primary evidence for the appointment of a Managing Director and Form No. 32 notifying the appointment of the petitioner as Managing Director, which would indicate the date of appointment, arc absent. Article 12(h) envisages that the board of directors may appoint any director to the office of Managing Director, but there is no document to show that the board of directors ever appointed the petitioner to the office of Managing Director. The burden is on the petitioner to prove that she has been appointed as the Managing Director, in accordance with law, but she has not produced the best evidence in this behalf. All the Income tax returns and assessment orders showing the petitioner as the Managing Director are self serving documents, on which no reliance can be placed. Therefore, adverse inference has to be drawn against the petitioner.

• The specific accusation, among other things, levelled against the respondents 3 and 4 in the company petition that on 11.03.2004 they (a) prevented the petitioner from entering the factory premises; (b) removed the valuable materials lying in Units I and II: and (c) started collecting surreptitiously the cheques and funds from the customers are not reflected in the police complaint allegedly lodged on 17.03.2004. According to the complaint lodged on 15.06.2004. the fourth respondent took away die blocks from the factory premises valued at Rs. 2.50 lakhs. But there is no such allegation in the petition (C.P. No. 27/2004). The petitioner has produced only a copy of the police complaint, but there is no acknowledgement of the complaint from the police authorities. This police complaint preferred pursuant to the appointment of the fourth respondent as director of the Company contains serious charges that the fourth respondent would kill her, in the event of her running the factory, yet the police never initiated any action on the said complaint, thereby it creates suspicion whether the petitioner lodged any such complaint at all. The second police complaint purportedly lodged on 15.06.2004, just a few days ahead of filing of the company petition on 23.06.2004 does not make any reference to the first police complaint. This strategy is adopted just to create some evidence to support the petitioner's case. The grievances of physical threat to the petitioner and the workers in Units I & II cannot he remedied in a 397/398 petition. The police complaints dated 17.03.2004 and 15.06.2004 do not report as to whether the petitioner was prevented from having access to the registered office of the Company. The complaint made on 17.03.2004 indicates that the petitioner closed the business with immediate effect and further had taken a list of movable assets in the business premises, but failed to produce the same before the police or the Advocate-Commissioner or the CLB. It is evident that the factory premises have been in possession of the petitioner. The petitioner through her advocate by way of a communication dated 31.10.2003 appraised the Company's customers of the purported interference of the respondents 3 and 4 in the affairs of the Company, which was subsequently withdrawn by yet another communication on 12.11.2004. This would indicate that normalcy has been restored pursuant to the family meeting, by which Unit-11 was to be restored to the respondents, but failed to be kept up by the petitioner. Thus, the petitioner has made inconsistent statements in her company petition. At the same time, none of the charges made against the respondents 3 & 4 including those of misappropriation of funds, diversion of business and illegal interference in the affairs of the company, physical assault apart from lacking details remain unsupported with any material. The claim of the petitioner that the fourth respondent forged the signature of his mother in form No. 32, notifying his appointment as director is nothing but a wild allegation made by her. The petitioner not having proved any act of commission or omission or misappropriation of the funds or assets or mis-management in the affairs of the Company at the instance of the respondents 3 and 4 cannot seek to reimburse any such monies or assets by them.

• The requisitions dated 03.01.2004 lodged with the board of directors of the Company for convening a general meeting - (a) to appoint the fourth respondent as a director: (b) to operate the bank accounts: (c) to retrieve the books of account from the petitioner: (d) to lake steps for cancellation of the impugned allotment of shares etc., have been signed apart from the respondents 3 & 4, by a quite number of shareholders, which shows that such requisitions are probable. Section 291(1) empowers the board of directors to exercise all such powers and acts, as the company is authorised to exercise and do. Hence, the requisitions can be deposited with the board of directors. Under section 51. any document may be served on a company, which includes the board of directors. By virtue of section 169(1) duly is cast on the directors to call for an extra ordinary general meeting on the requisition deposited by the requisite number of shareholders. Section 167(7)(a), envisages that if the extra ordinary general meeting is not convened by the board, within the prescribed time from the date of deposit of a valid requisition, the requisitionists are empowered to convene the meeting to transact the business contained in the requisition given by them. Accordingly, the requisitionists themselves caused notice to 16 members including the petitioner under certificate of posting convening the extra ordinary general meeting on 16.03.2004. The petitioner ought to have filed an affidavit obtained from any of the members, affirming that no such notice was sent by the Company, for the extra ordinary general meeting held on 16.03.2004, but this has not been done by the petitioner. Section 172(3) provides that any accidental omission to give notice, or non-receipt of notice, by any member shall not invalidate the proceedings of the meeting. Further, the resolutions have been passed on 16.03.2004 at the extra ordinary general meeting with a view to protect the interests of the Company. The appointment of the fourth respondent holding 2250 shares, as director is not harsh, burdensome and oppressive in nature. The petitioner could in no way be aggrieved on account of the appointment of the fourth respondent as director of the Company and this cannot be invalidated. The prayer for declaration that the fourth respondent is not director cannot be granted, since he has been lawfully appointed at the extra ordinary general meeting held on 16.03.2004. All resolutions at the extra ordinary general meeting being ordinary resolutions could be passed, even with participation of the petitioner. However, the petitioner did not consciously attend the meeting, in view of the fact that the appointment of the fourth respondent as director, in no way could be defeated. These resolutions, even if they are illegal, the same are not oppressive. Hence, these resolutions cannot be challenged as held in Needle Industries (India) Ltd. v. Needle Industries Newey (India) Holding Limited (1981) 51 CC 743.

