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Company Law Board

Radhe Shyam Tulsian And Ors. vs Panchmukhi Investment Ltd. And Ors. on 16 October, 2001

Equivalent citations: [2003]113COMPCAS298(CLB)

ORDER

S. Balasubramanian, Vice-Chairman

1. The petitioners claiming to hold, together with their associates, 90% shares in Panchmukhi Investments ltd. (the company) have filed this petition under Sections 397/398 of the Companies Act, (the Act), with the allegations that by virtue of issue of further shares illegally and by denying the fact of transfer of shares to the petitioners, the company contends that the petitioners hold only around 9% shares. Further, they have also alleged that there had been changes in the composition of the Board of directors by which their majority in the Board has been reduced to a minority. Accordingly, the petitioners have sought for cancellation of the further issue/allotment of shares, and also for a declaration that the petitioners hold 90% shares in the company, and also for the restoration of the Board with the petitioners in majority.

2. The undisputed facts of the case are that this company was incorporated in August, 1992, with an authorised capital of 25 lakhs divided into 25,000 shares of 100 each. Later on, the authorised capital was raised to 1 crore consisting of 10 lakh equity shares of Rs. 10 each on 1.2.1995. As on 31.7.1995, the paid up capital was Rs. 36 lakhs comprised on 3,60,000 shares and all the shares were entirely held by the 2nd respondent and his family members. With a view to promote a group housing scheme, the company entered into an agreement to purchase 8 acres of land in Bangalore in March, 1992. On 1.8.1995, the petitioners entered into a memorandum of understanding (first MoU) with the company and the 2nd respondent by which the cost of development of the land was estimated at Rs.21.78 crores of which the petitioner were to bear 90% and the 2nd respondent, the remaining 10%. It was also agreed that 90% of the shares held by the respondents would be transferred to the petitioners for a consideration of Rs. 3.24 crores, and that all the directors except the 2nd respondent would resigns directors and the petitioners would have not more than 4 directors on the Board of the company. It was also agreed that the paid up capital of the company would be increased by Rs. 1 crore by issue of fully paid equi-preference shares of Rs. 10 each to be initially subscribed by the 2nd respondent of which 90% would be transferred to the petitioners after expiry of 12 months from the date of allotment. The agreement also provided for termination of the agreement in case of failure of the 2nd respondent to get the land registered in the name of the company, in which case, all the money paid by the petitioners would be refunded with interest at the rate of 24% per annum compounded quarterly. In terms of the MoU, all the then existing directors except the 2nd and the 7th respondents resigned from the Board and the 2nd and 3rd petitioners and the 8th and 9th respondents were appointed as directors. In December, 1996, the petitioners sent a letter terminating the MoU and demanding payment of their investment at 24% interest. After some correspondence on this letter , the parties entered into another MoU on 6th April, 1997 (2nd MoU) by which the investment made by the petitioners was agreed to be refunded together with interest over a period of time. Nothing came out of the MoU. Thereafter, certain proceeding had been initiated by the petitioners in Calcutta High Court and by the respondents in a civil court at Bangalore.

3. The disputed issues are that, according to the petitioners, they had paid consideration for 88.6% shares (3,19,200 shares) in the company, and that all the shares constituting 88.6% had been transferred and registered in their names, while according to the respondents, only 30% shares (1,25,100 shares) had been transferred since the petitioners had paid consideration only for that many shares. Another dispute relates to the contention of the 2nd respondent that in terms of the MoU, 10 lakh equi-preference shares of Rs. 10 each had been issued to his group, and that these shares have now been converted into equity shares, and therefor,e the petitioners hold only 9% shares in the company. The petitioners challenge this issue on the ground that the same is in violation of the articles and the Act and that the same had been done only with the view to reduce the petitioners into a negligible majority. There is also a dispute regarding the composition of the Board of directors of the company.

4. Shri Sen, Senior Advocate, appearing for the petitioners, submitted as follows:

When the 2nd respondent acquired the land, with a view to perfect the title to the and which needed funds, entered into an MoU with the petitioners on 1.8.1995 (Annexure A-2) by which the petitioners were to acquire 90% of the shares held by the 2nd respondent and his group for a sum of Rs. 3.24 crores. Clause 11 of the MoU specifically stipulates that on payment of Rs.3.24 crores representing full consideration towards acquisition of 90% shares, the management and control of the company together with movable and immovable assets including the land shall be handed over to the petitioners. Accordingly, the entire amount of Rs. 3.24 crores was paid to the 2nd respondent, and 1,25,100 shares were initially transferred to the petitioners on 29.2.1996 and a further 1,94,100 shares were subsequently transferred on 5.4.1997.

The shares certificates in respect of all these shares are in possession of the petitioners wherein 2nd respondent, in his capacity as the authorised signatory/director, has endorsed the registration of transfers in the reverse of the share certificates. These shares constitute about 88.6% of the then paid up capital of Rs. 36 lakhs consisting of 3.6 lakh shares of Rs. 10 each. The consideration of Rs. 3.24 crores for 3,19,200 shares would work out to roughly over Rs. 100 per shares. In other words, for getting the control of the company, the petitioners have paid a premium of Rs. 90 per share. This amount was paid in various instalments, including a sum of over Rs. 1 crore by cash. The total amount paid includes a sum of Rs. 75 lakhs paid as a loan to the company, and also Rs. 10 lakhs paid as advance towards the shares. The investment made by the petitioners was utilised by the 2nd respondent to pay for the land.

5. In accordance with the terms of MoU, all the then directors other than the 2nd respondent and one Shri B.S. Somnath (7th respondent) resigned from the post of directors and the 2nd and the 3rd petitioners and the 8th and the 9th respondents who are also from the petitioners' group were appointed as directors. Thus, both in terms of percentage of shares and also in terms of the number of directors on the Board, the petitioners should have absolute control of the company. On 11.12.1996, the Bangalore Development Authority, while issuing an order for de-notification for 8 acres of land also stipulated that 12% of the built up area would have to be given to that Authority. Since such a stipulation was not envisaged at the time of the MoU, and since the 2nd respondent had breached his obligations under the MoU by failing to register 1/8th shares of the land, the petitioners issued a letter dated 17.2.1996 in terms of Clause 19 of the MoU demanding repayment of all their investment in the company together with 24% interest (Annexure A-4). In response to this, the 2nd respondent sent a fax on 27.12.1996 (Annexure A-5) stating that he was willing to repay the entire investment with 24% interest subject to the petitioners returning 90% shares standing in their names, and also submission of resignation letters of the directors belonging to the petitioners' group. Thereafter, certain negotiations took place between the parties and a second MoU was entered into on 6.4.1997 between the parties (Annexure A-8) according to which the amount invested by the petitioners was to be repaid by the 2nd respondent together with certain rate of interest over a period of time. It is also recorded in that MoU that 90% of the shares had been transferred and already given to the petitioners' group. In this MoU, calculations had been based on the investment of the petitioners of over Rs. 3.24 crores, being the consideration for 86.6% shares. However, this MoU was not honoured by the 2nd respondent.

6. In the meanwhile, the petitioners came to know that the 2nd respondent had appointed his son, Shri Pankaj Garg (3rd respondent), as an additional director with effect from 10.5.1996. This respondent had actually resigned from the position of director on 29.2.1996 in the terms of the MoU. His appointment as an additional director was not in the knowledge of the petitioners, inasmuch as no notice for the Board meeting in which he was appointed as an additional director was given to the petitioners even though the same is required in terms of Section 286 of the Act. Further, since none from the petitioners' side attended the purported meeting on 10.4.1996 for want of notice, there was no valid quorum for the Board meeting as out of the two directors who attended this meeting, namely, the 7th respondent and the 2nd respondent, the 2nd respondent was an interested director inasmuch as the 3rd respondent is his son. Further, the 2nd respondent contends that in an AGM allegedly held on 27.9.1996, the 3rd respondent was purported to have been appointed as a regular director and that the 8th and the 9th respondents, being additional directors were not elected as directors. None of the directors from the petitioners' side received any notice of the Board meeting on 2.9.1996 in which the decision to convene the AGM on 27.9.1996 was taken, nor any of the shareholders from the petitioners' group received the notice for the AGM. Further, as per the minutes of the AGM at Annexure R-14, only two shareholders had attended that meeting (the 7th respondent who also attended the meeting is not a shareholder) and, therefore, there was no quorum to transact any business in that meeting. The UPCs relied on the 2nd respondent are fabricated and produced after the disputes between the parties started. Further, the fabrication is manifest from the annual report as on 27.9.1996 (Annexure R-18) wherein neither the appointment of the 3rd respondent as a director, nor the cessation of the 8th and 9th respondents in the AGM held on that day had been recorded. This report was filed with the RoC on 22.4.1997, that is, after the disputes had started. Therefore, there is no truth in the appointment of the 3rd respondent either as an additional director or as a regular director. The same is the position in regard to the cessation of office by the 8th and 9th respondents. Even assuming that the AGM was held, and the decisions were taken thereat, since all these decisions are detrimental to the interest of the petitioners by which their majority in the Board had been affected without notice to them, these decisions are oppressive to the petitioners.

