Company Law Board
Sh. Dayaram Agarwal, Kanta Agarwal, ... vs Ashok Industries Pvt. Ltd. And Ors. on 16 June, 2005
Equivalent citations: [2006]130COMPCAS172(CLB), [2006]66SCL328(CLB)
ORDER
K.C. Ganjwal, Member
1. Shri Dayaram Agarwal and Ors have filed this petition against M/s Ashok Industries Pvt. Ltd. and Ors under Section 397/398 of the Companies Act, 1956. The respondent company was incorporated on 11.2.1980 having its Registered. Office at Tinsukia (Assam). The authorized share capital of the company is Rs. 1.5 crores divided into 1,50,000 equity shares of Rs. 100 each, out of which 1,48,005 equity shares are fully paid. The petitioners group held 1,43,728 shares i.e. 97.11% shares of the respondent company while the respondents group held 4277 equity shares i.e. 2.29% of the total shares. Petitioner No. 1 and Smt. Vimla Devi Agarwal (w/o younger broker of petitioner No. 1) were the promoters and first directors of Respondent No. 1 Company. The respondent company set up Iron and Steel Foundary Works at Tinsukia and an assembling Plant of Electronic items at Gandhi Nagar, Gujarat. The company also established a unit for fabrication of steel items at Jairampur (Arunachal Pradesh). The company also established in 1988. An assembling plant for electronic goods at Silvasa (Dadra Nagar Haveli). These units have been either closed or had no business since long except the assembling plant at Gandhi Nagar, Guajrat.
2. The learned counsel for the petitioner submitted that it was mutually decided that petitioner No. 1 will look after the units in Eastern Region, while units in Western India will be looked after by Respondent No. 2. The petitioner No. 2 gave 10 blank letter heads of the company, duly signed for use of company's business vide letter 17.3.88. Respondent No. 2 vide letter dated 6.4.1998 acknowledge the same and promised to send Xerox copies as and when he used these blank letter heads. Latest Income Tax return for the assessment year 1988-89 of the respondent company and audited accounts for the year ended 31.3.1998 has been signed by the petition as a director. Respondent No. 2 suddenly stopped sending financial statements of accounts relating to Gandhi Nagar and Silvasa Units to Head Office at Kolkata since 19.10.1998. In view of this sudden change of attitude, petitioner Nos. 1 and 2 requested the Respondent No. 2 firar the bank statements and other financial records in the usual course. However, inspite of the said request of the petitioner, the respondent No. 2 declined to do so. As a result whereof, the petitioners became extremely suspicious about the intention and designs of respondent No. 2. Out of utter desperation, the petitioners in March, 1999 wrote to the State Bank of India Polytechnic Branch, Ahmedabad now to allow further operations/transactions as the petitioners apprehended that respondent No. 2 may divert or misuse the funds and requested the bank to forward the statement of account from April 1, 1998 till date. In June, 1999 an inspector from the office of Income Tax Office from Kolkata came to make enquiry at a corporate/ head office of the respondent company about the detail of the properties to be sold by the respondent company and seeking certain clarification on the application purported to have been filed by the company. The petitioners were rather shocked and surprised to receive the information from the Inspector of the Income Tax, Subsequently, it was discovered for the first time in July, 1999 that the Respondent No. 2 wrongfully, illegally and fraudulently filed two applications on behalf of respondent company in form No. 230A before the appropriate Income Tax Authorities for obtaining Tax clearance certificate intending to sell a plot of 1000 sq. mtr. and plot of 2450 sq. mtr. at Gandhi Nagar. On discovery of these wrongful actions of respondent No. 2 the petitioner No. 1 and 2 jointly addressed a letter dated 5.7.1999 to the Board of Directors at the Registered Office of the said company at Tinsukia, Interalia, intending to proposition and EOGM in the second half of August, 1999 to pass a resolution for removal of Sushil Kumar Agarwal, Respondent No. 2, as a director under the provisions of Section 284 of the Companies Act. On 15.7.1999 the Board of Directors of the respondent company received a notice at the Registered Office of the company from M/s Ashok Fashion Fabrics Pvt. Ltd., M/s Abhishek Impex Pvt. Ltd. and Dayaram Agarwal intending to move the resolution for removal of respondent No. 2 by serving special notice within the meaning of Section 190 of the Companies Act. The petitioner No. 1 also addressed a letter to respondent No. 2 stating that the EOGM would be held on 16.8.1999 on the basis of requisition issued by the members of the company. The Petitioner No. 2 with a view to protect further the interest of the company and its shareholders addressed a letter to Income Tax Department. At Ahmedabad requesting not accord consent in respect of application filed in form No. 230A for tax clearance certificate. The respondent No. 2 in reply to the notice of convening the extra ordinary general meeting of the said company informed the petitioner No. 1 in July, 1999, for the first time that petitioner No. 2 had ceased to be a director of the said company by a resignation and also threatened petitioner No. 2 to take legal action against her for having issued said letter. Accordingly no cognizance of the notice issued by petitioner No. 2 will be taken. The respondent No. 2 further alleged that M/s Ashok Fashion Fabrics Pvt. Ltd. holds 73840 equity shares in the capital of the respondent No. 1 company and the said company did not support the move of minority shareholders to remove the respondent No. 2 form the directorship of the company under the provisions of Section 284 of the Companies Act, 1956.