• The articles of association of the Company is silent as to who could convene the board meetings. Table A, by virtue of the articles of association applies to the Company. Article 73(2) of Table A empowers a director and the manager or secretary to summon a meeting of the board. In the present case, there is no manager or secretary and therefore, the second respondent, being director is entitled to call a meeting of the board of directors of the Company. Article 12(d) provides that each of the first directors shall hold the office till his life or until he resigns or ceases to be a director of the Company. Nevertheless, section 284(1). being substantive provision of law can be invoked for removal of the permanent directors. By virtue, of section 9(a), the provisions of section 284(1) will override Article 12(d) to the extent that it is inconsistent with the provisions of section 284(1), Thus, Article 12(d) is void and not enforceable to the extent that the petitioner, being life director cannot be removed from the office of director. Consequently the board of directors, on the requisition dated 17.03.2004 given by the respondents 3 and 4 and other eight shareholders, was compelled to convene a general meeting on 11.05.2004 for removal of the petitioner from the office of director for fabricating the Company's records in allotting 2420 shares in her favour and on account of mismanagement of the affairs of the Company. Section 51 recognises service of documents by post under certificate of posting. Notices convening the general meeting and the board meeting were sent to the petitioner and other shareholders under certificate of posting, which are not disputed by the petitioner. The members at the extra ordinary general meeting removed the petitioner, since her continuance, as director was against the interests of the Company. Hence, the conduct of the respondents in removing the petitioner from the office of director cannot be oppressive. The petitioner having been validly removed from the office of director, she ceases to be Managing Director of the Company cannot continue to act as Managing Director. The Calcutta High Court held in Ruby General Hospital Limited v. Dr. Kamal Kumar Dutta (2006) 129 CC 1 held that the termination of directorship would not entitle the terminated person to file a petition under section 397 and that his remedy is to file a civil suit for injunction and declaration. This Board held in G. Govindaraj v. Venture Graphics P. Ltd. (2005) 128 C.C.632 that when (a) the petitioners and the respondents hold unequal portions of the paid up capital of the Company between them: (b) there is nothing in the articles or any agreement or understanding to suggest that the company is in the joint management of both the groups; and (c) there is no averment in the petition nor during arguments that the company is to be run as a quasi-partnership the petitioners could not agitate directorial complaints on equitable grounds seeking any remedy under section 397 on account of the exclusion of the first petitioner from day-to-day affairs and management of the company. The petitioner cannot, therefore, agitate her rights for directorship in a petition under section 397.

• The petitioner filed false income tax returns in the name of the Company. Consequently, the Income Tax Department has impounded the books of account of the Company and has re-opened the assessments for the years 1999-2000 to 2001-2002. The assessment order dated 25.03.2003 for the assessment year 2000-2001, clearly shows that the petitioner claimed on behalf of the Company fictions expenditure and bogus purchases through non-existent parties, which resulted in tax liability of over Rs. 9 lakhs. This order further reveals that the petitioner did not maintain true and proper vouchers as well us books of account of the Company. Similarly, the petitioner in her communication addressed to the Assistant Commissioner of Tax has admitted such fictitious expenditure to the tune of Rs. 10.50 lakhs incurred during the assessment year 2002-2003. Non-payment of the taxes is borne out by the notice slapped by the Department. No explanation has been offered by the petitioner for non-payment of tax amount, which would result in imposition of penalties on the Company. The directors elected at the annual general meeting held on 20.12.2004 are prevented from running Unit-II. The petitioner is running Unit-11, without authority, keeping 97% of members out of management and without rendering accounts which are all cash transactions, in compliance with the orders of the CLB. but misappropriated the surplus funds from and out of the realizations on account of Unit-11 and thereby, acting against the interest of the Company. The statement of account of HDFC bank for the period between 29.02.2004 and 31.03.2004 discloses that the petitioner has withdrawn all amounts from the account. The fourth respondent offered his land wherein, unit I is located, as security and given his personal guarantee for the credit facilities availed by the Company, as borne out by a copy of credit sanction intimation dated 13.08.1999) issued by The Karnataka Bank Limited. He holds 2250 shares. constituting more than 40% of the paid up capital of the Company These aspects reveal the fourth respondent's interest, stake and involvement in the Company. Whereas, the petitioner holding 180 shares constitutes a minority shareholder, but oppressing the majority. The petitioner, even after taking into account 2420 shares challenged in the petition will continue to be a minority shareholder in the wake of 3780 shares held by the petitioners in C.P.No. 30/2004 and 950 shares continuing in the name of the deceased R. Srinivasan, father of the petitioner. The petitioner not being a desirable person, her continuance as shareholder would cause unfair prejudice to the Company and its shareholders. Therefore, the respondents are willing to purchase the holding (3%) of the petitioner and refund the unsecured loan amounts, converted into equity in the name of the petitioner.

