Company Law Board
Arati Dutta Gupta And Ors. vs Unit Construction Company Limited And ... on 21 November, 2003
Equivalent citations: [2005]124COMPCAS584(CLB), [2004]52SCL679(CLB)
ORDER
S. Balasubramanian, Chairman
1. This is a classic case of two groups of family members trying to outsmart each other, forgetting the fact that this company had been managed for the benefit of all the family members harmoniously and profitably for over fifty years.
2. The fact of this case are: M/S Unit Construction Company Limited (the company) was incorporated in 1948 by one Shri Jitendra Nath Dutta with the main objects of carrying on the business of builders, contractors etc. He had 5 sons, namely, Samarendra Nath, Barindra Nath, Rabindra Nath, Debabrata and Ranendranath. The families of each son held approximately 20% shares in the company. This company was under the management of Jitendra Nath till 1964 when he expired. After his death, Debabrata took over the control of the company. There were other companies also within the family of which D.G.Industries Private Limited is one. Barindera Nath was in charge of D.G. Industries till he expired in 1991 where after the 2nd respondent viz. Ranendera Nath took control of that company. After the death of Debabrata in 1996, the 2nd respondent being the eldest surviving male member of the family, took control of Unit Construction also and was appointed as Executive Vice Chairman, The 6th respondent, even though was not a member of the family was appointed as the Managing Director even when Debabrata was alive. The 1st petitioner is the wife of Barindera Nath and the 2nd and 3rd petitioners are their sons and 4th and 5th petitioners are their wives. The 6th petitioner is the wife of Debabrata and the 7th petitioner is their daughter. The 11th respondent is the husband of the 7th petitioner. The shares held by Samerendra Nath had been purchased by Debabrata family sometime in 1994. The 3rd petitioner and the 11th respondent were appointed as the additional directors in a Board Meeting held on 26th September, 2000 and the 2nd petitioner was appointed as a director in a Board Meeting held on 2nd November, 2000 in the place of a director who had vacated his office. The families of Debabrata and Barindranath claim that they form a single group and were having majority shares in the company. The petitioners gave a requisition notice to the company under Section 169 of the Companies Act on 13th March, 2001 for holding an EOGM of the company for appointment of one Shri D.K. Basu to the office of director in terms of Section 257 of the Act. They also issued a notice dated 27th March, 2001 for convening a Board Meeting on 2nd April, 2001 to consider the requisition notice on the ground that the Board of the company had not taken any action to call for a Board meeting to consider the requisition. However, by a notice dated 28th March, 2001, the company had convened an EOGM on 25.4.2001, to consider the requisition given by the petitioners and also another requisition given by some other shareholders for removing the 2nd, 3rd petitioners and the 11th respondent as directors of the company. The 2nd, 3rd petitioners and 11th respondent held a Board Meeting at the residence of the petitioners on 2nd April, 2001 and decided to convene an EOGM on 30th April, 2001 to consider the requisition given by the petitioners. In the meanwhile, the company has claimed that it had issued further shares to the extent of 1,55,000 equity shares on 26th Feb. 2001. Out of these shares, 80,000 shares were reportedly allotted to the 2nd respondent and 73000 shares to the 4th respondent who is the son of the 2nd respondent and 1000 shares were allotted each to the 7th and 8th respondents. By this allotment, the shareholding of the family of the 2nd respondent has become to about 53%.
3. In this petition, the petitioners have challenged the allotment of 1,55,000 shares on various grounds inter alia including that the sole purpose of issue of these shares was to reduce the petitioners' group from about 52% shares in the company to around 29% and increase the shareholding of the 2nd respondent group to beyond 50%. This according to them amounts to conversion of a majority into a minority which is a grave act of oppression and accordingly as a main relief they have sought for canceling the allotment of these shares.
