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K.S. Mothilal vs K.S. Kasimaris Ceramique P. Ltd. And ... on 4 December, 2006

Equivalent citations: [2007]135COMPCAS609(CLB), (2007)3COMPLJ454(CLB)

ORDER

K.K. Balu, Vice-Chairman

1. The petitioner claiming in excess of 10 per cent. of the issued capital of M/s. K. S. Kasimaris Ceramique P. Ltd., ("the company") and aggrieved on account of certain alleged acts of oppression and mismanagement in the affairs of the company namely, (a) non-holding of annual general or board meetings; (b) non-filing of annual accounts or annual returns with the Registrar of Companies ; (c) non-transmission of shares of the deceased father of the petitioner in favour of his legal heirs; (d) illegal lease and sale of the properties of the company for meagre amount and siphoning off of the rentals as well as sale proceeds of the property, has invoked in the present petition, the provisions of sections 397 and 398 of the Companies Act, 1956 ("the Act") seeking the following reliefs:

(i) to direct the company to effect transmission of shares of (late) K. Shanmugasundara Nadar (KSN) in the name of his legal heirs ;

(ii) to direct the company to conduct general meetings of the company and file statutory returns ;

(iii) to reconstitute the board of directors of the company;

(iv) to appoint an administrator to manage the affairs of the company;

(v) to set aside the sale of the company's properties effected by respondents Nos. 2 to 7 ;

(vi) to surcharge respondents Nos. 2 to 7 on account of the losses suffered by the company ; and

(vii) to direct the Central Government to investigate into the affairs of the company and take appropriate action for statutory violations and diversion of funds of the company.

2. Shri V. Venkadasalam, learned counsel, while initiating his arguments submitted:

The company is a private limited company promoted in January 1970, by (late) KSN, the petitioner's father along with second respondent herein for manufacture and sale of mechanised bricks. The authorised capital of the company is Rs. 25 lakhs divided into 25,000 equity shares of Rs. 100 each. The issued and paid up capital is Rs. 20.57 lakhs divided into 20,570 equity shares of Rs. 100 each. Respondents Nos. 2 and 3 are brothers, the fourth respondent is the mother and the sixth respondent is the sister of the petitioner. The petitioner is holding 150 shares in the company. The petitioner's father was holding at the time of his death 10,801 shares and in addition he became entitled to 3,000 shares out of 5,000 shares held by M/s. Pandian Brick Works, a partnership firm, constituted by the petitioner, his father and two other relatives. The petitioner as per intestate succession is entitled to l/5th share of the holding of his deceased father namely, 2,760 shares out of 13,801 shares (10,801+3,000). The petitioner further came to hold 1,000 shares held in the name of M/s. Pandian Brick Works. Thus, the aggregate holding of the petitioner accounts for 3,910 shares (150 + 2,760 + 1,000), constituting more than l/10th of the issued capital of the company. The Supreme Court held in World Wide Agencies P. Ltd. v. Mrs. Margaret T. Desor , that the legal heirs are entitled to file a petition under Section 397/398 even though the name of the deceased member is still on the register of the members. According to the second respondent, his father had left a will, in respect of which the second respondent applied before the High Court for grant of probate in his favour, in terms of which the petitioner is entitled to 40 per cent, of the shares in the company, in which case also the petitioner is holding in excess of the minimum requirement stipulated in Section 399.

The petitioner's father was solely managing the affairs of the company profitably and acquired vast immovable properties in the name of the company. However, the company had lost, in due course of time, its business and stopped in the year 1976, due to shortage of coal, all its activities. The company failed to conduct any general or board meetings and defaulted to file annual accounts and annual returns with the statutory authorities ever since the year 1989. The company is not being administered in accordance with the provisions of the Act and the management is guilty of various statutory violations of the Act. The petitioner's father died in July 1995, but the company failed to effect transmission in respect of the shares held in his name, in favour of his legal heirs.

Respondents Nos. 2 and 3, the latter not being a shareholder started functioning as the chairman and managing director, respectively upon the death of KSN and attempted to sell the properties of the company, compelling the petitioner to file in C. P. No. 60 of 1996, for winding up of the company and obtained an order of injunction restraining them from selling of the properties of the company. The third respondent filed a civil suit in O. S. No. 5560 of 1996, on the file of the City Civil Court, Chennai, and obtained a restraint order against the second respondent and the petitioner, from herein acting as the chairman and director respectively. In the meanwhile, the third respondent had entered into separate agreements with 25 persons including the seventh respondent without the knowledge of other shareholders, for sale of 13.77 acres of land belonging to the company at Maduravayal, Chennai, in violation of the injunction order obtained in C. P. No. 60 of 1996. Contempt proceedings were initiated against the agreement holders, which however, came to be closed, pursuant to the affidavits of undertaking given on their behalf to maintain status quo of the land belonging to the company. Respondents Nos. 2 and 6 filed C. P. Nos. 199 of 1998 and 274 of 1998, respectively for winding up of the company. The petitioner, however, withdrew C. P. No. 60 of 1996, on the understanding reached with other family members that the petitioner would be compensated towards his claim and shares in the Maduravayal land of the company, but he never got any compensation. The High Court of Madras passed a common order dated October 19, 2001, dismissing all these petitions namely, C. P. No. 60 of 1996, C. P. No. of 199 of 1998 and C. P. No. 274 of 1998. The sixth respondent preferred an appeal against the order dated October 19, 2001, which is pending. The fact that a petition under Section 433(e) and (f) of the Act was not pressed by the petitioner would be no bar to the petitioner claiming relief under Section 397 as held in Jacob Cherian v. K. N. Cherian [1973] 43 Comp Cas 235 (Mad). The third respondent without accounting for the sale proceeds in the books of account of the company has been spending for his needs and of his family members. The seventh respondent, abandoning the 25 agreement holders colluded with respondents Nos. 3 to 5 and sold the company's land worth about Rs. 10 crores to the purchaser-respondents, who are none other than benamis of the seventh respondent for a sum of Rs. 4.25 crores, without passing any resolution under sections 293(a) and (d) of the Act. The guideline value of the land on the northern side is Rs. 385 per sq.ft., which works out at Rs. 1.67 lakhs per cent. Whereas, the company undervalued the land and sold it at Rs. 32,000 per cent. The petitioner is ready to bring buyers for Rs. 70 lakhs per acre. The shareholders in their individual capacity cannot sell the property. Any sale of sole undertaking of the company for an inadequate price, requires consent of the company by way of special resolution, as held in A. M. Varkey v. J. R. Motishaw, . The respondents 48 to 51 allegedly claiming certain rights sold the property. The respondents have leased out the remaining properties of the company and are realizing the rental income and unlawfully utilizing the same for their personal gains. These acts are illegal and not binding on the company. There is no scope of revival of the company and its substratum has been lost. These facts would justify that the company is liable to be wound up on just and equitable ground and the High Court was of the view in the winding up proceedings that the shareholders could obtain appropriate reliefs before the Company Law Board under Section 397/398.

There are four civil suits pending before the High Court, of which two suits are for partition of the family properties. The second respondent in C. S. No. 477 of 2000, claims 60 per cent, of shares in the company and applied before the High Court for grant of probate in respect of the will executed by his father. Nevertheless, the second respondent does not claim any right as per the will either in his counter statement or in his oral submissions. The suit filed in O. S. No. 5560 of 1996, by the company is only for an order of injunction and the issue and the prayers involved in the present petition are totally different from the issues and prayers involved in the suit, in which case there is no impediment to proceed with the present company petition as held in Vijay Krishan Jaidka v. Jaidka Motor Co. Ltd. [1997] 1 Comp LJ 268 (CLB); Gram Panchayat of Village Naulakha v. Ujagar Singh and S. D. Dhandapani v. Branch Manger, Indian Overseas Bank [2004] 121 Comp Cas 669 (Mad). Though these suits are pending, all the respondent have submitted to the jurisdiction of the Company Law Board. Furthermore, the company is a small private limited company and it is treated as a partnership firm and therefore, the principles of partnership shall be applied for granting reliefs as held in Moti Films P. Ltd. v. Harish Bansal [1982] 2 Comp LJ 622 (Delhi) ; [1983] 54 Comp Cas 856.

The second respondent and his deceased father, being subscribers to the memorandum of association are the only shareholders who by virtue of article 37(b) are entitled to nominate directors. Respondents Nos. 3 and 6 claim that they were appointed as directors in the year 1989, for a period of 2 years and hence their appointment automatically came to an end in the year 1991. They had no authority to function as directors after the year 1991. The appointment of the fourth respondent as chairman is not valid and therefore, sale deeds executed by her are not valid. Form No. 32 filed with the Registrar of Companies on February 15, 1996, does not disclose the name of the fourth respondent. The fifth respondent was an employee and his appointment as director without the participation of the second respondent cannot be valid. The directors cannot be appointed at the board meetings but only at the general meetings. Nevertheless, the third respondent claims that board meetings were held on January 12, 1996, and December 10, 1996, but no such meetings ever took place. The resolutions passed at the purported board meetings approving the sale of the property are neither valid nor binding on the company. The property has been sold fraudulently, which is not valid. If the sale is non est in law, there is no need to set aside the sale as held in M. Moorthy v. Drivers and Conductors Bus Service P. Ltd. [1991] 71 Comp Cas 136 (Mad). The Supreme Court held in Hind Overseas P. Ltd. v. Raghunath Prasad Jhunjhunwalla , that the company court will have to keep in mind the position of the company and the interests of the shareholders and see that they do not suffer in a fight for power that ensues between two groups. The conduct of the respondents which is oppressive to the minority shareholders, being continuous act is burdensome, harsh and wrongful and such oppression involves an element of lack of probity or fair dealing to members in the matter of their proprietary rights as shareholders, entitling them to appropriate reliefs under Section 397, as held in Shanti Prasad Jain v. Kalinga Tubes Ltd. .

The present purchasers are not the agreement holders and they claim under the agreement holders, who were parties to contempt proceedings before the High Court filed in the year 1996, wherein the High Court had restrained them from altering the properties. Thus, the purchasers are very well aware of the disputes between the legal heirs of (late) KSN. While the second respondent caused a public notice on February 25, 1996, there has been yet another public notice issued by the petitioner on April 17, 2003, cautioning the public not to deal with the property without reference to the second respondent. The purchasers ought to have insisted for the general body resolutions, but they hurriedly went for obtaining the sale deeds, in collusion with the third respondent. The purchasers are not innocent and bona fide purchasers. There was no need to sell the entire Maduravoyal property, but half of it would be sufficient to meet the existing liabilities of the company. However, the sale has been effected in order to gain unfair advantage by the third respondent. The Company Law Board has power to set right the fraud played on the company as well as on the shareholders. Therefore, all the sale deeds executed by the company are liable to be cancelled and the petitioner is also entitled for the other reliefs claimed by him.