• While arguing the application (C.A. No. 79/2005) for modification of the order dated 10.06.2005, Shri T.K. Seshadri, learned Senior Counsel pointed out that the respondents have not violated any of the terms of the order dated 29.06.2004, for the following reasons:

(a)No transactions of the Company have been transacted though the account maintained with the Karur Vysya Bank Limited, as borne out by the bank statement for the period from 01.08.2004 to 30.06.2005. further, there has been absolutely no transaction since 16.03.2005 in bank account;

(b) By virtue of the order dated 29.06.2004, the Company as and when procures any order over Rs. 15,000/- in value must place before the Bench to work out the modalities in execution of such orders. This order does not apply to any such orders on the suppliers placed by the Company for supply of materials. The supply of steel billets by M/s Rastriya Ispat Nigam Limted through a quota system to M/s Forge Tools through the Company accounted for the turn over of Rs. 1.28 Crores. which are reflected in the ledger account of M/s Rashtriya Inpat Nigam Limited in the books of the Company for the period between 01.04.2004 to 28.06.2005:

(c)The Company has now produced the statement of accounts with the Karnataka Bank Limited for the period from 09.08.2004 to 19.06.2005 to show that the said account was not in operation even prior to the order dated 29.06.2004;

(d)The charges levelled against the respondents in respect of UTI account arc speculative and baseless; and

(e)The employees of the Company were utilised by M/s Forge Tools and their salaries, wages, ESI & EPF contributions were paid by M/s Forge Tools, in support of which the bank statements of M/s Forge Tools were produced at the time of hearing the application (C.A. No. 39/2005) by the Company. This is reflected in the ledger extract of the Company filed with the Bench. In the light of the above explanation offered by the respondents, and supported by documentary evidence, it is clear that they have not violated the order dated 29.06.2004 and therefore, the same is required to be modified, especially when the CLB is the final adjudicating authority on facts and no counter has been filed opposing the application by the respondents.

6. Shri Srinath Sridevan, learned Counsel for the second respondent adopted the arguments of Shri T.K. Seshadri, learned senior Counsel and further submitted:- There has been no resolution passed by the board of directors of the Company allotting 2420 shares to the petitioner. This respondent never received any notice for the board meeting, wherein the shares were purportedly allotted in favour of the petitioner. The certificate No. 019 covering 2420 shares is a rank forgery. The signature found in the share certificate is not that of the second respondent. The Companies (Issue of Share Certificates) Rules. 1960 have not been complied with while issuing the share certificate to the petitioner. The share certificate being a forged one, does not prima facie evidence the title of the petitioner to the impugned shares, as envisaged in section 84 of the Act. The House of Lords in Ruben v. Great Fingall Consolidated 1906 H.L.(E) 439 held that the forged share certificate is a pure nullity. The petitioner has not denied positively in the rejoinder, the plea of forgery raised in the counter statement filed by this respondent and never asserted that the share certificate contains the signature of the second respondent and not forged one. Every allegation of plaint, as per order 8 Rule 5 of the Code of Civil Procedure, if not denied will be taken as admitted. Therefore, burden of proof is upon the petitioner that the share certificate in question is a genuine document. The petitioner, as required under section 67 of the Indian Evidence Act. 1872, failed to prove the genuineness of the share certificate. The petitioner's defence that the second respondent is totally under the control of the respondent 3 and 4 and that they have exerted pressure on the second respondent to sign the counter affidavit filed before the CLB, the contents of which would not have been understood by the second respondent are incorrect. Form No. 32 filed with the Registrar of Companies, notifying the appointment of the fourth respondent as director of the Company does contain the signature of the second respondent. Shri Srinath Sridaran, learned Counsel, therefore, sought for dismissal of the company petition (C.P. No. 27/2004).

7. Having considered the pleadings and elaborate arguments of learned Senior Counsel, I shall proceed to examine the claim and counter claim of the parties, before which it is necessary to deal with the preliminary objection raised in regard to the right of the petitioner (CP. No. 27/2004) to apply under sections 397 and 398. By virtue of section 399. members constituting not less than one-tenth of its total number of members or one hundred members, which ever is less or members holding not less than one-tenth of the issued capital of the company shall have the right to apply under section 397 or section 398. The annual returns of the Company, several of which are on record would enumerate sixteen shareholders in the Company and the lone petitioner admittedly does not constitute one-tenth of the total number of its members. The petitioner's undisputed holding numbering 180 shares constitute 3.22% of the issued share capital as against 2600 shares claimed by her which account for 32.5% of the issued share capital of the Company. The exclusive allotment of 2420 shares in favour of the petitioner is being impugned in the present proceedings and therefore, the validity of such contentious allotment are necessarily be first adjudicated without considering the matters under section 397/398, If the allotment of 2420 shares to the petitioner is found, for any valid reasons, invalid the petition (C.P. No. 27/2004) would not be maintainable, and not otherwise, if the allotment is held as valid.