7. On 30.5.1997, the petitioners issued a notice under Section 169 of the Act for convening an EOGM for the purpose of removal of 2nd and 7th respondents as directors of the company, and also for shifting the registered office from Bangalore to Calcutta. On receipt of this notice, by a letter dated 3.6.1997, the 2nd petitioner, in his capacity as a director, issued a notice to all the directors convening a Board meeting on 9.6.1997 at Calcutta to consider the requisition. By a fax message dated 5.6.1997, the 2nd respondent also issued a notice to convene a meeting on 9.6.1997 at Bangalore to consider the requisition notice. By a fax dated 6.6.1997 (Annexure A-16), the 2nd respondent contended that he and his group had transferred only 30% shares in the company to the petitioners and further that the 2nd respondent and his group held more than 90% shares in the company. The petitioner directors held a meeting on 9.6.1997 at Calcutta and passed a resolution to convene the requisition meeting on 7.7.1997 at Bangalore. Accordingly, a notice was issued on 10.6.1997 for the EOGM on 7.7.1997. On 18.6.1997, the 1st and 2nd respondents filed a suit in Bangalore OS No. 4640 of 1997 seeking for a declaration that the agreement dated 1.8.1997 had been cancelled and [are] unenforceable and also seeking for restraining the petitioners from holding out as directors of the company. In that suit, for the first time, it was disclosed that the authorised capital of the company had been increased from Rs. 1 crore to Rs. 1.36 crores and 10 lakhs equi-preference shares had been created in an EOGM held on 4.7.1995. It was also disclosed that 10 lakh equi-preference shares were allotted to the respondents' group on 10.4.1996. With the contention of the respondents that only 30% shares had been transferred to the petitioners and with the alleged issue of these equi-preference shares which had allegedly been converted into equity shares on 10.4.1997, now the respondents claim that the percentage holding of the petitioners is less than 10%.

8. Shri Sen further argued as follows : The entire episode relating to issue of further shares in the form of equi-preference shares and conversion thereof is concocted story, tried to be established a genuine by fabrication of documents. The 2nd respondent claims that in an EOGM held on 4.7.1995, the authorised capital was increased to Rs. 1.36 crores with a provision for issue of 10 lakh equi-preference shares. It is patently a false statement. Firstly, the annual return for the year 1994-1995 made upto 28.9.1995 indicates the share capital as Rs. 1 crore comprising of equity shares only. the balance sheet for the year ended 31 march, 1996, signed on 2 September, 1996, shows the authorised capital of the company as Rs. 1.36 crores as on 31.3.1995. Actually on that day, the authorised capital was only Rs. 1 crore and the decision to increase the same were allegedly taken only on 4.7.1995. Second, even though 10 lakh equi-preference shares had allegedly been issued/allotted on 10.4.1996, the annual return for 1995.96 made up to 27.9.1996 doe snot indicate the allotment of equi-preference shares. Even the annual return for 1996-97 made up to 22 April, 1997, does not indicate the issue of equi-preference shares. Thirdly, Form No. 5 relating to increase in capital which should have been filed by 4 September, 1995, was actually filed only on 15 April, 1997, and the stamp duty was paid only on 28.4.1997 (page 205 of the petition). Likewise, Form No. 2 relating to allotment of shares which should have been filed by 10 June, 1996, was filed only on 30.4.1997. Since the contemporaneous documents filed before the litigation started between the parties do not indicate either the increase in the authorised capital or issue of equi-preference shares, all the statutory returns filed after the litigation started showing the increase in authorized capital and issue/allotment or equi-preference shares are undoubtedly fabricated. Without an increase in the authorised capital, further shares beyond Rs. 1 crore could not have been issued as the same would be ultra vires the memorandum.

9. As far the payment of consideration for 1,9,4,100 shares is concerned, Shri Sen referred to page 331 of vol. III pointed out that during the period 2.8.1995 to 31.12.1996, the petitioners and their group had paid a sum of Rs. 4,25,71,000 including a sum of Rs. 1,24,61,000 paid in cash. Out of the total amount, the 2nd respondent had repaid an amount of Rs. 90 lakhs which was paid on 4.9.1995 by a demand draft, with interest on the understanding that the same would be replaced by cash payment later by the petitioners. Accordingly, the same was paid in cash in instalments. This is the cash payment which the 2nd respondent now denies to have received. He referred to the auditors certificates at pages 333 to 352 of vol. III, wherein the auditors, on the basis of the accounts of the petitioners' group,have certified the cash payment to the 2nd respondent for acquisition of shares in the company. Thus, the amount of investment made by the petitioners and their group is [in] the order of Rs. 3.35 crores. Therefore, he submitted that there is absolutely no doubt that the petitioners had paid for 1,94,100 shares and that the 2nd respondent had transferred these shares to the petitioners/their group.

10. Summing up his arguments, Shri Sen submitted : In view of the failure of the 2nd respondent to honour his commitment in terms of MoU, the petitioners suit a Calcutta High Court in May, 1997, challenging the appointment of the 3rd respondent as a director and praying for restraining the 2nd respondent from dealing with the land of the company and also for allowing the petitioners to have effective participation in the affairs of the company. In that suit, certain interim orders were passed more particularly with reference to maintenance of the status quo in regard to the shareholding and also restraining the company from dealing with the fixed assets of the company including the land. The respondents filed an appeal against the said order which was modified by the Division Bench to the extent that the status quo in regard to the shareholding as on 6.4.1997 shall be maintained. Further, the respondents also filed an application for dismissal of the suit on the ground that the Calcutta High Court had no jurisdiction to entertain the suit. It is in this suit that for the first time, the respondents took a stand that the petitioner held only 30% shares in the company and not 90% shares. therefore, in that suit, none of the allegations made in the petition has been agitated, and as such, the petitioners are not prosecuting parallel proceedings. In regard to staying of the proceedings, he pointed out that when the reliefs sought in the petition under Section 397 are different from the one in the civil suit, there is no bar in the Company Law Board considering the petition as held in Piyush Kanti Guha v. West Bengal Pharmaceuticals Company Limited (1982) 1 Comp LJ 199 (Cal) : AIR 1982 Cal 94. Referring to C.N. Shetty v Hillock Hotels Private Limited (1997) 1 Comp LJ 84 (AP) : (1997) 87 Comp Cas 1 (AP), he pointed out that this company is practically in the nature of a partnership between the petitioners and the 2nd respondent arising out of personal relationship and mutual confidence between them. This being the position, any breach of confidence would entitle the aggrieved person to seek dissolution of the partnership. Notwithstanding this, the petitioners were prepared to go out of the company on receipt of their investment, and even though the 2nd respondent entered into the second MoU, he did not comply with the terms of the said MoU. Further, he also challenged the actual amount of investment made by the petitioners in spite of his having admitted receipt of over Rs. 1 crore in cash during the negotiations held in the chamber of the members of the Board. Under the circumstances, he prayed that the management of the company should be handed over to the petitioners after declaring them to be the holders of 90% shares in the company. He contended that the company has taken a stand on issue of equi-preference shares only with a view to reduce the petitioners from majority to minority and, therefore, [that] is a grave act of oppression : Howard Smith Limited v Ampol Petroleum Limited (1974) All ER 1126 and Nanalal Zaver v Bombay Life Assurance Company Ltd. AIR 1950 SC 172. He also pointed out that by issue of the equi-preference shares, the 2nd respondent has acted in breach of his fiduciary duties of a director, and as such the issue is invalid as decided in Piercy v S. Mills & Company Ltd. (1920) 1 Ch D 77.

11. Shri Chatterjee, Advocate, appearing for respondents 1, 8 and 9, submitted as follows : The claim of the respondents that equi-preference shares were issued is nothing but a concocted story. In the suit in Calcutta High Court, the 2nd respondent had taken a stand on 27.5.1997 that the petitioners held only 30% shares. If these shares had actually been issued on 10.4.1996, then they would have been converted into equity shares on 10.4.1997 and the petitioners' shareholding would have been below 10% on 27.5.1997 and as such, the 2nd respondent could not have taken the stand that the petitioners' holding was 30%. Only by the letter dated 6.6.1997, the respondents informed the petitioners of the issue of equi-preference shares and, therefore, if at all these shares had been issued, it must be between the period from 25.5.1997 and 6.6.1997. All documents relating to the increase in the authorised capital and issue of equi-preference shares had been fabricated after the disputes had started between the parties. Even assuming that the petitioners had agreed for issue of equi-preference shares in terms of the MoU, yet the company should have followed the legal provisions, first, by amending the articles and in consultation with the petitioners.

12. He further argued : At page 272 of the petition which is a part of the annual return as on 27.9.1996, the 2nd respondent has signed a list of persons holding shares in the company indicating therein that the total number of shares issued on that date as 3,60,000 shares. If the equi-preference shares had been issued/allotted as contended by the respondents on 10.4.1996, the same should have been reflected in this list. Further, the directors' report for 1994-95 signed in September, 1996, does not indicate this important financial matter. If one were to take into consideration these aspects, and also the fabrications pointed out by Shri Sen, it would be clear that the 2nd respondent's claim on the issue of equi-preference shares and conversion thereof is nothing but an after-thought. Neither the memorandum was altered nor equi-preference shares issued. The respondents have taken the stand of increasing the authorised capital and issue of equi-preference shares and conversion thereof only with a view to claim that the petitioners hold less than 10% shares. Article 5 of the articles of association of the company deals only with redeemable preference shares which are to be redeemed out of profits or out of the proceeds of fresh issue of shares. There is no provision for conversion of preference shares into equity shares. Section 80(1) of the Act permits a company to issue preference shares only if so authorised by the articles, and Section 80(1)(a) of the Act also stipulates that preference shares are to be redeemed only out of the profits of the company or out of proceeds of a fresh issue. Provision of Section 80(4) of the Act with calculation of fees and does not permit conversion of preference shares into equity shares. As per Section 80(6) of the Act, any issue in violation of the provisions of Section 80 would be void. Therefore, even assuming that the equi-preference shares were issued and converted into equity shares as claimed by the respondents, the same being in violation of the provisions of Section 80 of the Act and also of Article 5, the same is invalid and has to be cancelled.