3. Pursuant to the aforesaid special notice the EOGM of the respondent company was held on 16.8.1999. Altogether 6 members were present at the registered office of the company. The members holding 97% shares of the said company present in person or by proxy voted for removal of the Respondent No. 2 from the Board of Directors unanimously. The respondent No. 2 was informed about his removal from the directorship by a letter dated 17.8.1999. Notwithstanding the removal from the directorship of the company, the respondent No. 2 has been illegally continuing to act as a director making representations to she general public etc. The petitioners vide letter of 2.1.8.1999 called upon respondent No. 2 to desist from representing the respondent company as he was no longer director of the company. The respondent No. 2 fabricated the records of the respondent company and illegally filed the following documents with Registrar of Companies, Shillong without any authority or approval of Board of Directors:-
Form No. 32 filed on 9.8.1999 showing cessation of petitioner No. 1 as director on 24.12.1998.
Form No. 32 filed on 14.6.99 showing resignation of petitioner No. 2 on 31.3.1999 and appointment of respondent No. 3 as a director. The alleged resignation of Petitioner No. 2 has been doctored by using the blank letter heads given by Petitioner No. 2 to Respondent No. 2.
From No. 32 filed on 9.8.1999 showing appointment of Respondent No. 4 as a director from 7.7.1999.
Form No. 23 (AA) filed on 9.8.1999 showing Board's resolution to keep books of accounts at Ahmedabad w.e.f. 30.7.1999.
Form No. 2 filed on 9.8.1999 showing allotment of 1995 shares on 30.7.1999 to Respondent No. 5
4. The Learned Counsel for petitioner further submitted that petitioners are not seeking any relief in the present petition regarding the alleged removal/appointment of directors as the same is the subject matter of suit No. 4234 of 1999 filed by Respondent No. 2 in the City Civil Court at Ahmedabad, which is pending. The title suit No. 34/1999 filed by petitioner at Tinsukia has been disposed of as withdrawn on 21.3.2005. Therefore, the petitioners are seeking relief for the alleged transfer of 83840 shares by Petitioner No. 4 to Respondent No. 2 and 3 This is a serious act of oppression with the sole objective of the respondents to dilute the shareholding of the petitioner group. The entire 83840 shares held by petitioner No. 4 were transferred to Respondent No. 2 (73840) shares and Respondent No. 3 (10000) shares as per transfer deed dated 30.7.99 on a total consideration of Rs. 8,38,400 signed by Ms. Smt. Sima Agarwal as director of petitioner No. 4. The said transfer is illegal and bad in law for the reason that the alleged transfer of shares is in violation of Articles 34, 35 and 36 of Articles of Association of the respondent company, according to which the transferor is required to give notice in writing to the company. Thereupon shares shall be offered to the existing members of the company. If no member is willing to purchase the shares, the transferor shall be able to transfer the shares to any person. Admittedly, these requirements have not been complied by Respondent No. 2 and 3 or Petitioner No. 4. As per alleged transfer deed, the consideration money per shares is shown at Rs. 10 per share, although the face value of each share is Rs. 100. Moreover, as per balance sheet of the company as on 31.3.98, the book value per share worked out to Rs. 117.60 per shares and the market value to Rs. 244.03 per share. It is alleged that consideration of Rs. 7,38,400 was deposited in the accounts of petitioner No. 4 but the corresponding sum was also withdrawn and therefore, no consideration has been paid for the transfer of the shares. The Petitioner No. 4 Company is owned and controlled by petitioners group. The Board of Directors of petitioner No. 4 never authorized for transfer of these shares to anyone. The respondents have not produced any Board resolution authorizing the transfer of these shares and in the absence of and in such resolution, these shares cannot be transferred. The alleged transfer deeds have been signed by Ms. Sima Agarwal as director of petitioner No. 4 on 30.7.99 whereas she was not a director on that date. She resigned as a director vide her letter dated 22.12.1998. Her resignation was accepted by Board of petitioner No. 4 in its meeting held on 29.12.1998. Form 32 in this regard was also filed in Registrar of Companies on 1.12.1999. As such, she cannot represent the company - Petitioner No. 4, being not a director on the date of signing the transfer deeds. The original share certificates held by petitioner No. 4 in its name and 30 share certificates, in original were submitted to the Bench for verification. These shares appear in the register of members maintained by the company. The respondents have also submitted some share certificates which are false and fabricated.