4. Shri Mookerjee, Sr Advocate appearing for the petitioners submitted: The company is a family company incorporated by the father of 5 sons in the year 1948. All the 5 sons held more or less 20% shares each. A reading of Articles 10, 11 ,16 and 20 would indicate that the intention of the promoters was to continue the company as a family company as there are number of restrictions on the transfer of shares to outsiders and also for providing pre-emption rights to the existing members in the matter of transfer of shares. The father of the 7th petitioner was the Chief Executive of the company from 1972 to 1996. After his demise, the family members invited the 2nd respondent to take over the management of the company as he was the eldest member in the family. This itself would indicate that the company is a family company. The 2nd respondent himself in his counter, at paragraph 21, averred that the company being a family company, his desire was to ensure that every family was represented on the Board. He invited the 2nd petitioner to join the Board by a letter dated 25th September, 2000 (Annexure A-5). The 2nd and 3rd petitioners representing the family of one brother and the 11th respondent being the son in law of another brother were inducted into the Board in 2000. As a matter of fact the 2nd petitioner had functioned as a Director (Finance) in early 1990s. It would indicate that there had been active participation of the petitioners' group in the management of the company. The petitioners' group consisting of family members of two brothers held 52% shares in the company and in spite of this they invited the 2nd respondent to take control of the company only because he was the eldest surviving member of the family. However, since he started mismanaging the affairs of the company, the petitioners decided to appoint a professional to take control of the company and accordingly requisitioned a extraordinary general meeting of the company by a notice dated 13th March, 2001 (Annexure A-13) to consider the appointment of one Shri D.K. Basu as Chief Executive cum Managing Director for a period of two years. Since the 2nd respondent or the Board of Directors did not take any action to convene a Board Meeting to consider the requisition notice, the petitioner directors convened a Board Meeting on 2nd April, 2001 by a notice dated 27th March, 2001. On March, 31, 2001, the petitioners received a notice dated 28th March, 2001 for an extraordinary general meeting convened by the company on 25th April, 2001 to consider the requisition given by the petitioners and also another requisition dated 19th March, 2001 from some other members proposing the removal of the 2nd, 3rd petitioners, and the 11th respondent as directors. The company could not have convened the said EOGM without considering the matter in a Board Meeting. No notice for the Board Meeting in which the decision to convene the EOGM was taken was received by the petitioner directors. It is only from the 7th respondent that the petitioner directors came to know that there was a Board Meeting on 26th Feb. 2001 for which the 2nd and 3rd petitioners and the 11th respondent did not receive any notice. The petitioners wrote a letter to the 7th respondent on 31st March, 2001 (Annexure A-16) expressing their strong protest on holding the Board Meeting without notice to the petitioner directors and also stating that any decision taken in the meeting held on 26th Feb. would be null and void. The company also sent a circular resolution dated 30.3.2001 which was received by the petitioner directors on 2.4.2001 proposing to cancel the Board Meeting convened by the petitioner directors on 2.4.2001. The petitioners sent a letter of protest against the circular resolution by a letter dated 4th April, 2001 (Annexure A-4). The petitioner directors held that meeting on 2.4.2001 and decided to hold an EOGM to consider the requisition notice given by them. The petitioners sought for staying the EOGM convened by the company and by an order dated 23.4.2001, this Bench granted the prayer. Yet, the EOGM was held and resolutions removing the three directors as directors were carried through. Thereafter, on an application made by the petitioners, this Bench directed the company not to give effect to those resolutions. By virtue of that order, the directors from the petitioners group still continue as directors.
5. The learned counsel further submitted: The petitioners took a search of the records of ROC on 12.4.2001. The search revealed that on 26.2.2001, the Board had allotted 1.55 lac shares to the respondents group. By this allotment, the petitioners group holding has come down from 51% to 29.6%. Neither the 2nd and 3rd petitioners nor the 11th respondent received any notice for the Board Meeting held on 26.2.2001. As a matter of fact, the minutes of the meeting should have been fabricated in as much as the Return of Allotment was filed only on 27.3.2001 i.e. after the petitioners had sent the notice, requisitioning an EOGM for appointment of Mr. Basu dated 13th March, 2001. Along with the requisition, the petitioners had given complete details of their shareholding indicating that they collectively held 52% shares in the company. Even in the notice dated 27.3.2001 given by the petitioner group directors convening a Board Meeting on 2.4.2001, they had indicated that the petitioners group held 51% shares in the company. The respondents have taken a stand that the decision to allot further shares was taken in the Board Meeting held on 2.2.2001 and that this Board Meeting was attended by the 3rd petitioner and the 11th respondent. No doubt, both these directors did attend the Board Meeting on 2.2.2001 but no discussion took place regarding allotment of further shares. The draft minutes circulated by the company as per Annexure--A-9 does not indicate that there was any discussion on allotment of further shares and as a matter of fact the notice for this Board Meeting dated 10.1.2001 does not include the business of allotment of shares (Annexure A-8). Therefore, the minutes as enclosed at Annexure R-1-8 indicating that the Board had decided to allot further shares to directors of the company is a fabricated one. The four allottees of these 1.55 lac shares had applied for the shares by similarly worded letters on 16th Feb. 2001, paying in cash, only 10% as application money. If the 2nd petitioner and the 11th respondent had been present in the meeting, they had time up to 23rd Feb. 2001 to apply for the shares. The very fact that the allottees of the shares had applied for all the shares by 16.2.2001 itself would reveal that they knew that the 3rd petitioner and 11th respondent would not apply for