13. Shri Raghavan, Advocate, appearing for the respondents, submitted as follows:

The main issues for consideration in this petition are whether the petitioners hold 1.24 lakh shares or 3.19 lakh shares, and whether equi-preference shares could be issued and whether the same were issued. Before the examining the same, it is to be first examined as to whether the petitioners are trying to enforce their rights as shareholders or treating this petition as a sit for recovery of money fr a suit for specific performance ? Further, the petitioners have already filed a suit in Calcutta High Court on similar issues, and as such, have elected an alternate remedy. In addition, the contesting respondents have filed a suit in Bangalore, in which one of the declarations sought is that the petitioners are not shareholders. If such a declaration is made by that court, then, the petitioners cannot maintain this petition. Actually, this petition is a counter to that suit. Further, in both the proceedings, the MoUs are the subject matter and the Company Law Board cannot adjudicate the disputes de hors the MoUs. Therefore, in all fairness to prevent forum shopping, and to avoid conflict of decisions, the present proceedings should be stayed. As a matter of fact, in Bengal Luxmi Cotton Mills Ltd., In re (1965) 1 Comp LJ 35 (Cal) : (1965) 35 Comp Cas 187 (Cal), the Calcutta High Court has held that if an alternate remedy has been availed of, then a petition under Sections 397/398 does not lie. In the same manner, even the Company Law Board has held in Mrunalini Puar v Gaekwad Investment Corporation Ltd. (1993) 1 Comp LJ 89 (CLB) : (1995) 82 Comp Cas 899 (CLB) that to avoid conflicting decisions, the Company Law Board should stay its proceedings. Even otherwise, the petitioners are estopped in making any allegation against the 2nd respondent in view of their earlier conduct, and also in view of their second MoU evidencing therein that the petitioners were no longer interest in the company.

14. He further argued : The relationship between the parties commenced in terms of the MoU dated 1.8.1995. Therefore, but for this MoU, there would have been no relationship between the parties, and as such, the allegations in the petition have to be considered in terms of the MoU. A reading of the various clauses in the agreement would clearly establish that mere investment in the shares alone would not entitle the petitioners to have the control of the company. Besides the consideration for the shares, the agreement also provided for making substantial payment to the 2nd respondent towards land cost. Since the petitioners have failed in discharging their obligations, they cannot gain control of the company by virtue of their investment in shares. This agreement clearly states that the paid up capital would be increased by Rs. 1 crore by issue of fully paid up equi-preference shares and therefore, the petitioners cannot now claim any legal infirmity in the issue of equi-preference shares.

15. Shri Raghavan continued his arguments as follows : As far as the transfer of shares to the petitioners is concerned, the actual position is that only 1,25,100 shares were transferred as indicated by the petitioners in the petition at para (i) of page 10 of the petition. Only in the rejoinder, as an afterthought, the petitioners have claimed that further 1,94,100 shares had been transferred. Even at this time, they had not indicated how and when the consideration for these shares was paid. They had only sought leave for producing the details. Only in the affidavit dated 3.11.1998, the petitioners furnished the details of the alleged payment wherein an amount of Rs. 1,25,71,000 is shown to have been paid by them. This includes a sum of Rs. 75,00,000 paid as a loan to the company. this also includes a sum of Rs. 20.1 lakhs paid on 1.12.1996, after the date of termination letter. No one would make such a substantial payment after demanding repayment of investment on 17.12.1996. Further, the petitioners have not produced any voucher in respect of the cash payments, and the entries in the books of accounts of a litigant cannot be relied on. further, since these details were furnished nearly after a year, they are all fabricated. In case they had said the entire consideration for the shares by June, 1996, they would not have waited to get the transfers registered for more than 10 months. In the reply to this affidavit, the 2nd respondent has given the details of eh receipt of money from the petitioners, which works out to only Rs. 2,10,10,000 including Rs. 75 lakhs given as (SIC). Therefore, the petitioners had not paid consideration for 1,94,100 shares. The share certificates in respect of these shares were only handed over to the petitioners without filling up all columns in the reverse of the certificates. Even assuming that the 2nd respondent had signed the certificates in token of registration of transfer, since no consideration had been received for these shares, the transfers were invalid is decided by the apex court in John Tinson and Co (P) Ltd. v M. Surjeet Malhan (1997) (SIC) Comp LJ 40 (SC) : AiR 1997 SC 1411. Further, the transfer of these shares cannot be decided de hors the MoU which stood terminated with the notice dated 17.12.1996 claiming the refund of their investment. As per Section 62 of the Contract Act, once the parties to a contract agree to substitute/amend/or alter it, then the original contract need not be performed. The respondents had no occasion to point out the allotment of equi-preference shares in the Calcutta High Court as issue therein was only in relation to the 3.6 lakh shares and the claim of the petitioners on 90% of the same and, therefore, the petitioners cannot derive any advantage on the ground that was averred in that suit that the petitioners held 30% shares in the company. In the letter dated 27.12.1996 (page 129 of the petition), the 2nd respondent ha snot admitted the transfer of 90% shares. If the same is read with Clause 1 of the MoU dated 5.4.1997 which reads 'All share certificates to be signed by Shri Ram Avtar Garg' -- it is evident that these certificate had not been signed even on that date and, therefore, the petitioners' claim that they were signed on 5.4.1997 has no basis.

16. He further submitted : If the notice issued by the petitioners at page 128 of vol. claiming their investment was on account of the BDA stipulation of handing over (SIC) 2% built up area to it as averred at para J at page 10 of the petition, then, the disputes actually relate to the property and not the management of the company. This being the case, there is no cause of action to allege oppression against the 2nd respondent. With the second MoU, their relationship with the company as shareholders had ended and now the relationship is that of a creditor and debtor. Since the whole matter had been renegotiated and the second MoU had been signed, the only hours available to the petitioners is to get this MoU executed through a civil suit and here is no scope for a Section 397 petition.

17. As regards the contention of the petitioners that the transfer of 1,94,100 shares had been registered in the register of members, the learned counsel submitted as allows: It is not denied that blank transfer forms were handed over to the petitioners along with the share scripts in respect of these shares. Even though in these share scripts, the 2nd respondent had made endorsement of registration, yet, other columns relating to the folio numbers and the date of registration had been left blank. Perhaps, the 2nd respondent made a mistake of handling over the share scripts to the petitioners, but not definitely after registration. The copies of the transfer forms produced by the petitioners show that their validity had been extended for a period of one month from 19.12.1997. By this time, the petitioners had issued the notice dated 17.12.1996 seeking for refund of their investment and with the signing of the MoU, on 6.4.1997, the entire agreement between the parties had come to an end. Therefore, it is inconceivable that, on 5.4.1997, the 2nd respondent would have effected the registration of the transfers. Further,t eh stamps on the transfer instruments had not been cancelled, which is a mandatory requirement, a breach of which would merit rectification of the register of members as decided in Mathrubhumi Printing and Publishing Co. Ltd. v Vardhman Publishers ltd. (1992) 1 Comp LJ 234 (Ker) : (1992) 73 Comp Cas 80 (Ker) and Nuddea Tea Co. Ltd. v Ashok Kumar Saha (1989) 1 Comp LJ 84 (Cal) :

(1989) 64 Comp Cas 775 (Cal). In addition, there are no minutes to who that the Board of directors of the company had approved the registration of these shares in the name of the petitioner. If the Board had not approved of the transfers, then, the registration is void as held in John Tinson's case (1997) 3 Comp LJ 40 (SC), supra.

18. In regard to the directorship, he submitted : the 2nd and the 3rd petitioners were appointed as directors in the vacancy arising out of the resignation of two directors in terms of the first MoU, and the 8th and 9th respondents from the petitioners' group were appointed as additional directors. Since the petitioners had not paid the full consideration for 90% shares, the 3rd respondent, who had resigned on 29.2.1996, was once again, in consultation with the petitioners, appointed as an additional director on 10.4.1996. Since the 3rd, 8th and 9th respondents were appointed only as additional directors, they could hold office only upto the next annual general meeting. In the AGM held on 27.9.96, whole the 3rd respondent was appointed as a regular director, the other two respondents were not appointed as such. Notices for the Board meeting on 10.4.1996 were sent to all the directors (page 74 vol. II), but none from the petitioners' group attended this meeting. Likewise, for the AGM also notices were sent to all the shareholders by UPCs (page 96 of Vol. II). The business to be transacted in the AGM was approved in the Board meeting on 2.9.1996 for which also, notices were sent by UPCs, but none from the petitioners' group attended this meeting. Therefore, the change in the composition of the Board was done transparently with notices to the petitioners. Insofar as the list of directors filed with the RoC along with the annual return is concerned (page 124 of vol. II), it is not to be noted that this list reflected the position on that day before the AGM and not after the AGM and, therefore, the appointment of the 3rd respondent and cessation of the 8th and 9th respondent were not reflected. As regards the absence of the name of the 3rd respondent in that list as appointed as an additional director on 10.4.1997, it occurred due to mistake and was an omission.

19. In regard to equi-preference shares, he submitted : The first MoU specifically provides for issue of equi-preference shares for Rs. 1 crore. It also provides for increase in the paid up capital of the company to that extent without mentioning any increase in the authorised capital since the same had already been increased on 4.7.1995, that is, earlier to the date of the first MoU on 1.8.1995 and the petitioners were aware of the same. Late filing of Form 5 would not vitiate the alteration to the memorandum. In the Board meeting held on 10.4.1996, equi-preference shares of Rs. 10 each were issued/allotted to the 2nd respondent and his group, in terms of the first MoU. Once the petitioners had agreed for the issue of equi-preference shares the allotment of the same to the 2nd respondent group, they cannot now complain of the same. Estoppel against statute cannot come in the way of enforcing a contractual agreement. In regard to the conversion of these shares into equity shares, Section 80 of the Act, as also Article 5, permit the same.

