Company Law Board
Smt. Sandeep Kaur Ahluwalia vs Mukat Pipes Ltd. And Ors. on 14 February, 2007
Equivalent citations: [2007]138COMPCAS33(CLB), (2007)3COMPLJ343(CLB), [2007]76SCL387(CLB)
ORDER
Vimla Yadav, Member
1. In this order I am considering two cross company petitions viz. CP No. 112/05 filed under Section 397 of the Companies Act, 1956 (hereinafter referred to as 'the Act') and CP No. 01/111A/CLB/WR of 2006 (now CP No. 5/111A/06)-CLB(NR) filed under Section 111A of the Act in the matter of M/s Mukat Pipes Ltd. Since identical issues have been raised in these petitions by the same parties, these petitions are being disposed off by a common order.
2. The undisputed facts of the case are: M/s Mukat Pipes Pvt. Ltd. (Respondent No. 1) is a public limited company (hereinafter referred to as 'the company') which was incorporated on 18.8.1987 under the Companies Act, 1956 having its Regd. Office at Surindra House, Safed Pool, Kurla, Andheri Road, Andheri(E), Mumbai-400072. The present authorized share capital of the company is Rs. 10 crores divided into Rs. 1 crore equity shares of Rs. 10/- each. The issued, subscribed and paid up share capital of the company is Rs. 7.83 crores divided into 78.30 lac fully paid up equity shares of Rs. 10/- each. The company is engaged in manufacturing of various types of pipes. The main object for which the company was incorporated, inter-alia was to manufacture, design, fabricate, mould, extrude, expand, compress, bond laminate, reinforce, weld, shape, coat, print, treat filament wind, spray-up, install, erect and to adopt any of process to prepare for market or otherwise deal in, import, export, buy, sell exchange, distribute, equipments, plant models, machineries, structures, fittings such as submerged arch welded pipes, ERW pipes and fabricated pipes. Respondent No. 1 Company's shares are listed on the Stock Exchanges of Mumbai, Ludhiana and Delhi. R-2 and 3 are directors of the company and are managing and controlling the affairs of the company at its Regd. Office and all the records of the company are under their custody and control. Shri Rajinder Singh Ahluwalia (deceased husband of the petitioner in CP No. 112/05 namely, Smt. Sandeep Kaur Ahluwalia) held 33,96,700 equity shares of Rs. 10/- each in the respondent company. Out of which 72,300 shares were held in his individual capacity and the balance 33,24,400 shares pertained to the family firm in the name and style of M/s Muktanandan Corporation. 33,24,400 shares were registered in his name being partner of M/s Muktanandan Corporation to override the legal provisions that a firm cannot hold shares in a company in terms of Section 41(2) and 153 of the Act. The entire dispute in these proceedings is with respect to the aforesaid 33,24,400 shares owned by the firm but held in the name of petitioner's husband in the register of members of the company.
3. Shri Anil K. Aggarwal, Counsel for the petitioner argued that Shri Rajinder Singh Ahluwalia, husband of the petitioner namely, Smt. Sandeep Kaur Ahluwalia, was the key promoter and Chairman-cum-Managing Director of Mukat Pipes Limited
4. Since the company had already submitted a proposal for One Time Settlement of IDBI into equity, it was urgently necessary to bring transparency and update the present shareholding pattern of the company. Hence, the resolution to consider and approve the transmission of shares was sent on 17.3.2005 to all the five directors of the company to be passed by way of circulation under Section 289 of the Companies Act, 1956. It was pointed out that the three Directors of the company sent their approval to the circular resolution in writing. However, the other two directors (R-2 and 3 herein) vide their letter dated 21.3.2005 showed their reservation to the transmission mainly on the ground that the said shares were pledged as security with IDBI and hence the transmission was not possible unless and until permission from IDBI was received in writing. They further stated that after seeking approval from IDBI, the Board Resolution could be passed. In their said letter, they did not raise any objection as regards the title of the shares. They rather gave their implied consent by saying that after seeking approval of IDBI, the Board Resolution could be passed. Accordingly, it was contended that the circular resolution was approved by the majority of the Board of directors for transmission of shares in the name of Mrs. Sandeep Kaur Ahluwalia, wife of Late Mr. Rajinder Singh Ahluwalia and communication to this effect was sent to her. In pursuance of Reg. 7(1),7(3) of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 and pursuant to Reg. 13(l) and 13(6) of the SEBI (Prohibition of Insider Trading) Reg. 1992, the reports were sent to the company and to the Stock Exchanges in the prescribed forms. The Registrar of share Transfer Agent of the company, viz., M/s Intime Spectrum Registry Ltd. registered the transmission of 33,96,700 shares from Late Mr. Rajindr Singh Ahluwalia to Mrs.Sandeep Kaur Ahluwalia on 11.5.2005. The IDBI, with whom the Share Certificate was pledged, was approached for endorsement of the transmission of shares on the back side of share certificate in the name of Mrs. Sandeep Kaur Ahluwalia, IDBI allowed the same and accordingly the name of Mrs.Sandeep Kaur Ahluwalia was entered on the share certificate on 17.5.2005. Mrs.Sandeep Kaur Ahluwalia gave a letter of continuity of pledge of the said shares in favour of IDBI. The shares are still lying pledged with IDBI. Therefore, the earlier reservation of the two directors did not sustain any more. After the transmission of shares in her name, Mrs.Sandeep Kaur Ahluwalia became the registered holder of 33,96,700 shares in the company. Her shareholding was duly reflected by the company in the distribution schedules sent to the Stock Exchanges under Clause 35 of the Listing Agreement for the quarters ended on 30.6.2005, 30.9.2005 and so on and so forth which was also duly reflected on the Web-site of the Mumbai Stock Exchange. These distribution schedules were sent by the company itself from its registered office. Hence, the completion of transmission of shares was well in the knowledge of the respondents.