5. The second issue is the alleged allotment of 1995 shares to respondent No. 5 and Form No. 2 dated 30.9.1999 signed by respondent No. 2 and filed with Registrar of Companies. The said allotment is in violation of Article 7 and 8 of the Articles of Association of the respondent company according to which new shares shall be issued on such terms and conditions as directed by the General Meeting. These shares have been allotted to a non member and are bad in law and void in the absence of compliance of provisions of Articles of Association. The allotment has not been approved by duly constituted Board of Directors and it is a serious act of oppression. The learned counsel relied in the case of Reshmi Seth v. Chemon India Ltd Pvt. Ltd and Ors. (1995) 82 CC 563 where in CLB set aside the said shares in violation of Articles of Association. It was also held that proceedings under Section 397/398 are not parallel proceedings and would in no way result in multiplicity of proceedings. With these two allotments of transfer of shares, the majority shareholding of the petitioner group has been reduced to minority from 97.11% to 40%.
6. The learned counsel for petitioners dealing with the third issue of sale of valuable properties of the respondent companies submitted that in Aug. 1999, petitioners came to know that respondent No. 2 has applied to Income Tax Office at Kolkata for clearance for sale/transfer of companies properties under Section 230A(1) of the Income Tax Act. He had no authority to make application in the absence of any authorization of the Board of Directors for sale of its properties. However, the properties of the company were sold as under :
Land Factory and other assets in Section 25, Gandhi Nagar has been sold for Rs. 33,21,000 as against the market value of the properties at Rs. 1,18,68,000. The land building and structure on plot No. B/28, Gandhi Nagar has been sold for Rs. 18 lakhs against the market value of Rs. 52 lakhs to respondent No. 7 and his family members. Accordingly, the learned counsel for petitioner submitted that alleged transfer of 83840 shares by petitioner No. 4 to respondent 2 and 3 be set aside and these shares be restored back to Petitioner No. 4. The alleged 1995 shares allotted to Respondent No. 5 a closely held company of Respondent No. 2. He also set aside. The learned counsel further submitted that the petitioner is willing to go out of the company and Respondent Nos. 2 and 3 be directed to purchase the shares of the petitioners namely, 1,43,728 shares based on the latest audited balance sheet as on 31.3.1998 at book value of Rs. 117.60 per share.
7. The learned counsel for respondent in reply submitted that before dealing with various allegations, the respondents submit that the present petition is not maintainable as one of the reliefs prayed for by the petitioner is regarding validity of transfer of 83,840 shares by Petitioner No. 4 to Respondent Nos. 2 and 3. The validity of transfer of shares is extremely crucial to determine the validity of the alleged removal of respondent No. 2 from the Board of respondent company. The Respondent No. 2 has challenged his removal by preferring a Civil Suit before the City Civil Court at Ahmedabad which was filed on 28.8.1999 which was filed prior to instituting this petition on 6.3.2000. The petitioners have instituted the present proceedings only after they failed to get any favourable orders from the Civil Court. In fact the stand taken by the petitioner in their written statement before the City Civil Court is based on almost identical facts/contentions as advanced in the present petition. Another suit filed by the petitioner at Court of Civil Judge Tinsukia in respect of 83,840 shares has now been withdrawn by the petitioners. The prior suit field at Ahmedabad is based on the same cause of action is still pending. If the present petition is entertained, it would result in conflict decisions on similar issues and also giving premium to party who has clearly indulge in forum shopping.