20. Summing up his arguments, Shri Raghavan pointed out that the petitioners are trying to enforce the second MoU through this petition, and as such, the same is a motivated one. Since the petitioners had failed in their obligations in terms of the MoU, they cannot complain of oppression, especially, after invoking the jurisdiction of Calcutta High Court. Accordingly, he prayed for dismissal of the petition.

21. Shri Vibhu Bakru, Advocate, for the 2nd respondent submitted as follows :

This petition is not maintainable under Section 399 of the Act, inasmuch as the petitioners do not hold 10% shares in the company. As a matter of fact, they cannot even exercise the rights of members as they do not have any beneficial interest in the shares held by them in view of the second MoU dated 6.4.1997, which has actually cancelled the first MoU by which they acquired the shares. Further, this petition is not for redressal of oppression, but for claiming their investment back. The foundation of the Section 397 petition should be the oppressive conduct meriting winding up of the company on just and equitable grounds. Further, they have already invoked the jurisdiction of the Calcutta High Court and, as such, they cannot approach the Company Law Board to exercise its equitable jurisdiction. The MoU dated 1.8.1995 is the basic understanding among the parties by which the petitioners acquired the shares. Since the petitioners had acted in breach of the MoU, they cannot seek any equitable relief on the basis of the MoU, and the shares acquired thereunder.

It is a fallacy to suggest that the petitioners were to control the company for mere Rs. 3.24 crores. They were to pay over a sum of Rs. 19 cores for acquiring 90% shares in the company over a period of time. This consideration consisted of two components- share price and the land price. While the share price was to be paid immediately, the land price was to be paid over a period of time. Initially, they were to pay Rs. 5 crores, including the consideration for the shares, of which they had paid only Rs. 2.21 crores and not Rs. 3.34 crores as claimed by them. Therefore, before claiming any relief, they have to prove that they had paid consideration for 90% shares and also that 90% shares had been transferred to them. A comparison of the figures of payment made by the petitioners, as revealed by them in pages 207 of vol. II and 331 of vol III reveal the contradictions in their claim. In page 127 of the petition, the petitioners themselves have averred that they had paid Rs.1.25 crores for 1,25,100 shares. There are no other details of further payment in the petition. As per Section 58 of the Evidence Act, pleadings constitute waiver of proof. Since they have not mentioned anything over Rs. 1.25 crores in the petition, they are estopped from claiming anything further. Even though the petitioners rely on the second MoU dated 6.4.1997 for the their contention that the figures indicated therein would prove that the 2nd respondent had admitted the receipt of Rs. 3.24 crores, yet from the figures mentioned therein, the petitioners are not in a position to pinpoint to the figure of Rs. 3.24 crores or the basis on which the figures therein had been arrived at. If, as contended by the petitioners, that over a sum of Rs. 1 crore had been paid in cash, which claim is also false, then the same could not have been for the shares, as they could not have paid such a large sum in cash for acquisition of shares. Therefore, he submitted that the petitioners had not paid consideration for 1.94 lakh shares to claim title to these shares. In regard to the contention of the counsel for the petitioners that the 2nd respondent had admitted, in the Chambers of the Members of the Bench, the receipt of over Rs. 1 crore in cash, the learned counsel pointed out that the discussions were without prejudice, and as such, should not bind the 2nd respondent.

22. He further argued : Originally, the petitioners paid a sum of Rs. 1.25 crores to the 2nd respondent and, therefore, 1,25,100 shares [were] transferred and registered in the name of the petitioners. However, in terms of the MoU, share script, with blank transfer forms in respect of 1,94,100 shares, were lodged with the petitioners with the signature of the 2nd respondent in the reverse, but in blank. The columns relating to the dates of registration and the folio numbers had been left blank as no actual registration had taken place. A perusal of the transfer register, copies of which are enclosed at pages 219-225 (vol. II) would clearly demonstrate that the transfer numbers noted on the reverse of the share certificates do not tally with the entries in the register. Since the petitioners had not paid consideration for these shares, they were never registered in their names, nor their names entered in the register of members in respect of these shares. If the transfers had been effected on the basis of the transfer instruments, then, these instruments of transfers should be with the company, and the petitioners could not have obtained the copies of the same. The share certificates indicate that these shares were registered on 5.4.1997. It is to be noted that the petitioners had claimed their investment back by the letter dated 17.12.1996, and, in view of this, the first MoU had been terminated on that day. If so, how would the 2nd respondent register the transfers after that day? Therefore, the claim of the petitioners to the title to the shares being false, this petition should be dismissed.

23. Shri Sen, in rejoinder submitted as follows : This petition has not been filed with the view to get the MoUs executed, as contended by the counsel for the respondents. The petitioners have filed this petition in their capacity as shareholders of the company on the allegations that their majority in the Board and the shareholder had been altered by the 2nd respondent and his group, and that, such action is oppressive to the petitioners who are not just financiers of the project, but [also] equity partners as admitted by the 2nd respondent himself at page 264 of vol. II. When the 2nd respondent refuses to recognise the majority of the petitioners, it is a grave act of oppression against them, meriting the winding up of the company on just and equitable consideration.

24. In regard to the majority of the petitioners, Shri Sen submitted : The 2nd respondent has admitted in his letter of 27.12.1996 that the petitioners were the registered shareholders of 90% shares and, therefore, now he cannot resile from that position and he is estopped from denying this assertion. Even in the MoU dated 6.4.1997, the same is admitted and all the calculations had been made on the basis of investment of Rs. 3.35 crores by the petitioner. Therefore, the petitioners do not have to prove the fact of payment of 3.35 crores when the 2nd respondent has admitted the same. Notwithstanding this, the petitioners have furnished full details of their investment along with their group of shareholders supported by certificates from their auditors. Just because the payment of over Rs. 1 crore was by way of cash, the 2nd respondent denies the receipt of the same. However, he himself had admitted this amount as received by him in cash when attempts were made for amicable settlement in the Chamber of the Members of the Bench. Therefore, his denial during the proceedings should be rejected. Further, the 2nd respondent would not have handed over the Board to the petitioners, if he had not received the consideration for 88.6% shares.

25. Insofar as the transfer of 88.66% shares is concerned, the learned counsel submitted :

Since the 2nd respondent does not dispute the transfer of 1,25,100 shares, the only issue is about the transfer of the balance 1,94,100 shares. The share certificates in respect of these shares are with the petitioners with the endorsement of transfer in their favour. This endorsement has been made by the 2nd respondent himself and he also admits the same. The contention of the 2nd respondent that he had handed over the share certificate with blank relating to the folio numbers and the dates of transfer, in terms of the MoU is not borne on facts as there is no such stipulation in the MoU. From the additional affidavit dated 20.2.1999 filed by the petitioners, it is evident that the share certificates were lodged with the share transfer agent, Shri S.K. Rungta, appointed by a Board resolution dated 12.10.1995 and signed by the 2nd respondent, on 7.10.1996 (page 235, vol II). These transfer instruments were returned by the share transfer agent on 8.10.1996 on the ground that the validity of the transfer instruments had expired. In view of this, these transfer instruments were got revalidated by the Registrar of Companies, Calcutta, on 13.2.1999 for a month and were and submitted to the company. the second respondent thereafter, endorsed the registration of transfer as is evident from his signature on the reverse of the share certificates. Further, if the registration of the transfer had been endorse on the reverse of the certificate at the time when the shares were handed over to the petitioners, as alleged by the respondents, the RoC would not have revalidated the transfer instruments. Further, the dates on the instruments being 7/8 October, 1996, could not have been handed over on 1.8.1995 as claimed by the respondents. In regard to the stand of the respondents that the transfer numbers and the register numbers, etc., do not tally with the register of transfer, this stand has no bearing as the register is with the company, and is susceptible to manipulation. It has been held by the Company Law Board in Satish Chand Sanwalka v Tinplate Dealers Association (P) Ltd. (1998) 2 Comp LJ 354 (CLB) :

(1998) 93 Comp Cas 70 (CLB) that in between the share register and the share certificate, the prima facie evidence of the share certificate has primacy over the share register.

Therefore, when the proof of payment of consideration is established and the registration of transfer is endorsed on the certificates and when the share certificates are in possession of the petitioners, the 2nd respondent cannot claim that the shares had not been transferred/registered, for want of consideration.

26. We have considered the pleadings and arguments of the counsel including the written submissions filed by the parties other than the one filed by the petitioners on 25.7.2001 in view of the objection raised by the respondents in considering the same. This petition was mentioned on 2.7.1997 and was adjourned to 1.8.1997 for considering the interim reliefs prayed for by the petitioners. On that day, when this Bench expressed a view that the disputes deserved to be settled amicably, the counsel for the 2nd respondent, Shri Raghavan, made a statement that his client was agreeable to repay all the investments of the petitioners together with an interest at the rate of 30% within a year. Since the counsel for the petitioners desired time to consult his clients, the mater was adjourned to 22.8.1997. The company was also restrained from dealing with the assets of the company in the meanwhile. Since there was no progress towards amicable settlement, this Bench itself discussed the terms of settlement, in the Chamber, with the parties on 5 and 6 January, 1998, and, in consultation with them, a draft proposal also was prepared and given to them according to which certain amount was to be paid by he 2nd respondent to the petitioners in full and final settlement of their investment along with interest over a period of time. Later, however, the 2nd respondent was not willing to go by these terms of settlement, and accordingly, the hearing on the petition commenced. In the midst of the hearings, the parties once again expressed their desire to amicably settle the matter and on account the negotiation between them, further hearings were adjourned from time to time and when the compromise efforts had reportedly failed, the petition was heard on merits and concluded on 12.4.2001. Even during the later stages of hearings, some attempts were made to settle the disputes amicably, but the position that appeared was that the 2nd respondent was willing to refund the investments made by the petitioners, but did not have the resources and the efforts to sell the land had also not succeeded in view of the land price having gone down. The other issue in the amicable settlement was the dispute relating to the quantum of the investments made by the petitioners and their group and the amount to be paid to them.