5. Further, Shri Aggarwal argued that Mrs. Sandeep Kaur Ahluwalia, being registered holder of 43.38% shares and having no representation on the Board after the death of her husband, requested the company to appoint her and her two nominees on the Board of the Directors of the company. For this purpose she sent a requisition on 29.6.2005 for holding an Extra Ordinary General Meeting. Further, it was pointed out that as per the provisions of Section 166 of the Companies Act, 1956, the AGM of MPL was required to be held on or before 30.9.2005. But Mrs. Sandeep Kaur Ahluwalia neither received the AGM Notice nor she received the balance sheet of the company as at 31.3.2005. She brought it to the notice of the company and requested that the AGM notice and balance sheet be sent to her by Regd. A.D. post and for this purpose she also sent a bank draft of Rs. 500/-. But the company failed to comply with the name. It was pointed out that Mr. Kuljinder Singh Ahluwalia and Mr. Ravinder Singh Ahluwalia (R-2 and 3) who are real brothers of late Mr. Rajinder Singh Ahluwalia and who are directors of MPL hatched a conspiracy to claim 1/3rd share each in the shares of Late Mr. Rajinder Singh Ahluwalia on the basis of a forged and fabricated supplementary deed of partnership of M/s Mukatnandan Corpn. purportedly executed on 2.4.2003. They claimed that out of 33,96,700 shares, 33,24,400 shares were held by Mr. Rajinder Singh Ahluwalia on behalf of M/s Muktanandan Corpn. And by virtue of the Supplementary Deed of Partnership, they are entitled to l/3rd No. of the 33,24,400 shares each in the share capital of MPL. The Supplementary Deed of partnership is a forged and fabricated document which is evident from the fact that the signatures of Mr.Rajinder Singh Ahluwalia and his mother Smt. Gurdev Kaur who were the original (50%-50%) partners as per Regd. Partnership deed dated 17.9.1975 have been forged on the Supplementary Deed. Even the signatures of Mrs. Sandeep Kaur Ahluwalia are forged or have been obtained by misrepresentation after the death of her husband. The Supplementary Deed of partnership has been intentionally pre dated so as to show that it was executed during the life time of Mrs. Gurdev Kaur (who died in September, 2003) and Mr. Rajinder Singh Ahluwalia (who died on 3,1.2004). The respondents did not place the original copy of the Supplementary Deed of partnership before the Hon'ble Company Law Board to prove its genuineness and authenticity. Further the supplementary deed was not registered with the Registrar Firms. Hence, neither the fresh Registration Certificate nor the certified list of partners was placed on record. R-2 and 3 in order to deprive Mrs. Sandeep Kaur Ahluwalia of her 33,96,700 shares already transmitted in her name, called a meeting of the Board of Directors of MPL to be held on 5.12.2005 in which the only item of agenda was to transmit 33,24,400 shares registered in the name of Mrs.Sandeep Kaur Ahluwalia to further transmit the shares in the names of Mrs. Sandeep Kaur Ahluwalia, Mr. Kuljinder Singh Ahluwalia and Mr. Ravinder Singh Ahluwalia in the ratio of l/3rd each. The other two directors of the company viz., Mr. Rupinder Singh and Mr. Kamal Jain raised serious objections to the retransmission of shares of Mrs. Sandeep Kaur Ahluwalia. Mrs. Sandeep Kaur Ahluwalia also issued a legal notice to the company and to respondent Nos. 2 and 3 against the re-transmission of her shares. They also asked the respondent to furnish them a notarised copy of the supplementary deed of partnership and other related documents. But the respondents did not give any reply to the same and went ahead to hold the meeting on 5.12.2005. At the said alleged Board Meeting, only R-2 and 3 and one Mr. R.K. Bali were present. Since R-2 and 3 were directly interested in the proposed re-transmission, in pursuance of Sections 299 and 300 of the Act they could not participate in discussion and vote at the meeting. Hence, only one non interested director was present and the quorum of the meeting was not complete. R-2 and 3 were not entitled to verify their own documents and approve the same in their own favour. R-2 and 3 acted with mala fide intention to gain the shareholding of other company and thus breached their fiduciary duty as directors of the company. The shares registered in the name of Mrs. Sandeep Kaur Ahluwalia could not be retransmitted during her life time without her consent and without any document executed by her in respect of the said shares. The claim of R-2 and 3 on the basis of forged and fabricated Supplementary Deed of Partnership is not sustainable in law. In case they still want to stake any claim on the basis of this deed, they should approach the appropriate court of law for adjudication of the matter. So far as the company is concerned, it recognises only the registered shareholder of the company. It does not go behind the registered shareholder. In the present case, the shares were registered in the name of Late Mr. Rajinder Sikngh Ahluwalia in the Register of Members and other records of the company and after his death the shares were transmitted in the name of his wife Mrs. Sandeep Kaur Ahluwalia. The respondents have not produced even a single piece of paper of MPL to show that the shares were owned by M/s Muktanandan Corporation. The respondents have neither impleaded M/s Muktanandan Corporation as a party in the present proceedings nor they have represented themselves as partners of M/s. Muktanandan Corpon. No authorisation on behalf of M/s Muktanandan Corpn. was placed on record.
