Company Law Board
Dr. Mrs. Mrunalini Devi Puar And Anr. vs Gaekwad Investment Corporation Pvt. ... on 28 September, 1992
Equivalent citations: [1995]82COMPCAS899(CLB)
ORDER
1. Dr. Mrs. Mrunalini Devi Puar and Shri Ajit Singh Gaekwad, trustees on behalf of Shri Jai Singh Ghorpade Trust, have filed a petition on February 18, 1992, under Section 397/398 of the Companies Act, 1956, against Gaekwad Investment Corporation Pvt. Ltd. (GICPL) and others alleging oppression and mismanagement. It is stated in the petition that petitioner No. 1 holds 10 equity shares and 26,000 preference shares and petitioner No. 2 holds 275 equity shares in GICPL. This petition came up for admission and interim relief on February 20, 1992, and we directed that GICPL shall not exercise its voting rights in the general meeting of Alaukik Trading and Investment Private Limited without the leave of this Board. We also appointed a Commissioner to authenticate the statutory books maintained by the company. We further directed that in so far as the other interim reliefs claimed by the petitioner are concerned, the matter would be considered in the hearing to be held on April 20, 1992, after hearing all the parties. The hearing proposed to be held on April 20, 1992, was postponed to May 11, 1992. On that day, respondent No. 2, pointed out that before proceeding with the petition, the preliminary objections regarding the maintainability of the petition may be considered, as an identical matter was already being heard by the Gujarat High court under Section 397/398 in a petition filed by Smt. Shanta Devi Gaekwad and others against the company and certain others. On May 11, 1992, respondent No. 3 has also filed an application praying for staying the hearing by the Company Law Board and also for vacating the interim orders passed on February 20, 1992. The preliminary objections, the stay application, the prayer for vacating interim orders moved by respondent No. 3 as well as the request of the petitioners for further interim orders were considered in the hearings held on May 11, 1992, May 19, 1992, May 20, 1992, August 3, 1992, August 24, 1992, September 16, 1992, September 23, 1992, September 24, 1992 and September 25, 1992.
2. Respondent No. 3 has moved a Company Application No. 19 of 1992, under Regulation 44 of the Company Law Board Regulations, 1991 (hereinafter referred to as "the Regulations"), read with Sections 10 and 151 of Code of Civil Procedure, 1908 (hereinafter referred to as "the Code"), on the ground that the continuation of the proceedings before the Company Law Board would be nothing but an abuse of the process of law as the issues raised before the Company Law Board are the same as are directly and substantially raised in previously instituted proceedings between the same parties in a petition filed under Section 397/398 of the Companies Act, 1956, before the Gujarat High Court. It is pointed out that the proceedings before the Gujarat High Court were instituted in March, 1991, while the present proceedings before the Board were instituted around February 18, 1992.
3. Regarding the contention that the litigation is between the same parties, the following arguments were advanced :
(i) The petition before the Gujarat High Court has been filed by five persons against Gaekwad Investment Corporation Pvt. Ltd. and few others. Petitioner No. 1, Dr. Mrs. Mrunalini Devi Puar, has also participated in the proceedings before the Gujarat High Court inasmuch as she had filed an affidavit supporting the petitioners' case.
(ii) Petitioner No. 2 is Shri Jaisingh Ghorpade Trust. Smt. Devyanidevi C. Gaekward who is a petitioner in the Gujarat High Court does not hold any share in GICPL in her personal capacity and holds one share in the capacity of trustee of Shri Jaisingh Ghorpade Trust. In view of this, it was submitted that in both the petitions, the trust is the petitioner.
(iii) Shri Ajitsingh Gaekwad, whose name appears as a petitioner filing petition on behalf of the trust, is respondent No. 8 in the proceedings before the Gujarat High Court. Thus, the trust as well as Shri Ajitsingh in his individual capacity are parties in both the proceedings.
(iv) Almost all the other respondents are common in both the proceedings.
4. Regarding the commonality of the issues involved in both the proceedings, it is contended that the issues before this Board are directly and substantially the same as in the proceedings before the Gujarat High Court. It is further pointed out that the reliefs sought are also substantially the same. In support of the stay application, the learned advocate referred to the proceedings before the Gujarat High Court regarding withdrawal of the petition in which it was contended by the opponents that the proceedings before the Company Law Board are comprehensive and exhaustive and cover all the issues before the Gujarat High Court. However, the Gujarat High Court rejected the request of the petitioners to withdraw the petition with liberty to file fresh proceedings before the Company Law Board. It was also pointed out that counsel appearing for the petitioners are also common in both the forums.
5. In view of the above, it is pleaded in the stay application that considering the identity of the parties, identity of the subject-matter, identity of the reliefs claimed and identity of counsels appearing, the proceedings before the Board may be stayed in the interest of justice as the petition filed before the Gujarat High Court is earlier in point of time.