8. The learned counsel for respondent relied on the judgment of Calcutta High Court in the case of Hungerford Investments Trust Ltd. v. Turner Morrisson and Co. Ltd.(ILR (1972) 1 Cal. 286 (para 44 and 55) wherein it is held that the court should not in its discretion under Sections 397 and 398 allow a Petitioner in such proceedings where these proceedings as a collateral attempt to achieve the results which the liquidator had failed to achieve by direct attacks in the lien suit and the specific performance suit and is the rescission proceedings. Also in the judgment of this Board in Dr. Mrs. Mrunalini Devi Puar and Anr. v. Gaekwad Investment Corporation Pvt. Ltd. and Ors. (82 CC 899(at pages 908 and 909) it is held that it is very difficult to come to a conclusion that by filing this petition, the Petitioners have abused the process of law. However, we are conscious of the fact that some of the issues which are agitated before us are also being agitated before the Gujarat High Court. If the proceedings before both the forums are continued there may be a possibility of conflicting decisions. To meet the ends of justice such a situation should not be allowed to occur and since the petition before Gujarat High Court has been filed prior to the filing of the petition before us, we feel that proceedings before us should be stayed till the decision on the petition filed before the Gujarat High Court is taken.
9. The learned Counsel, for Respondent submitted that the Petitioners have contended that the reliefs in the Ahemdabad suit and the present petition are not the same and therefore, the said suit does not have any bearing on the present proceedings. The argument of Petitioners is baseless as it is well settled law that the relevant test is whether the same set of facts is to be established and not the same reliefs. Serious disputed question of facts have to be resolved as the Petitioner have based their case that the Respondents have taken blank letter heads from them and used them fraudulently. Hence the parties ought to he relegated to a civil court in the facts of the present case.
10. In so far as the Petitioner's case regarding transfer of 83,840 shares are concerned, the same is based upon the allegation that not only the said transfer were done by person who were no more on the Board of Directors of Petitioner No. 4 i.e. Seema Aggarwal and Sarita Aggarwal and the genuine share scripts of 83840 shares are still with Petitioner No. 4. The Petitioners have relied upon the purported letter of resignation of Sarita and Seema Aggarwal and have also produced original shares scripts. The Respondent submits that the story of blank letter heads advanced by the Petitioner is completely false as the letter dated 6.4.1998 purportedly of Respondent No. 2 is a forged documents. The Respondent have also produced affidavit of Seema Aggarwal and. Sarita Aggarwal wherein both of them have stated that their resignation are forged. The Respondent have also produced original of the said share scripts. The share script produced by Respondent which contains the signature of Vimla Aggarwal one of the promoter directors and also somebody neutral in the present dispute. Hence to resolve the said factual controversy which in turn is critical for adjudicating upon She present reliefs, this Board would have to go into controversial question of facts which is beyond the purview of the function of this Board and the same can be adjudicating by civil court. The Respondents relied upon the judgment of Calcutta High Court in ILR (1972) 1 Cal. 286 wherein it is held that if the alternative remedy has already been pursued then a petition under Section 397/398 aught not to be entertained, particularly when serious and disputed questions of title and controversies which are already the subject of pending legal proceedings is involved as the same cannot be agitated in a summary proceeding like the present proceeding.