6. Furthermore, Shri Aggarwal argued that in the present petition, only R-2 and 3 have submitted their replies and participated in the proceedings before this Hon'ble Company Law Board through their counsel. However, the company which was arrayed as R-1 neither filed any reply to the petition nor it was represented before the Hon'ble Board through any counsel. By not filing the reply and nor raising any objection to the petition, the respondent company is deemed to have accepted the contentions of the petitioner made in the petition. It was pointed out that the respondents are oppressing Mrs. Sandeep Kaur Ahluwalia who is a widow and has no male family member. The respondents are bent upon to close down the company and thereby harming the interest of the petitioner and other stake holders of the company. The company has two industrial units, one at Rajpura (Punjab) which is operational and the other at Baramati (Pune) which is lying closed for the last several years. The current assets of Rajpura Unit are hypothecated with Punjab National Bank, Rajpura against the working capital limits. The land, building and plant arid machinery of this unit is mortgaged/hypothecated with IDBI against the term loans. In order to save the Rajpura Unit, a One Time Settlement (OTS) has been arrived at with PNB under which PNB has agreed to settle their dues for Rs. 5.00 crores. As per this OTS Rs. 75.00 lacs have already been paid to PNB and the balance of Rs. 425.00 lacs was to be paid by 31.1.2007 and an agreement to this effect was to be executed between the company and PNB. For this purpose resolution of the Board of Directors of the company is urgently required. Further IDBI/SASF has issued notice to the company under Section 13 of the Securitization Act, 2002 demanding the repayment of its dues. As per the Company Law Board's interim order passed on 27.1.2006 no general meeting of Board meeting or the company can be held till the disposal of the petition. Shri Aggarwal argued that the financial status and other facts of the company show that it would be just and equitable to wind up the company but it would be prejudicial to the interest of the petitioner and other stakeholders to wind up the company. Hence, it was prayed that the holding of Mrs. Sandeep Kaur Ahluwalia of 33,96,700 shares constitution 43.38% shares in the share capital of MPL be protected and she be given adequate representations on the Board of Directors of the company so that she can effectively manage the affairs of the company in the larger interest of the company as well as other stakeholders of the company.
7. Representing Respondent No. 2 in CP under Section 111A which was clubbed with the petition under Section 397 of the Act and were heard together by the Hon'ble Company Law Board. Shri Aggarwal pointed out that the pleadings and arguments of Mrs. Sandeep Kaur Ahluwalia, made in petition under Section 397 may be read as part and parcel of her submissions in the petition under Section 111A. The same are not being reproduced to avoid repetition. The petition under Section 111A has been filed by Mr. Kuljinder Singh Ahluwalia and Mr. Ravinder Singh Ahluwalia who are arrayed as respondents in the petition under Section 397 as a counter blast and to harass the petitioner therein, viz., Mrs. Sandeep Kaur Ahluwalia. The claim of Mr. Kuljinder Singh Ahluwalia and Mr. Ravinder Singh Ahluwalia to the 1/3rd share each of 33,24,400 shares of MPL is based on a forged and fabricated Supplementary Deed of Partnership of M/s Muktanandan Corpn. It is settled law that where in case of transfer/transmission of shares, matter involves highly disputed questions of fact regarding fraud, forgery misrepresentation and manipulation, such matter cannot be decided by the Hon'ble Company Law Board in summary jurisdiction under Section 111A and the petitioner, if so advised, could approach civil court. For this legal proposition Shri Aggarwal placed reliance on the following reported cases: Indian Bank v. Deepak Fertilisers & Petrochemicals Corporation Ltd. (1999) 21 SCL 224 (Bom.); National Insurance Company Ltd. V. Glaxo India Ltd. (1999) 2 Comp.LJ 205(Bom.); Smt. S. Anuratha v. A.K.M.N. Cylinders Pvt. Ltd. and Anr. (1999) 1 CLJ 363 (CLB); Tarsem Kansil v. Dev Spinners Ltd. (2000) 24 SCL 519 (CLB); Ammonia Supplies Corporation P. Ltd. V. Modern Plastic Containers P. Ltd. and Ors. . Further, Shri Aggarwal contended that the names of the petitioners was neither entered into the Register of Members nor their names were deleted from the Register of Members in respect of the said 33,24,400 equity shares of MPL. Hence, the petition under Section 111A is not maintainable. Hence, it was prayed that the petition filed by Mr. Kuljinder Singh Ahluwalia and Mr.Ravinder Singh Ahluwalia under Section 111A of the Companies Act, 1956 be dismissed with cost.
8. Shri U.P. Mathur, Counsel for the respondents argued that out of 33,96,700 equity shares of Rs. 10/- each held by Shri Rajinder Singh Ahluwalia (deceased husband of the petitioner) in the respondent company, M/s Mukat Pipes Limited he held only 72,300 shares in his individual capacity and in his own right and the balance 33,24,400 shares were legally owned by the family firm in the name and style of M/s Muktanandan Corporation, but were registered in his name being its partner in view of the legal provision that a firm cannot hold shares in a company in terms of Section 41(2) and 153 of the Act. Shri Mathur raised preliminary objections stating that the petition is not maintainable as the Petitioner's husband held only 72,300 shares in the respondent company in his individual capacity and after his death on 03.01.2004, the petitioner is entitled to those shares as his widow. These shares are less than 1% of the total issued, subscribed and paid up capital of the respondent company, i.e. 78,30,000 equity shares of Rs. 107- each. Her shareholding being less than 10%, she is not entitled to file the present petition in terms of Section 399 of the Act. Secondly, it was contended that the present petition has been filed under Section 397 of the Act, however, neither any averment has been made in the petition in terms of Section 397 (2) (b) of the Act to the effect that the facts justify winding up of the company on just and equitable grounds nor the same has been proved during the course of proceedings or arguments. It was argued that it was held in the case of Hanuman Prasad, Bagree Cereals P. Ltd. (2001)2 Comp LJ 392(SC) that it is a condition precedent for the petitioner to make out a case for winding up of the company on just and equitable grounds for seeking relief under Section 397 of the Act. On these two grounds, it was argued that the petition deserves to be dismissed without going into the merits of the case.