6. Shri Harish Salve, senior counsel appearing on behalf of respondent No. 3, argued the case for stay of the proceedings, Shri G.E. Vahanvati, counsel appearing on behalf of respondent No. 2, Shri S.N. Soparkar, counsel appearing for respondents Nos. 4 and 5 and Shri I.M. Chagla, appearing on behalf of respondent No. 1 supported the stay application. A catena of court decisions were referred to by counsel while elaborating the points regarding identity of the parties, identity of reliefs and issues which are stated in para 2. Counsel referred to the provisions of Section 10 of the Civil Procedure Code and pointed out that the provisions of this section come into operation when the subject-matter of the two suits or proceedings is identical. They also referred to the decision in Laxmi Bank Ltd. v. Harikisan, AIR 1948 Nag 297, in which it was held that it is enough that there should be substantial identity of parties and subject-matter in the two suits and complete identity of the parties or complete identity of the subject-matter is not necessary. Referring to the decision in Bepin Behary v. Jogendra Chandra, AIR 1917 Cal 248, it was pointed out that the object of the section is to prevent courts of concurrent jurisdiction from simultaneously trying two parallel suits in respect of the same matter in issue. Referring to the provisions of Section 397/398 of the Companies Act, it was pointed out that a petition under this section is a representative action petition and the relief is provided to a body of shareholders. It was pointed out that if different orders are passed by two judicial bodies on petitions filed by substantially the same or even completely different sets of members, it will result in conflicting orders and the inherent powers of the court should be used in order to avoid such a situation. The decision in Jai Hind Iron Mart v. Tulsiram Bhagwandas, AIR 1953 Bom 117, was referred by counsels to point out that the chief test for determination of the question whether the latter suit should be stayed under Section 10 of the Civil Procedure Code is, to see if the findings of the earlier suit on being decided would operate as res judicata in the latter suit. Counsel also referred to the decision in Sheikh Mohd. Yasin v. Mohd. Abdur Razzaque, AIR 1954 Pat 10 and Bhagwat Prasad Singh v. Sudheshwar Singh, AIR 1954 Pat 11, and pointed out that in a matter which is not covered by Section 10 or by any other express provision of the Civil Procedure Code, it is competent for a court to exercise its inherent jurisdiction to do that justice between the parties, which is warranted under the circumstances and which the necessities of a particular case require. It was pointed out that even when the subject-matter is not identical in both the suits, still where because of identical pleas taken in both the suits by the parties, the decision of the second suit depends on the decision in the first suit, justice requires that the later suit should be stayed till disposal of the first. The decision of the Delhi High Court in Mathur (V.K.) v. K.C. Sharma [1987] 61 Comp Cas 143 was also referred to by learned counsel for the respondents to point out that the petition before the Company Law Board is nothing but to fight for the same grievances which are being agitated before the Gujarat High Court inasmuch as the case of the main petitioner, Smt. Shanta Devi, is being put forth through Dr. Mrs. Mrunalini Devi Puar. It was argued that the proceedings before the Company Law Board are nothing but another proceedings started by the same set of shareholders and taking into consideration the nature of this company where only family members and friends are members, the Board should not allow such a gross abuse of the process of law.
7. It was also argued that the petitioners before the Company Law Board have not come with clean hands and have failed to disclose certain material documents in relation to this case. Shri Chagla pointed out that when the petitioners soughtinterim relief from the Company Law Board on February 20, 1992, they were already aware that the same reliefs were asked before the Gujarat High Court and since they were not likely to succeed in their petition before the Gujarat High Court, they have, without disclosing the details of proceedings before the Gujarat High Court, sought the intervention of another judicial body by keeping it in the dark about the developments before the Gujarat High Court. According to him, an inference should be drawn that the documents or the developments in the proceedings before the Gujarat High Court, if disclosed, would have gone against the petitioners. Shri Chagla further argued that the relief granted in the proceedings under Section 397/398 is a discretionary relief and the party which does not disclose all the relevant facts should not be entitled to get any relief under these sections. Shri Chagla also pointed out that but for the transfer of the jurisdiction under Section 397/398 to the Company Law Board, the petition filed before us would have had to be filed in the High Court of Gujarat and then both the matters would have had been heard together and there would have been no possibility of conflicting decisions. Shri Chagla also pointed out that either the Company Law Board should transfer this case to the Gujarat High Court or should stay the proceedings till the Gujarat High Court case is decided. It would be an abuse of process of the Company Law Board and also contrary to the provision? of equity, fair play and justice if identical proceedings at two places are allowed to continue, Shri Chagla concluded.
8. Shri Ashok Desai and Shri Rajiv Sawhney, senior counsel appearing on behalf of the petitioners, strongly refuted the arguments advanced in support of the stay application and pointed out that the provisions of Sections 10 and 151 of the Civil Procedure Code have no application either to the present proceedings or to the present case as these sections apply to suits only. It was also contended that the parties before the Gujarat High Court and before the Company Law Board are different and are entitled to agitate their rights as members separately. It was also submitted that none of the parties in either of the proceedings are claiming or enforcing any rights claimed through another. Counsel argued that the petitioners before the Company Law Board have an independent right to agitate their rights as members of the company and there is no other forum where they can file a petition under these sections. It was also pointed out that any orders passed by the Gujarat High Court in C. P. No. 51 of 1991, shall not be binding on the petitioners before the Company Law Board as they are not parties before the High Court. He submitted that Smt. Divyani Devi Gaekwad resigned as a trustee of Shri Jaisingh Ghorpade Trust in 1985 and to support this he filed a copy of the resolution of the board of trustees in this regard. He contended that she is no longer a trustee. In this context, the provisions of Section 153 of the Companies Act were also referred to and it was submitted that a trust is not recognised as a member of the company and shares which are property of the trust are required to be held in the name of individuals. He also submitted that in the 275 shares supporting the present petition, the share of Smt. Divyani Devi is not included and she has not filed the petition before the Gujarat High Court as a trustee. Referring to the allegations made and the relief sought in both the proceedings, Shri Desai pointed out that these are substantially different. Likewise, he also pointed out that the issues raised in the Gujarat High Court relate only up to the period till the petition was filed, while in the petition filed before the Company Law Board instances of oppression and mismanagement up to the date of filing have been included. He pointed out that the entire controversy regarding issue of the shares, i.e., 15,000 is being agitated before the Company Law Board, while the petition before the Gujarat High Court covers only 8,000 shares. He also pointed out that the meeting of the board of directors in which these shares were allotted is not challenged before the Gujarat High Court. Referring to the petition filed before us, he pointed out that the various allegations made in the petition from para 6(17) onwards are new and are not part of the petition before the Gujarat High Court. Shri Desai further pointed out that de-subsidiarisation of Alaukik Trading and Investment Pvt. Co. Ltd. is not an issue before the Gujarat High Court. He also pointed out that respondent No. 3, who has filed the stay application, has claimed in the court that separate petitions are maintainable by two sets of members, while opposing the amendment of the petition. Shri Desai pointed out that the amendment application filed in the Gujarat High Court (89 of 1991, dated April 15, 1991) only amends the prayers and it cannot enlarge the petition. He also pointed out that the withdrawal application (97 of 1992, dated March 18, 1992) has already been rejected by the High Court on April 20, 1992. He also pointed out that both these applications were opposed by the respondents who are now pressing for stay of these proceedings. He, therefore, concluded that neither the identity of the party nor the identity of the issues and reliefs have been established and as the provisions of Sections 10 and 151 of the Civil Procedure Code are not applicable to the present proceedings, the request for stay should be rejected. He also referred to the decision in Ram Charan v. State of U.P., AIR 1979 All 114, in which it was held that the provisions of Section 10 of the Civil Procedure Code come into operation only when the subject-matter of the two sets of the proceedings is identical. Shri Desai also pleaded that even if the Bench comes to a conclusion to stay the proceedings in the exercise of the inherent powers of the Board as per provisions of Regulation 44, his request pending from February 20, 1992, for interim reliefs should be considered. He pointed out that in the case of Senaji Kapurchand v. Pannaji Devichand, AIR 1922 Bom 276, it has been held that the court is not prevented from making any interlocutory orders, such as orders for a receiver, or an injunction, or an order for attachment before judgment given for staying the proceedings. He also referred to the decision of the Allahabad High Court in Kulsumum Nisan (Smt) v. Md. Farooq, AIR 1969 All 479, in which it was held that the object underlying the provisions of Section 10 of the Civil Procedure Code is to prevent simultaneous trial of two suits in which the matter in issue between the parties is directly and substantially the same. An interlocutory order in the nature of issue of an injunction, or appointment of a receiver, or an order of attachment before judgment cannot be regarded as a matter affecting the trial of the suit. In support of this contention he also referred to the decisions in Madhwacharya v. Shivarama Shetty, AIR 1974 Mys 64, and Balakrishnan Nadar (V.R.) v. Velayudhan Nadar (R.), AIR 1980 Ker 161.