11. The Learned Counsel for Respondent further submitted that in so far the transfer of 83840 shares is concerned, it was the property of Petitioner No. 4 Company and not that of Respondent Company. Hence any grievance regarding transfer of property of Petitioner No. 4 company can only be agitated under Section 397/ 398 preferred in respect of Petitioner No. 4 Company and not the Respondent Company. The Petitioners have contended that transfer of shares is illegal as the same is not accordance with Article 34, 35 and 36 of the Articles of the company and the procedure laid therein has not been followed. The argument of the Petitioner cannot be entertained that they have no where in the petition sought to challenge the said transfer on the present ground. In other words, there is no factual foundation in regard to the said allegation as no factual averments to this effect are found in the present petition. The reliance is made on the settled principal of law held by Hon'ble Supreme Court in Muthiah M.ct. v. Controller of E.D. Madras (AIR 1986 SC 1863) that factual contentions cannot be permitted to be made for the first time through oral submissions particularly when the same is not to be found in the pleadings. The Respondents also relied upon the judgment of the Hon'ble Supreme Court in the case of Banarsi Das and Anr. v. Kanshi Ram and Ors. (AIR 1963 SC 1165) and in S.S. Sharma v. Union Bank of India (AIR 1981 SC 588) wherein the Hon'ble Supreme Court has clearly laid down that a new plea, which were not purely one of few but a mixed question of law and fact should not have been allowed to be raised for the first time at the stage of arguments and the same is in violation of the principle of natural justice. The Petitioners in their rejoinder have stated that they have mentioned in the pleading that the said transfer have been made in violation of provision contained in Article of Association which is technical objection. The Respondents submit that the said contention of the Petitioners do not cure the defect in the pleadings. The pleadings stating that the provisions in the articles of association have been violated, without pointing out the relevant article, amounts to vague pleadings. A person says that the provisions of Companies Act, 1956 are violated, is not sufficient for a court to adjudicate unless the specific provisions is pointed out. The learned counsel relied on the judgment of Hon'ble Supreme Court in the case of Rajgopal v. Kishan Gopal (2003) 10 SCC 633 wherein it is held that in case of vague pleadings no lis exists between the parties on the question and the court could not go into the same even if some evidence was adduced. The petitioners in their rejoinder have expanded the scope of their present challenge to other factors. The petitioners contended that these two arguments are to be found in their pleadings and they need not argue the same. It is submitted that the point for determination is to be made with respect to only those points which have been argued. Merely raising points in the pleadings are not sufficient if the same have not been argued. Reliance was placed on the judgment of Hon'ble SC in Sukhpal Singh v. Kalyan Singh (AIR) 163 SC 146 and Daman Singh and Ors. v. State of Punjab and Ors. (1985 2 SCC 670. When the actual transfer deeds on record were produced by the respondents, the petitioners argued that the said transfer deeds are no relevance as the same have been signed by Seema Agarwal as a director of Ashok Fashions Pvt. Ltd., when she had resigned on 22.12.98. In support, the petitioners relied upon a purported letter of resignation dated 22.12.98 and also contended that the necessary form 32 has been filed on 12.1.99. The respondents submit that the very basis of the present argument of the petitioner is based on falsehood and forgery as the said letter of resignation has infact never been returned or signed by Ms. Seema Agarwal and her signatures on the letter have been forged. The affidavit of Ms. Seema Agarwal herself is in support of respondents contentions wherein she has deposed that the said letter has not been written by her and her signatures has been forged. The said form 32 has also not been filed by the petitioners with their pleadings. The petitioners have further tried to build a similar case in respect of another director of petitioner No. 4 namely, Sarita Agarwal by showing her purported letter of resignation. Even Sarita Agarwal in her affidavit has deposed that the said letter of resignation has been forged. The petitioners have relied on a letter written as late as on 29.7.1999 by Sarita Agarwal as director and on behalf of Petitioner No. 4. this clearly shows that the said people were always on the Board of Petitioner No. 4, particularly during the relevant time. The original share deeds have already been handed over to this Board. The contention of the petitioner that 83,840 shares were sold for a nominal sum of Rs. 8,38,400 and the same amount had been withdrawn from the bank. It is submitted that the said argument is completely misleading sad beyond the scope of present proceedings under Section 397/398 of the Companies Act. The valuations of shares done by the petitioners are misleading. Admittedly, the company was not doing well and was not engaged in any manufacturing activities since March. 1999, hence the value of the shares as on July, 1999 was arrived at the intrinsic value basis i.e. total assets - total liabilities / total number of shares which worked out to be Rs. 8,38,400.
12. Dealing with the allotment of 1995 shares to respondent No. 5, the learned counsel for respondent submitted that the contention of the petitioner that the allotment in favour of respondent No. 5 is void as the same is contrary to the procedure prescribed under Article 7 and 8 of the Articles of Association, it is submitted that Article 7 and 8 are a part of larger heading namely, "share capital" which encompasses Articles 4 to 13. It is clear from mere reading of Articles 4 to 6 that the said articles are only concerned with new shares which are created by increasing the authorized capital of the company and not the shares which are allotted out of the original un-subscribed - share capital. Article 6 clearly refers to "creation of new shares". Article 7 itself provides for new shares.