9. Arguing the case on merits, Shri Mathur pointed out that out of 3396700 shares, 72,300 shares were held by Shri Rajinder Singh in his personal capacity in respect of which there is no dispute. The bone of contention is with regard to the balance 33,24,400 shares. It was pointed out that these shares belong to the family firm M/s Muktanandan Corporation, a partnership firm originally consisting of Shri Rajinder Singh and Smt. Gurdev Kaur (mother of Shri Rajinder Singh and Respondent Nos. 2 & 3) in terms of partnership deed dated 17.09.75 with 50% profit sharing, and later on the firm was re-constituted as per Supplementary Deed of partnership dated 02.04.03 with 5 partners, consisting of the then existing two partners, the petitioner as also respondent Nos. 2 and 3 with 20% profit sharing by each of them. It was argued that as the partnership firm is not a legal 'person' it cannot 'agree in writing' in terms of Section 41(2) of the Act and in terms of Section 153 of the Act, no notice of any trust can be entered in the register of members, a firm can not be registered as a member of a Company and accordingly, these 33,24,400 shares were registered in the name of Shri Rajinder Singh, being the managing partner and as trustee and agent of the firm. The respondents placed reliance on the following documents to prove that these shares belonged to the firm:
Balance Sheet of the firm as at 31.04.1991, duly audited and signed by Shri Rajinder Singh as partner, showing investment in 4,78,600 shares of Respondent company (P.8 of reply); Balance sheets of the firm of 2001-02 to 2003-2004 duly audited and signed by Shri Rajinder Singh showing investment in 33,24,400 shares of respondent company (P. 18, 23,29,32,41 and 44 of reply); Income Tax returns of the firm for Assessment year 2001-02 signed by Shri Rajinder Singh showing income from dividend on - 33,24,400 shares and investment in 33,24,400 shares of respondent company (P. 52, 65, 82 of reply); Income Tax returns of Shri Rajinder Singh for Assessment year 2000-01 signed by him showing investment in the shares of Mukat Pipes Limited of Rs. 8,35,500/- (Rupees eight lacs thirtyfive thousand five hundred) only. This cannot be the cost of 33,96,700 equity shares of Rs. 10/- each. In that case the investment should have been shown as Rs. 3,39,67,000/- (Rupees three crores thirty nine lacs sixty seven thousand) only. This investment, in fact, is the cost of 72,300 shares on an average cost of Rs. 11.56 per share. Shri Rajinder Singh used to buy some shares from the open market also. It was argued that it is abundantly clear from these aforesaid documents, duly signed by Shri Rajinder Singh himself in large number of contemporaneous documents from year to year, that these 33,24,400 shares in the respondent company belonged to the firm, at all relevant times. Incase, these shares were owned by him, the same would have appeared in his Income Tax returns; the return only shows 72,300 shares which were held by him in his personal capacity. On the other hand, the balance sheets and Income Tax returns of the firm categorically mention that 33,24,400 shares in the respondent company are owned by the firm. It was further pointed out that these documents filed by the respondents have not been challenged by the Petitioner. She has merely denied the averments made in the reply by respondents and has merely stated that these documents are irrelevant, as the firm was never a shareholder nor its name is recorded in the register of members. Needless to say, it was argued, in case petitioner's husband would have been alive to-day, she would not have taken such a false and malafide plea, against the interest of respondents. It was further argued that in this case, since the firm did not have sufficient funds to buy the shares of the respondent company, the group companies namely, Surindra Engineering Co. Ltd. Mukat Tanks & Vessels (P) Ltd, Mukat Pipes Limited and Infa Engineering (P) Ltd had advanced substantial funds to the firm as is evident from the chart showing balances of these group companies with the firm over the years (at page 11 of sur-rejoinder). In view of the aforesaid, it was argued that it may be held that these 33,24,400 shares belong to the firm and not to Shri Rajinder Singh or the petitioner, as alleged.
10. Further, responding to the allegation of forged Supplementary Deed of Partnership, it was contended that as per partnership deed dated 17-09-75 (p. 96 of petition), the family firm, M/s Muktanandan Corporation was constituted with two partners, namely Shri Rajinder Singh and Mrs. Gurdev Kaur, mother of Respondent Nos. 2 & 3. A copy of Supplementary Deed of partnership dated 02-04-2003 has been filed by the petitioner alongwith her petition (at page 101-105) and it is alleged that "signature of Mrs Gurdev Kaur and Mr. Rajinder Singh Ahluwalia have been forged on this Supplementary Deed of Partnership. Not only this, even the signatures of the petitioner have been forged or have been obtained by Respondents Nos. 2 & 3 by misrepresentation and fraud." (para 6.8 of petition). It was pointed out that originally the firm had two partners and as per supplementary deed dated 02-04-2003, the firm was re-constituted by inducting 3 new partners, being the petitioner and Respondent Nos. 2 & 3. It has been executed by all the 5 partners, including the petitioner. She does not say categorically that it has not been signed by her; she merely says that either her signatures were forged or have been obtained by respondents. Evidently, it was argued, she has signed the documents and has challenged the same in the present proceedings after 2 years as now, the same does not serve her purpose. She has also alleged that signatures of Mrs Gurdev Kaur and Mr. Rajinder Singh have been forged, merely because they have since died and are not available to testify. Respondents have submitted the opinion of handwriting expert dated 17.04.2006 (p.8 of sur-rejoinder) to the effect that the deed bears their signatures. The deed has also been witnessed by Shri R.K. Bali, an existing Director of the company. It was further argued that the said supplementary deed of partnership has also been given effect to in the firm's balance sheet for the year 2003-04, duly audited and signed by Respondent No. 2 as its partner, showing Capital Account of all the 5 partners and sharing losses equally, being one-third each by Respondents Nos. 2 & 3 and the petitioner. (P.41, 43 of reply). In view of the aforesaid, it was argued that the execution of the Supplementary Deed of partnership cannot be questioned by the petitioner.