9. We have carefully considered the various arguments advanced by the learned advocates on the issue of stay of proceedings before us. The stay application has been made under Regulation 44 of the regulations read with Sections 10 and 151 of the Code of Civil Procedure, 1908. The proceedings before this Board are governed by the regulations framed in this respect and the relevant provisions of Regulation 44 is as follows :
"Saving of inherent power of the Bench.--Nothing in these rules shall be deemed to limit or otherwise affect the inherent power of the Bench to make such orders as may be necessary for the ends of justice or to prevent abuse of the process of the Bench."
10. Section 10 of the Civil Procedure Code prevents the courts of concurrent jurisdiction from simultaneously trying two parallel suits in respect of the same matters in issue. Section 151 of the Civil Procedure Code deals with inherent powers of the court to make such orders as may be necessary for the ends of justice or to prevent abuse of the process of the court. Thus, the provisions of Section 151 are in pari materia with the provisions of Regulation 44 of the Company Law Board Regulations. While the provisions of Sections 10 and 151 of the Civil Procedure Code may not be directly relevant for the proceeding before the Company Law Board which is governed by its own regulations, framed under Section 10E of the Companies Act, the ratios of various decisions of the Supreme Court and High Courts in interpreting the provisions of Sections 10 and 151 of the Civil Procedure Code in respect of suits, would provide guidance to the Bench for deciding matters before it. It is a well-settled law that judicial authorities should avoid situations which may ultimately lead to conflicting decisions. A decision in the context of Section 10 of the Civil Procedure Code relates to the jurisdiction of the court and, therefore, affects the rights of the parties. The various cases referred to by the learned advocates clearly indicate that whenever there are parallel proceedings before two concurrent judicial authorities one proceeding is stayed in order to avoid conflicting orders, but there is no bar on instituting such proceedings except where such proceedings are instituted with a view to abuse the process of courts. Considering the facts of this case, we find that the jurisdiction under Section 397/398 has been transferred from High Courts to Company Law Board with effect from May 31, 1991, and members of a company who fulfil the conditions laid down under Section 399 of the Companies Act, have no other forum for redressal of their grievance except to seek jurisdiction of the Company Law Board. The fact that one set of shareholders have already sought the jurisdiction of the other authority before May, 1991, will not bar the right of another set of shareholders to approach the competent authority, namely, the Company Law Board now. Even if there had been no change in the jurisdiction, another set of members could have filed a petition in the same court which, if admitted, would have been heard along with the petition already filed. In this context, we note that the petitioners who had filed the petition before the Gujarat High Court had sought permission for withdrawal with liberty to either file a substantive petition before the Company Law Bo'ard and/or be impleaded in petition No. 7 of 1992, before the Company Law Board. In the order dated April 20, 1992, the request of the petitioner seeking liberty to file a fresh petition while granting leave to withdraw was rejected by the court. The respondents in the petition before us had also opposed such withdrawal in the Gujarat High Court. It was also pointed out to us that efforts were made to amend the petition filed before the Gujarat High Court so as to widen the scope of reliefs but it is yet to be decided. However, such an amendment would be operative only in respect of widening of the scope of reliefs but cannot widen the matters agitated in the main petition as no cause of action which arises after the filing of the petition can be agitated unless a separate petition is filed. In view of this, the petitioners before us even if they get impleaded in the petition filed before the Gujarat High Court would be restricted to agitate their rights with respect to the date of filing of that petition, i.e., March, 1991, while in the present petition before us they could base their case on the basis of working of the company till February, 1992. Taking into consideration the above facts and legal position, it is very difficult for us to come to a conclusion that by filing this petition before us, the petitioners have abused the process of law. However, we are conscious of the fact that some of the issues which are agitated before us are also being agitated before the Gujarat High Court. If the proceedings before both the forums are continued, there may be a possibility of conflicting decisions, To meet the ends of justice, such a situation should not be allowed to occur and since the petition before the Gujarat High Court has been filed prior to the filing of the petition before us, we feel that proceedings before us should be stayed till the decision on the petition filed before the Gujarat High Court is taken. Accordingly, we stay the proceedings and direct the petitioners and the respondents to file the final orders of the Gujarat High Court, as and when delivered, so as to consider this matter further.
11. Shri Ashok Desai, senior counsel, referred to paragraph 8 of the petition which contains the interim as well as final reliefs sought and requested that in addition to the reliefs already granted on February 20, 1992, the following prayers for interim reliefs may be considered :
(i) Freezing the voting rights in respect of all shares issued beyond 425 shares originally issued in GICPL para (d).
(ii) The existing board of directors of the company to be superseded and an independent board of directors be appointed and a neutral chairman may be appointed for the board meetings and meetings of the shareholders para (h)(b)(i).
(iii) Pending the final disposal of the petition, direct GICPL and respondents Nos. 2 to 10 to produce and deposit all books of account, register of members, register of transfers, minute books and other statutory records.--para (p).
(iv) Restrain GICPL from selling, disposing of alienating, encumbering or dealing with any of its assets except under an order of this Board--para (v).
(v) Restrain the board of directors of GICPL from exercising voting rights in respect of shares held by GICPL in Alaukik Trading and Investment Pvt. Ltd. and Baroda Rayon without obtaining the directions of this Board.