the shares since they had no knowledge of the purported decision taken in the Board Meeting held on 2nd Feb. 2001. The allotment of these shares was purportedly made in the Board Meeting held on 26th Feb. 2001. The notice for this meeting (R-11-11) dated 19.2.2001 was purportedly sent under Certificates of Posting. The petitioner directors never received this notice. The practice in the company for Board Meetings had always been to send notices by hand. Suddenly the respondents' claim that notices for the Board Meeting on 26.2.2001 were sent by UPC. No reliance can be placed on these UPCs. The Company Law Board in Bombay Dyeing v. Arun Kumar Bajoria (2001 4 CLJ 115) has held that if the addressee of a letter posted by UPC denies its receipt, the onus is on the sender to prove that in fact the letter was sent by UPC with proper evidence. In the present case, the respondents have not proved with any evidence other than the postal receipt that the notices for the Board meeting on 26.2.2001 were sent by UPC. Thus the said meeting was held without notice to atleast three directors. In Parmeshwari Prasad Gupta v. UOI (AIR 1973 SC 2389 it has been held that notice to all the directors of a meeting of the Board is essential for the validity of any resolution passed at that meeting and if no notice was given to one of the directors, the resolution passed at the meeting of the Board is invalid. In the present case, further shares were allotted solely with the single purpose of increasing the holding of respondents so as to perpetuate their control over the company. By this allotment they have reduced the petitioners majority holding of 52% to around 29%. In Gluco Series Pvt. Ltd. (61 CC 227), Calcutta High Court has held that it is settled law that it is not open to the directors of a company to issue and allot shares in a manner by which an existing majority shareholders are reduced to a minority. The court will scrutinize with particular circumspection any such issue and unless it is satisfied beyond reasonable doubt that such issue was unavoidable and was resorted to as an express and emergency measure with an object of fundamental importance i.e. saving the existence of the company and it will not allow the existing balance of power in the company to be disturbed. In the present case, the respondents' claim that the share capital was increased in view of a demand by ICICI is baseless. The letter from ICICI asking the company to increase its capital is dated 7.2.2001 i.e. after the alleged Board Meeting on 2.2.2001. Even assuming that the share capital had to be increased, bonus shares could have been issued as the company had a reserve of Rs. 3.21 crores The petitioners have always taken the shares whenever offered, to maintain their shareholding, This time, no offer was made to the petitioners and all the shares were issued/allotted only to the respondents' group. Therefore, the allotment of shares purportedly made on 26.2.2001 should be declared as null and void as conversion of an existing majority into a minority is a grave act of oppression.
6. The learned Counsel further submitted: The responders are also guilty of mismanagement and manipulation of accounts of the company. A perusal of the Balance Sheets as on 31st March, 1998 and 31st March, 1999 would reveal that the figures in respect of loans and advances as indicated in the balance sheet of 1998 of Rs. 6.25 crores is shown as Rs. 2.96 crores in the balance sheet as on 31st March, 1999 as the previous year figures. Likewise the current liabilities which was shown as Rs. 10.06 crores in the balance sheet as on 31st March, 1998 is shown as Rs. 6.77 crores in the balance sheet as on 31st March, 1999. By varying the figures, the 2nd respondent has tried to hide siphoning of funds of the company. This is a gross irregularity and illegal. Likewise, the company has changed the accounting policy for the year ending 31st March, 2002. The accounts heads have been re grouped whereby certain heads of expenditure for which break up had been given in the earlier years have all been grouped under the heading "Miscellaneous Expenses" only with a view to conceal diversion/misappropriation of funds.
7. The learned counsel further submitted: The respondents have been sub contracting a number of electrical works to the DG Industries notwithstanding the fact that it has no facilities to carry out the works. Therefore, the DG Industries is utilizing all the resources of the company to carry out the sub contract work and takes the profit. As a matter of fact, as is evident from Annexure P-29, the DG Industries itself has been giving work orders to some other companies clearly indicating that the DG Industries is not capable of carrying out any contract nor it has resources to do. Such sub contracting has been done only with a view to enrich the DG Industries at the cost of the company and its shareholders. The financial mismanagement and diversion of the business of the company arc actually the reasons for the petitioners to seek appointment of an outsider as executive vice chairman cum managing director.
8. Summing up his arguments, the learned counsel submitted that the respondents, notwithstanding the fact that the company is a family company, requisitioned an EOGM to remove the 2nd and 3rd petitioners and the 11th respondent who collectively represent two sons of the promoter of the company from the Board. The members of 4 sons of the promoter were always associated in the management of the company. Not only the 2nd respondent has increased his group's shareholding beyond 50%, he has also excluded the petitioners' group from the management of the company. Further, notwithstanding the order of this Bench restraining holding of the EOGM on 25.4.2001 to consider the removal of the 2nd and 3rd petitioners and the 11th respondent, EOGM was held whereafter on an application made by the petitioners, this Bench directed the company not to give effect to the resolutions passed at the EOGM. This would indicate that the respondents do not even care for the order of this Bench. These acts of the respondents are grave acts of oppression against the petitioners holding majority shares. Therefore, in terms of the decision of Calcutta High Court in Tea Brokers Private Ltd. v. Hamendra Prosad Barooah (1998 5 CLJ 463) the company should be handed over to the petitioners who were the majority shareholders before the allotment of the impugned shares after canceling the allotment of 1.55 lakh shares made on 26.2.2001 and the respondents be directed to sell their shares to the petitioners. Similar direction was given by this Bench itself in Yshovardhan Saboo v. Groz Peckert Saboo Ltd. (83 CC 371) .