11. It was further argued by Shri Mathur that the petitioner, in collusion with her real brother, Shri Rupinder Singh, Director of the company and Mr. Kamal Jain another Director of the company gave a notice dated 17.03.05 to pass resolution by circulation for transmitting 33,96,700 shares registered in the name of Shri Rajinder Singh. (P. 116-18 of reply). This was objected to by respondents vide letter dated 21.03.05 (P.119 of reply) on various grounds and requested to place the matter in a board meeting after being referred to Head Office and Share transfer agents at Mumbai. It was also stated that the said letter has been signed by Executive Director who has no locus standi in the matter of transfer/transmission of shares, being handled at the Head Office where the share transfer agents are located. In view of the aforesaid, the respondents bonafidely believed that no further action was taken pursuant to the said notice. It, however, later on transpired that the shares have allegedly been transmitted. A notice was sent by respondents on 26-11-2005 for convening the board meeting on 05.12.2005 at the registered office of the company at Mumbai for transmission of shares held by the firm-M/s Muktanandan Corporation in the names of the three existing partners of the firm, namely, Petitioner and Respondents Nos. 2 & 3 jointly (P. 120 of reply). Shri Kamal Jain, Director vide letter dated 02-12-05 called for documents/information (P. 121-22), while Shri Rupinder Singh, director wrote objection on 29-11-05 on the notice itself calling for detailed agenda etc. (P.123 of reply). As per legal notice sent by the petitioner through her advocate dated 02.12.05 (P.124 of reply), further documents information were called besides levelling other allegations. However, none of them gave any impression, directly or indirectly, that the alleged shares have been transmitted pursuant to Circular resolution dated 17.03.05. The alleged authorization letter dated 31.03.05 signed by Shri Rupinder Singh stating that Board of directors have approved the transmission of 33,96,700 equity shares of Late S. Rajinder Singh in the name of his wife, Mrs. Sandeep Kaur and that the Board have authorized singly to Mr. Rupinder Singh to make necessary endorsement on the original share certificate (P. 132 of reply) and approved resolutions by circulation signed by Shri Rupinder Singh, Mr. Kamal Jain and Mr. R.K. Bali, Directors were sent by Shri Rupinder Singh to the Share Transfer Agents. As per letter dated 10.12.05 of Share Transfer Agents, it was informed that on 11.05.2005, 33,96,700 shares were transmitted on the basis of the alleged Board Resolution and letter dated 31.03.05 and on that basis the respondents came to know for the first time, the game plan of the petitioner. As per letter dated 01.12.05 of the Share Transfer Agents, they opined that ownership of shares held in the name of Late Rajinder Singh may be settled by the partners/currently registered shareholders themselves.
12. Shri Mathur further argued that the alleged transmission of 33,96,700 shares in favour of the petitioner by circulation resolution is bad in law and illegal, inter-alia, on the following grounds. Firstly, these shares did not belong to Shri Rajinder Singh, while 72,300 shares belonged to him, the balance 33,24,400 shares belonged to the firm-Muktanandan Corporation and these shares can only be transmitted in the name of Petitioner and Respondents Nos. 2 & 3 jointly, being the surviving partners of the firm. Secondly, respondents categorically suggested for consideration of the proposal in the Board meeting in consultation with the Share Transfer Agents at Mumbai and after permission by IDBI and respondents did not vote for the circular resolution. But the circulation resolution was surreptiously sent to Share transfer agents without informing the respondents. The fact that they have sent these papers to Share Transfer Agents or that the alleged circular resolution has been approved by the three directors was never informed by the directors - Rupinder Singh, Kamal Jain or the petitioner through her legal notice, in reply to the notice for holding board meeting on 05.12.05. Thirdly, the circulation resolution is moved when it is of urgent necessity and the business to be transacted there at cannot wait for being considered in a regular board meeting. Apparently, there was no urgency in the matter and as requested, the matter was sought to be discussed in a board meeting. Further, under Section 289 of the Act, resolution has to be circulated in draft together with necessary papers to all directors. In this case, the fact that the impugned shares were held by the firm and were registered in the name of petitioner's husband in view of legal constraints was not mentioned. Furthermore, as per Section 289, the resolution has to be approved by majority of directors. In this company, there are 5 directors. Resolution was never approved by Respondent Nos. 2 & 3. It was allegedly approved by other three directors, including Mr. R.K. Bali who withdrew his consent as explained in his affidavit dated 30.03.06:
That I was not aware of the alleged circular resolution which was got signed by me on or about 24.03.05 without knowing the contents thereof. I had accordingly, withdrawn my consent for the said circular resolution vide my letter dated 28.03.05 addressed to Shri Rupinder Singh to maintain status quo. Later, I approved the resolution passed by the Board of directors in the meeting held on 05.12.2005 regarding transmission of the said 33,24,400 shares held by M/s Muktanandan Corporation, in favour of Ahluwalia and Mr. Ravinder Singh Ahluwalia jointly, in accordance with the law.(P.29 of sur-rejoinder) Accordingly, the alleged resolution has been approved by only 2 directors, out of 5 directors, and the same has not been carried by majority of directors. Further, it was pointed out that the counsel of petitioner referred to affidavit of Mr. Bali dated 21.12.06 at the time of final hearing which was objected to by the counsel of the respondents being placed on record, at this stage. Further, the circular resolution was required to be brought before and noted in the next board meeting and should have formed part of minutes of board meeting, but this was never done. Fourthly, it was argued that the petitioner has not come with clean hand. Except making a vague reference to the aforesaid transmission of shares in her name in para 6.3 of the petition, the aforesaid details relating to circular resolution and objections raised by the respondents have not been stated in the petition; fifthly it was pointed out that the alleged transmissions of shares in favour of the petitioner is not in compliance of mandatory provisions of Regulations 7, 10, 15-21 of SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 and related provisions of SEBI (Prohibition of Insider Trading) Regulations, 1992 as the respondent company is a listed company In view of the foregoing, Shri Mathur prayed that the alleged transmission of 33,96,700 shares of the respondent company in favour of the petitioner by the alleged circular resolution dated 17.03.05 being illegal be set aside by the Hon'ble Board.