(vii) Restrain GICPL from utilising the funds for payment of the cost of litigation before this Board.
12. In support of the above request, Shri Desai referred to the circumstances leading to the issue of additional shares over and above the original 425 shares in GICPL. He pointed out that in the board meetings held on November 10, 1987, a decision was taken to hold an extraordinary general meeting on December 17, 1987, to consider the increase in the issued capital, since the income of the company had been reduced to a negligible amount, as no dividend from Baroda Rayon Corporation Limited was received. At that time, the authorised capital of the company was Rs. 1 crore, the issued capital was Rs. 10 lakhs and the paid-up capital was Rs. 42,500 only. The extraordinary general meeting held on December 17, 1987, passed the resolution to issue 25,000 shares to any member whom the board of directors deem fit. In the board meeting held on January 8, 1988, a decision was taken to issue 15,000 equity shares and the managing committee was authorised to issue equity shares in such proportion as it deemed fit to members at present An offer dated February 12, 1988, was sent to all the members requesting them to indicate within three weeks from the date of receipt of the letter about the number of shares they would like to subscribe. It was also made clear in the letter that if no reply was received by March 10, 1988, it would be presumed that the shareholders were not interested and the shares would be offered to other members. At the management committee meeting held on March 21, 1988, based on the requisitions received 8,000 shares were allotted to Shri Fatehsinghrao Gaekwad, (FRG) 500 to Smt. Mrunalini Devi Puar, 25 to Smt. Shubhangini Devi and 6,475 shares to Sangram Singh Gaekwad, (SSG). It was pointed out that in terms of the resolution passed in the shareholders meeting, the shares were to be offered only to members of the company as decided by the management committee. It was pointed out that in contravention of the shareholders resolution and the management committee decision, 2,750 shares were allotted to Shri Pratap Singh Gaekwad, son of SSG, and 1,750 shares to Priyadarshini Gaekwad, daughter of SSG, and 1,475 shares to Sangram Singh Gaekwad, Hindu undivided family, who were not the members of the company at the relevant time. It was further pointed out that 1,500 shares were allotted to Smt. Asharaj Gaekwad wife of SSG, when no requisition was received from her. Similarly instead of giving 500 shares to Smt. Mrunalini Devi Puar as per her requisition, 1,000 shares were allotted to her. It is the contention of the petitioners that 7,975 shares allotted to these 5 persons were not according to the resolution passed by the shareholders and management committee and out of this illegal allotments, 7,475 shares were allotted to the SSG group. It was further pointed out that because of this allotment the shares of Shri Sangram Singh Gaekwad and his family members have gone up from 1.41 per cent. to 86.69 per cent. and the other shareholders who were holding 98.59 per cent. were reduced to a minority of 13.31 per cent. In this connection, Shri Ashok Desai pointed out that the purported minutes of the committee meeting held on March 21, 1988, filed at annexure "E", page 82 of the petition, were totally fabricated, as they are in contradiction with the stand taken by respondent No. 2 SSG in his affidavit in reply to the petition and these minutes are contrary to the undisputed minutes of the management committee meeting held on March 21, 1988, and filed at annexure "D", pages 79-81 of the petition. He then referred to the minutes of the meeting held on December 10, 1988, in which allotment of 7,500 shares was made and an offer of further 3,000 equity shares was approved by the management committee meeting. He pointed out that the contents of the resolution in this meeting and allotment indicated are contradictory inasmuch as the shares were offered to persons who are not members and a reference to the minutes of the management committee meeting held on March 21, 1988, is factually incorrect inasmuch as it is alleged in the minutes of the meeting that in the management committee meeting held on March 21, 1988, shares were offered to subscribers among family members of the shareholders. Shri Desai then referred to the extract of the register of members filed at pages 86-90 of the petition indicating that the dates of allotment during April-June, 1988, shown in these extracts are completely contradictory to the dates of allotment shown in the board resolution passed on December 10, 1988, and it is clear from these extracts of the share transfer register that some of the allotments are antedated to show that those allotments were made prior to the death of FRG. Shri Desai also referred to the alleged letter dated June 11, 1988, of Shri Khoth, secretary of FRG (annexure 'G" page 85 of the petition) in which purportedly FRG had renounced the offer of 8,000 shares made to him in favour of SSG and/or his children. In this connection, it was pointed out that there is no provision in the articles for renouncing and the letter dated June 11, 1988, appears to be fabricated as it has surfaced after the demise of FRG on September 1, 1988, and for the first time it was mentioned in the board meeting only on December 10, 1988. Shri Desai pointed out that FRG died on September 1, 1988, leaving behind his mother as his sole heir being the only class I heir. Shri Desai contended that in view of the above circumstances, it is clear that most of the alleged minutes of the management committee and the board minutes in which respondent No. 2 was present are fabricated and have been written with a view to hijack the company and are in breach of his fiduciary obligation to the existing majority shareholders.
13. Shri Desai then referred to another episode in which it is stated that respondent No. 2 has indulged in fabrication of the company records. In this connection, he referred to the minutes of the board meeting held on March 30, 1990 (extract filed at pages 94 to 100 of the petition), and pointed out that at this meeting respondent No. 2, SSG group's transfer of 9,415 shares out of 9,481 shares, held by them to Indreni Holdings Pvt. Ltd. was approved. In support, he also referred to the entries made in the register of members extracts of which are filed at page 91 of the petition. He also pointed out that the return filed in January, 1991, (annexure "T"), shows that shares were held by Indreni Holdings Pvt. Ltd. as on December 20, 1990. It is the contention of the petitioner that this fabrication was done by respondent No. 2 on coming to know that these transfers have been challenged by some shareholders who had filed a suit in Rajkot (305 of 90) and Baroda (867 and 872 of 1990) challenging the validity of the transfers and, inter alia, claiming pre-emptive rights as per articles 7 to 13 of the articles of association. These suits were filed in October-November, 1990, and ex parte ad interim orders restraining Indreni Holdings Pvt. Ltd. from exercising voting rights were passed and served on December 15, 1990. Shri Desai pointed out that the minutes of the board meetings held on July 13, 1990, and August 9, 1990, appear to have been fabricated inasmuch as it is shown that in the board meeting held on July 13, 1990, it was decided to obtain legal opinion on the validity of the purported transfer of 9,415 shares to Indreni Holdings Pvt. Ltd. and in the board meeting supposed to have been held on August 9, 1990, it was decided that the share transfer in favour of Indreni Holdings Pvt. Ltd. be rescinded. According to Shri Desai, these minutes are the result of an "afterthought" and implausible in view of the fact that interim dividend was paid to Indreni Holdings Pvt. Ltd. in July, 1990, and tax deductible at source was deposited in the State Bank, out of the interim dividend paid to Indreni Holdings Pvt. Ltd. after August 9, 1990.
