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Shobhi G Mahtani, Sheela Vishindas And ... vs Lilaram Shewaram (India) Private ... on 20 April, 2005

Equivalent citations: [2007]139COMPCAS817(CLB), [2005]62SCL670(CLB)

ORDER

K.K. Balu, Member

1. This company petition filed under Sections 111, 397 & 398 of the Companies Act 1956 ('the Act') alleging that the affairs of M/s Lilaram Shewaram (India) Private Limited ('the Company') are being conducted in a manner oppressive to the petitioners as well as prejudicial to the interest of the Company and claiming the following reliefs:

a) to restrain the respondents 3 & 4 from acting as directors of the Company;

b) to declare that the proceedings of the extraordinary general meetings dated 01.02.2003 and 04.08.2003 as well as board meeting dated 01.02.2003 are invalid;

c) to declare that the transfer of 50 shares by the second respondent to the respondents 3 & 4 is invalid and direct rectification of the register of members of the Company by restoring the shares in the name of the second respondent;

d) to declare that the transfer of shares by the respondents 2 to 4 in favour of the respondents 5 to 7, pursuant to the notice dated 09.07.2003 is invalid and restore the shares to the respondents 2 to 4;

e) to set aside the sale of the Company's property at Cuddalore restoring the property to the Company or to direct the respondents 2 to 4 to render accounts for the sale proceeds;

f) to restrain the Company from either directly or indirectly running or conducting bar and/or liquor vending or retailing in the premises belonging to the Company; and

g) to direct the transmission of 52 shares belonging to (late) Vishindas Lilaram in favour of Pushpa Vishindas and rectification of the register of members of the Company.

2. Shri R Murari, learned Counsel appearing for the petitioners, while initiating his arguments pointed out that the counter statement has been filed by the Company represented by the sixth respondent, who is a third party-transferee and therefore, serious allegations made against the respondents 2 to 4 must be deemed to be uncontroverted. The counter statement filed subsequently by the respondents 2 to 4 adopting the counter statement filed by the Company must be ignored. The Company incorporated in the year 1949 is a closely held family Company with the entire paid-up share capital of Rs. 12,50,000/-comprised in 1250 shares of Rs. 1000/- each held in the name of (late) Vishindas Lilaram (210 shares), his son Vindru Vishindas, since deceased (560 shares), daughters Sheela Vishindas, the second petitioner (280 shares) and Lalitha Vishindas, the third petitioner (170 shares), Minu V Bhojwani, the second respondent (25 shares) and (late) Gobind Mahatani, a close relative of (late) Vishindas Lilaram (5 shares). The deceased Vindru Vishindas is survived by his wife, the second respondent herein and Rekha Bhojwani, his daughter. The legal heirs of (late) Vishindas Lilaram viz., (1) the second petitioner (2) the third petitioner, (3) legal heir of (late) Pushpa Vishindas and (4) legal heirs of (late) Vindru Vishindas became entitled to one fourth share each in the share holding of (late) Vishindas Lilaram in the Company. Gobind Mahatani, was on the board of directors of the Company, whose five shares in the Company were transmitted upon his demise in the year 1998 in the name of his wife, the first petitioner herein. Thereafter, the first petitioner became director of the Company with effect from 14.11.1998, as borne out by the minutes of general body meeting of members of the Company (page 76 of company petition). The first petitioner and the second respondent were the only directors of the Company till the year 2003. Pushpa Vishindas, who pre-deceased Vishindas Lilaram is survived by Deepak T Mirpuri, now residing at Granada, is entitled to one fourth share in the shareholding of (late) Vishindas Lilaram in the Company (52 out of 210 shares). However, the entire 210 shares of (late) Vishindas Lilaram were transmitted in the name of the second petitioner (70 shares), the third petitioner (70 shares) and the second respondent (70 shares) ignoring Deepak T Mirpuri. The transmission of shares of (late) Vishindas Lilaram not having been effected in accordance with law constitutes oppression and mismanagement in the affairs of the Company and liable to be set aside. Hence, the petitioners 2 & 3 and the second respondent must give 52 shares from their holding in favour of Deepak T Mirpuri and the register of members of the Company be appropriately rectified.

When a meeting of the board of directors of the Company was convened on 03.01.2003 to consider (i) sale of the Company's property and (ii) shares, the first petitioner did not participate in the meeting as borne out by her letter dated 13.01.2003 (Annexure - 5 of Vol. II of the Company) and therefore, there could not have been any valid quorum for the board meeting convened on 03.01.2003 and the board could have neither approved the transfer of shares in favour of respondents 3 & 4 on 03.01.2003. The respondents have not chosen to produce any board resolution approving the share transfer or sale of the Company's landed property at Cuddalore or accounted for the sale proceeds realized from such sale, showing lack of bonafides on their part.

The second respondent caused a notice dated 08.01.2003 convening an extraordinary general meeting on 01.02.2003 to consider (a) appointment of the third respondent as director of the Company; (b) sale of the Company's properties; (c) ratification of the registration of transfer / transmission of shares; and (d) appointment of M/s Karpagam & Co., Chartered Accountants as auditors of the Company. However, no board meeting was convened for the purpose of convening the extraordinary general meeting proposed on 01.02.2003. The first petitioner, one among the two directors never received any notice of the board meeting for convening any such extraordinary general meeting and therefore, the proceedings of extraordinary general meeting held on 01.02.2003 cannot be valid. The notice dated 08.01.2003 sent to the petitioners 2 & 3 at the address of the first petitioner does not meet the requirements of Section 53 of the Act, more so when the petitioners 2 & 3 never authorised the Company to send any notice at the address of the first petitioner. The Company ought to have followed the procedure prescribed under Section 53(3) by advertising the notice in a newspaper circulating in the neighbourhood of the registered office of the Company. Furthermore, the notice dated 08.01.2003 and the explanatory statement enclosed thereon or the minutes of extraordinary general meeting do not provide any details of the properties, manner of disposal or reasons thereof or particulars of the transferors/transferees or persons in whose favour shares sought to be transferred/transmitted etc. At the extraordinary general meeting of the Company M/s Karpagam & Co., Chartered Accountants were sought to be appointed as auditors of the Company, without removal of the existing auditor, which requires permission of the Central Government under Section 224(7) of the Act. The minutes of extraordinary general meeting held on 01.02.2003 reveal that the respondents 2 to 4 were present and attended the meeting even though they were not members of the Company and therefore, the meeting with participation of the respondents 3 & 4 cannot be valid. The Company owns valuable immovable properties at Chennai and Panruti in Tamilnadu, Andhra Pradesh and Kerala, but does not carry on any business for the past several years. Article 30 permits transfer of any share by any member to a "member of his family", specified therein with the written approval of the board of directors, which has not been complied with in the case of transfer of shares by the second respondent in favour of the respondents 3 & 4. The purported ratification of registration of the transfer at the extraordinary general meeting, without meeting the requirements of Article 30 would per se be invalid. All the resolutions passed at the extraordinary general meeting held on 01.02.2003, viz., the transfer of shares in favour of the third respondent as well as fourth respondent and appointment of the third respondent as director are invalid. The second respondent's action to induct the third respondent, her brother-in-law as director in violation of the articles with a view to acquire majority on the board would clearly constitute oppression causing immense prejudice to the petitioners. The first petitioner did not receive any notice of the board meeting reportedly held on 01.02.2003. However, minutes of the board meeting would reveal that the respondents 2 to 4 were present and participated in the said meeting. While the fourth respondent is not a director and appointment of the third respondent is invalid, the board meeting held on 01.02.2003 with participation of the second respondent is bad in law for want of quorum. Consequently, the resolution passed at the board meeting of 01.02.2003 authorising the third respondent to operate the bank account of the Company, which according to the petitioners establishes manipulation and fabrication of records for the purpose of siphoning the funds of the Company is not valid. Though the first petitioner by a communication dated 29.11.2003 advised the Company's banker to allow operation in the account by the third respondent, revoking her earlier instructions made on 07.03.2003 against operation of the account by the third respondent, cannot in any way ratify the appointment of the third respondent as director of the Company which, could only be done by members of the Company. Moreover, this conduct of the first petitioner does not amount to an abandonment of her rights, in support of which Shri Murari, learned Counsel relied on Sha Mulchand & Co v. Jawahar Mills Ltd., Salem - (1953) XXIII CC 1 - to show that mere waiver, acquiescence or laches short of abandonment of one's right or estoppel does not disentitle that person from claiming relief in respect of his executed and not merely executory interest. The first petitioner is undisputedly director as borne by the counter statement (para 14) filed on behalf of the Company and received her managerial remuneration for the period upto October 2003 as seen from Annexure 8 produced by the Company. However, the Company contended (para 11 of the counter statement filed by the Company) that the first petitioner legally ceased to be director on her failure to acquire qualification shares as specified in the articles, which has been recognized only in 2003, upon which the third respondent was made director in year 2003, disclosing malafide conduct of the respondents. It would appear as if the fourth respondent was inducted on the board for which, the first petitioner never received notice of any board or general body meeting, wherein such business ought to have been transacted. The transfer of shares by the second respondent in favour of the third respondent (25 shares) and the fourth respondent (25 shares) being violative of Article 30, subsequent sale of these shares by the respondents 3 & 4 in favour of the respondents 5 to 7 neither be valid. Moreover, the transfer of shares in favour of the respondents 5 to 7 not being in compliance with Article 30 (a) and (b), their appointment as directors of the Company is invalid, in support of which reliance has been placed on the following decisions:

Mrs. S. Rehana Rao v. Balaji Fabricators Pvt. Ltd. - (2004) Vol. 122 CC 804 - to show that any transfer of transfer of shares in a private limited company in violation of the articles of association would constitute an act of oppression.

B.V. Thirumalai v. Best Vestures Trading (P) Ltd. - (2004) 4 Comp LJ 519 -- to show that the articles of association are the internal regulations of the company, according to which the directors are bound to act, regulating the internal management of the company and any act outside the articles is irregular unless ratified by the members.

T.A.M. Athavan v. Sun Freight Systems (P) Ltd. - (2004) 4 Comp LJ 593 -- to show that any transfer of shares in a private limited company in violation of Articles of Association of the company is liable to be set aside.

The share transfer register does not disclose the transfer of shares in favour of the respondents 5 to 7. Thus, the respondents have acted in violation of the articles and handed over the management of the Company to outsiders. The respondents 2 to 4 by a notice dated 08.07.2003 issued under Article 30(a) offered to sell their shares, upon which the Company gave notice under Article 30(b) to its members inviting their willingness to purchase any shares offered by the respondents 2 to 4, which does not indicate the price fixed for the shares in terms of Article 30(a). The notice reveals that the second respondent proposed to sell 605 shares, but she was holding only 325 shares. While the notice of the respondents 2-4 for sale of their shares is dated 08.07.2003, the notice issued by the Company to its members as well as notice convening the extra ordinary general meeting on 04.08.2003 to consider the offer of the respondents 2 to 4 for sale of their shares is dated 09.07.2003, thereby it is obvious that no board meeting was convened for the purpose of arriving at the price as per Article 30(a). The notice of convening the extraordinary general meeting in favour of the petitioners 2 & 3 cannot be sent to the first petitioner. Though the Company produced copies of the postal receipt to show that the notice was sent to petitioners 2 & 3 at their foreign address by registered post, yet Company failed to produce the postal acknowledgements evidencing service of the notice upon them. According to the petitioners, no board meeting was convened for the purpose of convening the extraordinary general meeting on 04.08.2003 to consider the proposed sale of shares by the respondents 2 to 4. In any event the first petitioner did not receive any notice for any such board meeting to consider the proposal of the respondents 2 to 4 for sale of their shares. Even the notice dated 09.07.2003 issued by the Company to its members and the explanatory statement appended thereon do not indicate the approval of the board for convening any extraordinary general meeting. Thus, the sale notice dated 09.07.2003 as well as notice dated 09.07.2003 of the extraordinary general meeting do not meet the requirements of Article 30(a) and 30 (b) and therefore, the question of making any offer by the petitioners to purchase the shares would not arise. Furthermore, it is only when an offer is made to the members in accordance with Article 30(a) & 30(b) and when there are no willing purchasers, shares could be transferred invoking Article 30(d) in favour of any other persons. The Company did not choose to produce the minutes of general meeting reportedly held on 04.08.2003 approving the transfer of shares in favour of the respondents 5 to 7. Shri Murari, learned Counsel further pointed out that the Company has not produced the original minutes book of either the general meetings or board meetings, in spite of the notice in writing given on 23.09.2004 and 26.10.2004 by the petitioners, in which case no presumption under Section 195 can be drawn regarding validity of the minutes of various meetings as held in T.A.M. Athavan v. Sun Freight Systems (P) Ltd. (supra), wherein it has been held that that if the minutes book of the board meetings or general meetings of a company is not maintained strictly in accordance with Section 193, no presumption under Section 195 could be drawn in regard to such minutes books. The Company has not been maintaining the statutory records including minutes of the general meetings or attendance registers for such meetings as reported by the Commissioner appointed by this Bench. The respondents concocted the holding of such extra ordinary general meetings as well as board meetings and fabricated the minutes of such meetings. Without production of the original minutes books, the entire proceedings of the general meetings and board meetings are invalid. The lease of properties given by the Company is neither entered in the register of contracts. The agenda forming part of the notice dated 04.07.2003 to convene the board meeting on 08.07.2003 does not contain the proposal for sale of shares by the respondents 2 to 4. These inherent defects cannot be cured by seeking protection under Section 290, in support of which Shri Murari, learned Counsel relied on Eastern Linkers Pvt. Ltd. v. Dina Nath Sodhi - (1984) Vol. 55 CC 462 - according to which the rule in Section 290 whereby any act done or purported to be done by a director is valid notwithstanding that it may afterwards be discovered that his appointment was invalid by reason of defect or qualification cannot apply to a transaction where a director or a de facto director invokes the rule so as to validate a transaction which was in fact irregular and unauthorised and M. Moorthy v. Drivers and Conductors Bus Service P. Ltd. - (1991) Vol. 71 CC 136 - to show that Section 290 of the Act will have no application where there is total absence of appointment or fraudulent usurpation of authority. In these circumstances, the transfer of shares by second respondent in favour of respondents 3 & 4 and the transfer of shares by respondent 2 to 4 in favour of the respondents 5 to 7 must be set aside, thereby the impugned shares would go back to family members of (late) Vishindas Lilaram and the petitioners are willing to continue to be minority shareholders. In a family company, where utmost good faith and fair play are absolutely essential, no major decisions should be taken at the board meeting without the presence of all the family directors, as held in Prabhu Dayal Chitlangia v. Trinity Combine Associates (P) Ltd. - (1999) 4 Comp LJ 514. Any action against the principles of utmost good faith and fair play having effect on the interests of the family members or the company would amount to an act of oppression and mismanagement. All such decisions have to be declared as null and void.

While arguing the contempt application (C.A. No. 169/2004) Shri Murari, learned Counsel pointed out that Shri. P.H. Arvindh Pandian, learned Counsel appearing for the Company categorically made on 15.07.2004 at the bar the following statements:-

"...the property in question consists of ground and three floors. The ground and first floor are being renovated and the renovation work is nearing completion. Towards this end, the Company has so far incurred a sum of Rs. 9 lakhs. The Company has already entered into a memorandum of understanding dated 01.05.2004 with a third party to lease out the ground floor and the first floor on a monthly rental of Rs. 10/- per sq.ft, which would be in the best interest of the Company and its members. The second and third floors are lying vacant, which will not be sold or encumbered or alienated by way of lease or otherwise till disposal of the company petition."

This Bench, by an order dated 15.07.2004 while recording the undertaking given by Shri P.H. Arvindh Pandian, learned Counsel on behalf of the Company directed, inter alia, that the lease transaction in respect of the ground and first floors covered by the MOU dated 01.05.2004 would be subject to outcome of the company petition. The Company never produced the MOU dated 01.05.2004 before this Bench. In spite of the undertaking given by the Company and in violation of the order dated 15.07.2004, the respondents were taking steps to carry out the renovation work in the Company property and letting out a portion for the purpose of installing an ATM, upon which this Bench by an order dated 06.10.2004 directed that "The Company will not alienate by way lease or otherwise or sell or encumber the subject property save in terms of the order dated 15.7.2004 of this Bench, without leave of this Bench. The petitioners will not precipitate the matter till disposal of the petition. "

However, the Company in wilful disobedience of the orders dated 15.07.2004 and 06.10.2004 of this Bench, entered into an agreement with a bank for installing an ATM counter in a portion of the ground floor of the property. The Company is further making arrangements to let out yet another portion of the ground floor for conducting exhibitions and a portion of the first floor in favour of M/s Shardha Pro-Acoustics for setting up a recording studio therein. These acts of the respondents being in gross violation of the orders of this Bench, they must be punished in accordance with regulation 47 of the Company Law Board Regulations, 1991.