The preliminary issue as well as the main rival claims involved in these petitions are wholly dependent upon the documentary evidence placed before the Bench. While the petitioner is accusing the respondents for withholding the books of account, statutory and other records of the Company, the respondents forcibly argue that the petitioner is in custody of all statutory records, but refusing to produce the same, in support of her claim, being agitated in the present proceedings. In this connection, it is not worthwhile to go into the veracity of the lengthy charges leveled by and against each of the contesting parties. It is needless to add that while the petitioner is essentially duty bound to prove, inter alia, (a) disputed allotment of shares: and (b) appointment of the petitioner as the Managing Director, the respondents must necessarily establish: (a) appointment of the fourth respondent as a director; and (b) removal of the petitioner from the office of director, by causing production of the original minutes books containing minutes of all proceedings of even general meeting and of every meeting of the board of directors maintained by the Company in accordance with the requirements of section 193. However, the admitted position is that there are no original minutes books containing the general or board meetings or the books of account or any other statutory records to prove any of the disputed facts. It is a cardinal rule in the law of evidence that the best available evidence must be brought to prove any fact. At the same time, the Evidence Act. 1872 does not apply to the Company Law Board proceedings, yet the underlying principles of rules of evidence will be applicable in adjudication of the disputes by the CLB. There is no rule of evidence that if direct evidence on a fact is absent or rejected, then the circumstantial evidence bearing upon the fact must be ignored. A fact has to be determined on the basis of such direct and circumstantial evidence as may be on record. In the absence of any direct evidence to prove a fact, the circumstantial evidence bearing that fact is permissible under the rules of evidence. Against this legal position, the facts in disputes are being considered on the basis of the existing evidence brought before me.