27. The learned counsel for the respondents raised an issue of parallel proceedings in view of the suit in Calcutta High Court and the suit in Bangalore civil court. As far as the suit in the Calcutta High Court is concerned, the petitioners have filed an affidavit on 18.5.2001 stating that the said suit had been dismissed for non-prosecution and have also enclosed a copy of the order of that court dismissing the suit for non-prosecution. therefore, the objection relating to the parallel proceedings in relation to the suit in Calcutta High Court no longer survives. In regard to the civil suit in Bangalore, it is a suit filed by the respondents and not the petitioners. Therefore, the same cannot be held against the petitioners. From the copy of the plaint filed by the petitioners, we find that, in that suit, the 2nd respondent has sought for a declaration that the first MoU is cancelled, and therefore, unenforceable and also for a permanent injunction restraining the petitioners as holding themselves as directors and interfering with the respondents as directors. We note that the civil court has only granted an interim relief to the extent that the status quo in regard to the EOGM convened on 7.7.1997 was to be maintained. The learned counsel for the respondents also contended that this petition cannot be decided de hors the MoU which is a subject matter of the suit in Bangalore. This Board had occasion to consider similar cases wherein the parties had entered into MoUs whereafter disputes had started between them. In B.M. Jain & Sons & Co. Ltd. v Bombay Cable Car Co. (P) Ltd. (2001) 1 Comp LJ 468 (CLB) : (2001) 41 CLA 5 (CLB) the petitioners therein acquired 50% shares in the company in terms of an MoU and also got equal number of directors appointed on the Board. As per the MoU, the petitioners were to invest Rs. 1.6 crores including investment in shares of about Rs. 19 lakhs for implementing a cable car project. The allegations in that petition related to further issue of shares and removal of the directors from the petitioner's group. The respondents therein filed a suit in Bombay High Court complaining that the petitioners had failed to bring in the agreed amount, and as such they should be directed to transfer their shares to the respondents in terms of the MoU. The Bombay High Court, as an interim measure, restrained the petitioners from holding themselves as directors. When they filed the petition before the Company Law Board, the respondents contended that the relief sought for by the petitioner in the proceedings before the Company Law Board ran against the relief sought by the respondents in their suit in Bombay High Court, and since the suit was filed prior in time, CLB cannot consider granting of any of the reliefs in the petition. Nothing that, since in the bombay proceedings, the issue relating to whether the petitioners group had committed any breach of the agreement was ending, this Board decided not to refer the MoU and held that--'Now we have to see whether the allegations of the petitioner, de hors the agreement, could be considered as acts of oppression. No doubt, the Jain Group became a shareholder of the company by virtue of the agreement, but once it has become a member, it has all the rights of a shareholder as provided in the Act and in the articles.' This Board also held in that case that it is an established principle of law that in a Section 397/398 petition, it is the shareholders' rights that could be agitated and not for the purposes of enforcing private agreements. In Ador Samia Ltd. v Indocam Engg. Systems Limited (2000) 3 Comp LJ 307 (CLB) : (1999) 35 CLA 224 (CLB), the petitioners therein entered into an MoU for acquiring 60% shares in the company for a sum of Rs. 2.3 crores. The MoU provided for 3 directors from the petitioners' group n the Board of the company. While the petitioners acquired 18% shares for a sum of Rs. 84 lakhs, the balance 42% were not acquired as the same were held by foreign shareholders, the acquisition of which required various clearances. In the meanwhile, the petitioners had also given an inter-corporate deposit of Rs. 2.15 crores. Certain disputes arose between the parties and the petitioners therein filed a suit in Bombay High Court for a decree for cancellation of the MoU and also for repayment of their investment of 2.99 crores. In view of this, the respondents took the stand that if the Bombay High Court were to grant the prayers of the petitioners, then the petitioners would not be members of the company to pursue the petition before the Company Law Board, and as such, the proceedings should be stayed/the petition be dismissed. This Board held that, in view of the civil proceedings in relation to the MoU, the Board would only consider the allegations of oppression in their capacity as members. Thus, this Board has been taking the view that, in a petition under Sections 397/398, this Bench is only concerned with as to whether the allegations in the petition could be considered to be oppressive or whether there is mismanagement in the affairs of the company. Private agreement can neither be sought to be enforced, nor its breach, could give cause of action to file a petition under Section 397/398. In other words, our examination of the allegations would be de hors the MoU and, therefore, the pendency of the suit in which the MoU was sought to be cancelled is not a bar to our proceeding with this petition.

28. The learned counsel for the respondents also raised an objection on the maintainability of the petition in terms of Section 399 on two grounds : that the shares presently held by them are in trust for the 2nd respondent and his group, and as such, the petitioners are not shareholders of the company and the second is that percentage holding of the petitioners being around 9% is below the 10% stipulated in Section 399. Both the objections have to be rejected straightaway. The question of holding shares in trust would arise only if the respondents had funded the consideration for the shares and that the shares were registered in the names of the petitioner. Even the respondents have admitted that the petitioners had paid consideration for 1,25,100 shares and that these shares are registered in their names. Therefore, the question of the petitioners holding the shares in trust for the respondents does not arise and, therefore, there is no doubt that they are the members of the company in their own right. In regard to the satisfaction of the provisions of Section 399 of the Act, the consistent view taken by this Board is that, if issued of further shares is challenged in a petition, but for which, if the petitioners satisfy the provisions of Section 399, then the petition would be maintainable subject to the allegation relating to the issue of shares going in favour of the petitioners. Since, in this petition, the petitioners have challenged the issued of equi-preference shares, and also the stand of the respondents that only 30% shares had bene transferred to the petitioners, we have to examine these issues to decide whether the petition is maintainable. Further, we also note that the total number of members in the company as on 27.9.1996 was only 11 (page 272 of the petition) and equi-preference shares had been issued only to the existing members of the 2nd respondents' group and, therefore, the petitioners being 3 in umber, satisfy the alternate requirement of Section 399 that a petition could be filed by members constituting 10% of the numerical strength of the membership of the company. Therefore, this petition is maintainable.

29. While dealing with the merits of the case, it is necessary to note that both the sides have engaged advocated on behalf of the company even though only the 2nd respondent has filed a common reply on behalf of the company and also on his own behalf. Thus, the disputes are really between the 2nd respondent and the petitioners. The main complaint of the petitioners is that the 2nd respondent does not recognise the petitioners as holders of 88.6% shares in the company. It is not in dispute that the 2nd respondent admits that 1,24,100 shares were registered in the names of the petitioners. The dispute relates to the balance of 1,94,100 shares. Even in respect of these shares, the admitted position is that the share certificates in respect of these shares are in possession of the petitioners. We have seen the original share certificates in respect of these shares as produced by the learned counsel for the petitioners and have found that these shares had been registered in the names of the petitioners /their group on 5.4.1997, and the 2nd respondent has signed in the back (reverse) of the certificate in token of the registration in the names of the petitioners/their group. As per Section 84 of the Act, the share certificates are prima facie evidence of the title of the members in respect of the shares mentioned therein. However, as rightly pointed out by Shri Raghavan, relying on John Tinson case (1997) 3 Comp LJ 40 (SC), since transfer of shares without consideration is void, we have to examine as to whether consideration for the shares had been paid by the petitioners. Insofar as 1,25,1000 shares are concerned, neither the receipt of consideration nor the fact of transfer/registration is denied by the 2nd respondent. According to the respondents, since no details regarding the consideration for 1,94,100 shares had been given in the petition, the details relating to the same furnished later is an afterthought. We do not find substance in this stand inasmuch as, in the petition, the petitioners had claimed ownership of 90% shares and, thereafter, they furnished further details. Before we examine the details of payment furnished by the petitioners at page 331 of vol III, with the counter statement on the same by the 2nd respondent in his affidavit dated 10.11.1998, it is necessary to note that in the second MoU, the 2nd respondent had admitted receipt of certain amount of money from the petitioners. In this MoU, an amount of Rs. 4,26,33,000 is shown as due as on 1.1.1997. This amount is written in words also. this amount has been computed at 24% interest on quarterly compounded basis on all the amount due to the petitioners, as on 31.12.1996. If the contention of the 2nd respondent that the petitioners had invested only Rs. 2,10,10,000, then, with 24% interest on the same, the amount due as on 1.1.1997 could not have ben more than Rs. 3 crores even assuming that the interest is charged fro 1 year 5 months on the entire amount (the first payment of Rs. 75 lakhs was in August, 1995), even though the amount has been paid over a period of 6 months till February, 1996 (excluding the cash payment made thereafter). A rough reverse calculations made by us, even during the hearing, indicated that the principal amount should have been more than Rs. 3 crores to arrive at the figure of Rs. 4,26,33,000 as on 1.7.1997 at 24% interest at quarterly rest. Even though it was contended by the learned counsel for the 2nd respondent that since this calculation is subject to verification, even as per the MoU, there is no finality in the figure; we note that the amount noted was 'subject to recheck calculation mistakes, if any' indicating clearly it was the interest calculation which was subject to re-check and not the principal amount. Therefore, there is clear admission on the part f the 2nd respondent to have received more than Rs. 3 crores from the petitioners as their investment in the company/shares. Even though Shri Sen urged that we should also take note of the admission of the 2nd respondent in the Chamber, of cash receipt of over Rs. one crore, as rightly pointed out by Shri Raghavan, we have to ignore the same as the discussions were without prejudice. However, his admission in the second MoU of receipt of over Rs. 3 crores has to be taken note of.