3. Shri P.H. Arvindh Pandian, learned Counsel representing Company opposed the company petition and submitted: The company petition has been signed by the power of attorney holder of the petitioners. The power of attorney holder not having the personal knowledge of the subject dispute cannot prosecute the company petition for and on behalf of the petitioners as held in Janki Vashdeo Bhojwani v. Indusind Bank Ltd. - (2005) 57 SCL 78. The first petitioner failed to sign the company petition. It is therefore, clear that some third party is acting for the petitioners, showing their malafide intention. The affidavit filed in support of the petition not meeting the requirements of law has no legal consequence, as held by this Board in Duroflex Limited v. Johnny Mathew --(CA. No. 56 of 2003 in CP. No. 18/2003). The shareholding pattern as set out in paragraph V.4 of the company petition is not disputed. However, on the death of Vindru Vishindas, his 560 shares were equally divided between the second respondent, his wife (280 shares) increasing her shareholding from 25 to 305 shares and Rekha Bojwani, his daughter (280 shares). Pushpa Vishindas had predeceased her father Vishindas Lilaram in the year 1969, upon which one fourth share in the shareholding of (late) Vishindas Lilaram to which (late) Pushpa Vishindas became entitled were transmitted in favour of the petitioners 2 & 3 and the second respondent in view of the fact that (late) Pushpa Vishindas was never allotted any shares at any point of time during the life time of Vishindas Lilaram. The grievance in regard to non transmission of 52 shares in favour of the legal heirs of Pushpa Vishindas can only be agitated by them and all these years no one expressed any grievance in this behalf. The petitioners have no locus standi to challenge the transmission in the name of among others, the petitioners 2 & 3 more so, when they are also beneficiaries of the shares transmitted in their favour. Furthermore, whereabouts of Deepak T Mirpuri were unknown till filing of an affidavit sworn by Deepak T Mirupuri as late as in January 2005. Therefore, the prayer for transmission of 52 shares inherited by late Pushpa Vishindas from her father in favour of Deepak T Mirpuri cannot be entertained at this belated stage. The Company was not running any wine shop but it only rented out its premises to a tenant since 1981 for the said purpose. However, in view of the changed policy of the State Government, the wine shop has been closed for more then six months and there is no bar or wine shop in the premises belonging to the Company. The prayer to restrain the Company from running liquor business in its premises has become infructuous. The Company's immovable property situated in Cuddalore was sold with full knowledge and authorisation of the first petitioner as borne out by copy of the power of attorney dated 08.05.2002 executed by the first petitioner and second respondent empowering K. Desikan, their lawful attorney to sell, inter alia, Cuddalore property and to do all further acts which may be necessary for sale of the property and the communication of the first petitioner dated 24.09.2002 addressed to her attorney (page Annexure 12 of Vo. II of the Company). By virtue of Section 53(1), a document may be served by a company on any member at his registered address, or if he has no registered address in India, to the address, if any, within India supplied by him to the company for the giving of notices to him. Accordingly, the notice dated 08.01.2003 convening the extraordinary general meeting on 01.02.2003 for appointment of the third respondent as director and transfer of shares was sent to the petitioners at their registered addresses. When the notice dated 08.01.2003 convening the extraordinary general meeting was sent to the first petitioner, she categorically expressed her inability to attend the meeting on 01.02.2003 and further desired her inconvenience to be excused. This acquiescence on the part of the first petitioner to convene the extraordinary general meeting is now legally challenged by her, in spite of the first petitioner having full knowledge of the proceedings of the extraordinary general meeting. By virtue of Article 59 any omission to give the notice to any member of any general meeting, the proceedings of such general meeting will not be invalidated. Article 91 provides that all acts done by any meeting of the directors would be valid even if it be afterwards discovered that there was some defect in the appointment of any such director. Similarly, by virtue of Section 290 of the Act any act of a person acting as director will be treated as valid although it may afterwards be discovered that his appointment was invalid. Article 30 permits the transfer of shares among the family members and therefore, the transfer by the second respondent in favour of the third respondent (25 shares) and fourth respondent (25 shares) is perfectly is valid. Thus, all acts by the third respondent having been protected by Article 91 and Section 290 of the Act cannot be oppressive. When the third respondent became director of the Company on 01.02.2003, he was authorised to operate the bank account on behalf of the Company, which was subsequently frozen on the objections raised by the first petitioner by a letter dated 28.02.2003. However, the first petitioner by a subsequent letter dated 29.11.2003 advised the bank that the third respondent could be permitted to operate bank account as director of the Company. Thus, there has been acquiescence, viz., "tacit agreement" as defined in the law lexicon on the part of the petitioners in relation to appointment of the third respondent as director and transfer of shares in his favour. A person after waiving his rights cannot claim any relief. Equity aids the diligent and not indolent. Laches, which are suggestive of acquiescence is a good reason to refuse the relief in equity and one who comes in equity must come with clean hands as held in Mukundlal Manchanda v. Prakash Roadlines Ltd. - (1995) 1 Comp LJ 126. The fourth respondent is not on the board of the Company. Articles 78 & 79 stipulate that a director must hold shares in the Company of nominal face value of Rs. 25,000/- which must be acquired within two months from his appointment. By virtue of Article 81(a), the office of director shall stand vacated if the director fails to acquire the qualification shares within two months of the appointment. The mandatory provisions of Section 270 of the Act, envisaging qualification shares for the appointment as director is not applicable to a private limited company, yet if the shareholders of a private company in their own wisdom provide in the articles, qualification shares for a director, the same is not repugnant to the provisions of Section 273 and therefore, the application of the provisions of Section 9 does not arise (i.e) viz., the provision contained in the memorandum though repugnant to the provisions of the Act, does not become void, as held in Mrs. Aruna Suresh Mehra v. Jifcon Tools (P) Ltd. --(1999) 1 Comp LJ 163. Since the first petitioner is holding only 5 shares all these years, she has not been recognised as director of the Company subsequent to July 2003. However, no Form - 32 has been filed on her ceasing to be director of the Company. Since the first petitioner seized to hold the office due to her failure in acquiring the qualification shares, the second respondent had no other option but to co-opt the third respondent as director in order to ensure compliance with the statutory requirements. The first petitioner having vacated the office of director has no locus standi to question any of the acts in her capacity as director of the Company. As on date the respondents 2, 3 & 5 to 7 are directors of the Company. The petitioners have not pointed out any oppressive act on the part of the respondents 5 to 7, who never misused their power vested in them as directors in a private limited company for personal gains or ulterior motives, discharging a heavier burden cast on directors by the apex court in Dale and Carrington Invt. P. Ltd v. P.K. Prathapan -- (2004) Vol. 122 CC 161. The transfer of shares by the respondents 2 to 4 in favour of the respondent 5 to 7 is in substantial compliance with Article 30 (a) (b) and (d) as borne out by copies of the notice dated 08.07.2003 of the respondents 2 to 4, notice dated 09.07.2003 of the Company to its members and notice of the extraordinary general meeting dated 09.07.2003 in regard to the sale of shares of the respondents 2 to 4 (pages 19-24 of Volume II of the Company). The notice dated 08.07.2003 was received from the respondents 2, 3 and 4 for transfer of their shares in accordance with Article 39(a) which was handed over in person to the Company and the original is still available with the Company, while copy is produced (Annexure '9') before this Bench. Thereafter, the Company gave notice by registered post A/D to all members on 09.07.2003 in terms of Article 30(b), giving a clear offer to them about the intention of the sale of shares of the respondents 2 to 4 and clearly mentioning that the members must give their willingness to purchase the shares at the fair price, failing which the board would transfer the shares to other persons in exercise the option under Article 30(d). The notice dated 09.07.2003 convening the extraordinary general meeting on 04.08.2003 to consider the sale notice was sent by registered post to the petitioners 2 & 3 at their foreign address and further to address of the first petitioner. The petitioners 2 & 3 neither intimated the Company within the stipulated time about their willingness to purchase the shares offered by the respondent 2 to 4 nor raised any question regarding the fixation of the price for shares in terms of Article 30(a) and therefore, the petitioners cannot take any objection at this stage. The respondents 2 to 4 transferred the shares in favour of the respondents 5 to 7 within six months after the expiration of the specified time limit of fifteen days in terms of Article 30(d). Though the first petitioner attended the extraordinary general meeting on 04.08.2003, she refused to sign the attendance register, as borne out by the bill in her own handwriting for reimbursement of travel and conveyance expenses incurred by her in connection with the said meeting (Annexure-8 of vol.11 of Company). The transfer of these shares was approved on 18.01.2004 by the board of directors of the Company. When majority of the shareholders take decision to transfer their shares with a view to protect the interests of the company which is in financial difficulties then, even if there is violation of the provisions of the articles, the same cannot be considered to be an act of oppression as held in Cine and Supply Corporation Pvt. Ltd. v. Palak Kumar Mondal - (2003) Vol.115 CC 481. Mere non-mentioning of the price of shares as envisaged in the articles being only a procedural defect, the transfer of shares in favour of the respondents 5 to 7 cannot be set aside as held in Smt Lakshmi Natarajan v. Bharatan Publications Ltd.- (1998) Vol.94 CC 367. Furthermore, an outsider-purchaser of the shares of a company cannot be denied the right to have his name entered in the share register merely on account of negligence or default on the part of the company as held in Babulal Madhavji Varma v. New Standard Coal Co. Pvt. Ltd. - (1967) XXXVII CC 446. If an outsider is dealing with a director in a matter in which a director normally would have power to act for the company he is not obliged to enquire whether or not the formalities required by the articles before he exercises that power have in fact being complied with as held in Freeman And Lockyer v. Buckhurst Park Properties (Mangal) Ltd.- (1964) 1 All E.R. 630. A stranger dealing with a company has a right to assume, as against the company, that all requirements of internal management have been duly complied with as held in Nellai Metal Rolling Mills (P) Ltd., v. The Southern India Central Benefit Fund (P) Ltd., - (1986) MLJR 370. The removal of an auditor of the Company cannot be an act of oppression as held by the CLB in G. Haranadh v. Shri Laxmi Durga Paper Products (India) Limited - C.P. No. 58/2002 and the present grievance of the petitioners on this account does not merit any consideration. The petitioners have not established the two essential requirements to make any order under Section 397 of Act as held in Maharani Lalita Rajya Lakshmi v. Indian Motor Co. (Hazaribagh) Ltd. - (1962) XXXII CC 207, viz., that the company's affairs are being conducted in a manner oppressive to any member or members of the company and that to wind up the company would unfairly prejudice such member or members but that otherwise the facts would justify the making of a winding up order on the ground that it is just and equitable that the company should be wound up. Shri P.H. Arvindh Pandian, learned Counsel pointed out that the Company leased out its property at G.N. Chetty Street, Chennai strictly in terms of the orders dated 15.07.2004 and 06.10.2004 and further that the ground and first floors are not the subject matter of these orders, thereby the Company has not committed contempt of any order of the CLB. The CLB in order to do justice to the injured shareholders may order the oppressor to buy their shares at a fair price as on the date of petition, if there have been no oppression. Once the oppressor buys the shares, the Company can survive and can continue to operate as held in Scottish Co-operative Wholesale Society Ltd. v. Meyer - (1959) XXIX CC 1. In the alternative, Shri Arvindh Pandian, learned Counsel pointed out that the first petitioner or her family members could be on the Board of the Company and the properties could be in the joint management of both the parties.