3. The second respondent appearing in person, in support of the petitioner submitted:

The company was promoted by the second respondent and his father in the year 1970 and are subscribers to the memorandum and articles of association of the company, each subscribing to one share of Rs. 100 each in terms of Section 13(4)(b)(c) of the Act. Among others, the second respondent is the first director of the company. Article 35 provides that the number of directors both the maximum and minimum shall be five. By virtue of article 37 the Tamil Nadu Industrial Investment Corporation Ltd. ("TIIC") shall have right to nominate two directors on the board, so long as any amounts are owing by the company to TIIC. The other shareholders shall have the right to nominate two directors (other shareholder-directors). There shall be appointed by the board a general manager, who shall also be appointed as director of the company. Mr. J. I. Coil Pillai was the first general manager of the company. The directors appointed pursuant to article 37 shall not be required to hold any qualification shares. The first general manager had resigned in March 1976, and after closure of TIIC loans, TIIC withdrew its nominees with effect from December 28, 1979. Article 40(a) stipulates that if the office of any other shareholder-director becomes vacant, the resulting vacancy shall be filled by other shareholders by passing any special resolution at the general meeting of the company. Consequently, there could be only two shareholder-directors even on this date in terms of article 37(b). Articles 37 and 40 have not been amended till date. Respondents Nos. 3 and 6 claim to be directors, which is hit by the provisions of article 37. Similarly, the appointment of A. Arulraj and S. Johnson are not sustainable. The third respondent is not a member of the company and cannot file any affidavit for and on behalf of respondents Nos. 4 and 5. The third respondent can neither be the managing director. With the death of KSN in July 1995, the office of other shareholder-director became vacant, and the second respondent, being the only surviving shareholder-director, by virtue of article 40(a), appointed on September 9, 1995, the petitioner as shareholder-director. At the board meeting, appropriate resolutions were passed ratifying the appointment of the petitioner as director and approving the appointment of the second respondent as chairman of the company. The second respondent's appointment as chairman after the demise of his father in accordance with article 39, is borne out by the authority given in his favour to appear in land acquisition proceedings as chairman of the company.

The resolution passed on January 29, 1970, by the board of directors discloses the allotment of shares in the name of the petitioner's father. The petitioner's father sold his landed property to the company and by way of consideration 2,498 shares were allotted to him and got in addition 13,570 shares in the company by way of conversion of his partnership firm's movable and immovables such as machinery, lorries, building, etc. The shares held in the name of KSN are reflected in the balance-sheet for the year ended on December 31, 1973, according to which no cash has been received for these shares. Clause 22 of the partnership deed clearly shows that the entire 16,068 shares shall go to the petitioner's father. TIIC took 4,500 shares as additional security, which on closure of the liabilities must form part of the shareholding of the petitioner's father, with which he became entitled to 20,570 (16,068 + 4,500) shares. Article 26 contemplates, inter alia, that where any shares devolve on the heirs of the deceased member not covered under article 25, the directors may at their absolute discretion admit such heir as a member and recognise the transfer of shares in his name. Article 27 provides that where shares are inherited or devolved on more than one heir, it shall be open to the directors to choose any one of the heirs to be shareholder, and thereupon other heir(s) of the deceased member shall sell to the person so chosen their rights and interest in the said shares. The board of directors, keeping in view of 60 per cent, of the shareholding of the petitioner's deceased father in the partnership firm and with a view to ensure control over the company by the second respondent, as the only surviving senior member, passed resolutions on August 9, 1995, in terms of articles 26 and 27, transmitting 60 per cent, of the shares namely, 12,342 in favour of the second respondent and the balance of 8,228 shares in the name of the petitioner.

In view of article 47, regulations 77 to 80 of Table A shall apply to the proceedings of meeting of board of directors, according to which, directors can be appointed only at the general meeting. The purported appointment of the fourth respondent at the board meeting held on January 12, 1996, is invalid. The third respondent, not being a shareholder cannot be appointed as managing director, which is prohibited by the articles. Article 37(b) does not envisage appointment of any additional director, apart from the shareholder-directors. Unless articles 37 and 40 are amended, the purported appointment of respondents Nos. 3, 5 and 6 cannot be valid. In view of this, the petitioner and the second respondent are the only two shareholder-directors. The appointment of the petitioner as director on August 9, 1995, is in accordance with article 40(a), which empowers the second respondent to fill up the vacancy created by the death of KSN. The words "other shareholder" in articles 37(b) and 40(a) refer to the second respondent and none else. In view of this, actions taken by respondents Nos. 3, 4 and 5 in relation to (a) appointment of the third respondent as managing director at the board meeting held on January 12, 1996 ; (b) appointment of the fourth respondent at the board meeting held on January 12, 1996, as director and her appointment as chairperson ; (c) resolutions passed on February 10, 1996, and November 27, 1999, under chairmanship of the fourth respondent to enter into sale agreements/sale deeds ; and (d) execution of sale deeds by the third respondent in favour of respondents Nos. 11 to 47, must be declared as invalid and not binding on the company.

Respondents Nos. 3 to 5 executed all the sale deeds in favour of several of the buyers with effect from November 7, 2001, in spite of an order of injunction dated November 6, 2002, obtained by the second respondent in C. S. No. 477 of 2000, on the file of the High Court of Madras. The third respondent illegally collected the sale proceeds and utilized the funds on account of his personal needs and businesses. The building plan of respondent No. 16, has been approved only on January 22, 2004, and therefore, she must be restrained from going ahead with the construction work. In the contempt application namely, C. A. No. 1882 of 1997 in C. P. No. 60 of 1996, filed by the petitioner, the nature and topography of the property were directed to be preserved as per the sketch submitted by the advocate commissioner. Hence, any change thereafter made by the purchaser-respondents is illegal and not binding on the company.

The second respondent, on the strength of the board resolution dated January 20, 1996, entered into a memorandum of understanding on January 23, 1996, for development of the Maduravayal property. However, on receipt of a "notice of motion", the second respondent terminated the memorandum of understanding in May 1996, upon which the buyer initiated civil proceedings claiming heavy damages for the unilateral termination and the same is pending. The advance amount of Rs. 10 lakhs received from the builder has been spent on account of legal expenses and the requirements of the petitioner's wife and son.

4. Shri V. Ramakrishnan, learned counsel appearing for the sixth respondent submitted:

The company is a closely held family company. In view of the close relationship among the petitioner and respondents Nos. 2, 3, 4 and 6 being legal heirs of the deceased KSN, the principles of quasi-partnership will apply. The sixth respondent holding 1,150 shares is the largest shareholder, as borne out by the report of the auditors appointed by this Bench. Her father is no more and his shares have not yet been transmitted. The purported will left by the deceased has not been probated and the probate proceedings are pending, which are seriously contested. Unless the will is probated under Section 213(1) of the Indian Succession Act, the parties cannot rely upon the will left by the petitioner's father and therefore, the shareholding shall be recokned on the basis of intestate succession. Therefore, the shares of the deceased father will have to be transmitted equally to all the legal heirs, subject to the ultimate result of the probate proceedings. The issued share capital of the company consists of 20,500 shares of Rs. 100 each. The petitioner holds in his name 150 shares and became entitled to 2,160 shares upon death of his father holding 10,801 shares. Thus, the total shareholding of the petitioner accounts for 2,310 shares, which is in excess of 10 per cent, of the issued share capital of the company. There are nine living members and five members are no more as disclosed in the auditor's report. The petitioner, therefore, constitutes more than 10 per cent, of the total number of living shareholders. The pending legal proceedings namely, appeal preferred against the order made in winding up petition, probate proceedings and civil suits for declaration as to directorship are not relevant with reference to the present disputes and will not affect the present company petition. The partition suits cannot affect the properties of the company, especially when such properties cannot be divided among shareholders. Mere pendency of the civil proceedings, where some of the facts are subjudice and any possibility of conflict of decisions on these facts cannot take away the jurisdiction of the Company Law Board under Section 397/398.

All the sale agreements in respect of the company's property produced before the Bench show that the sixth respondent is representing the company, but her signature is not found in any of the sale agreements. All the sale deeds and nomination letters make a reference to the agreements of sale. Thus, title of the purchasers flows from the agreements of sale, in which case, if any agreement of sale is found invalid, then sale must also be invalid. At the board meeting held on January 12, 1996-(a) respondents Nos. 3 and 4 were appointed as managing director and director respectively of the company ; (b) the proposal for sale of 13.77 acres of vacant land of the company at Maduravayal was approved and (c) the managing director was authorised to negotiate with probable buyers and submit a proposal to the board for its approval. At the board meeting held on February 10, 1996-(a) the fourth respondent was appointed as chairperson of the board of directors ; (b) the third respondent was authorised to finalise the agreements for sale of 13.77 acres of land belonging to the company and do necessary acts to complete the sale transactions ; and (c) respondents Nos. 3, 4 and 6 were jointly authorised to sign the sale agreements. At the board meeting held on November 27, 1999, the proposal for execution of sale agreements and sale deeds by the chairperson, managing director and any other director in the place of respondents Nos. 4, 3 and 6 by name was approved. While, the minutes of the meeting dated February 10, 1996, do not set out the names of any of the purchasers, the resolution dated November 27, 1999, is challenged by the sixth respondent, on the ground that the board meeting held on November 27, 1999, was convened in contravention of article 46, which contemplates seven days notice for any board meeting. The notice dated November 19, 1999, convening the board meeting on November 27, 1999, was despatched under certificate of posting on November 20, 1999, which is not in conformity with article 46. Mere production of certificate of posting, which is rather a weak evidence cannot conclusively establish service of any notice for the board meeting held on November 27, 1999. By virtue of the resolution allegedly passed at the board meeting held on November 27, 1999, the sixth respondent was kept away from the sale transactions, which facilitated the third respondent in misappropriating the sale proceeds. The company has not produced the original minutes book and the minutes of the board meetings under dispute are not maintained in accordance with the provisions of Section 193 and therefore, no presumption shall be drawn in regard to validity of such meetings.