13. Board meeting held on 05.12.05 for transmitting 33,24,400 shares belonging to the firm, it was pointed out that the notice dated 26.11.05 was sent by Respondent No. 2 for holding the Board meeting on 05.12.05 to consider transmission of 33,24,400 shares held in the name of Late Rajinder Singh, but owned by the firm - Muktanandan Corporation, in favour of 3 existing partners of the firm jointly (P. 120 of reply). Objections were raised and further documents/information were called by directors -Shri Kamal Jain and Rupinder Singh (Pages 121-3 of reply). A legal notice was also given on behalf of the petitioner on similar lines raising other objections. (P. 124-26 of reply) but none of them nowhere stated or informed, directly or indirectly, that these very shares have already been transmitted by circular resolution dated 17.03.05. It was pointed out that the board meeting was held on 05.12.05, as scheduled, and after deliberations, the following resolution was passed duly approved/signed by Respondent Nos. 2, 3 and Mr. R.K. Bali while Sarvshri Rupinder Singh and Kamal Jain abstained:
RESOLVED THAT 33,24,400 equity shares held in the name of Mr. Rajinder Singh Ahluwalia, ex partner/Mrs. Sandeep Kaur Ahluwalia, being partner of Muktanandan Corporation, Partnership Firm, as per the Deed of the Partnership Firm, and the copy of the Balance Sheet and Profit and Loss A/c of the said Partnership, which reflects the joint ownership of the above shares of the partners of Muktanandan Corporation, Partnership firm, be and is hereby transmitted in the names of the partners jointly in three sets as follows and the RTA be informed to take steps to give effect in the register of the members maintained by the company:
a. Mrs. Sandeep Kaur Ahluwalia 11,08,134
Mr. Kuljinder Singh Ahluwalia
Mr. Ravinder Singh Ahluwalia
b. Mr. Kuljinder Singh Ahluwalia 11,08,133
Mrs. Sandeep Kaur Ahluwalia
Mr. Ravinder Singh Ahluwalia
c. Mr. Ravinder Singh Ahluwalia 11,08,133
Mrs. Sandeep Kaur Ahluwalia
Mr. Kuljinder Singh Ahluwalia
Total No. of shares 33,24.400
It was argued that the said Board resolution is perfectly legal and is in accordance with the law, inter-alia, on the following grounds: Proper and adequate notice dated 26.11.05 was given to all directors for holding the board meeting on 05.12.05 for proposed transmission of shares belonging to the firm and held in the name of petitioner's husband, and the same was considered in the meeting held on 05.12.05, as scheduled (P. 120 of reply); after deliberations, as per recorded minutes, the resolution was passed by all the three directors present in the meeting unanimously, namely, Respondent Nos. 2, 3 and Mr. R.K. Bali and all three of them also constituted majority of directors of the company. Sarvshri Rupinder Singh and Kamal Jain did not attend the meeting, presumably because they were in minority and never wanted to disclose about the papers already sent to Share Transfer Agents in terms of circular resolution dated 17.03.05. Further, it was contended that the alleged authorization letter dated 31.03.05 (P. 132 of reply) approving circular resolution was never brought to the notice of the respondents by Sarvshri Rupinder Singh and Kamal Jain or the petitioner in their reply to the notice of the board meeting (P.121-27 of reply). This shows the malafide conduct of the petitioner and her supporting directors of the company; the transmission of shares belonging to the firm as per Board resolution dated 05.12.05 in the names of the existing three partners, including the petitioner jointly, is equitable and justified; on the other hand, as per circular resolution dated 17.03.05 approved by Shri Rupinder Singh and Kamal Jain, these shares are sought to be mis-appropriated by the petitioner for her own benefit although the impugned shares belonged to the family firm.
14. Responding to the Petitioner's counsel objection to the aforesaid resolution on the ground that the same attracted the provisions of Section 299 of the Act, as shares were sought to be transmitted to themselves by the Respondent-directors, it was contended by the respondents that Section 299 has no application to the transfer/transmission of shares. It was held in Mukkattukara Catholic Co. Ltd. v. Thomas reported in (115) 4 Comp L.J. 311 that "the decision taken by the Board of directors to accord sanction for the transfer of shares in the names of relatives of one of the directors does not attract the mischief of Section 299 to result in disqualification of the concerned director or of the chairman or any other director of the company." The following clarifications given by the Department of Company Affairs were also referred to in this behalf:
It has been held in re Public Prosecutor v. Khaitan (1957) 27 Com Cases 77 as also by the Courts earlier that the contract or arrangement hit by section is the one in which director has personal interest conflicting with his duties towards the company and does not cover any case where there is no personal interest involved.
Thus, where the director has transferred the shares in a company executing the form of transfer and delivery of the share certificate, but the transferee for reasons best known to him, has not got the shares registered in his name, the director, even though continuing as registered holder of the shares in the books of the company, cannot be said to have any personal interest in the shares or in any contracts made with any company by virtue of such shareholding. So, there should be no need for him to give any notice of interest in respect of such contracts." (Reliance was placed on Company News and Notes, dated 01.07.1963).
It was further argued by Shri Mathur that if the argument of the petitioner is accepted, Section 299 will also apply to the circular resolution dated 17.03.05 as Shri Rupinder Singh is the brother of the petitioner and is interested in the alleged transmission of shares to her, in respect of which the said provisions of law were not complied with. Hence, counsel for the respondents prayed that the aforesaid 33,24,400 shares transmitted in the name of the existing partners of the firm jointly in the board meeting held on 05.12.05 be ordered to be registered and the register of members be ordered to be rectified accordingly.