4. Shri J. Madanagopal Rao, learned Counsel appearing for the respondents 5 to 7 while adopting the arguments advanced on behalf of the Company, submitted that his clients are bonafide third party purchasers of the impugned shares acquired from the respondents 2 to 4 for valuable consideration. They are entitled to assume, applying the doctrine of "indoor management", that the directors are acting regularly and performing their duties in accordance with the internal regulations of the company, as held in P.V. Damodara Reddi v. Indian National Agencies Ltd. - (1945) XV CC 148 and K.S. Ramachandran v. Registrar of Co-Operative Societies, Madras - (1963) XXXIII CC 807. The learned Counsel pointed out that the petitioners never took any interest since the year 1997 to take care of the properties of the Company. The property at GN Shetty Road in a dilapidated condition for the past more than a decade has been fetching meagre monthly rental of Rs. 3,625/-. The property at Panruti is in occupation of a tenant who has not been paying any rent for the past four years. The property in Andhra Pradesh has been acquired by the Government of Andhra Pradesh for public purpose. The property in Kerala is in litigation for the past several years. These respondents after becoming shareholders have taken earnest efforts to renovate the property at GN Chetty Road, ("the property") by investing their own funds and meeting the demand towards property tax, water tax, telephone charges and other recurring expenses in connection of the property. The Company is now realising rentals amounting to Rs. 32,000/- by letting out the property to the third parties and by installation of an ATM, which is beneficial to the Company and its shareholders. The rental value of the property has been increased on account of the initiatives taken by these respondents and further evicted the unauthorised occupants from the property. The respondents are regularly furnishing a statement of receipts and payments on account of the Company in terms of the order of this Bench. The petitioners, on the other hand, caused immense damage by causing public notice during pendency of the company petition in regard to the property of the Company. The legal heirs of Pushpa Vishindas are not parties to the company petition making any claim over the shares of (late) Vishindas Lilaram. The petitioners not being the legal heirs of (late) Pushpa Vishindas cannot demand her shares, which were transmitted in favour of the petitioners 2 & 3 and the second respondent. Therefore, the petitioners cannot seek for rectification of the register of members in respect of those shares especially when they are in no way aggrieved on this account. Shri Madanagopal Rao, learned Counsel while concluding his arguments submitted that the petitioners are at liberty to join these respondents to manage day-to-day management of the property of the Company and that the new management is maintaining the statutory records in accordance with the provisions of the Act.

5. Shri. B. Ravi, the learned authorised representative of the respondents 2 to 4 adopted the arguments advanced on behalf of the other respondents and reiterated that there has been knowledge and acquiescence on the part of the petitioners in regard to the transfer of impugned shares and appointment of the third respondent as director of the Company, which remained unchallenged, thereby disentitling them to claim any relief, as held in Sunil Dev v. Delhi and District Cricket Association -- (1994) Vol.80 CC 174 --wherein it has been held that "where the conduct of the parties reveals that there has been some practice in vogue for several years which was accepted by every one concerned without any challenge or question, then that practice in the course of long years in itself becomes an indication that the rules or articles of association which are framed by way of internal management of a company were understood in that sense" and S. Krishnaswamy v. South India Film Chamber of Commerce -- AIR 1969 Madras 42 -- to show that "where a man with the knowledge of the irregularity of a particular course, nevertheless concurs in it, he cannot afterwards take advantage of the irregularity."

6. I have considered the pleadings and the arguments of the learned Counsel. The main grievances of the petitioners are -

(i) non-transmission of 52 shares representing one-fourth share of (late) Pushpa Vishin Das in the shareholding of (late) Vishindas Lilaram in the Company in the name of Deepak T Mirpuri, son of (late) Pushpa Vishin Das;

(ii) appointment of the third respondent as director without approval of the board of directors of the Company;

(iii) transfer of shares by the second respondent in favour of the respondents 3 & 4 as well as transfer of shares by the respondents 2, 3 & 4 to the respondents 5 to 7 in violation of the articles of association of the Company.

(iv) sale and use of the Company's immovable properties without authority of the board of directors of the Company; and

(v) convening and holding of the extraordinary general meetings and board meetings of the Company in disregard of the provisions of the Act.

Before going into the merits of the rival contentions, I shall proceed to consider the preliminary objections raised by either of the parties. The objection in relation to filing of the company petition through attorney must be seen in the light of the power of attorney given by the petitioners in favour of their lawful attorney in order to exercise their rights with regard to their shareholding as well as for the protection and preservation of the Company's assets from the purported illegal acts of the respondents 2 to 4 in the affairs of the Company and to do the following among acts: -

* to file or defend any suit, petition, complaint or any other form of proceeding for any purpose in any Court, Tribunal or Authority against any person.

*    to appoint and engage advocates and for this purpose sign vakalat/s.
 

*    to receive summons or notices.
 

*    to sign and verify any plaints, written statements, petitions, affidavits, memorandums.
 

*    to file any petitions for execution in connection with any of the proceedings and to cause such execution for the satisfaction of any decree, order or judgment passed in any such matter.
 

*    to do all acts and deeds incidental and ancilliary thereto.
 