The agreements of sale have been executed on the basis of the minutes of the board meeting dated February 10, 1996, by which respondents Nos. 3, 4 and 6 have been jointly authorised to sign the sale agreements. The sixth respondent is not a signatory to any of the sale agreements. Moreover, there are different versions of the same minutes circulated in various proceedings, copies of which are produced before the Bench. The first version has been produced in the winding up proceedings before the High Court of Madras. The second version of the minutes finds place in a suit filed by J. Valliammai before the District Munsiff Court at Poonamal-lee. The sixth respondent never signed this version of the minutes. Nevertheless, the third respondent apparently manipulated by super imposing her signature and taking photo copies as though the sixth respondent attested the minutes. The third version of the redrafted minutes was forwarded by the third respondent in his letter dated May 31, 1997, addressed to the sixth respondent's husband which would show that the minutes of the meeting dated February 10, 1996, did not attain finality as late as in May 1997. Thus, the third respondent fabricated and circulated the minutes of the board meeting to serve his interest by selling the company's properties and misappropriating the sale proceeds. The company or purchasers failed to produce anyone of the twenty-five original sale agreements containing the signature of the sixth respondent. It is, therefore, clear that the company has fabricated all the sale agreements. All the stamp papers pertaining to the sale agreements were purchased on February 16, 1996, at Kurumbur, which is located 750 k.m. away from Chennai. The stamp papers could not have reached Chennai for execution by the purchasers on the same day namely, February 16, 1996. The sale consideration stated in the sale agreement dated February 16, 1996, differs from the sale consideration mentioned in the sale deed dated November 7, 2001. As a result the third respondent has misappropriated the difference of sale consideration received from the purchaser. J. Valliammai filed a civil suit in O. S. No. 5560 of 1996 on the file of the District Munsiff Court at Poonamallee against respondents Nos. 1, 3, 4 and 6 for permanent injunction restraining them from alienating or selling the landed property on account of their failure to convey the property after receiving the advance amount from her. Though the suit is dismissed for default yet the fact remains with these respondents have collected huge advance from J. Valliammai for sale of the property. The sale deed dated November 7, 2001, (see vol. 30, page 7) has been signed by three directors and makes reference only to the first two resolutions passed on January 12, 1996, and February 10, 1996, but not the third resolution passed on November 27, 1999, which establishes the negligence of the purchasers while purchasing the property of the company. The ultimate purchasers neither inspected the original agreements nor obtained any legal opinion with regard to title of the property prior to entering into the sale agreements. The legal opinion of Mr. Harihara Iyer, produced at the time of hearing has not been obtained by the purchasers. The legal opinion does not deal with the validity of the sale agreements on basis of which the sale deeds were executed and does not disclose whether the original agreements or the minutes of the board meetings were scrutinised before giving the opinion. Clause 12 of the sale agreement clearly shows that the company shall deliver vacant possession of the property to the purchaser or his nominee at the time of execution of the sale deed. However, it is claimed that possession of the property has been handed over after payment of Rs. 40,000 per sale agreement, contrary to the terms of the agreement. Respondents Nos. 15, 22, 25, 26 and 34 in their counter-statement categorically stated that they have been in possession and enjoyment of the property ever since the year 1996. The value of land as reflected in the order dated October 19, 2001, of the High Court of Madras made in C. P. Nos. 60 of 1996, 199 of 1998 and 274 of 1998 is phenomenal, but the company sold the property for a meagre sum. The purchasers paid just Rs. 40,000 and waited till the year 2002 to pay rest of the sale consideration at the rate which prevailed in the year 1996, causing enormous losses to the company. The third respondent or the buyers shall deposit with the Company Law Board the difference of sale consideration to avoid any loss suffered by the company. Furthermore, the entire 13.77 acres need not be sold to discharge the liabilities of the company.

The holding of general meeting is one of the fundamental rights of any shareholder so as to exercise control over the company. The company failed to convene any general meeting for the past several years, thereby all the directors vacated the office of director and the plea of estoppel cannot be raised against the statute. The board of the company did not exist on the date of execution of sale deeds in favour of the purchasers and therefore, the directors did not have any power to sell the property, as claimed by them. The doctrine of indoor management will not apply to the documents of which the purchasers are deemed to have public notice namely, statutory documents filed with the Registrar of Companies. The documents filed with the Registrar of Companies indicate that respondents Nos. 3 and 4 cannot continue to be directors. There is no provision in the articles of association for appointment of a managing director.

The third respondent who was authorised at the board meeting held on January 12, 1996, to identify prospective purchasers for sale of the landed property exceeded his authority by receiving an aggregate sum of Rs. 50 lakhs as at March 30, 1996, from various purchasers, despite the fact he is not a shareholder of the company and diverted the sale proceeds to a different entity under the name and style of "Kasimari Ceramique" in breach of his fiduciary duties as borne out by the statements issued by ICICI Bank for the period between September 1, 2002, to September 30, 2002, and November 1, 2002, to November 30, 2002. The statements disclose cash withdrawals and withdrawals on account of personal needs of the third respondent to the tune of several lakhs of rupees from the bank account maintained with ICICI Bank. The third respondent illegally acquired assets beyond his capacity from and out of the sale proceeds of the property belonging to the company. The statements of accounts submitted by the third respondent during the pendency of the present proceedings do not reveal a true state of affairs and establish a large scale misappropriations indulged by the third respondent. The third respondent must be removed from the office of director and he must be directed to render accounts in respect of the sale proceeds realised from the purchasers and transfer the proceeds to the account of the company. The board of directors should be reconstituted to ensure that the sixth respondent, being the largest shareholder is made a permanent director of the company. The sale of land must be set aside and future sale should be done with consent of all the legal heirs of KSN.

The second respondent without any authority entered into a memorandum of understanding on March 23, 1996, with M/s. Southern Peninsula Housing Ltd., for sale of the Maduravayal land and received an amount of Rs. 10 lakhs which ultimately resulted in a civil suit filed by the latter for refund of the advance amount together with interest. The second respondent misutilised the advance amount of Rs. 10 lakhs received from M/s. Southern Peninsula Housing Ltd., by way of legal expenses and personal expenses of the petitioner and his wife.

The High Court in its order dated October 19, 2001, made in C. P. No. 60 of 1996, while observing that the validity of the will reportedly executed by the petitioner's father, appointment of the petitioner as director, validity of the meeting held on August 9, 1995, and the board meeting held on January 12, 1996, are all matters pending consideration before the civil courts and cannot be gone into in the winding up proceedings, which are summary in nature, made clear that if the interests of the shareholders are prejudicially affected under Section 397/398, the aggrieved shareholder can move the Company Law Board for appropriate reliefs under Section 402. The sale agreements are under challenge before the Company Law Board and its jurisdiction under Section 397/398 is not summary.

Most of the grievances such as illegal sale of the land have occurred subsequent to the order of the High Court made in winding up petitions. The sale deeds have been executed in the year 2001 and the company petition has been filed within three years. Furthermore, no period of limitation is prescribed under Section 397/398 and the High Court has directed the parties to approach the Company Law Board. The proceedings under Section 397/398 are representative in nature and the sixth respondent and other shareholders are supporting the petition, in which case the petition should not be dismissed.

The High Court by its order dated November 6, 2002, passed in Original Application No. 967 of 2001 and Application Nos. 5718 and 5344 of 2001 in C. S. No. 477 of 2000, restrained the petitioner and respondents Nos. 3, 4 and 6 from alienating the company's property comprising of 13.77 acres in Maduravayal village. All the sale deeds executed subsequent to November 6, 2002, are hit by the order dated November 6, 2002 (supra).

5. Shri Kodaiarasu, learned counsel appearing for respondents Nos. 1, 3, 4 and 5 opposed the company petition on the following grounds:

The petitioner has only 150 shares and claims 2,760 shares by virtue of the alleged will reportedly left by the second respondent, which is a fabricated one. The probate proceedings initiated by the second respondent are being vehemently opposed by other legal heirs. There are 14 members appearing in the register of members of the company. Thus, the petitioner neither holds 10 per cent, of the issued capital nor constitutes 1/10th of the total number of members of the company. The petitioner already filed in the High Court a winding up petition in C. P. No. 60 of 1996, against the company, but withdrew the same on April 29, 1998, upon which the C. P. No. 60 of 1996, came to be dismissed on July 1, 1999. The petitioner after lapse of five years in April 2003, has filed the present company petition substantially on the same grounds, which has to be dismissed in limine. The applicability of partnership principles to the present case is pleaded and the partnership principles will cease to apply on incorporation of the company.

The first directors of the company consisted of the second respondent, his father, being shareholder directors, two nominees of TIIC and Mr. J. I. Coil Pillai, a common non-shareholder director. Though the company stopped its operations in the year 1976, KSN had taken steps to settle the dues of TIIC. The board of directors at the meeting held on August 10, 1988, authorised the chairman of the company to arrange for Rs. 81 lakhs in any manner in order to settle the dues of TIIC. At the board meeting held on October 12, 1988, the proposal for disposal of the entire landed property and machinery belonging to the company was approved. At the same board meeting the chairman was authorised to negotiate and finalise the terms with any prospective buyers for sale of the property. The board of directors at the meeting held on December 16, 1988, authorised the chairman to negotiate and conclude a sale in favour of S. X. Francis. The company ultimately cleared the dues of TIIC in full in instalments by September 1989, upon which TIIC returned on November 25, 1989, the title deeds belonging to the company and the right to nominate two directors by TIIC by virtue of article 37 ceased to operate, upon which the nominee directors of TIIC vacated their office and respondents Nos. 2, 3 and 6 were elected as directors in November 1989, making the directors to five as envisaged in article 35. At the board meeting held on December 4, 1989, 4,500 equity shares of the company held by TIIC were transferred in favour of KSN (1,500), fourth respondent (1,000) fifth respondent (1,000) and the sixth respondent (1,000). The second respondent was a party to the resolutions approving the transfer of shares passed at the said board meeting. The board meetings held on December 4,1989, August 24, 1990, and October 9, 1991, were attended by all the five directors including respondents Nos. 2, 3 and 6. The extracts of the resolutions passed at the meeting of board of directors held on October 9, 1991, and March 28, 1994, were signed by, among others, the second respondent. Thus, the company, on and after November 17, 1989, was having a maximum strength of five directors as per article 35. When KSN died on July 24, 1995, respondents Nos. 2, 3, 5 and 6 were directors of the company. After the death of KSN the second respondent without convening a board meeting appointed the petitioner as director and unilaterally declared himself on August 9, 1995, as chairman of the company, which is violative of article 39 and transferred 20,570 shares held in the name of KSN in their favour in the ratio of 60 : 40 per cent., namely 12,342 shares to the second respondent and 8,228 shares to the petitioner. The serious disputes among the legal heirs of KSN were sought to be sorted in panchayat meetings held during November and December 1995, but no amicable settlement could be reached.

The company was indebted to many statutory authorities and banking institutions even during the life time of KSN and there was heavy pressure for payment of its outstanding dues. Articles 14 and 21 of the memorandum of association and article 54(1) of the articles of association of the company empower the board of directors to sell the assets of the company. The provisions of Section 293(1) (a), (d) are not applicable to a private limited company and therefore, the requirements as envisaged therein are not required to be complied with while selling the properties of the company. Accordingly, resolutions were passed authorising the managing director to negotiate with prospective buyers for sale of the property and submit the proposal to the board for its approval. The board of directors passed valid resolutions to sell the assets of the company. Accordingly, a board meeting was convened on January 12, 1996, after due notice sent on December 30, 1995, under certificate of posting to all the directors in writing as per Section 286 of the Act. The second respondent neither attended the board meeting nor obtained leave of absence of the board. However, the second respondent in his letter dated January 3, 1996, while acknowledging the receipt of the notice dated December 30, 1995, advised the third respondent not to indulge in the company's affairs. At the said board meeting, the fourth respondent, being the widow of KSN was appointed as the chairperson and the third respondent became the managing director of the company. At the same time, the second respondent in collusion with the petitioner entered into two agreements of sale namely, one for Rs. 3.15 crores and another for Rs. 4.65 crores with the obvious intention of appropriating the unaccounted personal profit of Rs. 1.5 crores which ultimately resulted in the civil suit filed in O. S. No. 5560 of 1996 by M/s. Southern Peninsula Housing Ltd. This act of the second respondent was condemned by the High Court while dismissing the C. P. No. 199 of 1998. The petitioner was mostly benefited from and out of the advance money received by the second respondent pursuant to the agreements of sale of the property. The company was constrained to file a civil suit in O. S. No. 5560 of 1996, for declaration and injunction that the second respondent and petitioner herein are not chairman and director of the company respectively. The civil court, while disposing the interlocutory applications came to the conclusion that the appointment of the petitioner and the second respondent as director and chairman are illegal, which was confirmed in the appeals preferred by the second respondent as borne out by the order dated May 7, 1997. Though the second respondent was authorised to defend the company in land acquisition proceedings, as its chairman, as per the order dated January 8, 1997, made in C. M. P. Nos. 12488 and 12489 of 1996, it has been made clear by the High Court that the court will not go into the question as to whether the second respondent is entitled to represent the company, claiming to be one of the heirs of (late) KSN.