The annual returns for the period made upto 30.09.19%, 30.09.1999. 29.09.2000 and 29.08.2001 reflect the details of shareholders of the Company. As at 29.08.2001, the petitioner held 180 shares of Rs. 100/-each. The balance sheets of the Company for the years ended 31.03.1996. 31.03.1997,31.03.1998, 31.03.2000 and 31.03.2001 disclose the share capital of Rs. 5,58,000/- which shall include an amount of Rs. 1800/- contributed by the petitioner, in respect of 180 shares held by her. The balance sheets for the period ended 31.03.1998, 31.03.1999. 31.03.2000 and 31.03.2001 show that the Company owed an amount of Rs. 2,42,285/- by way of unsecured loans to the petitioner, thereby the Company has admitted in unequivocal terms its indebtedness to the petitioner. The balance sheets for the period ended 31.03.1999. 31.03.2000 and 31.03.2001 have been signed by the petitioner and the second respondent (C.P. No. 27/2004). The second respondent while complaining before the Registrar of Companies in December 2003 about the impugned allotment of shares, failed to challenge the unsecured loans which were due to the petitioner by the Company, as reflected in the balance sheets at the relevant point of time. The balance sheets for the period ended 31.03.2002 and 31.03.2003 disclose the share capital of Rs 8 lakhs, as against Rs. 5.58 lakhs and the unsecured loans of Rs. 285/- only in the name of the petitioner. The balance sheet for the year ended 31.03.2002 has been signed by the second respondent. Further, it could be seen that the second respondent is a party to the balance sheet for the year ended 31.03.2003. All these balance sheets produced by the respondents themselves remain undisputed. The notes of the auditors forming part of the accounts for the year ended 31.03,2002 stale that the Company had issued on 21.09.2001, 2420 shares at a price of Rs. 100/-per share. There is nothing to indicate, as pointed out by learned Senior Counsel representing the respondents that the additional shares were issued to the petitioner by conversion of the unsecured loans lying to her credit. Neverthless, the increase of share capital from Rs. 5.28 lakhs to Rs. 8 lakhs and the reduction of the unsecured loans of Rs. 2,42,285 to Rs. 285/- as borne out by the balance sheets for the year ended 31.03.2002 and 31.03.2003. coupled with the return of allotment dated 21.09.2001, disclosing the allotment of 2420 shares made on 03.09.2001, reportedly for cash consideration ultimately affirm the issue of additional shares by conversion of the unsecured loans, without infusement of any fresh cash consideration. The annual return for the period made upto 30,09.2002 signed by the petitioner and the second respondent rellects 2600 shares against the name of the petitioner, which include the impugned 2420 shares allotted on 03.09.2001 to the petitioner. By virtue of section 164. the annual returns shall be prima facie evidence of the petitioner's right to 2600 shares held in her name. This proposition has been approved in M.S. Madhusoodhanan v. Kerala Kaumudi Private Limited (Supra). While the second respondent questioned the allotment for the first time in her complaint made on 09.12.2003 before the Registrar of Companies, the respondents 3 & 4 refuted the allotment only in the present proceedings, initiated in June 2004 and December 2004 respectively. The unexplained and delayed challenge of the impugned allotment of shares is evidence of acquiescence on the part of the respondents. Thus, a careful analysis of the circumstantial evidence brought on record establishes the validity of the impugned allotment of shares in favour of the petitioner. The allotment is challenged on yet another ground that the Company is a closely held company, but none of the other family members was allotted shares, while issuing further shares exclusively to the petitioner. It is on record that the petitioner and the second respondent being promoter directors are subscribers to the memorandum of association of the Company, each subscribing to 100 shares of each Rs. 100/-. Against this background, the further issue of 5380 shares, on 20.03.1995 in terms of Form No. 2 dated 10.04.1995 signed by the petitioner and the second respondent assumes relevance. While the fourth respondent was allotted 2250 shares, his father since deceased, 950 shares and several other family members got allotted each ranging from 100 to 200 shares, the petitioner was allotted only 80 shares. The reasons or purpose, for such unequal allotment of shares or benefit derived by the Company are not forthcoming from the respondents, despite the dispute raised by the petitioner. This vindicates the stand of the petitioner that the Company adopted the practice of allotting shares, depending upon the exigencies prevailed at the relevant point of time. It cannot, therefore, be validly contended that the directors have not exercised the right to issue further shares to the petitioner bonafide or without reasons or against the interest of the Company. Moreover, even after the impugned allotment of shares, the petitioner continues to be a minority shareholder. In the present backdrop of circumstances, the decisions of the apex court in Sangramsinh P. Gaekwad and Ors. v. Shanthadevi P. Gaekwad and Ors. & Dale & Carrington Investment (P) Ltd. v. P.K. Prathapan (supra), wherein the additional shares were reportedly acquired with the motive of gaining control of the company, will be of least assistance to the respondents. The certificate covering the impugned shares, according to the respondents, is a fabricated and forged one and the signature in the share certificate is disowned by the second respondent. Mere plea, without proof of forgery of the signature of the second respondent does not nullify the share certificate and therefore, the decision in Ruben v. Great Fingall Consolidated (supra) has no application to the facts of the present case. The burden of proof cast on the second respondent to get her signature verified by a hand writing expert or in any manner known to law of evidence has not been duly discharged by her, in the wake of the specific plea of the petitioner that the share certificate in respect of the impugned shares is a genuine document. The purported irregularity in the issue of share certificate without complying with the Companies (Issue of Share Certificates) Rules, 1960, considering the benefit derived by Company out of the unsecured loans from the petitioner, for the past several years does not merit any consideration. Any act, which is in contravention of law may be beneficial to the Company. For these reasons, the allotment of 2420 shares in favour of the petitioner is found to be valid. Further, there is no material to show that either the Company or the shareholders suffered any unfair prejudice on account of the contentious allotment of shares. Thus, the petitioner's shareholding accounts for 32.5% of the issued capital of the Company, entitling her under section 399 to apply before the CLB.

The appointment of the petitioner as the Managing Director is under serious dispute. There are no primary records consisting of - (a) any agreement with the Company; or (b) any resolution passed in general meeting or by the board of directors; or (c) the memorandum or articles of association, entrusting with substantial power of management; or (d) Form No. 32 notifying the petitioner's appointment as the Managing Director of the Company. In the absence of any such direct evidence establishing the appointment of a person as the Managing Director, if such person acted as the Managing Director, though never appointed as such, the company is bound by his acts, who takes upon himself, with the knowledge of the directors, to act for the company within the limits of the apparent authority, and strangers dealing bonafide with such person have a right to assume that he has been duly appointed, as held in Freeman & Lockyer v. Buckhurst Park Properties (Mangal) Limited (supra). In the present case, there are several records to show that the petitioner has signed from time to time as the Managing Director of the Company as borne out by (a) notices convening the annual general meetings; (b) balance sheets for the year ended from 31.03.1996 to 31.03.2003; (c) return of allotments dated 10.04.1995, 21.09.2001; and (d) income tax returns for the assessment years from 1995-1996 to 2002-2003, of which the second respondent being the other lone director neither pleaded ignorance nor denied at any point of time. On the other hand, these acts of the petitioner are within the knowledge and involvement of the second respondent, as reflected in the balance sheets and the income tax returns of the Company for all these years. The income tax" returns for the assessment years from 1995-1996 to 1999-2000 have been signed by the second respondent, as director along with the petitioner in her capacity as the Managing Director of the Company. Hence, these returns being valuable piece of evidence cannot be ignored, as urged by the respondents. Further, the respondents, at no prior point of time questioned the Managing Directorship of the petitioner and the second respondent has not even raised such dispute in her complaint dated 09.12.2003 made with the Registrar of Companies, Chennai. The income tax assessment order dated 25.03.2003 and the annual returns for the period between the year ended 30.03.1996 and 31.03.2002 and the board resolution dated 27.04.1994 empowering the petitioner to avail credit facilities from the bankers describe the petitioner as the Managing Director. The statutory and income tax authorities, bankers, customers and strangers ought to have been dealing for the past so many years bonafide with the petitioner, as the duly appointed Managing Director of the Company.