A perusal of the relevant clauses of the power of attorney executed by the petitioners shows that the attorney is vested with unambiguous powers to protect the interests of the petitioners in the Company and preserve its assets invoking due process of law. The company petition against oppression and mismanagement in the affairs of the Company filed through the attorney duly authorised for the explicit purpose, in my view, is maintainable under law. At this juncture, it shall be borne in mind that applying the normal rule of agency, save matters of personal nature, whatever the petitioners can do themselves, they can get the same done through their lawful attorney. The decision in Janki Vashdeo Bhojwani v. Indusind Bank Ltd., (supra) will have no application to the present case in view of the fact that the power of attorney neither deposed on his personal knowledge nor was he examined before the Company Law Board, while prosecuting the company petition. The affidavit filed in support of the company petition does meet the relevant applicable regulations of the Company Law Board Regulations, 1991 and therefore, the decision in Duroflex Ltd v. Johnny Mathew (supra) does not lend any support to the respondents. The plea of the petitioners that serious allegations made against the respondents 2 to 4 must be deemed to be uncontroverted assumes relevance in the light of the counter statement filed on behalf of the Company by the sixth respondent, who is admittedly a third party-transferee and the subsequent counter statement filed by the respondents 2 to 4, adopting the counter-statement of the Company. It is on record that the Company represented by the sixth respondent filed the counter statement meeting every contentious averment made in the company petition. The sixth respondent has sworn an affidavit in the following manner:-

"1. That I am the Director of the 1st Respondent Company. I am therefore well acquainted with the facts of the case and I am swearing to this Affidavit on behalf of the 1st Respondent Company.

2. I state that the statements made in the enclosed Counterstatement are true to the best of my knowledge, information and belief."

It is made clear that the sixth respondent being director of the Company is well acquainted with the facts of the case and that the averments forming part of the counter statement are true to the best of his knowledge, information and belief. The counter statement filed subsequently by the respondents 2 to 4 categorically makes it clear that they fully support the averments made in the counter statement filed by the Company and that the counter statement filed by these respondents may be treated as supporting the counter statement filed by the Company. Thus, the defence taken by the Company having been adopted by the respondents 2-4, the charges levelled by the petitioners cannot be ignored on mere technicalities and therefore, to meet the ends of justice, such charges must necessarily be looked into by going into the rival claims made by the respondents.

It is on record that (late) Vishindas Lilaram is survived by the petitioners 2 & 3 being his daughters, the second respondent and her daughter, the legal heirs of his deceased son, viz., Vindru Vishindas and Deepak T Mirpuri, son of his predeceased daughter, viz., Pushpa Vishindas as lineal descendants. When Vishindas Lilaram died in 1997, his 210 shares were transmitted in favour of the second petitioner (70 shares), the third petitioner (70 shares) and the second respondent (70 shares) without transmitting any shares in the name of Deepak T Mirpuri, son of (late) Pushpa Vishindas, thereby reportedly depriving him of 52 shares representing one-fourth share in the shareholding of (late) Vishindas Lilaram. According to the respondents, (late) Pushpa Vishindas was never given any shares during the life-time of her father. Furthermore, whereabouts of Deepak T Mirpuri were reportedly unknown until filing of an affidavit sworn by Deepak T Mirpuri in January, 2005. It is on record that Vishindas Lilaram had expired as early as in the year 1997, when Deepak T Mirpuri was aged 31 years, as borne out by copy of his passport filed along with the affidavit dated 03.01.2005, but did not choose, at any prior point of time, to make any claim for 52 shares impugned in the company petition. Deepak T Mirpuri has agitated for the first time his entitlement for 52 shares out of 210 shares held by (late) Vishindas Lilaram in his affidavit dated 03.01.2005 filed before this Bench, in the following words:

"2. I understand that the above Company Petition has been filed by the Petitioners therein seeking reliefs against the various acts of oppression and mismanagement indulged in by Respondents 2 to 7 in the above C.P. I further understand that one of the grounds of oppression complained of is that after the demise of the late Vishindas Lilaram, the heirs of the late Puspa Vishindas were not given the shares to which they were entitled and that the said shares were divided only among the two daughters and the daughter in law of the said Vishindas Lilaram.

3. I submit that in this regard that I as a legal heir of the late Pushpa Vishindas would thus be entitled to 52 shares out of the 210 shares held by Vishindas Lilaram which entitlement has however been ignored. In the circumstances one of the reliefs claimed in the petition relates to the transmission of such shares to me. I submit that my stepmother Mrs. Sheela Vishindas had filed the above petition in which she has sought for the safeguarding of my interest, and therefore I was not made as a party in the said proceedings."

The affidavit does not give any reasons for silence of Deepak T Mirpuri, since the year 1997. It is further observed from copy of the passport of Deepak T Mirpuri that he had travelled to India on 17.08.1997, 31.08.1997, 16.02.1998, 28.02.1998 and 27.05.1999, but there is no material to suggest whether Deepak T Mirpuri made any demand for these shares, which are now claimed by him. Further, both the second and third petitioners, having each got 70 shares were aware that each of them got 18 shares which ought to have been transmitted in the name Deepak T Mirpuri. They cannot now, agitate that the Company has not transmitted these shares to Deepak T Mirpuri at this belated stage. In view of the unexplained delay of over seven years in claiming the shares, the grievances of either Deepak T Mirpuri or the petitioners who have taken advantage of the impugned shares cannot be remedied in the present proceedings. In this connection beneficial reference is invited to C. Mathew v. Cochin Stock Exchange Ltd - (1997) 4 Comp LJ 455, wherein this Board categorically held that when ... "a person who delays exercising his right of action cannot expect the Company Law Board to close its eyes on the inaction on the part of such a person for a long period". Therefore, the petitioner's claim on this account must fail.

It is observed that the second respondent as Chairman of the Company, by a notice dated 21.12.2002, convened a meeting of the board of directors on 03.01.2003 to consider the proposal in relation to (i) sale of the Company's property; and (ii) shares. It is not under dispute that as on 03.01.2003, the first petitioner and second respondent alone were directors of the Company. The first petitioner admittedly did not attend the board meeting on 03.01.2003, as seen from her communication dated 13.01.2003 addressed to the second respondent (Anenxure 5 of Vol.II of Company). Consequently, there was no possibility of holding the board meeting proposed on 03.01.2003, especially when the presence of the second respondent without participation of the first petitioner could not constitute a quorum for the board meeting. In view of this, there was no scope for approving any transaction at the proposed board meeting, including the transfer of shares by any member including the second respondent in favour of the respondents 3 & 4 by the board of directors on 03.01.2003.

The Company by a notice dated 08.01.2003 Called for an extraordinary general meeting on 01.02.2003 to transact the following business:-

(a) to appoint the third respondent as director of the Company;

(b) to approve the sale of the Company's properties;

(c) to ratify the registration of transfer/transmission of shares; and

(d) to appoint M/s Karpagam and Company, Chartered Accountants, as auditors of the Company.