14. Shri Desai then referred to the minutes of the meeting of the shareholders of the company held on December 20, 1990, and according to him these are fabricated as on that date because of the restraint order from the court in respect of 9,415 shares, the respondent, SSG group, had the support of only 66 shares representing 0.60 per cent. of the total voting rights as against support of 1,444 shares representing 13.31 per cent. of the voting rights to the group opposed to SSG. In contrast to these facts, the minutes indicate that 9,481 shares voted in favour of resolution sponsored by the SSG group. In support of his arguments, Shri Desai also referred to the extract of the register of members filed as annexure "H", at pages 91 and 92 of the petition and return filed by the company with the letter of January 17, 1991 (annexure "T" of reply pages 317 to 322) to indicate that Indreni Holdings Pvt. Ltd. continued to be shareholders as on December 20, 1990, the day of the annual general meeting and could not vote because of the court restraint order.
15. Shri Desai pointed out that the steps taken by the SSG group in the board meeting held on March 30, 1990, are of crucial importance as several acts were committed which were oppressive to the petitioners and which call for immediate redressal. He pointed out that four new directors including Smt. Asharaje, wife of SSG, were appointed to obtain complete control of the hoard and the management committee was dissolved and Smt. Asharaje was appointed as executive director with wide-ranging powers to invest and sell shares and thus obtaining full control of the day-to-day management of the company. In this meeting, transfer of 23 shares of FRG to his mother and 9,481 shares of the SSG group to Indreni Holdings were approved. Because of the legal difficulties about "Indreni shares", the SSG group was apprehensive of losing the control of GICPL and, therefore, indulged in writing false minutes of the annual general meeting held on December 20, 1990. This was followed by passing of resolutions at the extraordinary general meeting held on January 14, 1991, to shift the registered office from Indumati Mahal, Baroda to Surat, appointment of SSG as permanent director and chairman of the company, amendment of articles of the company and removal of certain directors who were on the board even when FRG was in control of the company. He then referred to the changes that have occurred in the board and how SSG has, over a period of time, in utter violation of the trust of family shareholders, manoeuvred to achieve a majority shareholding, get directors appointed who are his supporters and establish full control on the day-to-day working of the company. In view of the serious nature of allegations regarding the fabrication of documents and as the board of directors has failed to carry on the duties as required by the provisions of the Companies Act and the directors are acting in violation of their fiduciary duties, Shri Desai urged that his prayer for reconstitution of the board of directors should be considered.
16. Shri Desai concluded that all the above instances clearly point out that the allotment of 7,975 shares was in contravention of the resolution of the shareholders' meeting held on December 17, 1987, and the allotment decision taken by the management committee in the meeting held on March 21, 1988, was in violation of the articles of association. Attempts were made to create third party rights in respect of 9,415 shares by transfer of shares to non-members in violation of the articles of association and large scale fabrication of statutory record of the company, like board minutes was undertaken to show that the transfers have been rescinded in order to defeat the pre-emptive rights of the remaining shareholders. Complete control of the company was established by fabricating records and acting in violation of court orders and provisions of company law and the articles of association. In view of this, Shri Desai argued that interim prayers now requested may be considered, even if the application for stay of the proceedings was considered favourably by the board.
17. Shri Chagla, senior counsel, arguing on behalf of respondent No. 2 pointed out at the hearing held on September 16, 1992, that the petitioners are challenging before the Company Law Board allotments made in 1988. There is no explanation forthcoming from the petitioners regarding their silence for four years. The reliefs that they are now seeking are not in the nature of interim relief but are interlocutory reliefs. He also argued that delay in filing the petition by the petitioners has not been explained and, therefore, this Bench should not use its discretionary jurisdiction to grant any relief to them. He also pointed out that the petitioner is a beneficiary of the allotment challenged inasmuch as she has received 500 shares out of 8,000 shares reserved for FRG and she has received dividends on these shares and, therefore, there is acquiescence on her part, and she cannot use it as a ground for alleging oppression after getting the benefits on the same.
18. Shri Chagla then pointed out that the petitioners have not placed all the facts before the Company Law Board regarding allotment of shares. He pointed out that the additional equity in GICPL was being raised as the company was not in a position to service interest payments and other expenses. None of the family members was interested in taking up shares as GICPL was not doing very well. In the context of this, SSG and his family members took up the shares which were not subscribed by other family members. He pointed out that the annual returns made up to September 30, 1989, of these allotments has been filed on November 30, 1989, by Shri Shinde and Rana who are the petitioner's supporters and share certificates issued were signed by Shri Shinde, SSG and Shri Khande. After this allotment, an annual general meeting was also held on September 30, 1989, and members belonging to the petitioners' group including the petitioners in the present case, and the case in the Gujarat High Court were present at the meeting. He pointed out that at the annual general meeting, the balance-sheet as on March 31, 1989, containing the figure of increased capital of Rs. 10.5 lakhs was also before the meeting. The annual return of the company on November 30, 1989, filed by Shri Rana also indicates increase in the share capital by 10,500 shares. In view of this, it is clear that the petitioners were throughout aware of all the allotments made in 1988 and cannot say that these have been made behind their back and keeping them in dark. The reasons behind filing this petition is the changed fortune of Baroda Rayons as Baroda Rayons shares have become a very valuable security in the market and other family members who neither contributed to the rights issue of Baroda Rayons nor subscribed to additional shares of GICPL want to explore the possibility of how to get additional benefits.