The company represented by the authorised persons, as per the board resolutions entered into agreements for sale of the property, received advances from the prospective purchasers, settled the dues of Indian Overseas Bank and obtained the original title deeds of the company in February 1996, in order to further proceed with the sale transactions. It is neither necessary in the case of a private limited company to obtain the consent of shareholders for sale of its property, in which case no individual shareholder could restrain the sale of such property. The agreement holders after the order of the civil court made in May 1997, confirming the position of the third respondent as managing director of the company, proceeded to develop the property by removing the shrubs and bushes and filling the pits and falls in the property so as to complete their part of obligations towards sale of the property. At this juncture, the petitioner obtained an ex parte injunction against the company and purchasers from alienating the property in C. P. No. 60 of 1996, filed before the High Court of Madras for winding up of the company and later filed Contempt Petition No. 199 of 1997, complaining of violation of the injunction order and impleaded all the 25 agreement holders. When the petitioner decided to withdraw C. P. No. 60 of 1996, the second respondent delayed the process by filing an application (C. A. No. 804 of 1999) for his transposition as the petitioner in C. P. No. 60 of 1996, and the High Court ultimately by an order dated July 1, 1999, permitted the withdrawal and dismissed C. P. No. 60 of 1996. With a view to ensure that the injunction order passed by the High Court is not vacated on account of withdrawal of C. P. No. 60 of 1996, respondents Nos. 2 and 6 filed C. P. No. 199 of 1998 and C. P. No. 274 of 1998 respectively for winding up of the company. However, the company petitions in C. P. No. 199 of 1998 and C. P. No. 274 of 1998 came to be dismissed by the High Court on October 19, 2001. Thereafter, a major portion of the landed property in Maduravayal was sold in pieces to the agreement holders for an aggregate sum of Rs. 4.41 crores and the sale proceeds were deposited in banks. The company sold the property at the rate of Rs. 32 lakhs per acre which is above the guideline value and even above the market value itself. At the time of entering into the sale agreements, one cent of land in case of an approved lay out in the same area was selling at Rs. 33,572 and unapproved lay out at Rs. 3,000 per cent. The company's lands were unapproved, and further subject to urban land proceedings. The sale deed dated January 22, 1996, discloses the sale of 1,199 sq. ft. of the land situated at Madhuravayal village being approved layout for Rs. 92,000 which works out to Rs. 36,800 per cent. The sale deed dated January 29, 1996, discloses the sale of 44 cents of land situated at Maduravayal village being unapproved lay out for Rs. 1,32,000 which works out at the rate of Rs. 3,000 per cent. The second respondent had agreed to sell the property of the company measuring 13.77 acres of land situated at Maduravayal village for the lowest consideration of Rs. 3.5 crores and the highest sale consideration of Rs. 4.65 crores. Thus, the company did not undervalue while selling the property to the purchaser-respondents, as falsely urged by the petitioners, but on the other hand sold the property at the prevailing market value. All the charges of the petitioner levelled in C. P. No. 60 of 1996 were raised by the second respondent in C. P. No. 199 of 1998, which came to be dismissed on the merits. The main dispute in regard to sale of the property at Maduravayal was agitated before the High Court which was not favourably considered and therefore the very same issues cannot be raised before the Company Law Board. The sale deeds have been executed in favour of the agreement holders or their nominees as provided in the sale agreements after dismissal of the winding up petitions, by the High Court. In the appeal preferred by the sixth respondent against the dismissal of winding up petition, the Division Bench has not granted any stay and the appeal is pending. Shri Kodaiarasu, learned counsel, relied upon Roshan Lal Agarwal v. Sheoram Bubna [1980] 50 Comp Cas 243 (Patna), to show that the application under Section 397/398 to set aside any sale of the property, should be made within three months of such sale and the period of three months is to be before the date of application, which requirement is not satisfied in the present case. The third respondent has filed from time to time statements of expenses, which have been incurred from the sale proceeds of the company's properties.

The second respondent has produced an alleged will left by (late) KSN for probate claiming 60 per cent, of the shares and probate proceedings are pending before the High Court. The petitioner herein has given consent for probate of the will, but failed to approach the company for transmission of shares. However, the other legal heirs are seriously objecting to the probate, sought by the second respondent. Therefore, the Company Law Board cannot at this stage pass any order with regard to transmission of the shares pending disposal of the probate proceedings. Consequently, the prayer for calling of the general meeting after transmission of the shares and for reconstitution of the board cannot arise. The appointment of the third respondent as the managing director has been held to be valid by the city civil court which has been affirmed by the appellate court and therefore, his appointment as the managing director cannot be questioned in the present proceedings. The serious charges in relation to the sale of the property agitated in the winding up proceedings have been negatived by the High Court, and the same cannot be reopened before the Company Law Board. There is enormous delay on the part, of the petitioner in approaching the Company Law Board, after withdrawal of C. P. No. 60 of 1996, on the file of the High Court of Madras. The petition is filed with oblique motive, not in good faith but for personal gains. The conduct of the petitioner lacks bona fides and the discretionary power will not, therefore, be exercised in favour of the petitioner who has approached the Company Law Board with unclean hands.

The second respondent has filed a petition in T. O. S. No. 23 of 1998, for probate of the will allegedly left by KSN and a civil suit in C. S. No. 477 of 2000, before the High Court of Madras for declaration that he is the owner of 60 per cent, to 80 per cent, of the assets and shares of the company. The petitioner has filed a suit in C. S. No. 448 of 1999, for partition of the properties left behind KSN, which shall include 10,000 shares belonging to his father. The sixth respondent has filed a suit in C. S. No. 372 of 1999 for partition of the properties left behind by KSN. The company has filed a suit in O. S. No. 5560 of 1996 which is transferred to the High Court of Madras as Tr. C. S. No. 496 of 2003 for declaration that the petitioner and the second respondent are not director and chairman of the company respectively. The issues relating to the appointment of directors and chairman, extent of the holding of the petitioner and the second respondent in the company, validity of the board meetings held on January 12, 1996, February 10, 1996, and November 27, 1999, are pending consideration before the High Court in Tr. C. S. No. 496 of 2003 and therefore, the petitioner cannot re-agitate the very same issues in the present proceedings. Company Petitions Nos. 199 of 1998 and 274 of 1998, on the file of the High Court of Madras filed by respondents Nos. 2 and 6 to wind up the company, re-enforcing the grievances of the petitioner set out in C. P. No. 60 of 1996 came to be dismissed on October 19, 2001, which has become final. However, while pronouncing the judgments, the learned judge also passed order incidentally in C. P. No. 60 of 1996 permitting withdrawal of the company petition. The fact of the matter is that C. P. No. 60 of 1996 was dismissed as early as on July 1, 1999, after considering the withdrawal memo filed on April 29, 1998, by the petitioner, without seeking liberty to file a fresh petition. At the same time, the petitioner after a long delay of four years filed the present company petition and therefore, it is barred by the principles of laches. The present company petition is based substantially on the same grounds, which have been already adjudicated by the High Court and therefore the present petition is barred by the principles of constructive res judicata.

The petitioner and second respondent were solely responsible for not conducting the annual general meetings or board meetings on account of various illegalities committed and litigations initiated by them. All the records of the company are in custody of the High Court and therefore, neither meetings could be convened nor annual returns be filed periodically. The shares of KSN could not be transmitted on account of the pendency of the probate proceedings.

The sixth respondent received the notice of the board meetings and attended the meetings held on January 12, 1996, and February 10, 1996, as borne out by the attendance sheets signed by the sixth respondent. The minutes of both the board meetings dated January 12, 1996, and February 10, 1996, were already produced in C. P. No. 199 and C. P. No. 274 of 1998, before the High Court of Madras. The sixth respondent in C. P. No. 274 of 1998, filed before the Madras High Court for winding up of the company admitted the holding of the board meeting held on January 12, 1996, appointing respondents Nos. 3 and 4 as managing director and director respectively, and never denied the holding of the subsequent board meetings. The sixth respondent has admitted in her reply statement filed to the present company petition the fact of the board meeting held on January 12, 1996. However, the sixth respondent in her additional reply statement reported that the third respondent had fabricated the minutes of board meeting dated February 10, 1996. The minutes of the board meeting dated February 10, 1996, were produced in C. P. No. 199 of 1998 and C. P. No. 274 of 1998, on the file of the High Court of Madras and circulated to all the respondents, but were never challenged by the sixth respondent. The sixth respondent never denied the board meeting held on January 12, 1996, in C. P. No. 274 of 1998 filed before the High Court of Madras. The fourth respondent in her counter-affidavit filed in C. A. Nos. 1386 and 1387 of 1998 in C. P. No. 199 of 1998 and counter statements filed to C. P. No. 274 of 1998, while specifically pleaded about the convening and holding of the board meetings held on January 12, 1996, and February 10, 1996, the sixth respondent never disputed the board meeting held on February 10, 1996. The sixth respondent neither raised any objection with regard to the minutes dated February 10, 1996, in O. S. A. Nos. 430 and 431 of 2001, preferred against the order of dismissal made in C. P. No. 274 of 1998. The sixth respondent admitted her participation in the board meetings held on January 12, 1996, and February 10, 1996, in her counter-affidavit filed to Contempt Application No. 199 of 1997 in C. A. No. 1882 of 1997, in C. P. No. 60 of 1996, before the High Court. The sixth respondent attested the relevant extract of resolution of the board of directors passed on February 10, 1996, authorising the third respondent to initiate or defend the legal proceedings on behalf of the company. However, the sixth respondent has denied before the Company Law Board that no board meeting was held on February 10, 1996, and complains of different versions of minutes of the board meeting dated February 10, 1996, only in her additional reply affidavit sworn to on March 31, 2004, before the Company Law Board after lapse of several years. The sixth respondent on account of certain disputes with the fourth respondent pursuant to the denial of her claim for a larger share in enjoyment of the house property situated at Shenoy Nagar, Chennai-600 030 by the fourth respondent, the relationship became strained between the parties and therefore the sixth respondent is falsely challenging the validity of the meeting of board of directors held on February 10, 1996. Thus, the sixth respondent lacks good faith and bona fides and supported the petitioner with unclean hands. The company never fabricated the minutes in order to super impose the signature of the sixth respondent in any copy of the board minutes dated February 10, 1996. There are no pleadings in relation to the third board meeting held on November 27, 1999, raised by the sixth respondent either in her counter statement or additional reply statement.