By virtue of Section 53(1), a notice could be served by the Company, inter-alia, by post to the petitioners 2 & 3 to their registered address or if they have no registered address in India, to the address, if any, within India supplied by them to the Company for the giving of notice to them. Section 53(3) provides that an advertisement in a newspaper circulating in the neighbourhood of the registered office will be deemed to be due service of notice on every shareholder who has not supplied to the Company any address in India. In view of this, the notice of extraordinary general meeting sent to the petitioners 2 & 3 at the address of the first petitioner does not meet the requirements of Section 53 of the Act. Though Article 59 provides that any omission to give the notice to any member of any general meeting, the proceedings of such general meeting will not be invalidated, this cannot salvage the impugned transfer, in the absence of proper compliance of Article 30, which is being dealt with separately. Moreover, there is no material to show that the board of directors of the Company had at any point of time resolved to convene the extraordinary general meeting on 01.02.2003 to transact the above business. The notice of the extraordinary general meeting or the explanatory statement appended thereto does not contain any particulars of the properties sought to be sold or the shares proposed to be transferred/transmitted or the names of transferors or transferees etc. The minutes of the extraordinary general meeting held on 01.02.2003 (pages 98 & 99 of company petition) though indicate that the members have approved the transfer of equity shares described in the share transfer register of the Company, yet, the names of transferors or transferees or number of shares transferred are conspicuously absent. Similarly, the resolution approving the transmission of shares neither makes any reference to the persons in whose name the transmission was effected nor gives the number of shares involved in such transmission of shares. It is observed that the respondents 2, 3 & 4 participated in the extraordinary general meeting held on 01.02.2003, when the respondents 3 & 4 were not members, whose presence could neither be accounted for quorum at the general meeting held on 01.02.2003 nor could they vote at such meeting. It is neither substantiated as to how the transfer of shares in favour of the respondents 3 & 4 is with a view to protect the interests of the Company, when it does not carry out any business for the past several years. Consequently, the resolutions in relation to the transfer of shares in favour of the respondents 3 & 4 and the appointment of the third respondent as director of the Company, at the extraordinary general meeting with participation of the remaining lone member viz., the second respondent cannot be valid. It is on record that a meeting of the board of directors of the company was held on 01.02.2003. But there are three versions of the minutes of the board meeting dated 01.02.2003 on record, of which the first one being copy of the minutes of the board meeting produced along with the company petition (pages 96 & 97). This copy of the minutes of the board meeting extensively dealt with by the learned counsel for the petitioners has not been challenged at any point of time by the respondents. This reveals that the respondents 2, 3 & 4 as directors, of whom the latter is admittedly not director of the company, approved the resolutions in relation to (a) operation of the bank account by the third respondent and (b) authorization to recover the minutes book and other statutory records by Shri Desikan, accountant of the Company from its erstwhile auditors. The minutes have been signed twice by the second respondent, first time as Chairman of the meeting and again as Managing Director of the company. The second version of the minutes of the very same board meeting produced pursuant to the directions of this Bench contained in the loose sheets is signed only once by the second respondent as director-cum-chairman. It is observed that the recitals of the minutes of the board meeting in the form as depicted in copy of the minutes appended along with the company petition (page 96) and the minutes produced in the course of the hearing, more particularly in relation to operation of the bank account are at variance. Moreover, the respondents have not chosen to produce the original minutes dated 01.02.2003 of the board of directors contained in the loose sheets for authentication by the Commissioner appointed by this Bench. The third version of the minutes of the board meeting dated 01.02.2003 is found in the minutes book of the board meetings maintained by the Company. The original minutes consisting of six pages, of which two pages are initialled and the last page is signed by the Chairman of the meeting. It is observed that the respondents 2 & 3 alone had participated in the board meeting. It does not mention about the presence of the fourth respondent as director, unlike in the two remaining versions of the same board meeting discussed hereabove. At the said board meeting the board of directors consisting of the respondents 2 & 3 further approved (a) availment of overdraft facility (b) transfer and transmission of 840 equity shares in the name of various persons as detailed therein. It is absolutely relevant to Observe that when Shri R. Murari, learned counsel vehemently argued that copy of the minutes of the extra-ordinary general meeting dated 01.02.2003 (pages 96 & 97 of company petition) does not disclose the particulars of the number of shares, the names of the transferors and transferees in respect of the shares sought to be transferred and transmitted, the respondents neither offered inspection of the original minutes book of the board meetings containing the minutes dated 01.02.2003 nor made available the requisite information. It is absolutely relevant to note that the minutes produced before this Bench show that the third respondent participated in the board meeting held on 01.02.2003, when he was appointed at the very same board meeting, which is opposed to the basic canons of law. In view of these discrepancies in the three versions of the minutes of the same board meeting discussed hereabove, no credentials can be attached to any of the versions of the minutes of the board meeting dated 01.02.2003 on record before this Bench. Therefore, the proceedings of the said board meeting including the appointment of third respondent as director and approval of the transfer and transmission of the impugned shares can in no way be valid in law with participation of the lone director, viz. the second respondent.

It is relevant to point out that every transfer of shares held by any member to a "member of his family" requires the approval in writing of the board of directors of the Company. By virtue of Article 31 the board of directors is empowered to refuse to register any transfer of shares made in contravention of the provisions of Article 30. The articles do not provide for ratification of the registration of transfer/transmission of shares by the members at any general meeting of the Company. I do not see any valid approval in writing of the board of directors of the Company as envisaged in Article 30 for the transfer of shares by the second respondent in favour of the third respondent (25 shares) and fourth respondent (25 shares). Any transfer of shares in a private limited company in violation of the articles of association and any act outside the articles, being oppressive are liable to be set aside as held by this Board in (i) Mrs. S. Rehana Rao v. Balaji Fabricators Pvt. Ltd., (ii) B.V. Thirumalai v. Best Vestures Trading (P) Ltd. and (iii) T.A.M. Athavan v. Sun Freight Systems (P) Ltd. (supra). The decision in Cine and Supply Corporation Private Ltd. v. Palak Kumar Mondal to show that ... "when the majority of the shareholders take a decision (emphasis supplied) to transfer their shares with a view to protect the interests of the company which is in financial difficulties, then, even if there is violation of the provisions of the articles, the same cannot be considered to be an act of oppression " has no application to the present case, wherein the proceedings of the extraordinary general meeting as well as board meeting held on 01.02.2003 are already found to be in violation of the relevant applicable provisions of the Act and the articles of the Company. The action of the first petitioner revoking her earlier request made to the Company's banker not to allow operation of the bank account by the third respondent cannot in any way under law ratify the appointment of the third respondent as director of the Company, especially when the appointment is found to be irregular and therefore, the plea of acquiescence on the part of the first petitioner in regard to the appointment of the third respondent as director as claimed by the respondents will not hold good. Moreover, mere acquiescence which does not amount to an abandonment of one's right, cannot disentitle such person from claiming relief in equity in respect of his executed interest as held in Sha Mulchand & co v. Jawahar Mills Ltd., (Supra). The claim of the respondents drawing support from Mukundlal Manchanda v. Prakash Road Lines Ltd (supra) that the first petitioner after waiving her rights in allowing operation of the bank account by the third respondent cannot now question the validity of his appointment as director does not merit any consideration, since there is total absence of valid appointment and furthermore by virtue of Article 84, new directors may be appointed by the Company in general meeting and the appointment of the third respondent as director cannot be ratified by conduct of the first petitioner. The protection under Article 91 and Section 290 of the Act, according to which the acts of a person acting as director will be treated as valid although it may afterwards be discovered that his appointment was invalid cannot apply to an irregular and unauthorised transaction and where there is total absence of valid appointment, as held in Eastern Linkers Pvt. Ltd. v. Dina Nath Sodhi and M. Moorthy v. Drivers and Conductors Bus Service P. Ltd., (supra).

Article 30(a) & 30(b) prescribe the procedure for the transfer of shares by any member to any other person who is not "a member of his family" or who is not already a member of the Company.

Article 30(a) provides that every member who intends to transfer shares ("the vendor") must give a notice in writing to the board of directors of his intention, constituting the board his agent for the sale of shares at a price to be agreed upon by the vendor and the board. In case of any difference at the price, this article describes the modalities in arriving at the "fair selling value" of shares proposed to be sold by the vendor. Article 30(b) specifies that once the price of shares is fixed in terms of Article 30(a), the board shall forthwith give notice to all members of the Company indicating the number and price of the shares to be sold and invite each of them to state in writing within 15 days from the date of such notice whether he is willing to purchase any number of shares. Article 30 (c) relates to the allocation of shares to members who are willing to purchase shares offered by the vendor. Article 30(d) provides that in the event of the whole of shares offered for sale are not being sold, the vendor may at any time within six months after the expiration of the fifteen days as stipulated in Article 30(b) transfer the unsold shares to any other person and at any price. It shall now be seen whether the transfer of shares by the respondents 2 to 4 in favour of the respondents 5 to 7 is in strict compliance with the requirements of these articles. It is on record that the respondents 2 to 4 ("vendors") caused a notice dated 08.07.2003 to the Company under Article 30(a) expressing their desire to dispose of their shares in the Company and requested the Company to send the requisite notice to other members in accordance with Article 30(b). This notice sent under Article 30(a) does not specify either the number of shares held by the respondents 2 to 4 or shares offered by them for sale. It is not under dispute that the second respondent and her daughter, viz., Rekha Bhojwani each became entitled to 280 shares upon the demise of Vindru Vishin Das, thereby the shareholding of the second respondent stood increased to 305 shares of the Company. In addition, 70 shares of (late) Vishindas Lilaram, out of 210 shares held in his name were transmitted in the name of the second respondent, which is impugned in the company petition with which her total shareholding would account for 375 shares, out of which 50 shares under dispute were transferred in favour of the third respondent (25 shares) and the fourth respondent (25 shares). At the same time, the notice dated 09.07.2003 of the Company given to its members under Article 30(b) clearly specifies that the second respondent as offering to sell 605 shares, as against her entitlement of 325 shares. Rekha Bhojwani, daughter of the second respondent holding 280 shares not being a party to the notice dated 08.07.2003 given to the Company by the respondents 2- 4, never offered to sell her shares as per Article 30(a). There is no material to show whether the vendors and the board agreed on the price of shares proposed to be sold or whether any "fair selling value" of these shares was determined in terms of Article 30(a). I do not see whether any board meeting was convened to arrive at the price of shares in terms of Article 30(a). Furthermore, the Company's invitation from its members for purchase of 25 shares of the third respondent and another 25 shares of the fourth respondent acquired by way of transfer from the second respondent, in violation of Article 30 cannot be a valid one. In this connection, the relevant portion of the notice dated 09.07.2003 of the Company issued under Section 30(b) assumes importance which reads thus:

"Any member desirous of purchasing the same may state in writing within 15 days from the date of this notice whether he is willing to purchase any and if so, what maximum number of the said shares. It has been decided to give priority to the members for the purchase of the above said shares. Nevertheless, in the event of no member being able to pay the fair price, the Board would be constrained to exercise the option mentioned under the Clause 30(d) of Articles of Association. "

Though the Company gave priority to the members for purchase of the shares offered by the respondents 2, 3 & 4 at the fair price, the "fair selling value" of shares in terms of Article 30 (b) was not indicated in the notice sent by the Company, in the absence of which, it is quite unlikely that any member would be able to accept the offer paying the fair price of the shares. These requirements, in my view, are essential before issue of any notice by the Company under Article 30(b) to its members ascertaining their willingness to purchase the shares offered by the respondents 2, 3 & 4. The notice dated 09.07.2003 caused under Article 30(b) by the Company (i) with incorrect number of shares held by the second respondent, (ii) Rekha Bhojwani not giving any notice under Article 30 (a) for sale of her 280 shares, and (iii) without furnishing the price fixed at in accordance with Article 30(a) does not satisfy the requirements of Article 30(a) & 30(b). These cannot be, in my view, construed as procedural defects and strong reliance placed by Shri P.H. Arvindh Pandian, learned Counsel on the decision of this Board in Smt. Lakshmi Natarajan v. Bharatan Publications Ltd. (supra) does not support the respondents in view of the fact that the company in the said case while sending the notice had indicated the intrinsic value of the shares instead of the fair value unlike in the present case before me where the Company had indicated that the member-purchasers must pay "the fair price", without however explicitly stating the amount of "the fair price" of the shares. While the transfer in the case of Bharatan Publication Ltd. was not found to be with any ulterior motive, the transfer impugned in the present company petition resulted in change of control of the family Company by outsiders. From the foregoing discussions, it is beyond doubt that the transfer of shares in favour of the respondents 5-7 is not in strict compliance with the provisions of Article 30(a), (b) & (d). The minutes of the extraordinary general meeting dated 04.08.2003 approving the offer of the respondents 2 to 4 for sale of their shares contained in the loose sheet, not having been produced for authentication by the Advocate Commissioner and seriously disputed by the petitioners will be of little value. The materials on record (Annexure 8 of volume II of the Company) disclosing the fact that the first petitioner travelled to Chennai during the period between 02.08.2003 and 10.08.2003 will not conclusively prove approval of the members for the sale of shares by the second respondent and others in the absence of any other concrete evidence in this behalf. The original minutes of the board of directors dated 18.1.2004 disclose the transfer of 325 equity shares from the second respondent to the fifth respondent, transfer of 280 equity shares from the second respondent's daughter to the sixth respondent and transfer of 25 equity shares from the fourth respondent to the seventh respondent. It shall be borne in mind that the second respondent's daughter never gave notice under Article 30(a) offering to sell her 280 equity shares. Though the third respondent offered to sell 25 shares in terms of the sale notice dated 09.07.2003, the transfer of these shares has not been approved at the board meeting held on 18.01.2004. The second respondent offered to sell 605 shares without entitlement to the entire shares, but the board of directors approved the transfer of 325 shares to the fifth respondent. These discrepancies remain unexplained. Above all the resolutions approved by the respondents 2 & 3, as directors at the board meeting held on 18.01.2004 are without any legal sanctity, in the absence of valid appointment of the third respondent as director of the company. By virtue of the impugned transfer, the Company being a family Company under the control and management of the family members of (late) Vishindas Lilaram came to be exclusively vested in the respondents 5 to 7, who are admittedly outsiders, which would be oppressive of the minority shareholders belonging to the family of (late) Vishindas Lilaram, notwithstanding their contribution towards the renovation and improvement of the property of the Company. In this connection beneficial reference is invited to the decisions of this Board in (a) Arati Dutta Gupta v. Unit Construction Co., Ltd -(2004) 60 CLB 75, wherein it is held that any proposal in a family company for the appointment of an outsider as the chief executive with powers to supersede the powers family members will not be proper for being against the established practice in the matter of controlling the affairs of the company and (b) Hansraj Gokuldas Ved v. Nitin Dyeing & Bleaching Mills (P) Ltd - (2004) 55 SCL 600 to show that in a family company, even disturbance in the existing percentage shareholding is an act of oppression. Against this background, the actions of the respondents are not only found to be illegal, but also oppressive of the petitioners. The decision in Nellai Metal Rolling Mills (P) Ltd. v. The Southern India Central Benefit Fund (P) Ltd., that a stranger dealings with a company has a right to assume that the requirements of internal management have been duly complied came to be rendered in the context of the borrowing made by the company without any resolution approved by the board of directors, by which the company received and enjoyed the benefits of such borrowing, the facts of which are not similar to those of the present case. Similarly, the decision in Freedman And Lockyer v. Buckhurst Park Properties (Mangal) Ltd. (supra) will be of little support to the respondents in absence of any material in the present case to establish whether at all the board of directors validly exercised the power approving the impugned transfer of shares in favour of the respondents 5 - 7. There was no need for the respondents 5-7 as pointed out by Shri Madanagopal Rao, learned Counsel, to inquire into the regularity of the internal proceedings of the Company in regard to the transfer of shares in their favour, as held in P.V. Damodara Reddi v. Indian National Agencies Ltd., (Supra) provided, these respondents had followed the rule which is stated in Palmer's Company Precedents, fifteenth edition and reproduced in the said decision as follows:-

"This rule is that where a company is regulated by an Act of Parliament, general or special, or by a deed of settlement or memorandum and Articles registered in some public office, persons dealing with the company are bound to read the Act and registered documents, and to see that the proposed dealing is not inconsistent therewith; but they are not bound to do more;"

There is no material to suggest that the respondents 5-7 exercised any due diligence to ensure that the proposed offer of sale of shares by the respondents 2-4 made under Article 30(a) and that the notice issued by the Company to all members under Article 30 (b) were not inconsistent with the articles of association and therefore, the respondents are not entitled to take shelter under the doctrine of 'the indoor management'. The respondents 5 -7 ought to have taken notice of the disabilities imposed on the Company by the memorandum or other documents of its constitution. They run a great risk in not acquainting themselves with such disabilities, as held in K.S. Ramachandran v. Registrar of Co-operative Societies, Madras (supra), which is found to be lacking on the part of the respondents 5-7. It shall be borne in mind that equity aids the diligent and not indolent laches. In a family company, where utmost good faith and fair play are required, no major decision must be taken at the board meeting without the presence of all the family directors, as held in Prabhu Dayal Chitlangia v. Trinity Combine Associates (P) Ltd. (supra), which is not found to be satisfied in the present case. The decision in S. Krishnaswamy v. South India Flim Chamber of Commerce (supra) supporting the claim of the respondents 2-4 that where a person with the knowledge of the irregularity, concurs with the irregularity, he cannot afterwards take advantage of the irregularity, having been rendered in an application challenging the election of members of the Executive Committee of a Society registered under the Societies Registration Act, would in no way advance the case of these respondents. It is further observed that the notice dated 09.07.2003 sent by the Company under Article 30(b) in favour of the second petitioner to the address of the first petitioner at Pune does not meet the requirements of Section 53 of the Act. It is not the case of the Company that it was authorised by the second and third petitioners to send any notice to the address of the first petitioner. The Company neither caused any advertisement in a newspaper as prescribed in Section 53(3) for service of any such notice. The notice was reportedly acknowledged on 09.07.2003, as borne out by copy of the postal acknowledgement produced before this Bench. It is unlikely that a communication sent on 09.07.2003 from Mumbai by registered post to an addressee at Pune could be served on the very same date. There is no material to show that the Company had sent the notice dated 09.07.2003 under article 30(b) in favour of the petitioners 1 & 2, inviting offers from them for purchase of the shares offered by the respondents 2 to 4. Therefore, the complaint of the respondents that the petitioners failed to exercise their option to purchase the shares offered by the respondents 2 to 4 does not merit any consideration. It is reported that the Company had sent the notice dated 09.07.2003 convening the extraordinary general meeting on 04.08.2003 to consider the sale notice caused under Article 30 (a) by the respondents 2 to 4 by registered post to the petitioners 2 & 3 both at their foreign place of residence and at the address of the first petitioner as borne out by copies of receipts issued by the postal authorities. It is observed that the said notice dated 09.07.2003 sent from Mumbai on 09.07.2003 by registered post was acknowledged by the first petitioner at Pune on 09.07.2003 itself, which is rather quite improbable. There is nothing on record to show that the board of directors had approved the proposal to convene any extraordinary general meeting on 04.08.2003 to consider the notice sent by the respondents 2 to 4. It is on record that the Company had sent a notice dated 04.07.2003 to the first petitioner convening the board meeting on 08.07.2003 to transact the following business: -