19. At the beginning of the hearing held on September 23, 1992, Shri Soparkar, counsel for the respondents, made an application for adjournment on behalf of respondent No. 3, on the ground that he had filed a writ petition in the High Court of Delhi, inter alia, challenging the constitutional validity of the Companies (Amendment) Act, 1988, transferring certain jurisdiction of the High Court to the Company Law Board and the present constitution of the Company Law Board. The writ petition also, inter alia, prayed for a mandamus to direct this board to first decide the petitioner's stay application filed on May 11, 1992. The Delhi High Court declined to interfere and the respondents are considering filing of an appeal to the Supreme Court of India and, therefore, sought an adjournment of this hearing for three weeks. In addition to that, he also gave the ground of non-availability of the senior counsel, Shri I.M. Chagla, and G.E. Vahanvati, senior advocate, on account of health reasons. This adjournment application was objected to by the petitioners on the ground that all along, the respondents have been requesting for final written orders on the stay application and, therefore, the application for adjournment is only with a view to delay the finalisation of the proceedings before us. After carefully considering the arguments of both the sides, we refused adjournment and continued the hearing.
20. Reiterating the arguments made by Shri Chagla on September 16, 1992, Shri Soparkar, in support, pointed out various documents filed by the petitioners and the respondents in the case before us and also in the case before the Gujarat High Court. In particular, he pointed out that the charge of fabricating the minutes of the managing committee meeting held on March 21, 1988, is baseless, as the respondents have not relied on these documents and these documents were filed by the petitioners' group in the Gujarat High Court case. He also pointed out that in spite of the request to the petitioners to show the originals of these documents, the petitioners have not co-operated in this matter and therefore, they cannot make allegations that this document has been fabricated by the respondents. He reaffirmed that the documents filed at annexure "D" (page 80 of the petition) do show the correct state of affairs of what happened in the management committee meeting held on March 21, 1988. He pointed out that at that meeting, a decision was taken to make allotment to four members and the shares would be allotted as and when the amounts were received from these four members. Referring to pages 20 and 74 of the affidavit in reply filed by respondent No. 2, SSG, he pointed out that the time was extended for receiving the offers from the shareholders which was originally fixed for March 10, 1988. He also pointed out that SSG had instructed Shri Khade who was the company secretary to give the first option to the other family members to subscribe for shares according to their request and the remaining to be put in the names of SSG and his family members. In response to these offers, Mrs. Mrunalini Devi Puar asked for 500 shares and Mrs. Subhanginiraje asked for 25 shares and, therefore, the remaining 6,475 shares were put in the name of SSG and his family members. He also pointed out that by a letter dated May 19, 1988, petitioner No. 1 sent two cheques for 1,000 shares. He also pointed out that though it was decided to allot 8,000 shares to FRG, no amount was received from FRG towards this proposed allotment. In this connection, he referred to the letter dated June 11, 1988, written by Shri Khoth, secretary to FRG and addressed to SSG informing him that as FRG is not interested in subscribing to the additional share capital, he would like to renounce the offer made to him in favour of SSG and/or his children. To a querry from the Bench that the letter makes a reference to the offer letter of the company dated February 12, 1988, in which there was no mention about the number of additional shares, Shri Soparkar clarified that the letter not only mentions about the offer dated February 12, 1988, but it also refers to the discussions between FRG and SSG thereafter. Regarding the exact dates of payment made by SSG and his family members for shares allotted to them, Mr. Soparkar gave information on September 24, 1992, which indicates that payments were made during April 12, 1988, to June 17, 1988, for 6,475 shares prior to the death of FRG and for 2,000 shares allotted to Mr. Pratap Singh Gaekwad, and 1,000 shares, to Miss Priyadarshini Gaekwad, payment was made on December 6, 1988.
21. Shri Soparkar then dealt with the reasons why the other family members failed to subscribe to the additional share capital of GICPL. He pointed out that as indicated in the balance-sheet as on March 31, 1988, GICPL had incurred a loss of Rs. 6.31 lakhs and it was unable to service its interest payment and other expenses. It is in this context that there was a necessity to increase the equity capital. The financial difficulties of GICPL also arose as 80 per cent. of the investment of GICPL was in the shares of Baroda Rayons and Baroda Rayons had not paid dividend. In view of this, Shri Soparkar pointed out that probably, the family members had no confidence that GICPL will be in a position to give adequate return on the equity investment and, therefore, some of them invested in interest bearing loans to the GICPL rather than in equity. In this connection, he also pointed out that a specific averment has been made in the affidavit of SSG that the other family members also failed to contribute to the rights issue of Baroda Rayons made in the year 1988.
22. Shri Soparkar then dealt with the episode relating to transfer of shares to Indreni Holdings. He pointed out that the bona fides of the respondents would be clear from the notice dated November 15, 1989, meant for all shareholders indicating the proposed transfer of shares and providing the members an opportunity to indicate their no objection to the proposed transfer. He stated that SSG had instructed Shri Khade, company secretary, to issue the notice. In the board meeting held on December 27, 1989, a reference was also made about this and this fact is reflected in the minutes of the board meeting. The board had approved this transfer on March 30, 1990. In the board meeting held on June 29, 1990, the board directed to open a new share transfer register as the old register was not traceable. He alleged that Shri Khade acted in collusion with the petitioners and did not issue notice as directed by SSG. It then occurred to the respondents that the game of the petitioners was to create problems regarding the transfer of shares of Indreni Holdings on which SSG and his family members had complete control. He also further explained that while in the notice dated November 15, 1989, a mention has been made that notice is being issued to find out whether any shareholder was interested in buying these shares, since the shares were being transferred to another company in which SSG had a complete control, he was confident that the other members would not object to such a transfer and it was only to comply with the provisions of the articles of association of the company that such notice was issued. However, taking into consideration, the fact that the transfer register was missing and that probably Shri Khade had not circulated any notice as instructed by SSG, the board of directors rescinded the transfer on August 9, 1990, in order to avoid any legal complications. He also pointed out in this connection the attempts made by various other family members to institute court cases in the courts of Rajkot, Jasdan and Baroda for injuncting SSG/Indreni Holdings from exercising voting rights in respect of 9,415 shares. A specific mention was made in this respect of the court case filed by Shri Ajit Singh in the civil court at Baroda (872 of 1990) in which an attempt was made to injunct anybody holding these shares but the court did not grant any injunction and the matter is still pending. Shri Soparkar also drew our attention to the fact that Shri Ajif Singh, petitioner No. 2, in the present case had prayed for transfer of these shares to him in the said suit though in the present petition, he has questioned the validity of the allotment of the same shares which was not challenged in the Baroda case.