30. The petitioners have given a statement of their investment in the shares/company, according to which the total amount paid by the petitioners works out to Rs. 4,25,71,1000. Of this amount, a sum of Rs. 1,24,61,000 is found to have been paid by cash, while the balance amount had been paid in the form of DD/TT. The 2nd respondent admits all the amounts paid in the form of DD/TT, but denies to have received any amount in cash. The amount paid by DD includes a sum of Rs. 75,00,000 given as a loan to the company on 2.8.1995, and the same is admitted by the 2nd respondent and is also figuring in the balance sheet of the company as on 31.3.1996. A sum of Rs. 90,00,000 is found to have paid by demand draft to the 2nd respondent on 4.9.1995. Both the sides admit that this amount had been refunded by the 2nd respondent with interest. However, according to the petitioners, this was repaid on the understanding that this amount would be paid again by the petitioners in cash, while according to the 2nd respondent, this amount was taken as loan from one Dempo Mercantile Ltd, Calcutta, and was refunded with interest. As per the statement furnished by the petitioners and confirmed by the 2nd respondent, this amount of Rs. 90 lakhs had been refunded in instalments on 18.10.1995 (Rs. 25 lakhs), 5.2.1995 (Rs. 39 lakhs), 9.2.1996 (Rs. 15 lakhs), and 16.2.1996 (Rs. 16 lakhs). These instalments more or less match the amounts remitted by the petitioners by DD/TT one or two days prior to the dates of refund. The petitioners had remitted Rs. 25 lakhs on 17.10.1995, Rs. 39 lakhs on 28.1.1996, Rs. 16 lakhs on 2.2.1996 and Rs. 6 lakhs on 12.2.1996 and Rs. 10.6 lakhs on 14.2.1996. But for some understanding, there would not have been these cross transactions, that is, the petitioners remitting money by DD/TT to the 2nd respondent and his paying back the same immediately to the petitioners' group (Dempo Mercantile Ltd. reportedly belongs to the petitioners' group). We have already noted that the 2nd respondent would not have handed over the certificates without receipt of consideration. If so, with the auditors certificates produced by the petitioners regarding the cash payments and his admission in the 2nd MoU of receipt of more than Rs. 3 crores, we have no hesitation to come to the conclusion that the petitioners had paid Rs. 1,24,61.000 in cash which together with the amount of Rs. 2,10,10,000 admitted by the 2nd respondent as received from the petitioners, the petitioners have invested Rs. 3.347 crores in the shares/company. According to the 2nd respondent, out of the amount of Rs. 75 lakhs given as a loan to the company, he has repaid Rs. 23 lakhs and has also produced the bank account in support of the same. (This is to be confirmed by the petitioners). Even then, we find that the petitioners had invested a sum of Rs. 3.117 crores in the shares/company. If so, there had been consideration for the shares. The respondents have raised an issue whether the petitioners would pay an amount of Rs. 20,10,000 on 31.12.1996 after having terminated the MoU by their letter dated 19.12.1996. We find that after this letter was issued, there seems to have been some further discussions between the parties in respect of the project as is evident form the letter of the petitioners dated 13.1.1997 at Annexure A-6. Therefore, it appears that even after the issued of a notice of termination on 19.12.1997, the petitioners evinced an interest in continuing their association with the company. If it is so, then, they could have paid an amount of Rs. 20,10,000 on 31.12.1996.

31. The receipt of full consideration for the entire 3,19,200 shares is also evident from the fact that according toe the version of the 2nd respondent himself, he had handed over all the share certificates in respect of these shares to the petitioners. No man of ordinary prudence, leave alone a businessman like the 2nd respondent, would hand over share certificates with blank transfer forms without receipt of consideration. It appears to us that both the parties had decided whatever may be the reason, to pay/receive consideration in the form of cash. Taking into consideration our conclusion that the petitioner had invested more than Rs. 3 crores in the company/ shares, and the fact that the 2nd respondent had handed over share certificates in respect of 88.6% shares in the company, the 2nd respondent cannot now claim that the petitioners have not paid the consideration for these shares. While coming to this conclusion, we have also taken into consideration the amount of Rs. 75 lakhs paid as a loan to the company.

32. Now the next issue is whether 1,94,100 shares were registered in the names of the petitioners/their group on 5.4.1997? The stand of the respondents in this connection is that the entry of the folio numbers and the date of registration on the reverse of the share certificates are fabricated, that the Board had never approved the transfer of 1,94,100 shares and that the registration, even if ti had been recorded, is void since the stamps on the instruments of transfer had not been cancelled. The admitted position is that, the signature of the 2nd respondent appears on the reverse of the share certificates in respect of these shares. In addition to this, his signature also appears on the instrument of transfer for having tallied the signature. We do not believe that when according to the 2nd respondent he had delivered the share certificates with the signature on the reverse of the share certificates to the petitioners on 1.8.1995 that he would have also delivered the blank instruments of transfer with signatures for having tallies the signatures. This is too far fetched a stand to be given any credence. He could not have handed over the blank transfer forms on 1.8.1995 as they are found to have been dated 7 and 8 October, 1996. We also note that these transfer forms had been presented to the prescribed authority on different dates 15.9.1995, 11.10.1995 and 8.3.1996, that is, after 1.8.1995, indicating very clearly that these forms were not in existence on 1.8.1995. Further, we also note that while in respect of registration of 1,25,100 shares, the 2nd respondent has signed in the 'initial' column on the reverse of the share certificates, in respect of 1,94,100 shares, he has signed on the reverse as 'authorised signatory'. If his contention that all the share certificates in respect of all the 3,19,200 shares were handed over to the petitioners on 1.8.1995 with blank signature on the reverse, is to be accepted, then, there is no reason fro him to have adopted different methods of signing the share certificates -- signing in the initial column in respect of 1,25,100 shares and signing as authorised signatory in respect of 1,94, 100 shares. In addition, the 2nd respondent is not in a position ti explain as to how and when he had signed the transfer instruments indicating tallying the signatures. Further, as rightly pointed out by the learned counsel for the petitioners, the RoC, Calcutta, would not have revalidated the instruments if the share certificates bore the endorsement of the company in token of registration of the transfer of shares at the time when they were presented for revalidation. Further, the 2nd respondent has also not explained the documents filed by the petitioners in regard to the Board resolution appointing M/s Rungta as share transfer agents. Taking into consideration that the parties were negotiating for a settlement as is evident from the second MoU, and since cash transactions had been involved, the parties must have agreed to perfect the title of the petitioners in respect of the shares and, accordingly, the 2nd respondent should have signed the transfer instruments in token of having tallied the signatures on the reverse of the share certificates as toke of having registered the transfer of shares on 5.4.1997. The learned counsel for the 2nd respondent pointed out that if the share certificates had been signed on 5.4.1997, there was no need to have indicated in the MoU on 6.4.1997 that all share certificates to be signed by the 2nd respondent. It is to be noted that in the same MoU, it is also indicated that 90% shares in the company had been duly transferred, and already given to the petitioners. This being a contemporaneous record signed immediately after the registration of transfer had been effected on 5.4.1997, it very clearly indicates that these shares had been transferred and registered in favour of the petitioners on 5.4.1997. It appears that all the share certificates were authenticated as a token of registration taking into consideration all the investments made by the petitioners including the loan of Rs. 75 lakhs given to the company. In the circumstances of this case, this is the only reasonable conclusion that we could arrive at.

33. The learned counsel for the 2nd respondent pointed out, with reference to the photo copies of the transfer register at pages 218 to 225 of volume II, to contend that the transfer register does not contain any of the transfer numbers and folio noted on the reverse f the share certificates in respect of 1,94,100 shares and, therefore, these entries on the share certificates are fabricated. These pages contain entries of transfers effected during the period from July, 1985, to February, 1996. From a perusal of the pages, ti appears that that all the entries therein have been [made] at a single point of time since the handwriting, the pen used, etc., appear to be common. Therefore, the probability of this register have been written after the disputes started cannot be rules out. Anyway, as rightly pointed out by Shri Sen, that in between the share certificates and the register of members, the share certificate gets precedence over prima facie evidential value under Section 84 over prima facie evidence of the share register under Section 164, inasmuch as the latter is under the control of the company, and is susceptible to manipulation. This is what this Board had held in Tin Plate Company case (1998) 2 Comp LJ 354 (CLB), supra, and in Rajendra Prasad Gupta v. Scientific Instruments Company Ltd. (1999) 1 Comp LJ 121 (CLB). Thus, taking into consideration our finding that the 2nd respondent had received the consideration for the shares and that these shares had been transferred and registered in the names of the petitioners/ their group, and since the share certificates are in possession of the petitioners, we have no hesitation to come to the conclusion that the petitioners are validly registered legal owners of 3,19,200 shares in the company for valuable consideration.

34. The learned counsel for the respondents raised an issued that nay transfer in violation of Section 108 of the Act which mandates cancellation of the stamps on the instruments of transfer is void, if the stamps are not cancelled. He relies on Mathrubhumi Printing and Publishing Co. Ltd. v. Vardhman Publishers Ltd. (1992) 1 Comp LJ 234 (Ker) : (1992) 73 Comp Cas 80 (Ker) and Nuddea Tea Co. Ltd. v. Ashok Kumar Saha (1989) 1 Comp LJ 84 (Cal). In both these cases, the challenge of non-cancellation of stamps was raised before registration was effected, and accordingly, the courts held that the Board of directors of the companies had rightly decided to refuse registration in terms of Section 108 of the Act. However, in the present case, registration had already been effected. In Kothari Industrial Corporation Ltd. v. Lazor Detergents Limited (1994) 1 Comp LJ 160 (CLB) : (1994) 81 Comp Cas 617 (CLB), wherein when the petitioner company sought for rectification of its register of members on the ground that it had registered the transfer of shares lodged by the respondents, even though the stamps had not been cancelled, this Board ordered rectification of the register of members on the ground that non-cancellation of the stamps was in violation of the mandatory provisions of Section 108 of the Act. This order was challenged in the High Court of Madras which held that a company should not raise its own irregularity after a lapse of time and seek rectification of the register of members : Kothari Industrial Corporation Ltd. v. Maxwell Dyes and Chemicals (P) Ltd. (1996) 2 Comp LJ 86 (Mad) : (1996) 85 Comp Cas 79 (Mad). Accordingly, it set side the order of this Board. Therefore, while the non-cancellation of adhesive stamps could be a ground for refusal to register the transfer of shares, once the registration had been effected, such non-cancellation cannot be a ground for the company to seek rectification of the register of members. Therefore, in the present case, even though the stamps had not been cancelled, since the company had already registered the transfers, it cannot take a stand that the registration is invalid and, therefore, the petitioners are not legal owners of these shares.