The petitioner is challenging, on several accounts, the appointment of the fourth respondent as a director of the Company. The events and circumstances leading to the induction of the fourth respondent on the board should be looked into. The respondents 3 and 4 along with certain other shareholders have addressed a requisition dated 03.01.2004 to the board of directors at the registered office of the Company, proposing the appointment of the fourth respondent as a director at the general meeting of the Company. The requisition is addressed to "The Board of Directors, Mani Forgings Private Limited, No. 4, Gandhi Street, Vanuvampel. Chennai - 600 091". The registered office is admittedly located at No. 4. Gandhi Street, Vanuvampet, Chennai - 600 091. The name of the Company is set out in the requisition dated 03.01.2004. Section 169(2) stipulates that a requisition shall be deposited at the registered office of the Company. By virtue of section 51, a requisition or notice addressed to the company and served on the directors has been held to be good service. Any requisition or notice to the directors, in which they are concerned, it would amount to notice to the Company. Hence, there is substantial compliance with the requirements of section 169(2). by the requistionists. Similar is the position in respect of the remaining requisitions in relation to operation of the bank accounts and retrieval of the books of account of the Company from the petitioner. While there is no direct proof for having deposited the requisitions with the Company on 03.01.2004, yet the explanatory statement forming part of the notice dated 16.02.2004 convening the extra ordinary general meeting specifically reports that the requisitions have been deposited on 03.01.2004 with the Company. The accusation of the petitioner that she never received the notice dated 16.02.2004 convening the extra ordinary general meeting is hereinafter dealt with separately. It is observed from the explanatory statement appended to the notice dated 16.02.2004 that the Company failed to call for the extra ordinary meeting, compelling them to take appropriate steps in this behalf. It is on record that the notices of the extra ordinary general meeting have been sent on 16.02.2004 to all shareholders including the petitioner under certificate of posting, the fact of which has not been denied by learned Senior Counsel representing the petitioner. However, it is reported that the petitioner has not received the notice dated 16.02.2004 sent under certificate of posting. The certificate of posting produced before me contains the name of the petitioner and her address viz., GF-1, Sruthi Apartments. 1. Srinivasa Avenue Road, R.A. Puram, Chennai - 600028, correctness of which is not disputed and the very same address appears in the company petition (C.P. No. 27/2004) filed by her. By virtue of section 53. in case of notice of a general meeting sent to a member by post to his registered address or the address within India .supplied by him, service shall be deemed to have been effected at the expiry of 48 hours after it is posted. This section permits sending of a document by post under certificate of posting. In these circumstances, the legal presumption is that the notice dated 16.02.2004 ought to have reached its destination at the proper lime according to the regular course of business of the post office and received by the person to whom it was addressed. 1. therefore, do not find any merit in the plea of the petitioner that - (a) requisitions have not been deposited with the Company; (b) petitioner has not received any notice of the extra ordinary general meeting held on 16.03.2004; and (c) resolutions passed thereat including the appointment of the fourth respondent as director are not binding on her. The further plea that the second respondent issued the notice as early as on 21.03.2004. convening the extra ordinary general meeting, while she was authorised by the board to issue such notice only on 05.04.2004 is misconceived, in the light of the fact that the notice dated 21.03.2004 was caused convening the board meeting to fix up the date for the extra ordinary general meeting to consider the resolution for removal of the petitioner from the office of director. The petitioner is challenging the resolutions passed by the members at the extra ordinary general meeting, but she failed to establish as to how the appointment of the fourth respondent as a director causes unfair prejudice to the interests of the Company and its shareholders, to remedy the grievances, if any, encountered by the aggrieved shareholders. The petitioner perhaps preferred the police complaint on 17.03.2004 against the respondents 3 and 4 immediately after coming to know of the appointment of the fourth respondent as a director of the Company at the extra ordinary general meeting held on 16.03.2004, wherein the petitioner affirmed her position as the Managing Director and the position of her mother as the only other director apart from herself. The proximity of the date of the complaint reportedly lodged with the police, probably speaks of the knowledge of the petitioner regarding the extra ordinary general meeting and the consequent appointment of the fourth respondent as a director of the Company. Form No. 32 notifying the appointment of the fourth respondent as a director is challenged by the petitioner on the ground that the signature of the second respondent contained therein is forged, but it has not been established by her. It is observed that the fourth respondent has been authorised by the members at the extra ordinary general meeting held on 16.03.2004 " to retrieve the hooks and records including statutory records of the Company from Dr. Mangelam (petitioner) and verify the same". It is not made known by the respondents as to the steps taken by the fourth respondent in retrieving the records from the petitioner. It is equally unknown whether the records of the Company have been retained in the custody of the petitioner. In these circumstances, any direction against the petitioner, as sought by the respondents for production of the records will not be meaningful.