23. In the hearing held on September 24, 1992, Shri Chagla reiterated the Various arguments advanced earlier in respect of dismissal of petition in limine, the petitioner's conduct and suppression of vital documents from the Company Law Board, delay and acquiescence with regard to the matters complained of, the petitioners' ventilating private grievances rather than grievances as shareholders and the pending matter before the Gujarat High Court. He also pointed out that at the highest, the allegations in the petition disclose only a single irregular act, and do not establish any continuous, series of acts oppressive of the petitioners. He pointed out that neither a case for winding-up, nor any allegation to support the plea of oppression by the management has been made out by the petitioners. While dealing with the allegation of the petitioners regarding hijacking of GICPL by the respondents, Shri Chagla pointed out that it is the petitioners who had tried to hijack the subsidiary of GICPL, namely, Alaukik Trading and Investment Co. Pvt. Ltd. (Alaukik). He pointed out that four attempts were made by the petitioners group to hijack Alaukik. In or about October, 1989, the first attempt was made when 1,500 shares were issued in the name of Dr. Mrs. M. Puar, who was not a member of Alaukik at that time and, thus, diluted the majority shareholding of GICPL by reducing it to a minority. In September, 1990, GICPL obtained an ad interim order of injunction in Suit No. 675 of 1990, filed in Baroda challenging the said issue, restraining the first petitioner from exercising any rights in respect of the said 1,500 shares. The second attempt was made when on February 18, 1992, the petitioner's group filed a Suit No. 4 of 1992 in Jasdan Court and obtained an ex parte order whereby the first petitioner was permitted to vote on the said 1,500 shares illegally issued. As the said order was contrary to the injunction issued in Suit No. 675 of 1990 the respondents moved Civil Application No. 121 of 1992 before the Gujarat High Court. The said ex parte order has been set aside and a report and inquiry had been initiated against the Jasdan judge (JD). The third attempt was made when the petitioners' group moved a Company Application No. 48 of 1992 in the Gujarat High Court No. 51 of 1991 for stay of notice and relief in respect of an extraordinary general meeting requisitioned in Alaukik. The application remained partly heard on February 17 and 18, 1992, and the hearing stood over to February 24, 1992. The fourth simultaneous attempt to hijack Alaukik was made on February 18, 1992, when the present petition was filed before the Company Law Board and an ad interim order obtained on February 20, 1992, in respect of Alaukik extraordinary general meeting, when the request for the same relief was pending before the Gujarat High Court. Shri Chagla argued that considering these facts that the petitioners have approached various courts in the month of February, 1992, for the same reliefs in respect of Alaukik and did not disclose all these facts before the Company Law Board at the time of the ex parte hearing on February 20, 1992, the ad interim order issued by us should be vacated. In support of this plea, he referred to a decision of the Bombay High Court in Suit No. 1532 in the case of Maganlal Kapadia v. Themis Chemicals Ltd. and requested us to vacate the ad interim order on the solitary ground of condemnable conduct -on the part of the petitioners. He then referred to the attempt made by the petitioners' group for hijacking of GICPL. At the time of annual general meeting of GICPL held on December 20, 1990, petitions were moved in various courts to restrain voting on 9,415 shares. This was followed by filing a Section 397/ 398 application before the Gujarat High Court. Referring to the various reliefs sought by the petitioners, Shri Chagla pointed out that if the Bench is inclined to vacate the ad interim order dated February 20, 1992, on the ground of suppression of facts, further relief should be denied for the same reasons. Shri Chagla pointed out that there were no allegations about mismanagement by the board of directors of the company. He pointed out that no changes were made in the board of directors for two years after the alleged hijacking of the company by allotment of further shares to SSG and his family members. However, he conceded that in the extraordinary general meeting held on January 14, 1991, Shri P.U. Rana and Shri H.A. Shinde and in the extraordinary general meeting held on July 10, 1991, Shri S.G. Shirke were removed from directorship after giving a proper explanatory statement in the notice issued for the meetings. He pointed out that the company had earned a profit of Rs. 1.59 crores on account of new activities developed by respondents Nos. 2 and 3 including from the export of cotton bales. He also pointed out that while the petitioners were opposed to making further investment in the shares of Baroda Rayon Corporation, it was the decision taken by the present management to invest in BRC that brought financial benefits to the company.
24. Shri Chagla then dealt with transfer of shares to Indreni Holdings Pvt. Ltd. and asserted that the board had every right to rescind the allotment of shares as long as there is no prejudice to the transferor and the transferee. Even assuming that this could not be done without moving a petition for rectification of the register, the court would have come to the same conclusion and, therefore, at the most it may be an irregular act, but it does not amount to oppression. He, therefore, strongly pleaded that the only act complained of is the increase and issue of share capital, about which the petitioners were aware and this had happened in the year 1988 and shares have been duly held by the respondents for over four years and the rights in respect thereof have been duly exercised without any let or hindrance.
25. During the hearing, Shri Chagla briefly referred to the controversy relating to filing an appeal in the Gujarat High Court Appeal No. 10 of 1992 filed on September 22, 1992, against the alleged oral order of the Company Law Board on the stay petition. Shri Chagla defended the right of his client to go in appeal. We pointed out that this fact of filing an appeal was not disclosed when the adjournment was sought by Shri Soparkar at the beginning of the hearing on September 23, 1992, on the ground that his client wants to file an appeal before the Supreme Court against the Delhi High Court's refusal to intervene in this matter and stay the proceedings. It was only at the fag end of the hearing on September 23, 1992, that it was mentioned. We expressed our displeasure about suppression of these facts about filing appeals from us and also about filing of appeals on the basis of some false statements made in the petition before the Gujarat High Court and the Delhi High Court about what transpired at the hearings before us. We also pointed out that we had made it clear right from the day on which stay application was moved that orders on the stay application will be announced along with the orders regarding prayers for interim reliefs which are pending from the day of filing of the petition and which were before us even prior to the date of filing of stay application. We also expressed that when counsel for the respondents have spoken eloquently about the suppression of certain documents and proceedings when the petitioners sought our ex parte interim orders oft February 20, 1992, the least that was expected of the respondents was not to be guilty of doing the same things. We also pointed out that the ground on which the appeal was filed on the alleged oral orders is contrary to what had happened in the hearing before us and no oral order was pronounced except to state that orders in writing will be issued on the stay application only at the conclusion of the hearing of the stay application and request for interim relief. In fact, till the hearing of September 24, 1992, we had not heard counsel for the respondents on the point of vacation of the interim orders issued on February 20, 1992, which is also a part of the stay application and, therefore, there was no occasion to issue any orders till the hearing was complete.