35. Yet another objection taken by the learned counsel for the respondents was that the Board of directors had not resolved to register the transfer of shares and, therefore, there is no valid registration, as decided in John Tinson case (1997) 3 Comp LJ 40 (SC), supra. In that case, the company was a private limited company, and the articles provided that no transfer of any shares in the capital of the company shall be made or registered without the previous sanction of the directors. In view of this provision in the articles, the apex court held that, in a private limited company, the articles of association is a contract between the parties, and since the transfer had been effected without the approval of the Board in terms of the articles, the same was void. In the present case, the company is a public limited company and we find from the Articles 34 to 43 of the company that there is no specific provision as in that of John Tinson case (1997) 3 Comp LJ 40 (SC). therefore, the decision of the apex court, in that case, is not applicable to the present case. Further, we also note that the 2nd respondent has not produced any evidence to show that in respect of registration of 1,25,100 shares, the same was approved by the Board. In the present case, unfortunately, the separate identity of the 2nd respondent and the company/Board has been lost and, therefore, once he has signed the reverse of the share certificates as a token of registration of the shares, the same has to be taken as if the same had the approval of the Board.

36. The next issued relates to the issued of equi-preference shares. According to the petitioners, the issue is void in terms of the provisions of the Act and the articles and also the memorandum, while, according to the 2nd respondent, the issue was valid in all respects. It is an admitted position that the first MoU contemplates issue of equi-preference shares for an amount of Rs. 1 crore initially to the 2nd respondent/his group of which 90% was to be bought by the petitioners after expiry of 12 months from the date of allotment. The only issue for consideration is : whether the allotment had been made in compliance with the legal provisions, or was done with a view to reduce the petitioners from majority to minority. It is the stand of the petitioners that at the time when the MoU was entered into, the authorised capital was Rs. 1 crore and the paid up capital Rs. 36 lakhs and, therefore, without increase in the authorised capital, the equi-preference shares for Rs. 1 crore could not have been issued as the same would be ultra vires the memorandum. According to the 2nd respondent, authorised capital was increased to Rs. 1.36 crore in an EOGM held on 4.7.1995, i.e., before the date of the first MoU. They have enclosed a copy of the minutes of the alleged EOGM at Annexure R-8. It reads --

"RESOLVED that the authorised capital of the company be increased form Rs. 1,00,00,000 to Rs. 1,36,00,000 by creation of 3,60,000 1% non-cumulative convertible preference shares of Rs. 10 each and resolved further that the un-issued 6,40,000 1% non-cumulative convertible preference shares of Rs. 10 each be created and that the Clause 5 of the memorandum of association be altered accordingly".

This resolution is ambiguous. On that day, there were no un-issued 6,40,000 non-comulative convertible preference shares. The annual return as on 28.9.1995 indicates the authorise capital as only Rs. 1 crore. We also find that in Form No. 32 filed on 11.6.1996 (Annexure R-9) notifying the appointment of the 8th and 9th respondents as additional directors on 11.10.1995, the nominal capital is noted as Rs. 1 crore, Same is the position in Form No 32 at page 193 of vol II in relation to the appointment of the 2nd and 3rd petitioners as directors on 29.2.1996. If the authorised capital and been increased on 4.7.1995, then the increased authorised capital should have been reflected in the annual return as on 28.9.1995 and also in the Forms 32 filed after that date. Further, amended memorandum has not been filed before us. From No. 5 indicatng the alteration in the memroandum relating to the capital clause was filed only on 15.4.1997 after the disputes between the parties had started. Therefore, in the absence of any contemporaneous records to show that the authorised capital was increased before the date of the first MoU and when actually such records indicate the authorised capital as on that date as Rs. 1 crore, we find justification in the contention of the petitioners that the authorized capital had not been increased on 4.7.1995 and the EOGM resolution is a fabricated one. The learned counsel for the 2nd respondent contended that since there is no mention in the first MoU regarding the increase in the authorised capital while stipulating issue of preference shares, it would indicate that the authorised capital had already been increased and the petitions were aware of it. We would have agreed with the counsel, if there had been some independent evidence in the form of Form 2 or amended memorandum filed with the Registrar, before the disputes had started. Unfortunately, no independent evidence has been produced and, on the contrary, the annual report as on 28.9.1995 shows the authorised capital only as Rs. 1 crore. Therefore, we are inclined to agree with the petitioners that the alleged issue of equi-preference shares for Rs. 1 crore is ultra vires the memorandum and, therefore, is a nullity

37. Even though we have held that the issue and allotment of equi-preference shares is a nullity, since the factum of issue/allotment of these shares has also been challenged, we shall examine the same. According to the 2nd respondent, 10 lakh equi-preference shares were issue/allotted in a Board meeting on 10.4.1996. A copy of the Board resolution on that date if filed at Annexure R-5. In the same Board meeting, the 3rd respondent was also reportedly appointed as an additional director. On this day, the petitioners' group had 4 directors, and none of them had attended this meeting, which according to them was on account of non-receipt of notice. Whether this meeting was actually held and the decisions were taken up is a point of dispute. The petitoner have pointed out that if these equi-preference shares had been issued/allotted on 10.4.1996, then, the annual report made upto 27.9.1996 should indicate the names of the holders of these shares, but, the list of shareholders in the annual report made upto that date, does not contain the names of holders of these shares. Further, they have also pointed out that Form No. 2 (return of allotment) which should have been filed with the RoC within 30 days of allotment was filed only on 28.4.1997, i.e., after the disputes between the parties started. Further, they have also pointed out that the directors' report dated 2.9.1996 does not mention this important financial matter. In view of this, they have alleged fabrication. We are inclined to agree with the petitioners. One information which would have settled the matter in favour of the respondents was that they should have produced the details of receipt of consideration for these shares. If the 2nd respondent had produced evidence of receipt of consideration for these shares on or before 10.4.1996, the factum of allotment could have been established. In the absence of these details and in view of what have been pointed out by the counsel for the petitioners, we are inclined to agree that there had been no allotment of equi-preference shares on 10.4.1996 and the resolution dated 10.4.1996 in this regard is a fabricated one to claim that as on 10.4.1997, they had been converted into equity shares in view of which the petitioners have become absolute minority. While taking this view, we have also noted that, in the Calcutta proceedings, the 2nd respondent had taken a stand that the petitioners were holding 30% shares which would not have been in the Calcutta proceedings, the 2nd respondent had taken a stand that the petitioners were holding 30% shares which would not have been possible if the equi- preference shares had become equity shares on 10.4.1997. We are not convinced with the contention of the counsel for the respondents that the stand of the respondents in that case that the petitioners held 30% shares was on account of their stand that they were holding 90% shares.

38. The legality of issue of these equi-preference shares has also been raised by the petitioners. Section 80 of the Act deals with issue of redeemable preference shares according to which no preference share shall be redeemed except out of profits of the company which would otherwise be available for dividend or out of the fresh issue of shares made for the purposes of redemption. This section also provides that subject to the provisions of this section, redemption of preference shares may be effected on such terms and in such manner as may be provided by the articles of the company. Thus, the issue of redeemable preference shares is governed by the provisions of the Act as well as the articles. The article 5 of the company reads--

"Subject to the provisions of these articles, the company shall have the power to issue preference shares carrying a right to redemption out of profits which would otherwise be available for dividend or out of the proceeds of a fresh issue of shares made for the purpose off such a redemption or liable to be redeemed at the option of the company; and the Board may, subject to the provisions of Section 80 of the Act exercise such power in such manner as may be provided in these articles."

Thus, we find that this article is practically a re-production of Section 80 of the Act. The issue for our consideration is whether preference shares could be redeemed by conversion into equity shares. Since Section 80 of the Act as well as article 5 of the articles of association of the company permit redemption of preference shares only out of profits or out of the proceeds of fresh issue of shares, redemption of preference shares in any other manner is ultra vires the Act and, therefore, is a nullity. In this connection, we may refer to the decision of this Board in Tinplate Dealers Association (P) Ltd. case (1998) 2 Comp LJ 354 (CLB), supra, wherein this Board had held that issue of bonus shares against the revaluation reserve was invalid when the articles provided for issue of bonus shares only against share premium account and capital redemption account. in other words, the issue of shares should be in accordance with the articles. Shri Raghavan contended that when the petitioners had agreed for issue of equi-preference shares and conversion thereof in the first MoU, they cannot now complain of illegality in issue, and he also contended that estoppel against statute cannot be pleaded in enforcing contractual terms. He further relied on the Commentary in Ramaiya's Companies Act to urge that preference shares can be converted into equity shares. We are of the view that when the articles do not contain any provision for conversion of preference shares into equity shares, a private agreement between the parties cannot override the provisions of the statute/articles. Further, according to the Commentary of Ramaiya, the redemption of preference shares should be only by way of cash and any scheme of conversion would require the compliance with the provisions of Sections 81, 106, 391 and 392 of the Act.