(i) to discuss the financial position of the company and its ability to meet all its commitments;

(ii) to discuss and finalize the modalities of sale of property at various locations; and

(iii) to discuss any other matter as may be decided by the members with the permission of the Chair.

It is clear from the agenda contained in the notice dated 04.07.2003 that the notice issued under Article 30(a) by the respondents 2 to 4 offering to sell their shares is not forming part of the agenda of the board meeting proposed on 08.07.2003. The Company has not produced minutes of the meeting of the board of directors held on 08.07.2003 to show that the notice dated 08.07.2003 issued under Article 30(a) by the respondents 2 to 4 was approved by the directors. The original notice dated 08.07.2003 produced by the Company for inspection does not reflect any such endorsement by any authorised representative of the Company. Though the explanatory statement appended to the notice of extraordinary general meeting shows that the board had received a notice from the respondents 2 to 4, yet, it is not categorical that the notice was handed over in person to the Company. The plea that the respondents 2 -- 4 handed over the notice dated 08.07.2003 in person to the Company remains unsubstantiated. The Company is admittedly not maintaining the minutes of general meetings, which according to Shri P.H. Arvindh Pandian, learned Counsel were in the custody of Shri S. Seshadri, the erstwhile auditors of the company as borne out by the minutes of the board meeting dated 01.02.2003, which is under dispute. However, it is observed from the disputed minutes of the board meeting that one Shri Desikan, accountant, was authorized and directed to collect all the statutory records and other papers of the Company from the erstwhile auditors of the company and keep them in lock and key at the registered office of the company. There is no material to show the steps taken in this behalf to substantiate the claim made on behalf of the respondents. The original minutes books of the board and general meetings in relation to the earlier years produced before this Bench are neither initialled nor signed by the Chairman of such meetings. The original minutes of the board meetings covering the impugned transactions are not initialled in a number of pages in terms of Section 193 and hence, no presumption under Section 195 could be drawn in regard to validity of such minutes of various meetings as held in T.A.M. Athavan v. Sun Freight Systems (P) Ltd., (supra). I am, therefore, prima facie of the view that the convening and holding of the extraordinary general meetings and the board meetings impugned in the company petition have not been in strict compliance with the provisions of the Act. The grievance of the petitioners in regard to the sale of the property at Cuddalore must be seen in the light of the power of attorney dated 08.05.2002 executed by the first petitioner and the second respondent in favour of their lawful attorney to sell and to do all such acts required in this behalf as well as the communication dated 24.09.2002 of the first petitioner instructing her attorney to keep the sale proceeds of the Cuddalore property in fixed deposit. There is no doubt that the property at Cuddalore was sold with the knowledge and authority of among others the first petitioner and that the Company derived benefits from and out of the sale proceeds of the property. The appointment of M/s Karpagam & Company, Chartered Accountants as auditors of the Company without removal of the existing auditor, which requires prior permission of the Central Government is not in accordance with the provisions of Section 224(7) of the Act, but it would not, however, constitute an act of oppression in the affairs of the Company, as held in G. Haranadh v. Shri Laxmi Duga Paper Products (India) Limited (supra). In view of the categorical statement made by Shri Arvindh Pandian, learned Counsel that the wine shop run in the premises belonging to the Company has been since closed pursuant to the changed policy of the State Government, the need for any restraint order against the Company from running any such business in its premises does not arise. The claim of the respondents that the first petitioner by virtue of Article 81 (a) legally ceased to be director of the Company being a private limited Company on her failure to acquire qualification shares with the nominal face value of Rs. 25,000/- in terms of Articles 78 & 79 though repugnant to the provisions of Section 273, does not become void as re-inforced by the Board in Mrs. Aruna Suresh Mehra v. Jifcon Tool (P) Ltd., (Supra) and must be examined in the light of the conduct of the shareholders of the Company, in support of which reference is invited to Sunil Dev v. Delhi and District Cricket Association (supra), wherein it has been held that "where the conduct of the parties reveals that there has been some practice in vogue for several years which was accepted by every one concerned without any challenge or question, then that practice in the course of long years in itself becomes an indication that the rules or articles of association which are framed by way of internal management of a company were understood in that sense ". The first petitioner holding only 5 shares of the Company with the nominal face value of Rs. 5000/- became director with effect from 14.11.1998, but till date she has not acquired the qualification shares as envisaged in the articles, which has been accepted by every one shareholder without any challenge or question all these long years and therefore, it is not now open to the respondents that the first petitioner legally ceased to be director of the Company on the strength of the principles enunciated by the Delhi High court in Sunil Dev v. Delhi and District Cricket Association (supra). Having found that the transfer of shares by the second respondent in favour of the respondents 3 & 4 as well as transfer of shares by the respondents 2 to 4 in favour of respondents 5 to 7 being violative of the articles of association of the Company is oppressive and, therefore, these transfers are set aside, as a result of which, the induction of respondents 5 to 7 on the board of directors of the Company is declared as invalid. The respondents 5 to 7 do not have any valid authority to be in the management of the Company and their action in letting out the property belonging to the Company is not binding on the Company and all such transactions are liable to be set aside. In this connection, I may point out that by an order dated 15.07.2004, while the undertaking given by Shri P.H. Arvindh Pandian, learned Counsel on behalf of the Company to the effect that "the second and third floors are lying vacant, which will not be sold or encumbered or alienated by way of lease or otherwise till disposal of the company petition" was taken on record, this Bench further directed that the lease transaction in respect of the ground and first floors covered by the MOU dated 01.05.2004 would be subject to outcome of the company petition already entered into by the Company with a third party. The same was reinforced in the subsequent order dated 06.10.2004. Now that I have come to the conclusion that the respondents 5 to 7 had no authority to deal with property of the Company, that the lease transaction in respect of the ground floor and the first floor would be subject to outcome of the company petition and that the Company purportedly entered into an agreement with a bank for installing an ATM counter in a portion of the ground floor of the property during subsistence of the orders dated 15.07.2004 and 06.07.2004, the tenancy of these occupants has to be terminated. However, since the tenants are not parties to the proceedings, I deem it appropriate to issue notices to these tenants in terms of Section 402(e) of the Act, to show cause as to why the tenancy should not be terminated. Nevertheless, the respondents 5-7 are entitled to recover from the Company any amount spent on account of the premises belonging to the Company towards the renovation or improvement or maintenance or payment statutory dues or refund of the rent deposit etc. In the facts of the present case, no justice can be done to the injured shareholders by ordering the oppressors to buy their shares at a fair price, as envisaged in Scottish Co-operative Wholesale Society Ltd v. Meyer (supra) more so such remedy, in my view, in the present case, will be worse than the disease. Consequently, the impugned shares shall be restored in the name of the transferors, viz., the second respondent and Rekha Bhojwani, her daughter. Accordingly, the Company shall rectify its register of members. The petitioners along with the second respondent and her daughter, being the shareholders and the first petitioner with the second respondent as directors are at liberty to manage day-to-day affairs of the Company in accordance with the articles of association of the Company. With these directions, the company petition and the connected applications stand disposed of, however, reserving the right to issue suitable directions on termination of the tenancy agreements executed by the Company, in terms of this order. Towards this end, the Bench Officer will issue notices to the concerned interested parties and upon hearing them, this Bench will issue such other directions as may be deemed fit in this behalf. No order as to costs.