The sixth respondent in her counter-affidavit filed to C. A. No. 199 of 1989 in C. A. No. 1882 of 1987 in C. P. No. 60 of 1996 before the High Court of Madras, while denying any contempt committed by the respondents by altering the nature and topography of the vacant land in Maduravayal, did not question the execution of the sale agreements. Moreover, all the 25 agreement holders were impleaded to the contempt application before the High Court as respondents Nos. 4 to 28, and even then the sixth respondent, herein never contended that she did not enter into agreements with the agreement holders. Respondents Nos. 1, 3 and 4 and one Johnson in their counter statement filed to C. P. No. 274 of 1998, initiated by the sixth respondent for winding up of the company, categorically pleaded that the sixth respondent voluntarily signed all the 25 agreements, which were handed over to her and they continued to remain with her. The sixth respondent did not deny any of these averments by filing any rejoinder. The sixth respondent on the other hand categorically set out in C. P. No. 274 of 1998, seeking winding up of the company that respondents Nos. 3 and 4 compelled her to sign various agreements, wherein the third respondent received huge amounts by way of advance for sale of the properties belonging to the company. The copy of agreement of sale dated February 16, 1996, entered into between the company and J. Valliammai produced before the High Court and now before the Company Law Board contains in each page the signature of the sixth respondent. Whereas, the copy of agreement now produced by the sixth respondent does not contain any signature of the sixth respondent, which shows her conduct. The High Court while dismissing C. P. No. 274 of 1998 came to the conclusion that the sixth respondent is a party to all the resolutions of the board of directors including the resolutions authorising the sale of the lands at Maduravayal and that she had signed the sale agreements in favour of 25 intending purchasers. The High Court further found that the board of directors have resolved to dispose of all the properties by way of 25 agreements to various buyers and that the agreements are in terms of the resolution passed by the board. At the time of entering into agreements of sale, stamp papers were scarcely available compelling the company and agreement holders to procure stamp papers from mofussil towns. The stamp papers which have been used by the second respondent to execute the memorandum of understanding dated March 23, 1996, have been purchased from Sriper-ambudur stamp vendor. In view of this, the sixth respondent cannot find fault with the use of outside stamp papers while executing the sale agreements. This would show that the sixth respondent has approached the court with unclean hands and failed to take consistent stand in the proceedings relating to the company.

The High Court with regard to holding of shares by (late) KSN and the claim of the parties to the shares of (late) KSN made on the basis of the alleged will found that these issues are pending consideration before the civil court which will investigate the issues in question. The High Court in C. A. No. 804 of 1998 and 2098 of 1987, in Company Petition No. 60 of 1996 and C. A. No. 1033 of 1998 in C. P. Nos. 199 of 1998 and 274 of 1998 by an order dated July 1, 1999, upheld the reconstitution of the board of directors of the company during the life time of KSN and after vacation of the office of director by the nominees of TIIC which consisted of KSN as the chairman besides respondents Nos. 2, 3, and 6 and one Johnson as borne out by the minutes of the board of meeting held on December 16, 1989. The City Civil Court at Madras by an order dated October 31, 1996, made in I. A. Nos. 7375 to 7378 of 1996 in O. S. No. 5560 of 1996, restrained the petitioner and the second respondent from holding themselves out as director and chairman of the company, but on the other hand the third respondent has been authorised to conduct the affairs of the company as managing director. This order dated October 31, 1996, was confirmed in C. M. A. Nos. 228 of 1996 and 230 of 1996 made on May 6, 1997. The High Court further rejected the claim of the second respondent and the petitioner towards chairmanship and directorship in the company. Article 47 stipulates that regulations 77 to 80 of table "A" shall apply to the company. Regulation 80 provides, inter alia, that all acts done by any meeting of the board or by any person acting as a director, shall, notwithstanding that it may be afterwards discovered that there was some defect in the appointment of any one or more of such directors, be valid as if every such director or such person had been duly appointed. Therefore, any action of respondents No. 3 or 4 as directors cannot be questioned.

The petitioner wants a share in the properties and is not interested in the welfare of the company. The petitioner did not prosecute C. P. No. 60 of 1996, on the understanding that the family members and management of the company would compensate with Rs. 1 crore, but he was cheated without giving any compensation as asserted in the present company petition. In a petition under Section 397/398, paramount interest of the company alone and not personal interest of the petitioner must be considered. By virtue of a memorandum of understanding dated March 9, 1998, the petitioner and respondents Nos. 3, 4 and 6 had agreed to share all the assets of (late) KSN in the ratio of 20 per cent, each, but the same could not be implemented since the sixth respondent did not sign the memorandum of understanding. The petitioner by his letters dated June 24, 2002, July 2, 2002, and July 16, 2002, made requests with the third respondent for Rs. 20 lakhs in order to meet the marriage expenses of his daughter. When the demand of the petitioner was not met in full, he preferred to file the present company petition, just to grab further moneys from the third respondent.

6. According to the eighth respondent it is in no way connected with the allegations made against respondents Nos. 1 to 7 in the affairs of the company. The petitioner has not sought any relief as against the eighth respondent. Hence, the petition needs to be dismissed with costs.

7. Shri R. Murari, Sri Ezhilmani and Sri Dhanaraj, learned counsel, representing the purchaser-respondents and adopted by other purchasers submitted:

The petitioner neither holding 10 per cent. of the issued share capital nor constituting 1/10th of the total number of members of the company does not fulfil the requirements of Section 399 and therefore, the present company petition is not maintainable. The petitioner consequent upon the death of KSN, his father is neither entitled to l/5th of shares as per intestate succession nor 40 per cent. share in the land of the company as per the will of (late) KSN, especially when the will has not been so far probated.

There were originally 25 agreement holders, out of whom a few of the agreement holders nominated 53 persons in terms of the agreements reached between the parties and out of the 53 persons, 36 of them have got their sale deeds executed and the remaining sale deeds are yet to be completed in view of the present company petition. The company represented by respondents Nos. 3, 4 and 6 had reported that the land under dispute belonged to the company in support of which copies of the board resolutions dated January 12, 1996, February 10, 1996, and November 27, 1999, were made available to the purchasers and induced that they had the authority to sell the property at the time of making such representation to enter into agreements and sale deeds and therefore the company is bound by such representation made by respondents Nos. 3, 4 and 6 as held in Freeman and Lockyer (a firm) v. Buckhurst Park Properties (Mangal) Ltd. [1964] 34 Comp Cas 405 (CA) : [1964] 1 All ER 630. The first respondent company being a private limited company, no shareholders' approval in terms of Section 293 is necessary. The purchasers bought the land on the basis of valid resolutions passed by the board of directors of the company and are not concerned with any inter se disputes between the directors and shareholders. The resolutions of the company are legally binding on the company and the same cannot be questioned by the petitioner who had kept quiet for a long time in spite of filing a petition to wind up the company. The purchasers have not violated any order of the High Court made in C. P. No. 60 of 1996 and the contempt application filed by the petitioner came to be terminated. Company Petition Nos. 199 and 274 of 1998, were dismissed on the merits on October 19, 2001 and C. P. No. 60 of 1996, was dismissed as not pressed by the High Court along with the injunction applications, thereby the company has not been precluded from conveying the property in favour of the purchasers, more so when no stay has been granted against the order dated October 19, 2001, in the appeal filed in O. S. A. No. 430 of 2001 by the sixth respondent. These respondents are bona fide purchasers and they have purchased the land of the company to the extent as reflected in the respective sale deeds, after disposal of the winding up petitions at the rate of Rs. 32,000 per cent, which is higher than the prevailing market rate as could be seen from copies of the sale deeds in respect of the properties located adjacent to the properties of the company. The purchasers are from various economic-strata of the society including professionals as well as persons in service and business and they are not benamis of the seventh respondent as claimed by the petitioner. The purchasers being strangers while dealing with the company have every right to assume, as against the company that all the requirements of internal management have been duly complied with as held in Nellai Metal Rolling Mills v. Southern India Central Benefit Fund P. Ltd. [1986] I ML] 370. Moreover, the company received the sale consideration and is enjoying the benefit of such a sale consideration, in which case bona fide third parties ought not to be deprived of the property on account of the disputes among the family members of (late) KSN. The sale deeds pertaining to these respondents were not undervalued at the time of registration and therefore, none of the sale deeds was impounded as per the procedure prescribed by law, as claimed by the petitioner. The agreement-holders have already taken possession of the property. The petitioner cannot now seek to reopen the past concluded transactions. The entire property has been fenced and the huge pond existed in the land has been levelled by the 24 agreement-holders. These facts have been recorded in the winding up proceedings before the High Court. The encroachers in the property were removed. All these additional costs were met by the purchasers.

The petitioner is not prosecuting the present company petition for any of the reliefs prayed for, but with a mala fide motive of enriching himself unjustly in terms of paragraph 6(0) of the company petition wherein the petitioner categorically admitted that he had withdrawn Company Petition No. 60 of 1996 before the Madras High Court on the understanding that he would be compensated with Rs. 1 crore towards all claims and shares in the Maduravayal land of the company and that the family members and directors of the company cheated him absolutely and that he did not get any compensation. The petitioner has filed the present company petition contrary to the undertaking dated March 15, 1998, wherein he has undertaken that he will withdraw Company Petition No. 60 of 1996, and support the transactions between the company and various purchasers with fond hope to get some monetary benefits. Thus, the petitioner has not approached this Board with clean hands. Furthermore, the petitioner failed to explain the reasons for his inordinary delay in filing the present petition after withdrawal of Company Petition No. 60 of 1996, on the file of the High Court of Madras and therefore, the present petition is hit by laches.

The second respondent has prayed for division of the properties in dispute in his favour, despite the fact that he as a shareholder is only entitled to the dividend as and when declared by the company but not its properties. Moreover, it was, the second respondent purported to sell the very same land to M/s. Southern Peninsula Ltd., which clearly shows that the second respondent would go to any extent in order to obtain the land in dispute. Therefore, prayer of the second respondent must be rejected.

The sixth respondent is disputing the 25 sale agreements in the present proceedings, even though she has admitted those agreements before the Madras High Court both in the winding up petitions and contempt proceedings. The report of the advocate commissioner appointed by the High Court indicates that the 25 agreement holders are in possession of the property, which factor has also been admitted by the sixth respondent before the Madras High Court. The disputes raised by the sixth respondent after conceding the rights and possession of the purchasers before the High Court, clearly speak of her lack of bona fides.

The petitioner and respondents Nos. 2 and 6 have colluded to settle their personal grievances against respondents Nos. 3 and 4, thereby jeopardising the interests of the purchasers. While Company Petitions Nos. 199 of 1998 and 274 of 1998, filed by respondents Nos. 2 and 6 came to be dismissed, and C. P. No. 60 of 1996, was withdrawn and the present petition is yet another attempt by the petitioner to settle his personal scores for which respondents Nos. 2 and 6 are supporting him. The petitioner has indulged in forum shopping which must be condemned by rejecting such vexatious proceedings.