39. Thus, on an overall assessment on the issue/allotment of equi-preference shares, we find that the same was ultra vires the memorandum, the Act and the articles and the factum of issue/allotment on 10.4.1996 has also not been established. Even though the settled position of law is that an isolated act in violation of statutory provisions need not be considered to be oppressive, yet, in the present case, assuming that these shares had been issued to the 2nd respondent and his group in terms of the MoU according to which 90% of the same were to be transferred to the petitioner, which the 2nd respondent has not done so, by the issue and allotment of equi-preference shares, thee petitioners had been reduced from 88.6% shareholders to less than 10% shareholders. Further, by investing less than 1/3rd of what the petitioners had invested (Rs. 1 crore as against Rs. 3.34 crores), the respondents claim absolute majority, which itself is an act of oppression.

40. Another allegation of the petitioners is the composition of the Board of directors. According to the petitioner, in terms of the MoU, there should have been 4 directors from their side and the 2nd respondent on the Board of directors of the company. Accordingly, 2nd and 3rd petitioners and 8th and 9th respondents were appointed as directors. Their complaint is that the 3rd respondent who had resigned from the Board on 29.2.1996 had been allegedly appointed as an additional director on 10.4.1996, and as a regular director on 27.9.1996. In addition, the 2nd respondent also claims that 8th and 9th respondents had ceased to be directors from 27.9.1996. We find that as per Form No. 32 at Annexure R-9, the 8th and 9th respondents were appointed as additional directors on 11.10.199. (Even though the annual return as on 27.9.1996 records the date of their appointment as 29.12.1996) and the 2nd and 3rd petitioners were appointed as directors in the vacancy of one Shri Suresh Choudhary and the 3rd respondent who resigned as directors on 29.12.1996 in terms of MoU as per Form No. 32 at page 193 of vol II. According to the 2nd respondent, the 3rd respondent was gain appointed as an additional director in the Board meeting held on 10.4.1996 with the consent and the knowledge of the directors from the petitioners' group since the petitioners had not paid consideration for 90% shares which was condition precedent to have majority on the Board. There is nothing on record to how that the petitioners had agreed for the appointment of the 3rd respondent and one from the petitioners' side attended this meeting, which according to them was due to non-receipt of notice. The petitions have questioned this appointment on many counts-that the Board minutes are fabricated, that there was no valid (SIC) in that meeting and that no notice for that meeting had been given to them for his meeting and, therefore, the proceedings in that meeting are a nullity. We are inclined to agree with them. In regard to fabrication of the minutes, we find support from the annual report as on 27.9.1996 wherein the 3rd respondent is not shown as a director on that day. Secondly, the Form 32 regarding his resignation was filed with the RoC only on 11.6.1996, by which time he had purportedly been appointed as an additional director on 10.4.1996. Thirdly, the relevant from 32 regarding his appointment on 10.4.1996 was filed only on 22.4.1997, that is, after the disputes had started between the parties. The company cannot claim that it was not aware of the statutory provisions regarding filing of returns, as it had filed with due returns on previous occasions. Therefore, the factum of his appointment is doubtful. Assuming that he was appointed as such, the appointment is also not valid since there was no valid quorum as, out of the two directors present, the 2nd respondent, being the father of the 3rd respondent, was an interested director and he could not have participated in the business of appointing his son as an additional director. His appointment as regular director is also invalid in view of the fact that the AGM held on 27.9.1996 in which he was appointed as a director, there were only two shareholders present as seen from the minutes of that meeting at Annexure R-14. Further, no notice for this meeting appears to have been given to the petitioners as is evident from the fact that if the petitioners had the notice, they would have definitely questioned the items proposed for consideration in that meeting since there is no mention of the respondents 8th and 9th being eligible for appointment as director as has been done in respect of the 3rd respondent.Therefore, holding of the AGM without notice and conducting business thereat without quorum invalidate all the proceedings in that meeting. If so, the 3rd respondent had not been validly appointed in that meeting and even assuming that he has been appointed as an additional director on 10.4.1996, he could hold office only upto the date of the AGM for the year 1995-96. In regard to the non-appointment of 8th and 9th respondent as directors, we find from the notice for this meeting at Annexure R-13 that there has not been even a proposal for their appointment. At that time, there was no dispute between the parties and there was no reason as to why the names of these two persons had not been proposed for appointment as additional directors. Such non-proposing the names of these directors is definitely an act of oppression against the petitioner's holding 88.6% of shares at that point of time. However, since they were admittedly appointed only as additional directors earlier, they would have automatically ceased to be directors in accordance with Section 260 of the Act, even granting that the AGM held on 27.9.1996 is invalid. Therefore, the present Board of directors would consist of only the 2nd and 7th respondents and the 2nd and 3rd petitions.

41. We sump up our finding as follows:

(a) The petitioners/their group had paid consideration of Rs. 3347, crores for 3,19,200 shares and that all these shares registered in their names;

(b) The alleged issue/allotment of equi-preferences shares, even if really had been issued/allotted is ultra vires the memorandum, and is in contravention of the provisions of Section 80 of the Act and Article 5 of the articles of association of the company, and therefore, is a nullity;

(c) The 3rd respondent had not been validly appointed as an additional director/director for want of a valid quorum in both the meetings.

42. The next issue is whether the allegations [which] could be considered to be acts of oppression against the petitioners would justify the winding up of the company on just and equitable grounds. When a company declines to recognise a member as a shareholder of the shares acquired for valuable consideration and registered in his name, there could be no graver act of oppression. In the present case, the 2nd respondent, having transferred 88.6% shares of valuable consideration and having registered the shares in the names of the petitioners/their group, has denied the same. Such denial has prevented the petitions from exercising their majority rights. Further, by the alleged illegal issue of equi-preference shares which were allegedly converted into equity shares, the 2nd respondent had also reduced the petitioners from 88.6% shareholders to about 25% shareholders even with 3,19,200 shares registered in their names. Such conversion of a majority into minority is a grave act of oppression. In a company, where there are only two groups of shareholders, such acts of oppression would definitely justify winding up of the company on just and equitable grounds and, therefore, the petitioners are entitled to appropriate reliefs.

43. As far as the reliefs are concerned, we have already held that the petitioners are holders of 3,19,200 shares, and that the issue/allotment of equi-preference shares is a nullity, Therefore, the petitioners constitute absolute majority with 88.6% shares, and as such, are legally entitled to manage the company. This is what Shri Sen also prayed for. Even though it was contended that as per the first MoU, the petitioners had to pay over Rs. 19 crores to the 2nd respondent to take over the management of the company, since we are considering the case of oppression de hors the MoU, this stand cannot be considered by us. Even otherwise, we find from the MoU that Clause 11 of the first MoU reads-

"It is agreed that the management and control of the parties hereto of the first party together with the movable any immovable assets which includes the said property shall be handed over to the party hereto of the third, fourth and fifth part upon payment of a sum of Rs. 3.24 crores representing full consideration towards acquisition of 90% shares of the parties hereto of the first part."

Thus, the 2nd respondent is estopped from claiming that the petitioners cannot have full control of the company. In a petition under Section 397/398, when there are only two identifiable groups of shareholders, once acts of oppression are established meriting the winding up of the company on just and equitable grounds, with a view to put an end to the acts complained of, one common relief granted by this Board in terms of Section 402 of the Act, has been to direct the oppressor to purchase the shares held by the oppressed and, in most of the cases, the oppressor used to be the majority shareholder. In the present case, the petitioners who have been oppressed are the majority shareholders, and we could have directed them to purchase the shares held by the 2nd respondent and his group. However, it is on record that right from the beginning, the petitions were willing to go out of the company on receipt of their investment with interest and the 2nd respondent was also willing for the same. But, for reasons already indicated earlier, the parting of ways could not take place. Therefore, we consider it appropriate, considering the facts that the 2nd respondent is the prime mover behind the project, to allow him to have the control of the company provided be arranges to purchase the shares held by the petitions for a fair value. Accordingly, we give the first opinion to the 2nd respondent to purchase the shares held by the petitions' group by repaying Rs. 3,347 cores (minus Rs. 23 lakhs reportedly repaid by him out of the loan of Rs. 75 lakhs given to the company

-subject to the confirmation by the petitioners) with 20% simple interest from the date of investment till the date of payment. This payment should be effected by 31.3.2002. This option should be exercised before us on 6.11.2001 at 11.30 a.m. In case the 2nd respondent does not exercise this option, then the petitions will have the option to purchase the 11.4% shares held by the 2nd respondent and his group at the rate of Rs. 100 per share and take over the management of the company in exclusion of the 2nd respondent/his group. The equi-preference shares converted into equity shares, being invalid, will be extinguished; and the company will arrange for repayment of the consideration received for these shares. Since the 2nd respondent has been in control of the company, all the amounts payable to him/his group will be subject to verification of the accounts of the company and will be paid by 31.3.2002. Once the option is exercised, the same will be binding on both the sides. In either case, since we have given time for payment of the consideration, it is necessary, to protect the interest of both the sides, [in] that, in addition to the four existing directors, that is, 2nd and 7th respondents and 2nd and 3rd petitioners, there should be an independent director to function as the Chairman of the Board to manage the affairs of the company during that period Both the sides are at liberty to suggest a suitable person to be the Chairman of the Board, failing which we shall appoint the Chairman on 6.11.2001 when the parties are to appear before us for exercising the option.

44. This petition is disposed of in the above terms subject to our appointing the Chairman and giving consequential directions in regard to the conduct of the affairs of the company including appointment of a valuer, if need be..

45. All the earlier interim orders will continue till this order is worked out. There should be at least one director present in the Board meeting to constitute the quo-rum.