13. The learned counsel for respondent further submitted that the petitioner in the course of their oral submissions argued regarding alleged under valuation of property sold at Gandhi Nagar, Gujarat for a price of Rs. 3.5 lakhs only and respondent No. 6 is closely associated to Respondent No. 2. No permission of Income Tax authorities was obtained and no decision of Board of Directors was taken for the sale. These allegations are contrary to the undisputed evidence on record. The sale of the said property belonging to respondent company was sold clue to poor financial condition of the respondent company in June 1998 and also reduction in the drawing power of the respondent company by the bank. The bank had proposed a compromised proposal on June, 9, 1999 and agreed to settle for approximately Rs. 60 lakhs. Accordingly the bank was paid the compromised amount of Rs. 60 lakhs for full and final settlement of all outstanding dues. This cannot be agitated in the present petition if the same consideration against the building, plant and machineries of a company are used to clear up the liabilities of the company. The reliance was made upon Shivnath Rai Bajaj v. NAFABS India Pvt. Ltd.(petition) and Anr (108 CC 642) wherein it is held that if the payments have been made to discharge the liabilities of the company, it will serve no useful purpose in passing any orders in terms of Section 402 of the Companies Act and the Board declined to exercise equitable jurisdiction in the case.
14. As alleged by the petitioners, the property was not sold for Rs. 3.5 lakhs but for Rs. 40 lakhs pursuant to public advertisement through local newspaper to respondent No. 6, who is a public undertaking of the Gujrat Govt. after obtaining approval of Necessary provisions from the Income Tax Authorities as well as the approval of Board of Directors. During the oral submissions, the petitioner raised an argument that even the property of GIDC Gandhi Nagar, Gujarat was sold at a throw away price of Rs. 4.5 lakhs without obtaining the permission of Income Tax Authorities, it is submitted that petitioner had not made any submission with respect to this transaction and this Board ought not to take any cognizance of this point. However, the said plot was sold for Rs. 18 lakhs and not Rs. 4.5 lakhs with four separate conveyance deed and after getting valuation of the said property at Rs. 17.5 lakhs only. There was no question of obtaining any clearance from Income Tax Authorities and the sale was made pursuant to the decision of the Board of Directors in their meeting held on 26.7.1999. As such there is no merit in the petition and the same be dismissed with exemplary cause.
15. I have carefully gone through the pleadings as well as written submissions of the parties. The case of the petitioner is that petitioner No. 1 was looking after the units in Eastern Region while units in Western Region were being looked after by respondent No. 2. The petitioner No. 2 gave 10 letter heads of the company duly signed for use of company business vide letter 17.1.88 to the respondent No. 2 and he suddenly stopped sending statements and other financial records. In June, 1999, an inspector from office of Income Tax Commission Kolkata came to make enquiry at the Head Office of the respondent company about the details of the properties to be sold by respondent company. The petitioners were rather shocked and surprised to receive the information from the Inspector of Income Tax. It was discovered in July, 1999, the respondent No. 2 filed two applications on behalf of respondent company in Form No. 230A before the appropriate Income Tax Authorities for obtaining tax clearance certificate for selling a plot of 1000 sq.mt. and another plot of 2450 sq. mt. at Gandhi Nagar. On discovery of these actions of respondent No. 2, the EOGM was called in Aug. 1999 to pass a resolution for removal of Shri Sushil Kumar Agarwal, respondent No. 2 as director. The respondent No. 2 in reply to the notice of this EOGM informed the petitioner No. 1 that petitioner No. 2 had ceased to be a director of the said company by a resignation and as such no cognizance would be taken of the notice. However, pursuant to the special notice of EOGM, the respondent company held a meeting on 16.8.1999 and respondent No. 2 was removed from the directorship of the respondent company. The respondent No. 2 has already filed a suit No. 4234 of 1999 in the City Civil court at Ahmedabad which is pending. The subject matter of this suit is the alleged removal/appointment of directors. As such, I am not going into this issue of removal of respondent No. 2 from the directorship or appointment of further directors as the same the subject matter of Civil Suit pending in the City Civil Court at Ahmedabad.