15. As regards C. P. No. 01/111A/CLB/WR of 2006 (now C. P. No. 5/111/06-CLB (NR) Shri Mathur pleaded the case of the petitioners pointing out that this is the petition filed by Sarvshri Kuljinder Singh and Ravinder Singh, shareholders and directors of the company under Section 111A of the Act for rectification of the register of members (i) by deleting the name of Smt. Sandeep Kaur Ahluwalia against alleged transmission of 33,96,700 shares by circular resolution dated 17.03.05 and vide authorization letter dated 31.03.05 signed by Shri Rupinder Singh, director of the company, and (ii) by registration of transmission of 33,24,400 shares in favour of Petitioner and Respondent Nos. 2 & 3 jointly in terms of Board resolution dated 05.12.05, in view of the facts and circumstances explained in the matter of C. P. No. 112 of 2005.
16. I have considered the pleadings and the documents filed therewith as well as the arguments of the counsels for the petitioners and the respondents in the cross petitions referred to above. Smt. Sandeep Kaur Ahluwalia's case is that 33,96,700 equity shares of Rs. 10/- each held by her late husband namely Shri Rajinder Singh Ahluwalia in the respondent company have been rightly and legally transmitted in her name and any attempt for re-transmission of the impugned shares is illegal and oppressive and further that the company petition under Section 111A deserves to be dismissed being not maintainable. Shri Kuljinder Singh Ahluwalia and Shri Ravinder Singh Ahluwalia's case is that their late brother (Shri Rajinder Singh) held only 72,300 shares of his own and the remaining 33,24,400 shares, in fact, pertained to the firm (Muktanandan Corporation) and were held in their brother's name on account of technical grounds that a firm cannot hold shares in a company in terms of Sections 41(2) and 153 of the Act, and that since 1975 their mother (Smt. Gurdev Kaur) and their brother were equal partners till 2.4.2003 when vide supplementary partnership deed they alongwith Smt. Sandeep Kaur became equal partners with their mother and brother. Hence, their attempt for re-transmission of the impugned shares which were allegedly transmitted at their back, is said to be justified and, therefore, their petition under 111A for rectification of register of members by deleting the name of Smt. Sandeep Kaur Ahluwalia against alleged transmission of 33,96,700 shares.
17. On consideration of the facts and circumstances of the case, I find that the respondents in CP No. 112 have failed to refute the allegations against them. Preliminary objections raised by them are not tenable. As regards the objection that the petitioner holds less than 10% of the total issued, subscribed and paid up capital of the company, the petitioner has claimed transmission of 33,96,700 shares held by her late husband in the respondent company under Registered Folio No. R000308 vide share certificate No. 51905. This fact has not been denied by the respondents. 33,96,700 shares constitute 43.38% of the share capital of MPL. As regards respondents' reliance on the decision of the Supreme Court in Bagree's case (Hanuman Prasad Bagree Cereals P. Ltd (2001) 2 Comp LJ 392 (SC) to submit that unless the petitioner establishes that the company is liable to be wound up on just and equitable grounds, and that such winding up would not be in the interest of the petitioner, no relief could be granted under Section 397 of the Act, this Board has been taking a view that this principle cannot be strictly applied in family companies. A reading of that judgment would show that the court, after observing that the petitioners had not established any act of oppression or mismanagement in the affairs of the company further observed (para 3 at page 394 of Comp LJ).
Therefore, we have to pay our attention only to the aspect that the winding up of the company would unfairly prejudice the members of the company who have the grievance and are the applicants before the court and that otherwise, the facts would justify the making of a winding up order on the ground that it was just and equitable that the company should be wound up. In order to be successful on this ground, the petitioners have to make out a case of winding up of the company on just and equitable grounds. If the facts fall short of the case set out for winding up petition on just and equitable grounds, no relief could be granted to the petitioners". Even second preliminary objection that no case has been made out for winding up of the company is also not correct. The counsel for the petitioner has vehemently argued that the financial status and other facts of the company show that it would be just and equitable to wind up the company but it would be prejudicial to the interest of the petitioner and other shareholders to wind up the company hence the petitioner's prayer to protect her share capital and to give her adequate representation on the Board of Directors for effective management of the company in the larger interest of the company as well as other shareholders of the company. Further, the respondents have not been able to substantiate their plea of unclean hands. The counsel for the petitioner contended that the instances of unclean hands have to be with respect to the affairs of the company and even otherwise the instances of unclean hand are unfounded. I agree that it is a settled proposition of law that the conduct of the parties is a very relevant factor to be considered in the equitable proceedings under Section 397. In Sri Kanta Datta Narasimharaja Wadiyar v. Venkateshwar Real Estates Private Ltd. (1991) 3 Comp. LJ 336 (Karn): (1991)72 Comp Cas 211 (Karn), it was held that the petitioner seeking equitable relief must come with clean hands and good conduct, failing which the petitioner would constitute a gross abuse of the process of Court, and the petitioner is not entitled for any relief under Sections 397. It also held that the conduct of the parties in other proceedings could also be taken into consideration. However, it was held that the conduct of the petitioner before filing of the petition may not be a relevant factor. The court, therefore, exercising equity jurisdiction, cannot ignore the well known maxims of equity. Two such maxims are that he who seeks equity must do equity and he who comes into equity must come with clean hands...." I am inclined to agree with the counsel for the petitioner. The instances of unclean hands have to be with respect to the affairs of the company. In the present case the instances pointed out are not in the affairs of the company. Even otherwise, the instances of unclean hands are unfounded.