8. I have considered the pleadings and arguments-oral as well as written-advanced for the parties. The arguments made out in the written submissions and case law cited therein, but not dealt with at the time of oral submissions have not been considered by me, keeping in line with the principles of natural justice. This Bench considering the fact that the company is closely held by the family members of (late) KSN and with a view to put an end to various protracted litigations appointed, by orders dated June 15, 2004, and July 29, 2004, with consent of the contesting parties M/s. K. S. Jagannathan and Co. and M/s. Khicha and Co., to determine the shareholding pattern of the company and accordingly a report came to be submitted on December 1, 2004, before the Bench. However, all the efforts to settle the controversies among the legal heirs of the deceased KSN proved to be futile and therefore, proceeded with the company petition on the merits. While the petitioner is mainly aggrieved on account of the sale of the company's landed properties and purported misappropriation of sale proceeds by respondents Nos. 2 to 7, the other matters complained of in the company petition relate to-(a) non-transmission of shares of (late) KSN in the name of his legal heirs ; (b) constitution of the board of directors of the company ; (c) non-holding of general or board meetings of the company and non-filing of statutory returns, etc. Before I shall examine the main issues in dispute, it is essential to deal with the preliminary objections raised in regard to the right of the petitioner to apply under sections 397 and 398. By virtue of Section 399, members constituting not less than one-tenth of its total number of members or one hundred members, whichever is less, or members holding not less than one-tenth of the issued capital of the company shall have the right to apply under Section 397 or Section 398. While there are admittedly nine living members, five members are no more. The authorised capital of the company is Rs. 25 lakhs divided into 25,000 equity shares of Rs. 100 each. The issued and paid up capital is Rs. 20.57 lakhs divided into 20,570 equity shares of Rs. 100 each. According to the petitioner, he is holding 150 shares of the company and became entitled to one-fifth of the holding of (late) KSN namely, 13,801 shares, as per intestate succession, accounting for 2,760 shares of the company. The register of members of the company discloses 10,801 shares in the name of (late) KSN, in which case, the petitioner would be entitled to 2,160 shares. However, as per the version of the second respondent, (late) KSN had left a will dated February 23, 1994, in respect of which he has applied before the High Court of Judicature at Madras for grant of probate in his favour, in terms of which the petitioner is entitled for 40 per cent. of the shares. While, the petitioner has sworn to an affidavit in February, 1997 giving consent for probate of the will left by (late) KSN, the other legal heirs are seriously contesting its genuineness in the pending probate proceedings. In the light of serious controversies over the will and by virtue of sections 9 and 10 of the Hindu Succession Act, 1956, the shares held by KSN, upon his demise devolve upon his legal heirs, thereby the petitioner becomes entitled to one-fifth of the shareholding of (late) KSN namely, 2,760 shares, with an indefeasible right to get his name registered in the register of members of the company and therefore, the petitioner is entitled to maintain a petition in respect of oppression and mismanagement in the affairs of the company under sections 397 and 398, as held in World Wide Agencies P. Ltd. v. Mrs. Margaret T. Desor . However, in the event of grant of probate of the will in the probate proceedings, the petitioner will become entitled to 40 per cent. of the shares of the company. Thus, the petitioner's holding, in either of the cases will exceed one-tenth of the issued capital of the company, meeting the minimum requirement as stipulated in Section 399.

9. The petitioner and respondents Nos. 2, 3 and 6 are the children and the fourth respondent is the wife of (late) KSN. After the demise of KSN in July, 1995, disputes arose among his legal heirs in relation to, inter alia, the shareholding, constitution of the board of directors and properties held in the name of the company as well as (late) KSN, which resulted in a catena of litigations, having a direct impact and bearing on the various contentious issues raised before me, and therefore, the relevant proceedings, in my view, will go in aid of adjudicating the disputes in question.

10. The company was promoted by (late) KSN during his life time. KSN and his family members were holding major shares in the company. The promoter holding substantial number of shares died in July 1995, leaving his widow, three sons and a daughter, who are all the parties to the present proceedings. While the second respondent claims that (late) KSN had executed a will, the contesting legal heirs are challenging the will left by (late) KSN as untrue and invalid. The second respondent claiming to be the executor under the will has already moved the High Court of Judicature at Madras (T. O. S. No. 23 of 1998) for issue of succession certificate, which is being disputed and denied by the contesting legal heirs. The same has been converted as a testamentary original suit and is pending. At this stage, this Bench will not have jurisdiction to decide the dispute as to whether the will left by (late) KSN is true, valid and binding on his legal heirs. The High Court while disposing of the winding up petitions under Section 433(f) came to the conclusion that the civil court is seized of the matter and therefore, the High Court will not be justified to adjudicate the dispute regarding the validity of the will left by (late) KSN. The High Court further pointed out that the decree and judgment of the civil court which may be passed in the testamentary original suit alone will bind the parties. The civil suits filed by the sixth respondent and the petitioner in C. S. No. 372 of 1999 and C. S. No. 448 of 1999 respectively, before the High Court of Judicature at Madras, for partition and separate possession of one-fifth share each in the properties left by (late) KSN are pending adjudication. The schedule of properties forming part of the civil suit in C. S. No. 448 of 1999 includes 10,000 shares of Rs. 100 each held by (late) KSN in the company. The second respondent in C. S. No. 477 of 2000, on the file of the High Court of Judicature at Madras is claiming 60 per cent. of the total assets or share value of the company, while the remaining legal heirs are reportedly eligible for 10 per cent. of the total assets of the company. Accordingly, the second respondent has sought for a declaration, in the pending civil suit, that he is entitled to 60 per cent, of the assets and share value of the company. In this background, the prayer of the petitioner for issue of directions against the company to effect transmission of the shares of (late) KSN in the name of his legal heirs will no way be justified.

11. The claim and counter claim in regard to the directorship must be examined in the light of the civil suit in O. S. No. 5560 of 1996 on the file of the City Civil Court at Madras and the connected proceedings. The company represented by the third respondent in the said civil suit prayed, inter alia, for a declaration that (a) the petitioner and the second respondent are not the director and chairman respectively of the company ; (b) the meeting held on August 9, 1995, appointing the petitioner as the director and the second respondent as chairman is illegal, null and void ; and (c) the petitioner and the second respondent shall not act as the director and chairman of the company and accordingly prayed for certain interim orders against the petitioner and second respondent, which were resisted by the latter, challenging the legal status of the fourth respondent as chairman, third respondent as managing director and the sixth respondent as director of the company. The specific stand of the company in O. S. No. 5560 of 1996, is that presently five directors of the company are-(1) Mrs. Paulthai Shanmugasundaram, fourth respondent, (chairperson), (2) Mr. K. S. Anantha Raman, third respondent, (managing director) (3) Mr. K. S. Damo-daran, second respondent (director), (4) Mrs. C. Mangala Vijayalakshmi, sixth respondent (director) (5) Mr. S. Johnson, fifth respondent, (director). The petitioner and second respondent herein, while denying the appointment of respondents Nos. 3, 4 and 6 as directors, in the said civil suit categorically contended that the second respondent and his father alone were the directors of the company. The petitioner herein upon the demise of KSN, was appointed as director of the company and the second respondent became chairman of the company. The civil court while disposing of the applications in I. A. Nos. 7375 to 7378 of 1996 in O. S. No. 5560 of 1996 by an order dated October 31, 1996, came to the conclusion that after November 17, 1989, there were five directors including the chairman KSN and that at the time of death of KSN excepting him there were four directors including the second respondent herein. Accordingly, the board of directors comprised respondents Nos. 2 to 6 who had the authority to convene the meeting and passed resolutions in the company's affairs and that the company is not administered by the petitioner and the second respondent herein as claimed by them, but on the other hand the third respondent is authorized to conduct its affairs as the managing director and ultimately, granted an order of injunction against the petitioner and the second respondent from making out themselves as director and chairman and from dealing with the company's assets in any way prejudicial to the interest of the company. Thus, it has been, prima facie, found by the civil court that the third respondent's claim for management of the company is legal and that the second respondent's right is not authorized. The order passed by the city civil court in I. A. Nos. 7375 of 1996 and 7376 of 1996 in O. S. No. 5560 of 1996, dated October 30, 1996, was confirmed in C. M. A. Nos. 228 of 1996 and 230 of 1996 by an order dated May 6, 1997, wherein the appellate court found that "there is sufficient materials available in this to come to the conclusion that there is all, prima facie, case for granting interim injunction against the respondents (the petitioner and the second respondent herein) restraining them from holding themselves out as the director and chairman of the applicant-company pending disposal of the suit and to restrain them from entering into any contract agreement or any other obligations for and on behalf of the company towards selling transferring alienating or dealing with the assets of the company pending disposal of the suit". The civil revision petitions (C. R. P. Nos. 917 and 918 of 1999) preferred before the High Court of Judicature at Madras, by the second respondent against the order dated May 6, 1997, made in C. M. A. Nos. 228 of 1996, and 230 of 1996, came to be dismissed as early as on March 31, 1999. This order of the High Court has become final and binding on the petitioner and second respondent. In view of this, the petitioner and the second respondent cannot claim to be the director and chairman of the company respectively, pending disposal of the civil suit in O. S. No. 5560 of 1996, which stands transferred to the High Court of Judicature at Madras, as Tr. C. S. No. 496 of 2003. The High Court while disposing of the prayer of the second respondent herein to transpose himself as the petitioner in C. P. No. 60 of 1996, in the place of the petitioner herein, in C. A. No. 804 of 1998 observed :" ...the claim of Damodaran that he has made as chairman and Motilal was made as managing director cannot be sustained because it is against the articles of association. Moreover, by no stretch of imagination Damodaran can nominate Motilal as director and nominate himself as chairman. Damodaran has not explained the source of authority or how he is competent to reconstitute the board as per his own fancy. Therefore, the request of Damodaran to transpose himself as the petitioner in C. P. No. 60 of 1996 in the place of Motilal cannot be countenanced and C. A. No. 804 of 1996 is dismissed...." It shall be borne in mind that the High Court in its order dated January 8, 1997, made in connection with the land acquisition proceedings in C. M. P. Nos. 12488 and 12489 of 1996 in A.S. Nos. 903 and 904 of 1996 and C. M. P. Nos. 12490 and 12491 of 1996 in L. P. A. Nos. 122 and 123 of 1995, while permitting the second respondent to represent the company as its chairman, abundantly made clear that the High Court will not go to the question whether the second respondent herein is entitled to represent the company on the ground that he is one of the legal heirs of the deceased KSN. Thus, the issue of chairmanship of the second respondent has not been considered in those proceedings namely, A. S. Nos. 903 and 904 of 1996 and L. P. A. Nos. 122 and 123 of 1995. The High Court in its order dated October 19, 2001, made in winding up petitions against the company concluded that there could be no sale agreement, which is binding on the company that could be entered by the second respondent herein with M/s. Southern Peninsula Housing Ltd., without being supported by any resolution of the board of directors of the company. In this background, the claim over directorship and chairmanship by the petitioner and the second respondent respectively do not merit any consideration and any direction to reconstitute the board of directors of the company, as sought by the petitioner, will not be in consonance with the findings of the High Court reached in the winding up proceedings against the company and any such direction may also result in conflict of decisions, in the light of the proceedings pending in Tr. C. S. No. 496 of 2003 and other connected civil suits.