16. The petitioners have also submitted that they are not asking for any relief regarding removal/appointment of directors being subject matter of suit filed in civil court at Ahmedabad which has already been mentioned but they are seeking relief for the alleged transfer of 83840 shares by petitioner No. 4 to respondent No. 2 and 3. The petitioners have contended that transfer of 83840 shares is bad as the transfer was done by a person who was no mere on the Board of Directors of petitioner No. 4 i.e. Seema Agarwal and Sarita Agarwal and genuine share scripts are still with petitioner No. 4. The petitioners have relied upon the resignation letter of Seema Agarwal and Sarita Agarwal which has been denied by both of them by way of filing affidavit individually. Now, the question remains whether transfer of 83840 shares was in accordance with provisions of Companies Act, and as well as the Articles of Association of the company. The petitioners have contended that the transfer of shares is illegal as the same is not in accordance with Article 34,35 and 36 of the Articles of Association of the respondent company and the procedure made therein. The respondents in reply have stated that there is no factual foundation in regard to this allegation as no factual averments are found in the petition. The factual contentions cannot be permitted to be made for the first time through oral submissions particularly when the same is not to be found in pleadings and respondent relied on various judgments of Hon'ble Supreme Court in Muthiah M.ct. v. Controller of E.D. Madra, Banarsi Das and Anr. v. Kanshi Ram and Ors. and S.S. Sharma v. Union Bank of India. The learned counsel for respondent also relied on the judgment of Hon'ble Court in the case of Rajgopal v. Kishan Gopal wherein it is held that the case of vague pleadings no lis exists between the parties on the question and the court could not go into the same even if some evidence was adduced. The reliance was also made on the judgment of Hon'ble Supreme Court in Sukhpal Singh v. Kalyan Singh, Daman Singh and Ors. v. State of Punjab wherein it is held that merely raising points in the pleadings are not sufficient if the same have not been argued. The respondents have also given an example that if a person says that the provisions of Companies Act, 1956 are violated, it is not sufficient for a court to adjudicate unless the specific provisions are pointed out. On the other hand the petitioners have stated that in their petition it is mentioned that this allotment is not in accordance with articles of association of the company and during the arguments they have quoted the relevant articles. It is clear that the respondents have been avoiding to answer whether the provisions of Article 34, 35 and 36 of the Memorandum and Articles of Association of the company were adhere to or not while transferring 83840 shares to respondent No. 2 and 3. The judgments relied upon by the respondent shall not come to rescue as the petition has mentioned that Articles of Association were not adhered to. The mere technicalities cannot frustrate harsh, burdensome and wrongful action of Respondents under the special provisions of the Companies Act, 1956 as laid down by the Hon'ble Supreme Court in the case of "Needle Industries". It is also held in the same judgment that court looking into the business reality situation would not confine them to a narrow legalistic view. The court ought not to allow technical plea to defeat the beneficent provisions of Section 397 of compares Act. More so, the intrinsic value of the shares has been worked out by the respondents at their own. Accordingly, the transfer of 83840 shares of Petitioner No. 4 to Respondent No. 2 and 3 is illegal and bad in law as the transaction was not in line with provisions of Article 34, 35 and 36 of Memorandum and Article of Association of the company. There is nothing on record to indicate that Board of Directors had authorized any such transaction. I, therefore, set aside the transfer and revert back these shares to the petitioner No. 4.
17. The second issue is of allotment of 1995 shares to Respondent No. 5. The contention of the petitioner is that the allotment is in violation of Article 7 and 8 of the Articles of Association according to which new shares shall be issued on such terms and condition as directed by the General Body Meeting. These shares have been allotted to a non-member and are bad in law as the allotment has not been approved by the Board of Directors and is a serious act of oppression. The respondents have submitted that the contention of the petitioner that the allotment is contrary to the procedure prescribed under Article 7 and 8 of the Articles of Association is not correct as the two articles area part of larger heading namely, "share capital" which encompasses Articles 4 to 30 and the reading of these articles indicate that they are concerned with new shares which are created by increasing the authorized capital of the company and not the shares which are allotment out of the original unsubscribed share capital. I am not inclined to accept the arguments of the respondent to differentiate between the unsubscribed share capital or increasing the authorized share capital. In either case, these are new shares. The provisions of articles are to be read in full and not in parts. Moreover, there is no Board resolution authorizing this allotment. Accordingly, I set aside the allotment of 1995 shares to Respondent No. 5 on these two counts.
18. The case laws relied upon by the respondent would not come to their rescue and become irrelevant as the basic requirements of Memorandum and Articles of Association have not been fulfilled as regards alleged under valuation of property sold at Gujarat, I accept the version of the respondent and there is no need to interfere in these transactions.
19. With the above directions, the petition is partly allowed by setting aside the allotment of 83840 shares to Respondent No. 2 and 3 1995 shares to Respondent No. 5. The shire pattern of the respondent company is restored to its earlier position. With these directions, the petition is disposed of and there are no orders as to cost.