The respondents, during the pendency of the proceedings, convened the tenth annual general meeting of the Company on 20.12.2004 (a) to adopt the report of the directors, auditors report, balance sheet as on 31.03.2004 and profit and loss account for the year ended 31.03.2004: (b) to appoint auditors: and (c) to appoint the third respondent and re-appoint the fourth respondent as directors of the Company. This bench by an order dated 17.12.2004 directed that all resolutions passed at the annual general meeting of the Company would be subject to the out come of the company petition. It is reported that while the third respondent came to he inducted on the board, the fourth respondent was reappointed as a director of the Company by the members at the annual general meeting held on 20.12.2004.

The removal of the petitioner from the office of director must be viewed in the light of Article 12(d) and section 284. Article 12(d) contemplates that each of the first directors shall hold office till his life or until he resigns or until he ceases to be a director. Section 284( 1) reads thus: -

A company may. by ordinary resolution, remove a director (not being a director appointed by the Central Government in pursuance of section 408) before the expiry of his period of office:

Provided that this sub-section shall not, in the case of a private company, authorize the removal of a director holding office for life on the 1st day of April, 1952, whether or not he is subject to retirement under an age limit by virtue of the articles or otherwise Section 284 applies to all directors and include among others permanent directors or life directors, directors not retiring by rotation, except a director appointed by the Central Government under section 408. By virtue of the first proviso to Sub-section (1), any life director appointed by a private company on or before 1st April, 1952 cannot be removed. The petitioner, being the life director of a private company, incorporated after 1st April, 1952 cannot enjoy the benefit of the first proviso to Sub-section (1) and therefore, she is liable to be removed in accordance with the procedure prescribed in section 284. Against this background, Article 12(d) is repugnant to the provisions of section 284 and therefore, this section will override Article 12(d), as envisaged in section 9 of the Act. It is observed that the respondents 3 and 4 together with several other shareholders gave a special notice on 17.03.2004 in favour of the board of directors at the registered office of the Company to convene an extra ordinary general meeting for removing the petitioner from the office of director. Any deposit of the requisition with the hoard of directors furnishing the name of the Company at its registered office is already found to he in compliance with the requirements of section 169(2). The reasons for her removal from the office of director and necessity for such removal are depicted in the special notice dated 17.03.2004. The second respondent, in exercise her authority vested in Article 73(2) of Table-A. reportedly convened, after notice to the petitioner, under certificate of posting, a board meeting on 05.04.2004 for the purpose of convening an extra ordinary general meeting to remove the petitioner from the office of director. This was followed by the purported extra ordinary general meeting held on 1 1.05.2004. with prior notice dated 05.04.2004 sent to all shareholders including the petitioner under the certificate of posting, wherein, the petitioner is found to be removed from the office of director with effect from 11.05.2004. The petitioner is not disputing the certificates of posting under which the notice for the board meeting as well as the extra ordinary general meeting was sent by the Company. The certificates of posting, carry the correct address of the petitioner. It is not, therefore, open to the petitioner to contend that she never received the notice for any of the meetings and that her removal is irregular. Nevertheless, it has to be seen whether the removal of the petitioner constitutes an act of oppression. The assessment order dated 05.03.2003 for the assessment year 2000-2001 would establish that the petitioner claimed fictitious expenditure and bogus purchases on behalf of the Company through non-existent parties and further adopted such questionable practice by admitting the expenses as the Company's income, in terms of her communications addressed to the Assistant Commissioner of Income Tax in regard to the revised return of income for the assessment years 2001-2002 and 2002-2003. This Bench by an order dated 10.06.2005 found that the petitioner has been operating Unit-11 in violation of the terms of its earlier order made on 29.06.2004. The petitioner has a duty to make full and honest disclosure to the shareholders regarding the receipts and payments on account of operating Unit 11. Nevertheless, the petitioner is exclusively operating Unit-11, without giving any statement of accounts inspite of the order dated 10.06.2005 of the Bench, thereby the Company and its shareholders are unfairly prejudiced, justifying her removal from the office of director. The petitioner upon her removal from the office of director can no longer continue to be the Managing Director of the Company. Moreover, a director mainly aggrieved by his removal from directorship cannot invoke the jurisdiction of section 397, as held in Ruby General Hospital Limited v. Dr. Kamal Kumar Dutta (supra). This Board in G. Govindaraj v. Venture Graphics P. Ltd (supra) declined to entertain the directorial complaints. The present complaint of the petitioner satisfies the criteria laid down by the Board and therefore, the petitioner's removal from the office of director cannot be entertained in the present proceedings. The above acts of the second respondent (C.P. No. 30/2004), would establish the lack of probity, justifying the making of a winding up order under just and equitable clause and any such winding up order against the Company, which is in operation, would, no doubt, unfairly prejudice the members. In such circumstances, 1 have to consider whether the genuine grievances raised in the affairs of the Company could be remedied with a view to regulate the conduct of the Company's affairs in future.