9. Shri Sarkar appearing for the respondents submitted: All the allegations of the petitioners in the petition are baseless. There was an understanding among the family members regarding distribution of various companies in the family and Unit Construction was to go to the 2nd respondent and that is why the management and control of the company was given to the 2nd respondent. When the settlement was in process, the petitioners wanted to bring an outsider with overriding powers. The admitted position is that all the 5 brothers had equal shares in the company but the management was with the father of the 7th petitioner for a long time. D.G. Industries was under the control of the father of the 2nd and 3rd petitioners and Rabindra Nath was in charge of Indo American Private Limited. Samarendra, the eldest son of Shri Jatinder Nath was not interested in any business in the family. The respondent 2 was given control of D.G. Industries in 1991 but no complaint had been made against him in regard to the management of this company and as a matter of fact it was the petitioners who invited him to take control of Unit Construction. None from the first 5 petitioners was on the Board of the company except that the 2nd petitioner was the Finance Director for two years in 1990s and resigned when his personal guarantee was sought by the bank. Under these circumstances , the question of joint management does not arise. The petitioners case is that there was equality in the shareholding among all the 5 brothers and if so, then, the petitioners cannot claim 52% shares before the issue of further shares as the petitioners' group consisting of two families will have only 40% shares. The shareholding position till 1988 was that each brother's group held 20% shares. In 1988, there was a right issue which was not taken by Samarendra Nath and therefore his group holding came down below 20%. In 1991, there was issue of bonus shares. In 1994, the shares held by Samarendra was purchased by Dababatra. At that point of time itself, the equality in shareholding became disturbed. Further, late Dababatra group also acquired 6850 shares allotted to Shri S.P Mitra in 1994 and therefore it is Debabatra group consisting of the 6th and 7th petitioners and the 11th respondent which is guilty of disturbing the balance. When the 5th respondent sought transmission of shares held by his father, the same was opposed by the petitioners. It is to be noted that when Dababrata was alive, he never brought any of the petitioners on the Board but it was the 2nd respondent who inducted the 2nd and 3rd petitioners and 11th respondent on the Board with the view to ensure representation to the families of the four sons of the promoter. This itself would establish the bonafides of the 2nd respondent.
10. The learned counsel further submitted: By requisitioning the extraordinary general meeting to induct Mr. D.K. Basu as Chief Executive Vice Chairman cum MD with overriding powers, the petitioners had sought to hand over the management of the company to an outsider notwithstanding their claim that the company is a family company. The very fact that they desired to have an outsider shows that they have no confidence in themselves. Mr. Basu was earlier employed in the company and his services were terminated. The draft agreement with him specifying the terms and conditions of service (Page 149 of the petition) would indicate that enormous benefits were being proposed for a dismissed employee. The disputes among the family members started as the respondents did not want to have any outsider to have control over the family members. Under the able management of the 2nd respondent, the company's performance has improved substantially as is evident from the details given in Annexure R-1-17. In the year 1995-96, the turnover was Rs. 8.66 crores which went up to Rs.23.60 crores in 1999-2000. The allegation that business of the company is being diverted to DG Industries is baseless. The company used to sub contract electrical work to outsiders. Later, when DG industries established facilities to undertake electrical work, the company started sub contracting electrical work to DG Industries in which the petitioners hold about 29% shares and therefore, any profit earned by this company on the alleged diversion of business would go to the petitioners also. Further, the claim of the petitioners forming a single group to claim majority shares cannot be given any weight as there had never been any groupism in the company till the petition was filed. In the year 1994, when the company under the control of Dababrata, decided to issue right shares, the 2nd and 3rd petitioners protested. They also objected to the issue of shares to the directors then. In other words, they objected to the action taken by late Dababrata, but now they claim that they are together. This itself would indicate that these two groups of petitioners were never together to claim majority. They claim majority only because Dababrata not only purchased the shares held by Samandranath but also got substantial shares allotted to Shri S.P. Mitra in 1995. If these shares are cancelled or equally distributed among the 5 families, the petitioners could never claim majority.
11. The learned counsel further submitted: There had always been an understanding that the company was to be managed by a family member and since 2nd respondent was the senior most family member, he was invited to take over the management of the company. If the petitioners claim majority, then, considering their claim, that it is a family company, they have no business to bring an outsider to manage the affairs of the company. By this proposal of bringing an outsider, it is the petitioners who have acted against the interest of the company. If the petitioners had claimed, instead of trying to bring an outsider, joint management and if it had been denied, petitioners perhaps could have some grievance. Presently, it is the 2nd respondent who has taken all financial risks in the company by giving his personal guarantee for all the projects undertaken by the company.