12. The sale of property in Maduravayal belonging to the company, in favour of the purchaser-respondents is under challenge. It is observed that certain agreement holders sought to implead themselves to the present company petition by taking out appropriate applications, who are found to be necessary parties, in view of the interest in the disputed property and therefore, they have been impleaded as respondents Nos. 52 to 54. A close scrutiny of voluminous records produced before the Bench reveals that as many as 35 sale deeds have been executed and registered in the name of respondents Nos. 1 to 54 save respondents Nos. 16, 30, 34, 39, 44, 45 and 48 to 51, 53 and 54, during the period between November 7, 2001, and February 6, 2002. However, it appears that no sale deeds have been so far obtained by respondents Nos. 16, 30, 34, 39, 44, 45 and 48 to 51, 53 and 54. While questioning these sale transactions, it was argued that the requisite legal formalities for sale of the property were not duly satisfied and that there was no need to sell the whole of the property and that too at a meagre price. The company incorporated in January 1970 for manufacture and sale of mechanised bricks stopped all its activities since the year 1976, on account of mainly shortage of coal supply. The company was indebted to TIIC and other agencies towards electricity consumption dues, property taxes, sales tax dues, etc. The board of directors at the meeting held on August 10, 1988, authorised the chairman (KSN) to arrange for an amount of Rs. 81 lakhs to settle the dues of TIIC. At the board meeting held on October 12, 1988, the directors resolved to dispose of the entire land and building including machinery in one or more lots and authorised the chairman (KSN) to call for prospective buyers, negotiate and finalise any deal found to be reasonable and suitable. Similarly, the chairman (KSN) was authorised at the board meeting held on December 16, 1988, to negotiate and conclude the sale with one S. X. Francis. The company had ultimately cleared the dues of TIIC in instalments by September 1999, from and out of the sale proceeds of machinery and equipment, financial assistance of Rs. 33.25 lakhs obtained from Canara Bank, etc. Thus, there was acute necessity for sale of the company's property even way back in October 1988.

13. The Maduravayal property of the company has been sold pursuant to the disputed resolutions passed at the board meetings held on January 12, 1996, February 10, 1996, and November 27, 1996. At the board meeting held on January 12, 1996, the board of directors-(a) elected the fourth respondent as chairperson ; (b) appointed the third respondent as managing director ; (c) approved the sale of 13.77 acres of vacant land of the company at Maduravayal ; and (d) authorised the managing director to negotiate with probable buyers and submit a proposal to the board for its approval, before the end of the financial year. The attendance register shows that respondents Nos. 3 and 6 and one S. Johnson attended the board meeting held on January 12, 1996. It is clear from the communication dated January 6, 1996, of the second respondent addressed to the third respondent that the second respondent was in receipt of the notice dated December 30, 1995, convening the board meeting held on January 12, 1996, but he did not choose to attend the board meeting. The second respondent in the course of his oral submissions reported that he did not attend the board meeting on January 12, 1996, in view of the fact that the third respondent had no authority to convene any board meeting and that the board meeting of January 12, 1996, is illegal. The managing director was authorised to finalise the agreements for sale of the Maduravayal land in favour of prospective purchasers and to do all acts necessary to complete the sale transactions and further respondents Nos. 2, 3 and 6 were authorised to sign jointly the sale agreements at the board meeting held on February 10, 1996, wherein respondents Nos. 2, 3 and 6 participated, as borne out by the attendance register on record. The second respondent in his counter statement filed in C. P. No. 60 of 1996, before the High Court of Madras categorically admitted that the third respondent herein had without any authority issued notices dated December 30,1995 and December 3, 1996, convening the board meetings on January 12, 1996, and February 10, 1996, respectively. The sixth respondent in her affidavit filed in August 1998 in C. P. No. 274 of 1998, affirmed that the notice of board meeting held on January 12, 1996, was given to all directors on December 30, 1995, and further in her counter affidavit filed in contempt application (C. A. No. 199 of 1997 in C. P. No. 60 of 1996) on the file of the High Court of Judicature at Madras categorically affirmed that (a) the board of directors at the meeting held on January 12, 1996, passed resolutions to dispose of excess lands of the company in Maduravayal and authorised the third respondent herein to negotiate with probable buyers ; and (b) at the subsequent board meeting held on February 10, 1996, the third respondent herein was authorised to receive the original documents from Indian Overseas Bank. At the board meeting held on November 27, 1999, the board of directors approved the agreements for sale with 25 proposed purchasers and further resolved that the sale agreements and sale deeds shall be executed jointly by the chairperson, managing director and any other director, but not by individuals. This board meeting was attended by respondents Nos. 2 and 4 and S. Johnson. The second respondent by a telegram sent in November 1999, before the board meeting held on November 2.7, 1999, advised the third respondent that the board meeting convened by him is illegal. This goes to show that the second respondent was served with the notice of board meeting held on November 27, 1999. The sixth respondent had received the notice of board meeting held on November 27, 1999, only on the date of board meeting and therefore while informing the third respondent by her letter dated November 29, 1999, that she could not attended the board meeting on November 27,1999, she asked for a copy of the minutes of the board meeting held on November 27, 1999. It is not the case of the sixth respondent that the company failed to comply with her request. At this stage it is not open to her, after several years, to challenge the resolutions passed at the board meeting held on November 27, 1999, on the ground that the board meeting was convened in contravention of article 46, contemplating seven days notice for any board meeting. Therefore, the contesting respondents can neither plead ignorance nor question the validity of those board meetings at this belated stage and all the board resolutions thereon are binding on them. It may further be observed that the purported fabrication of the board minutes dated February 10, 1996, will not have any adverse impact on the validity of the sale deeds, more so when valid title to the property could be conveyed on the strength of the resolutions passed at the board meetings held on January 10, 1996, and November 27, 1999, in favour of the purchasers. Furthermore, the requirements of Section 293 are inapplicable to the company, being a private limited company. The purchaser-respondents, being third parties, while dealing with the company have every right to assume, as against the company that all the requirements of internal management have been duly complied with, as held in Nellai Metal Rolling Mills v. Southern India Central Benefit Fund P. Ltd. [1986] 1 MLJ 370. The purchasers are not concerned with the internal squabbles between the shareholders. When the very same issues have been raised in the winding up petitions by the contesting parties, the High Court by an order dated October 19, 2001, while dismissing the winding up petitions, observed that "there is a resolution by the board of directors, and the board of directors have resolved to disburse all the property by way of twenty-five agreements to various buyers. The said sale agreements are in terms of the resolution passed by the board. No one has challenged the said 25 sale agreements nor any proceedings have been initiated in this respect". The sixth respondent for the first time in the present proceedings denies that she had signed any of the agreements entered with the purchasers. Nevertheless the sixth respondent did not choose to take such stand before the High Court, even when all the twenty-five agreement holders were impleaded to the contempt application in C. P. No. 60 of 1996. It is observed from copy of the agreement of sale dated February 16, 1996, entered into between the company and J. Valliammai produced before this Bench that each page contains the signature of the sixth respondent. At the same time copy of the same agreement now produced by the sixth respondent, does not contain the signature of the sixth respondent. The plea of the sixth respondent that her signature has been manipulated in copy of the agreement entered with J. Valliammai runs parallel to her stand taken in C. P. No. 274 of 1998 for winding up of the company categorically contended that the third respondent compelled her and her mother to sign various agreements to sell the company's properties. In this connection, the relevant observations of the High Court made in the winding up petitions, as borne out by the order dated October 19, 2001, assume importance which read thus ".... So far as the petitioner, Mrs. Mangala Vijayalakshmi in C. P. No. 274 of 1998 is concerned, it is to be pointed out that the petitioner is a party to all the decisions or resolutions of the board of directors including the resolution authorising sale of the lands at Maduravayal. The petitioner had also signed the sale agreements in favour of 25 intending purchasers. Being a party to the sale agreement and resolutions, it is rather extraordinary on the part of the petitioner, Ms. Mangala Vijayalakshmi to turn around and accuse the respondent or refute her action in being a party to the resolutions, being a signatory to the 25 sale agreements. Belatedly, the said Ms. Mangala Vijayalakshmi had chosen to suggest for the first time that her signature were secured by compulsion or force. There is no merit in the said suggestion. To a certain extent, as has been rightly pointed out, Mrs. Mangala Vijayalakshmi, petitioner in C. P. No. 274 of 1998, had been taking not only different but also shifting stands and different attitudes from time to time. In fact, in the Contempt Application No. 199 of 1997 the said Mrs. Mangala Vijayalakshmi had supported the board resolutions and admitted that she had signed the same. Having said so, it is too late in the day for her to plead that her signature had been secured forcibly.... (paragraph 81)".

14. The High Court after making the above observations concluded : "....Thus, it is clear that the petitioner, Mrs. Mangala Vijayalakshmi, was a party to the resolutions and she cannot turn around and say that she had been a signatory due to compulsion. The above conduct on the part of the petitioner in the company petitions would show that they have neither a consistent stand nor have they approached this Court with clean hands nor their conduct is above board nor had they taken a consistent stand right through.... (paragraph 82)".