This Bench while disposing of the application (C.A. No. 39/2005), during the pendency of the main petition came to prima facie conclusion that the respondent 3 and 4 acted in breach of the terms and conditions of the order dated 29.06.2004, upon which the respondents have come out with an application (C.A. No. 79/2005) producing quite a number of additional documents, justifying their stand that there has been no breach of the order of the CLB. The petitioner neither repudiated nor filed any counter opposing the application. No arguments have been advanced opposing the prayer for modification of the order, as urged by the respondents 3 and 4. Any allegation of fact must either be denied specifically or by a necessary implication or there should be at least a statement that the fact is not admitted. The petitioner has not chosen to take any such plea and therefore, the allegations made in the application (C.A. No. 79/2005) shall be deemed to be admitted and no other proof is necessary, more so, when the conclusions reached are prima facie findings made in the interlocutory application (C.A. No. 39/2005).

There is no iota of proof that the petitioner invested funds towards the shares held by the respondents and other family members. The serious acts of mismanagement complained of in the company petition (C.P. No. 27/2004) that the respondents 3 and 4 - (a) assaulted and prevented the petitioner from entering the factory premises; (b) removed valuable materials from the factory; (c) siphoned of funds, assets of the Company; (d) diversion of the business of the Company etc.. have not been established by the petitioner, warranting any interference of the Bench. The petitioner has not shown that the Company's affairs arc being managed by the respondents 2 to 4 in a manner oppressive to any members. The police complaints remain only on paper, without proof of any action taken by the authorities concerned. The petitioner (C.P. No. 27/2004) having failed to fulfil the requirements of section 397(2)(a) & (b) and 398, is not entitled to any reliefs and much less the reliefs claimed in the company petition (C.P. No. 27/2004). In the existing situation, 1 deem it fit not to go into the requirement of the cardinal principles of pleading as laid down in Kalinga Tubes Limited v. Shanti Prasad and Harkirut Singh v. Amrinder Singh (supra). The petitioner (C.P. No. 27/2004) neither made out a ease for winding up of the Company on just and equitable grounds as mandated in Hanuman Prasad Bagri v. Bagress Cereals (P) Limited (supra). Taking into account (a) deep rooted mistrust and justifiable loss of confidence between the petitioner and the respondents 2 to 4; (b) conduct of the petitioner in operating Unit II without rendition of accounts; (c) minority status of the petitioner; and (d) prejudices suffered by the Company under the management of the petitioner, the only way to ensure smooth functioning of the Company and the interests of the shareholders is that the petitioner will exit the Company by sale of her 2600 shares at a fair price to the respondents.

On the basis of the above conclusions, and with a view (a) to bring to an end the acts complained of in the affairs of the Company; (b) to regulate the conduct of the Company's affairs in future; arid in exercise of the powers of the CLB under Section 402, it is ordered as under-

(i) The petitioner (C.P. No. 27/2004) will henceforth not deal with the affairs of the Company in any manner.

(ii) All resolutions passed at the annual general meeting held on 20.12.2004 are hereby approved, vesting the management of the Company with the board of directors consisting of the respondents 2 to 4 in C.P. No. 27/2004.

(iii) The petitioner shall hand over Unit II to the Company; render accounts with effect from 01.06.2004, being proximate to the dale of the company petition (C.P. No. 27/2004) on account of operation of Unit II and restore the income thereof in favour of the Company. These shall remain completed by 31.05.2006.

(iv) The Company's Auditors will determine the value of shares of the Company as on 31.03.2004 and ascertain fines as well as penalties, if any. levied by the Income Tax Department on the Company under the management of the petitioner (C.P. No. 27/2004). The petitioner and the respondents are at liberty to make their submissions before the Auditors, who will take such submissions into consideration while arriving at the value of shares, fines and penalties in terms of this order. The whole exercise shall be completed by 31.05.2006. The report of the Auditors will be binding on both the parties. Within a period of 30 days from the date of receipt of report from the Auditors, the respondents, on receipt of the original share certificates in respect of 2600 shares together with the blank transfer forms from the petitioner, shall settle the consideration for the shares at the value determined by the Auditors, however, after deducting the amount of fines and penalties, if any, suffered by the Company, as ascertained b\ the Auditors. The Company will negotiate the lees payable to the Auditors and must bear the same. In the event of the Company making payment towards value of the shares, the Company, under the authority of this order is authorised to reduce proportionately its share capital.

With the above directions, the company petition and the company application (C.A. No. 79/2005) stand disposed of. In view of this, all interim orders already made are vacated. No order as to costs.