12. In so far as issue of further shares is concerned, the learned counsel submitted: The allotment of shares was made bonafide and in the interest of the company. The company had to increase the capital in view of the Bank requirement to do so. As is evident from the Board Minutes of the company held on 3rd Dec. 1999 (Annexure R-1-9), 1CICI Bank had asked the company to increase its paid up capital to the extent of Rs.40 lacs by the year ended 31st March, 2000. This letter of the Bank was again discussed in the Board Meeting held on 2nd Feb. 2001 (Annexure R-1-8). Since the Bank was orally seeking for increase in the paid up capital, it was decided to issue further shares in the same manner as was done in 1995 when Mr. Debabrata was in charge of the company. However, most of these shares were later purchased by late Debabrata, the lather of the 7th petitioner. In the present occasion, the Board approved the issue of 1,55,000 ordinary shares of Rs. 10/- each at a premium of Rs. 3/- as was done in 1995 and it was also resolved to allot the shares to the directors of the company. It was also decided not to issue any separate? letters of offers. The 3rd petitioner and the 11th respondent Were present in that meeting and approved the proposal. In Nanalal Zaver v. Bombay Life Assurance Company Ltd. (AIR 1950 SC 172) it has been held that when a company needs funds and in issuing shares to raise the funds even if the directors are benefited, such act cannot be an act of oppression. The main idea of allotting shares to the directors was that they being in management, had given personal guarantees and therefore they should have some stake in the company. Further there is no bar in allotting shares to the directors and in terms of Article 6, the directors have powers to allot shares to any one. This Board has held in Vinay Vig v. Vineet Tea Finance Private Ltd. (1995 5 CLJ 324 CLB) that when directors comply with the provisions of Articles, there can be no complaint of oppression. Since the father of the 7th petitioner was a party to the decision of allotting shares to the directors in 1995, 7th petitioner, cannot now complain when the same procedure was repeated in 2001. In R. Khemka v. Deccan Enterprises Ltd. (100 Com. Cases 211 AP) it has been held that when a company needs funds, any further issue of shares is a matter of internal administration of a company and the court will not interfere unless otherwise it is established that the further issue was malafide. The shares were allotted to the 2nd respondent group lawfully as the petitioners' group did not apply for the shares. In Lalita Rajya Lakshmi v. Indian Motor Company Ltd. (AIR 1962 Cal. 127) it has been held that any attempt to get a majority in a company by lawful means will not justify winding up of a company and a profitable company cannot be wound up on just and equitable grounds. If the impugned shares are to be cancelled us sought for by the petitioners, then, the allotment made in 1995 should also be cancelled. If those shares are also cancelled, the petitioners could never claim majority in the company.
13. Summing up his arguments, Shri Sarkar submitted: This company is being managed for over 30 years by one of the family members. There has never been any majority rule in the company. Since the 2nd respondent is the eldest, he has been given the responsibility to manage. The family members of two other brothers of 2nd respondent support the 2nd respondent on the understanding that the eldest should manage the affairs of the company. Therefore, in a family company, the understanding among the family members is of paramount importance and the endeavor of this Bench should be to continue the said family arrangement. Further, it is to be noted that when the Board of Directors of DG Industries (DG Industries) decided to issue right shares in 1998, letters of offers were sent to all the members but petitioners did not subscribe to any shares. The purpose of that issue was to redeem preference shares. Since the petitioners did not apply for any shares, all the shares were allotted to the 2nd, 3rd and 4th respondents and out of the proceeds, the preference shares were redeemed and the petitioners received Rs. 52600/-. Their non applying for shares notwithstanding the fact that they held 40% shares in that company would indicate that they are not interested in the family business. Since further shares were issued in Unit Construction in the interest of the company in the same manner as was done in 1995, and since the company has been doing extremely well under the management of the 2nd| respondent and no business of the company has been diverted to DG Industries, the petitioners have not made out any case of oppression or mismanagement in the affairs of the company and as such this petition should be dismissed. In Bagree Cards Private Ltd. v. Hanuman Prasad Bagree (105 Com. Case. 465 Cal.) it has been held that to seek any relief under Section 397, the petitioner has to make a case for just and equitable winding up of the company. Unless it is done so, no relief can be granted under this section. Therefore, no relief can be granted in the present case. The petitioners can never seek a direction to the respondents to sell their shares to the petitioners, as the petitioners have no interest in the company but want the company to be managed by an outsider. This Board, in S. Ajit Singh v. DSS Enterprises Pvt. Ltd. (109 Com.cases 597 CLB) that the conduct of the parties is a very important consideration in a petition under Section 397. When the petitioners have abandoned interest in the company and exhibit lack of interest in the affairs of the company, then the company should go to a person who has nurtured the company. Either the petition should be dismissed or the petitioners be directed to sell their shares to the 2nd respondent group as his group is in the management of the company. In Ramashankar Prosad v. Sindri Iyon Foundry Pvt. Ltd. (AIR 1966 Cal. 512) the oppressor was directed to purchase the shares held by oppressed. This Board itself has held the person in management or who has nurtured the company should take control of the company. (Nikhil Rubber Pvt. Ltd. (108 CC 422 CLB)z and VLS Finance Ltd. v. Sunair Hotels Ltd. (110 Co/up. Cases 772 CLB). If such a direction is given, the 2nd respondents are willing to hand over the control and management of DG Industries to the petitioners.