15. The order dated October 19, 2001, made in C. P. No. 274 of 1998, is under challenge in O. S. A. Nos. 430 and 431 of 2001, before the High Court of Judicature at Madras the appeal is pending adjudication, but the order dated October 19, 2001, has not been stayed. In these circumstances, the contentious issues belatedly raised by the sixth respondent regarding existence or validity of the agreements entered with the buyers do not merit any consideration in the present proceedings. The purchaser-respondents were made to act on the basis of the board resolutions and induced that the directors, in terms of the relevant articles, had the requisite authority to dispose of the property and therefore the company is bound by such respresentation made by respondents Nos. 3, 4 and 6 as held in Freeman and Lockyer (a firm) v. Buckhurst Park Properties (Man-gal) Ltd. [1964] 34 Comp Cas 405 (CA) ; [1964] 1 All ER 630. The Maduravayal property has been sold in pieces to various purchasers for an aggregate sum of Rs. 4.41 crores, which works out at the rate of Rs. 32 lakhs per acre. The specific charge of the petitioner is that the property has been sold by the company far below the guideline value and further asserted in the course of oral submissions by Sri V. Venkadasalam, learned counsel that there are offers for Rs. 70 lakhs per acre. It may be observed that the petitioner has neither taken any steps to substantiate the guideline value of the property nor secured any firm commitment from any prospective buyer for the land at the rate of Rs. 70 lakhs per acre. At the same time the third respondent has produced copies of the sale deed dated January 22, 1996, in respect of a different landed property situated in Maduravayal village consisting of 1199 sq. ft. land for Rs. 92,000, and sale deed dated January 29, 1996, in respect of 44 cents of land, which is reported to be an unapproved lay out situated at Maduravayal village belonging to third parties has been sold for Rs. 1,32,000. The petitioner has not made any exercise to establish the market rate of the property, as claimed by him. At this juncture it may be observed that the second respondent had entered into a memorandum of understanding on January 23, 1996, with M/s. Southern Peninsula Housing Ltd., for sale of 13.77 acres of land in Maduravayal village for the lowest consideration of Rs. 3.5 crores and the highest sale consideration of Rs. 4.65 crores, as against Rs. 4.41 crores sold by the company. In this connection the High Court while disposing of the winding up petitions by its order dated October 19, 2001, observed that the second respondent herein "...had made arrangement to drain or pocket Rs. 1.5 crores out of the very same dealing, which is to the detriment of the company and its shareholders. Such is the conduct of the said petitioner. It is rather shocking that in respect of the same sale agreement there could be one sale agreement and a separate memorandum of understanding for different consideration for which a sum of Rs. 1.30 crores is attempted to be pocketed. Such a sale agreement is not backed by any resolution or authorisation by the company and the board of directors. This shows the anxious conduct to knock away the company's property, which speaks volumes...". The sale deeds indicate that the 25 agreement-holders, with their funds, reportedly cleared all shrubs and bushes, erected fences around the property and increased the level of land, filled 2 1/2 acres of pond and levelled the property in order to maintain it as made out in the winding up proceedings by the agreement-holders. These development costs are in addition to the sale price of Rs. 32,000 per cent. It is, therefore, clear that the claim of the petitioner that the property has been sold below the guideline value not supported by any documentary proof is not sustainable. It is found that the sale agreements contain necessary clauses enabling the agreement holders to nominate purchaser(s) to complete the sale transaction(s). The petitioner cannot have any grievances in regard to the sale of the property and consideration at which the property has been sold in favour of purchaser-respondents during the period between January 7, 2001, and February 6, 2002, against which the restraint order obtained subsequently on November 6, 2002, in Original Applications Nos. 967, 5718 and 5344 of 2001, in C. S. No. 477 of 2000, will not operate. However, respondents Nos. 16, 30, 34, 39, 44, 45 and 48 to 51, 53 and 54 will necessarily register the sale deeds with prior leave of the civil court in C. S. No. 477 of 2000, in case the order dated November 6, 2002, is still in force. Therefore, the claim of the petitioner that the property has been fraudulently sold is devoid of any merit and the decision in M. Moor-thy v. Drivers and Conductors Bus Service P. Ltd. [1991] 71 Comp Cas 136 (Mad), has no application to the facts of the present case. The various acts of negligence attributed to the purchaser-respondents by Shri V. Rama-krishnan, learned counsel in the course of his oral submissions do not invalidate the sale transactions, especially when title to the property already stood conveyed by the company in favour of the purchaser-respondents. The present petition under Section 397/398 having been made after three months of the sale transactions which were concluded as early as in February, 2002, will not lie as reinforced in Roshan Lal Agarwal v. Sheoram Bubna [1980] 50 Comp Cas 243 (Patna). At this juncture, it shall be seen, as held in Hind Overseas P. Ltd. v. Raghunath Prasad Jhunjhun-zualla , that the interest of the company does not suffer in a fight that ensures between different groups of shareholders. The company started receiving advance moneys from the agreement holders ever since February, 1996 and balance sale consideration from the purchaser-respondents during the period between November 7, 2001, and February 6, 2002, but the third respondent has not chosen to account for the moneys realised on account of the sale of the company's property. The third respondent, pursuant to the directions of this Bench, furnished particulars of (a) receipts amounting to Rs. 2.82 crores between April 1, 2001, and March 31, 2002, on account of sale of the property; (b) expenditure/payments incurred by the company during the period between July 24, 1995, and March 31, 2006, consisting of advance for land registration, legal, telephone and travelling expenses, printing of stationery, postal expenses, KSN memorial expenses, agricultural expenses salaries and wages, bank and sales panchayat tax dues, etc., aggregating Rs. 1.86 crores, which include an amount of Rs. 54 lakhs towards bank dues. The third respondent has neither offered any explanation for not paving rendered the accounts all these years nor justified the various expenses reportedly incurred by him. All the expenses shown in the statements of accounts furnished from time to time, are required to be verified to ensure the interests of the company and its shareholders. At the same time, mere production of copies of the statement of accounts in relation to M/s. Kasimari Ceramique cannot establish the alleged diversion of the sale proceeds by the third respondent to the aforesaid entity owned by him. Similarly, the charges of misappropriation are not borne out by the bank statement produced for the period between June 1, 2004, and June 30, 2004, in the absence of any supporting materials produced by the petitioner. The belated charges of misappropriation of funds of the company by the third respondent realised during the period between April 1, 2001, and March 31, 2002, and acquisition of huge assets from and out of the sale proceeds of the property remain without being established. No such grievances have been even suggested at an earlier point of time, but the petitioner on the other hand only demanded moneys from the third respondent by his communications dated June 24, 2002, July 2, 2002, and July 16, 2002.

16. The company admittedly has not been conducting any general or board meetings and consequently defaulted to file annual accounts and annual returns with the statutory authorities for the past more than 15 years. The defence of the third respondent for not complying with the statutory requirements on account of various litigations and for want of the statutory records, which are reportedly in custody of the High Court is understandable, but at the same time nothing prevents the third respondent, who has been, prima facie, held out to be in the management of the company by the competent civil court to obtain the relevant records from the High Court for the purpose of maintaining the statutory records. At the same time, no purpose would be served in this behalf in the light of the disputed shareholding in the company, which is pending adjudication by the civil courts and any direction at this stage in the present proceedings may result in conflict of decisions and therefore, the Company Law Board will not be justified in directing the company to ensure compliance with the statutory obligations.

17. The company promoted in January 1970 for manufacturing activities, stopped all its activities in the year 1976 and is shrouded by litigations. The shareholding of members and constitution of the board of the company are being seriously contested in various proceedings. In this context, sufficient ground has not been made out for appointing an administrator to manage the affairs of the company in future, as claimed by the petitioner. Nevertheless, this Board repeatedly held following the principles enunciated by the apex court and various High Courts, that even when acts of oppression are not established, in facts of a case, appropriate directions could be given to do substantial justice between the parties.

18. The prayer seeking directions against the Central Government to investigate into the affairs of the company would arise only when there are sufficient materials to form a prima facie opinion that the circumstances of the case would satisfy any one of the requirements of Section 237(b) of the Act, which provides as under:

237. Without prejudice to its powers under Section 235, the Central Government-....

(b) may do so if, in the opinion of the Company Law Board there are circumstances suggesting-

(i) that the business of the company is being conducted with intend to defraud its creditors, members or any other persons, or otherwise for a fraudulent or unlawful purpose, or in a manner oppressive of any of its members, or that the company was formed for any fraudulent or unlawful purpose ;

(ii) that persons concerned in the formation of the company or the management of its affairs have in connection therewith been guilty of fraud, misfeasance or other misconduct towards the company or towards any of its members ; or

(iii) that the members of the company have not been given all the information with respect to its affairs which they might reasonably expect, including information relating to the calculation of the commission payable to a managing or other director, or the manager, of the company.

19. Under Clause (b) of Section 237, the Company Law Board may take the initiative suo motu or on the application of or information supplied by any shareholder or other person. However, before ordering an investigation, it must be satisfied as to whether the circumstances of the present case fall under one or other of Sub-clause (i), (ii) or (iii). Unless any of such circumstances exists, the Company Law Board cannot order an investigation into the affairs of a company. In the present case the company has been closed and stopped its manufacturing activities three decades ago. The family members of (late) KSN have been virtually fighting for the properties held by the company, though they do not have any interest in the properties belonging to the company, when the company is in existence. The main grievance on account of the sale of the property of the company in favour of the purchaser-respondents is already found to be devoid of any merit. The rest of charges levelled in the affairs of the company do not fall under any of Sub-clause (i), (ii) or (iii) of Clause (b) of Section 237.

20. The petitioner mainly aggrieved by, inter alia, sale of the property of the company, sought the intervention of the High Court to wind up the company in C. P. No. 60 of 2006, but later withdrew the winding up petition, before which he had sworn to an affidavit on March 15, 1998, by affirming that he would "support the transaction between K. S. Kasimaris Ceramique Pvt. Ltd., and Shri A. N. Annamalai group of purchasers". However, it is not material as to whether C. P. No. 60 of 1996 was discussed as withdrawn either on July 1, 1999, as claimed by the contesting respondents or on October 19, 2001, as asserted by the petitioner, especially when the petitioner is bound to prove independently the alleged acts of oppression and mismanagement in the present petition. At this juncture the specific averments of the petitioner made in the present company petition assume relevance, the relevant portion of which runs thus:

Company Petition No. 60 of 1996 for winding up, which was filed by the petitioner was not pursued or prosecuted in the year 1998 because there was a discussion among the family members including the petitioners. Being the legal heir of K. Shanmugasundaram Nadar, the family members and also the management of the first respondent-company gave a compromise proposal that if the petitioner withdraws Company Petition No. 60 of 1996, the petitioner would be compensated with Rs. 1 crore (rupees one crore) towards all claims and shares in Maduravayal lands of the first respondent-company. I filed a withdrawal memo for C. P. No. 60 of 2006, and the company petition was allowed to be withdrawn by the petitioners this hon'ble court on the basis of the legal advice obtained by him. But the family members and directors also parties in the present O. S. A., cheated me absolutely, and the petitioner did not get any compensation (para. 6(0) at page 16 of company petition).

21. It is therefore, clear that the petitioner had reached certain understanding with other family members to withdraw C. P. No. 60 of 1996 and support the sale transactions entered with the purchaser-respondents provided he is adequately compensated. It will not be out of context to observe that the petitioner and respondents Nos. 3, 4 and 6 entered into a memorandum of understanding as early as on March 9, 1998, with a view to settle the family disputes over the properties acquired by (late) KSN had agreed to share all the properties both movables and immovables in the ratio of 20 per cent. each which however could not be accomplished. The petitioner has been demanding Rs. 20 lakhs from the third respondent to meet the marriage expenses of his daughter, as borne out by his communications dated June 24, 2002, July 2, 2002, and July 16, 2002, addressed to the third respondent. In the meanwhile, it is observed that the petitioner has approached this Board in April 2003, invoking the provisions of sections 397 and 398 of the Act, challenging mainly the sale of the property of the company made in favour of the purchaser-respondents, contrary to his undertaking given by way of an affidavit in the winding up proceedings and perhaps, on breach of the promises made, if any, by other family members. This shows the conduct of the petitioner that he is not interested in the affairs of the company, but on the other hand he is more concerned with the sale proceeds realised out of the company's property. A shareholder has got no right in the property of the company though he has undoubtedly a right to participate in the profits if and when the company decides to divide them. The relief under sections 397 and 398 is an equitable relief, which is entirely left to the discretion of the Company Law Board and therefore, would not entitle the petitioner to such reliefs, unless he approaches the Company Law Board in good faith and comes with a clean record.

22. In view of my foregoing conclusions and in exercise of the powers under Section 402 and with a view to bring to an end the matters complained of in the affairs of the company, it is ordered as under:

(a) The company shall deposit forthwith the entire available sale proceeds realized from the purchaser-respondents with any nationalized bank;

(b) The company shall not deal any part of the principal amount of the deposit kept in terms of this order for any purpose, until determination of the shareholding of the members namely, legal heirs of the deceased KSN, in the pending probate proceedings ;

(c) The company shall divide, every quarter commencing from April 1, 2007, the interest amount accrued on the deposit placed with the bank among its members as per their shareholding as reflected in the register of members of the company, however, after meeting the regular and recurring expenses essentially incurred by it. The interest amount in relation to the shares held in the name of (late) KSN shall be distributed in favour of his legal heirs in the ratio of one-fifth share each subject to the condition that the interest amount so distributed would finally be appropriated among them appropriately on the basis of the decision as and when made in the probate proceedings ;

(d) The third respondent shall render accounts in respect of the entire advance moneys and sale proceeds collected from the purchaser-respondents. All the expenses incurred and payments made from and out of the sale proceeds shall be verified by an independent chartered accountant. Towards this end, M/s. K. S. Jagannathan and Co., chartered accountants, are appointed to verify the accounts maintained by the company namely, all receipts, payments and expenses with effect from July, 1995, which shall be completed by January 31, 2007. The third respondent shall be accountable for the irregularities, if any, and shall reimburse the amount that may be quantified by the chartered accountants by March 31, 2007. The company will meet the remuneration of the chartered accountants ;

(e) The parties are at liberty to apply in the event of any difficulty in implementation of this order.

23. With the above directions, the company petition and connected applications stand disposed of. In view of this, all the interim orders are vacated. No order as to costs.