18. In a case of oppression, a member has to specifically plead on five facts - (a) what is the alleged act of oppression; (b) who committed the act of oppression; (c) how it is oppressive; (d) whether it is in the affairs of the company; (e) and, whether the company is a party to the commission of the act of oppression. In the present case all the five aspects of oppression stand proved. The acts of oppression in the affairs of the company have been listed in detail highlighting how these are oppressive. There is specific averment as to who committed the act of oppression and how the company is a party to the oppression. It is well settled proposition that the provision of Section 397 is to be invoked to get the grievances of oppression redressed. The petitioner has rightly invoked the provisions of these sections. Chronology of the events reveals that the respondents had acquiesced to the transmission of shares in their sister-in-law's name after the death of their brother who was the key promoter and CMD of MPL. The cross petition under Section 111A and supplementary Partnership Deed appear to be an afterthought. MPL had issued a single share certificate No. 51905 for 33,96,700 equity shares of Rs. 10/- each to Shri Rajinder Singh Ahluwalia, the deceased husband of the petitioner. The shares have been duly registered in his personal and individual name under Registered Folio No. R000308. His name was duly entered in the Register of Members of the company. In case these shares were intended to be of the firm - there was no bar in holding these in the name of the only other partner (Smt. Gurdev Kaur) as well. But this was not done. In these circumstances, whatever be the intention or technical hitch, the fact remains that the shares stood in the name of the petitioner's late husband. In this context, the respondents' reliance on the documents showing shares and dividend income in the name of the firm and source of funds become irrelevant. The respondents have, even otherwise, failed to produce the original supplementary partnership deed. It has not shown to have been registered with the Registrar of firms. No shareholding has been proved in the name of the firm. The firm has not been impleaded as a party. The respondents are not represented in the capacity of partners of the firm. Company refuses to recognize any other person other than its members, its shareholders. Hence the petitioner's application dated 16.3.2005 to the company for transmission of 33,96,700 shares alongwith affidavit of legal heirs and Deed of Relinquishment executed by the three daughters in her favour enclosing Indemnity Bond and Death Certificate was justified. What else could the company ask for from her for proper and legal transmission? Resolution to consider and approve the transmission on 17.3.2005 was sent to all the five directors of the company to be passed by circulation under Section 289 of the Act. Three directors out of five even sent their approval to the circular resolution (no reliance can be placed on Shri R.K. Bali's affidavit dated 30.3.2006 produced by the respondents in view of his another affidavit dated 21.12.2006 sought to be filed by the petitioner). The remaining two directors being respondent Nos. 2 and 3 admittedly vide their letter dated 21.3.2005 showed reservation to the transmission only on the ground that the said shares were pledged as security with IDBI and transmission was not possible unless and until permission from IDBI was received in writing. Further they had stated that after seeking approval from IDBI, the Board Resolution could be passed. No objection regarding title to shares was raised then. Rather it amounted to implied consent. Even their objection that Section 299 would get attracted with reference to the resolution dated 17.3.2005 as Shri Rupinder Singh is the petitioner's brother and was interested in the alleged transmission of shares to her falls to the ground because of respondents' admitted case, for which specific case laws have been cited by them pleading that Section 299 does not get attracted in the circumstances of this case. The circular resolution thus approved by the majority of the Board of directors was, in pursuance of the regulation 7(1), 7(3) of the SEBI Regulations, 1997 and regulation 13(1) and 13(6) of the SEBI Regulation 1992, reported to the company and to the Stock Exchanges in the prescribed format. Thereafter, on 11.5.2005 the Registrar of Share Transfer Agent of the company namely M/s Intime Spectrum Registry Ltd. registered the transmission of 33,96,700 shares from Late Mr. Rajinder Singh Ahluwalia to Mrs. Sandeep Kaur Ahluwalia. On 17.5.2005, the IDBI with whom the share certificate was pledged endorsed the transmission of shares on the back side of the share certificate in the name of Mrs. Sandeep Kaur Ahluwalia. The petitioner even gave a letter of continuity of pledge of the said shares in favour of IDBI. The shares are still lying pledged with IDBI. Mrs. Sandeep Kaur Ahluwalia became the registered holder of 33,96,700 shares in the company. The distribution schedules for the Quarter Ending 30.6.2005, 30.9.2005 and onwards sent to the Stock Exchanges under Clause 35 of the Listing Agreement showed Mrs. Sandeep Kaur Ahluwalia as the registered shareholder. Respondent Nos. 2 and 3 who were all through at the helm of affairs and had given their implied consent could not be believed to be unaware of the transmission process and the ultimate fact of transmission. No efforts were made or steps were taken to stop the transmission process and raise objections regarding title to the shares. Completion of transmission process was well within their knowledge and they have acquiesced to the entire process till they thought of Supplementary Partnership Deed and hence proceeded with Board's meeting dated 5.12.2005 for the only agenda of re-transmission of shares. I find no reason to hold the resolution dated 5.12.2005 valid for re-transmission of shares. In the absence of following of proper procedure for re-transmission such an act is nothing but oppressive to the petitioner whose shares had been validly transmitted. CP No. 112 under Section 397 of the Act was filed in 2005 whereas the respondents filed CP No. 01 under Section 111A in the year 2006 as a counter blast and to substantiate their pleading of the Supplementary Partnership Deed. CLB, though it has the trappings of a court, would not travel beyond its purview to give a certificate of genuineness or non-genuineness of the Supplementary Partnership Deed for which the respondents need to approach the appropriate court of law. But to do susbtantial justice between the parties, it is necessary to stop improper re-transmission of shares and provide for proper representation on Board to holders of 43.38% shares. The Board's resolution dated 5.12.2005 regarding re-transmission of shares is hereby set aside being illegal. Smt. Sandeep Kaur Ahluwalia who validly holds 43.38% shares is permitted to have atleast two directors out of the total 5 directors on the Board to be immediately appointed in the next general meeting to be held within a month of receipt of this order. She shall continue to have the same proportion of representation on the Board in the event of increase in the number of directors in future.
19. In view of the foregoing, petition under Section 111A of the Act is not maintainable and is hereby dismissed.
20. Both the petitions are disposed off with the above directions. All interim orders stand vacated. All Company Applications stand disposed off. No order as to cost.