14. In rejoinder, Shri Mookherjee submitted: The petitioners do not control any joint family company. Originally, there were 4 family companies. One has become defunct and one is under the control of the family of one of the brothers who has sold his shares. Respondent No. 10 was under the control of the 2nd respondent and Unit Construction was under the management of the father of the 7th petitioner. In other words, the understanding was that DG Industries would be with the 2nd respondent and his family members and Unit Construction would be with the petitioners. Because of this understanding, when right shares were issued in DG Industries in 1998, the petitioners did not apply for the shares. When the right shares were allotted in DG Industries, even the 5th respondent, who is siding with the 2nd respondent, had not applied for shares because of the understanding that that company would be under the control of the 2nd respondent and after the allotment made in that company, the 2nd respondent group holds majority shares in the company. No doubt the 2nd and 3rd petitioners have their own business, but they do not have any of the family companies and as such cannot be shut out from a family company. Further, in between preferential allotment of shares in 1995 and the present impugned allotment, there was a right issue and the petitioners participated in that issue.. The impugned allotment cannot be compared with the allotment in 1995. In that allotment, shares were allotted to directors who were not family members. In a Board Meeting held on 17.4.1995 in which the preferential allotment was made, the 2nd respondent was present and he supported the allotment of shares. Therefore, he cannot question that allotment just because the petitioners are seeking cancellation of the illegal allotment made in 2001. The very fact that the 2nd respondent did not object the transfer of shares allotted in that meeting in favour of the father of the 7th respondent, now belatedly he cannot challenge the same now. Therefore, at that time itself the 2nd respondent was fully aware that the petitioners held majority shares in the company and that the company has to be managed by the petitioners. It is wrong on the part of the 2nd respondent to contend that the petitioners do not form a single group. The very fact that in his affidavit dated 9th August, 2002, he has averred that that the petitioners group has been reduced from 40% to 25% in respondent No. 10 would indicate that the respondents have recognized the petitioners as a single group. Earlier the father of the 7th petitioner was in control of the company with the consent of the other brothers even though he was not holding majority shares but now by the impugned allotment made without the consent of all the groups, the 2nd respondent has not only become majority but also is controlling the company. As far as the performance of the company is concerned, Shri Mookherjee submitted that the claim of the 2nd respondent that the company has prospered under his management is factually incorrect since the company is in the business of construction, the contracts which were obtained before 1995 are being executed now and no new business has been developed nor any new contract obtained after the 2nd respondent took control of the company. The profitability as a ratio of turn over has come down after the 2nd respondent took control of the company. Before 1995, the company did not need any cash credit facilities but now it is utilizing cash credit facilities indicating that the financial position of the company is not sound.
15. The learned counsel further submitted: When the father of the 7th petitioner acquired the shares from Samarendtra held in the company, the 2nd respondent acquired the shares held by Samarendra in DG Industries. This would also indicate that DG Industries was to be managed by the 2nd respondent and the company by the petitioners. It is wrong to contend that the petitioners had abandoned the company. Whenever shares were offered, the petitioners have taken .more than their proportionate shares and since the company is a profit making company, the question of the petitioners not taking any shares when offered, does not arise. The claim that the impugned shares were allotted to meet the requirement of ICICI is an after thought. In 1999, ICICI desired the company to increase its share capital to Rs.40 lacs by 31.3.2000. The company did not take any action to do so. But on the basis of that letter and after the petitioners requisitioned the EOGM, the impugned shares were allotted only to the 2nd respondent's group. This allotment was made only to defeat the requisition given by the petitioners. It is a fact that after the Bench directed the company not to give effect to the decision to remove the petitioner directors, they did not attend any Board Meeting. The reason is they did not want to aggravate the strained relationship between the parties. Since as per the family arrangement, the 2nd respondent was to control the DG Industries, the petitioners are prepared to sell all their shares in that company to the 2nd respondent. Since the petitioners were majority shareholders and as per the family arrangement, Unit Construction is to be with the petitioners, the respondents be directed to sell their shares in this company. In regard to the cases cited by Shri Sarkar, Shri Mookherjee differentiated the facts of those cases from the facts of the present case and submitted that none of those cases can be applied in the present case.
16. I have considered the pleadings and arguments of the counsel. When the petition was mentioned on 23.4.2001, this Bench passed an exparte order directing the company to defer the EOGM convened on 25.4.2001 sine die. There is a dispute as to whether that order was served on the respondents or not but I do not wish to dwell upon the rival submissions as this Bench had directed the company not to give effect to the resolutions removing the directors from the petitioners group by an order dated 24.5.2001.