26. In the hearing held on September 25, 1992, Shri Ashok Desai, senior counsel for the petitioners pointed out that there are four different versions given by the respondents about allotment of shares and there are obvious contradictions in the statements made on affidavit and documents which clearly establishes fraud in allotment of shares. He pointed out that before we announce orders, the following facts relating to allotment should be considered :
(a) No document has been produced to show that the date of closure of issue March 10, 1988, was extended and that this was informed to all the members so that they could contribute to the share capital even after March 10, 1988.
(b) The averment that 500 shares out of 1,000 shares allotted to petitioner No. 1 came out of FRG's allotment of 8,000 shares is totally false as she had paid for the shares on May 19, 1988, while the payments received from the SSG group was later than this date and earlier to the date of alleged letter of FRG.
(c) Minutes of the management committee meeting held on December 10, 1988, have been relied upon by the respondents and they are clearly fabricated as no share allotment has been shown in the name of Priyadarshini, when payment for 750 shares from her was received on June 17, 1988, and allotment to Pratap Singh has been shown as 1,500 when the payment received from him till that date* was only lor 750 shares.
(d) Reference to 51 per cent. kept for allotment to FRG is contrary to the other documents in which figure of 8,000 out of 15,000 shares was mentioned.
(e) Dr. M. Puar, petitioner No. 1 in this case and Smt. Shantadevi Gaekwad had given to the company Rs. 15 lakhs each in the month of November as interest free loan and since this money was available with the company, they ought to have been offered shares before 3,000 shares were allotted to the family members of SSG on December 10, 1988. In this connection, Shri Desai also challenged the statement made by Shri Soparkar that these were interest bearing loans and asked him to substantiate this with the documents like balance-sheet as on March 31, 1989, and tax deduction certificates.
27. Shri Desai vehemently argued that all these facts clearly point out that respondents have indulged in a series of acts in breach of the directors' fiduciary duties and converted a 2 per cent. shareholder into a majority shareholder having not only the control of valuable BRC shares with sizable voting power but also control of substantial immovable family property which was transferred to Alaukik by FRG as stated in para 6(5) of the petition. If provisions of the Companies Act are strictly made applicable, the entire allotment beyond 425 shares should be set aside as there are no offer letters after March 10, 1988, no applications for shares and all relevant records are full of contradictions. He also pointed out that the advocate of the respondents has stated that the petition under Section 397/398 before the Gujarat High Court is not yet admitted and if we accept this, their question regarding staying of the present proceedings does not arise. He also prayed that if we stay the present proceedings, the stay should automatically lapse if the application for withdrawal of the petition before the Gujarat High Court is allowed. He also requested that the statement made at the Bar by the respondent's counsel that the respondents will not oppose the amendment application of the petitioners in the proceedings before the Gujarat High Court, should be recorded.
28. He then requested for interim relief in the nature of reconstitution of the board of directors with two-thirds of the directors representing both the parties and an independent chairman without whose concurrence GICPL will not be able to raise loans, exercise voting rights relating to investments made and appoint auditors. He also suggested that GICPL should be restrained from raising capital, sale and purchase of fixed assets and starting new business. He also gave a list of three persons from the petitioners' side who could be appointed on the board and a list of retired chief justices of High Courts who could be appointed as independent chairman. Shri Soparkar agreed to give his reaction by the evening and also a list of names for appointment as independent chairman. He also pointed out that this is being done in the context of what Shri Chagla had stated on the previous day of the hearing that at the highest, the relief to petitioners can be given in the form of appointment of one director from the petitioners' group and an independent chairman. He was opposed to giving any veto powers to the chairman and pointed out that as there are no allegations of mismanagement or siphoning off of funds, no restrictions should be placed on the functioning of the board. However, he suggested that if the Bench is inclined, they can place a restriction that no item should be taken for consideration of the board which is not on the agenda. Regarding the annual general meeting scheduled on September 28, 1992, the advocate stated that if the Bench directs, the meeting will be held, but adjourned without transacting any business so that the director and the inde-pendent chairman, if appointed, could participate in the meeting.
29. We, accordingly, ordered on September 25, 1992, in the open court in the presence of parties and advocates that the annual general meeting scheduled on September 28, 1992, be adjourned without transacting any business to a convenient date after one month.
30. On September 28, 1992, advocate, Mrs. Pallavi Shroff, representing the respondents informed that she is not in a position to suggest the names of persons for appointment as independent chairman, and left the issue of appointment of a suitable person as independent chairman by this Bench. This was also supported by Shri Krishan Kumar, advocate, appearing on behalf of the petitioners.
31. We have carefully considered the arguments advanced by Shri Chagla on September 24, 1992, regarding the vacation of the interim orders issued on February 20, 1992. We have also considered the arguments advanced on behalf of the petitioners and the respondents in regard to further interim reliefs prayed for by the petitioners and the decisions of various court cases referred to by them. Any order at this stage freezing the voting rights in relation to the shares issued beyond the 425 shares, without providing a further opportunity to both the parties to substantiate their arguments, will not be appropriate. At this stage, the only protection the petitioners deserve is to maintain status quo so far as the petitioners' representations on Alaukik are concerned, and also protection of their interest in GICPL as requested by the petitioners. In our opinion, a representative of the petitioners' group on the board of directors of GICPL and appointment of an independent chairman of the board of directors who will also preside at the meetings of the shareholders would take care of the concern expressed by the petitioners during the hearing. Since the petitioners will have a representation on the board of GICPL and an independent chairman will ensure functioning of the company as per the provisions of the Companies Act, we do not think that it is necessary to continue our interim orders passed on February 20, 1992.
32. Accordingly, we stay the present proceedings before us, and vacate the interim orders issued on February 20, 1992. We also simultaneously appoint a representative of the petitioners' group, Shri Ranjit Singh Gaekwad, as director of GICPL in addition to the existing directors and Justice C.T. Dighe, retired judge of the Bombay High Court as independent chairman. Justice Dighe has already given his concurrence. He will be paid a remuneration of Rs. 2,500 per meeting in addition to travelling, stay and other incidental expenses. We also direct, that as we are not disturbing the present directors of GICPL, similarly, the present directors of the subsidiary of GICPL, i.e., Alaukik, should also not be disturbed. All these orders will be in operation till the petition before the Gujarat High Court is disposed of. A copy of this order may be also sent to Justice C. T. Dighe.