17. The main allegations in the petition relate to the allotment of further shares on 26th February 2001, dealings with DG industries and the financial management of the company. As far as the issue of further shares is concerned, the petitioners' claim is that they constitute a single group holding more than 50% shares and by the impugned allotment, the respondents have reduced them to a minority. This claim that the petitioners constitute a single group is contested by the respondents. According to them, there had never been any groupism in the company. I find some merit in this contention. It is on record" that the 2 petitioner objected to the issue of further shares in 1994 and allotment of shares to the directors in 1995. At that time the company was under the control of the father of the 7th respondent. Likewise, he also questioned the acquisition of shares by Debabrata group from Samarendra. Likewise, the 2nd respondent objected to the reelection of the father on the 5th respondent as a director due to which the father of the 5th respondent was not reelected as a director in 1995. But now the 5th respondent is siding with the 2nd respondent. In this connection I may refer to the observation of this Bench in Shyamall Dey v. Homco Engineering Pvt Ltd case wherein such a claim of groupism was made. This Board observed "The main complaint of the petitioners is that their group has been reduced from a majority into a minority by issue of further shares and by transfer of shares in favour of the respondents. The respondents have denied the concept of group in the company. We have seen the geneological table of Dey family at Annexure P-2, The parties before us are the family members of 4 sons of Atindra Nath Dey, the head of the Dey's family and the promoter of the group. Normally, to invoke the concept of groups in a family company after the death of the father, all the members of a one or more sons should be together to form a particular group. In the present case, we do not find such grouping of families by the members of a single or more sons. For instance, while Ananda, a son of Shri Sushil is the 7th petitioner, Shri Devaprasad, another son of Shri Sushil is the 9th respondent. In the same way, Shri Raghunath, son of Hemanta is the 2nd respondent, while Shri r Soumendranath and Indranath, two other sons of Shri Hemanta are 8th and 9th petitioners reflectively. Therefore, the group concept cannot be easily applied in this case especially when the petitioners have not furnished any detail as to when the so called group concept came into the company. Therefore, to complain that a majority group had been converted into a minority, the petitioners should have been able to establish that all the family members had recognized the existence of groups in the family company. Mere coming together of a few members, without indicating the point of time of coming together, cannot give raise to a claim that a particular group was in the majority." As in the above case, other than stating that the petitioners came together to form a single group, thus becoming majority shareholders in 1995, no other details have been given as to whether other family members have recognized them as a group. Thus it appears to me that as a matter of convenience, depending on the occasion or issues, one group joins with the other. Therefore, I do not propose to consider the claim of the petitioners that as a group, they were majority shareholders and that by issue of further shares, they have been reduced to a minority. However, as observed by this Bench in Homco case as "However, this Bench has been taking a view that in family companies, notwithstanding the provisions in the Articles otherwise, any disturbance in the shareholding of members disproportionately is an act of oppression against the affected members. Therefore, we shall only examine as to whether such a case has been made out by the petitioners." I shall now examine whether the impugned allotment has disturbed the then exiting shareholding in such a manner that any particular group has gained advantage.
18. Both the sides admit that the shareholdings of the families of all the 5 brothers were more or less equal and this status continued atleast till 1988/1995 when further shares were issued on right basis and shares were issued to non member directors. But it is on record that late Debabrata was managing the company not withstanding the fact that he was not the majority shareholder. Likewise, the 2nd respondent has been managing the affairs of the company from 1996 even though he was not having majority This would indicate that majority holding was not the criteria to control the company and that by consensus one of the brothers was managing the company. The same is the position with DG Industries also wherein all the families held shares but the management was with the father of the 2nd and 3rd petitioners and after his demise with the 2nd respondent. Now, by the impugned allotment, the family of one brother controls majority shares. In other words, a new absolute majority has been created in this company in which at no point of time any single family held majority shares. Creation of a new majority in a family company by allotment of shares without the consent of all the family members is an act of oppression which would justify winding up of a company on just and equitable grounds. (Gluco Series case). It is so even if a family company needs funds or has to comply with certain requirements like bank or statute if offers had not been made to all shareholders or their consent had not been obtained for allotment to a single group. According to the respondents, the 3rd petitioner and the 11th respondent who were present in the meeting on 2.2.2001 consented to the allotment of shares to the directors of the company in view of the demand of the banks to increase the share capital, but the directors from petitioners group did not apply for the shares. According to the petitioners, even though the 3rd petitioner and the 11th respondent attended that meeting, the matter relating to allotment of shares was not at all discussed and they rely on the draft minutes at Annexure to substantiate their stands as this draft minutes do not mention about shares at all. The minutes of the meeting in relation to the decision to allot 1.55 lakh shares, as filed by the respondents, read as follows (Annexure R-1-8):
" Mr. R.N. Dutta Gupta with the permission of the Chair, raised, the matter of increasing the paid up capital of the company as required by the company's principal banker ICICI Bank Limited.
As early as November 1999, ICICI Bank first requested the company to increase the paid up capital to Rs. 40, lakhs. This matter was discussed in an earlier Board Meeting held on 3.12.99. At the request of the Chairman, Mr. D. Ghosh who was attending the Board meeting read out the relevant portion of the minutes of the meeting held on that day.
Mr. R.N. Dutta Gupta further stated that during the period, the bank had repeatedly requested and in his last discussion with the banking authorities, the bank stated that they are going to issue further letter specifying the time limit for raising the capital and the last date for raising would he the end of the current financial year. Apparently the bank is justified in asking for fresh infusion of capital since they have increased their exposure in the company very substantially.
Mr. R.N. Dutta Gupta referred to a more or less similar situation in the past when the paid up capital was increased to meet the requirement of the then banker of the company, i.e. Bank of India. He referred to the minutes of the Board meeting held on 17th and 18th April 1995 when the company's then Managing Director-cum-Executive Vice Chairman Mr. Debabrata Dutta Gupta was at the helm of affairs of the company. Since the matter is quite old, the Chairman asked Mr. D. Ghosh to read out the relevant portions of the minutes of the Board Meetings held on 17th April and 18th April, 1995.
The Managing Director Mr. Mitra suggested that as sufficient time is not available, it would be prudent to follow the same principle at this stage. He suggested that in view of Article 6 of the company's Articles of Association, the shares may be offered to the Directors of the company.
After a brief discussion, directors present in the meeting agreed with the suggestion. Then came the question of issue price and terms of payment for the shares. The consensus of opinion was that the present issue may be made at the same price at which the last issue was made i.e. at face value of Rs. 10 per share plus a premium of Rs. 3 per share totaling Rs. 13 per share, as the yield per share remained-more or less the same as that at the time of the last issue. At this stage Mr. Saumitra Dutta Gupta suggested that the issue may be made at par value without any premium. But this suggestion was not accepted by other directors. After further discussion the Board passed the following resolution:
RESOLVED that company do issue and allot 1,55,000 ordinary shares of Rs. 10 each at a premium of Rs. 3 per share as done in the earlier case. Similarly the shares to be offered to the directors of the company on the following payment terms:
On application 10% of the issue price, the balance 90% latest by 28th March, 2001.
This offer will remain open upto three weeks, i.e. upto 23rd February 2001. It was also decided that no separate offer letters will be issued but absentee directors will be informed about the decision and immediately after expiry of the three-week period shares will be allotted to the directors who applied for the same with application money"
19.A reading of the above would show, that the item was allegedly discussed with the permission of the Chairman, obviously because, it was not an item on the agenda. Secondly, it refers to the requirements of ICICI Bank as early as in November 1999 for increase in the share capital to Rs 40 lakhs and also the discussion on this in the Board Meeting on 3.12.1999. It further says, that the Bank had been repeatedly asking the company to raise the capital. In other words, according to the minutes, the share capital had to be increased because of the demand of the Bank. The notice for this Board meeting was issued on 10th January 2001 but, the agenda did not contain this item of business. There is nothing in the minutes to show that there was any demand by the Bank during the intervening period for increase the capital, that the company could not include this item in the agenda. The earlier demand of the Bank was that the company was to increase the capital to Rs 40 lakhs by 31st March 2000. The minutes also indicate that the Bank would be issuing a letter specifying the time limit for raising the capital and the last date for the same would be the end of the financial year. Even with the additional allotment, the share capital has been raised only to Rs 35.5 lakhs and not Rs 40 lakhs. The letter of ICICI Bank dated 7.2.2001 (Annexure R1-16) asking the company to increase the capital by Rs 20 lakhs is subsequent to the Board Meeting on 2.2.2001 and, as such cannot be relevantly looked into. Further, the minutes indicate that shares were to be allotted to the directors of the company at a premium of Rs 3 per share as was done in 1995. In 1995, the shares were issued only to non member directors and not member directors. The minutes also records that no separate offer letters would be issued but absentee directors would be informed. The admitted fact is that 2nd petitioner did not attend that meeting and therefore, he should have been informed of the proposal to issue further shares. There is nothing on record to show that he was informed of the proposal leading to the presumption that he was not informed. If that be the case, the company had not carried out the decision of the Board. Therefore, even assuming that this matter was discussed in the meeting in the presence of the 3rd petitioner and the 11th respondent, 2nd petitioner, who was a director did not have any knowledge of the proposal and as such the company cannot claim the petitioners group did not apply for the shares. One important aspect I noticed is that as per the minutes, the Board had taken some decision relating to the of operation of Bank accounts in that meeting. But as per the draft minutes placed by the petitioners, this item relating to the Bank operation had been deferred. In case, as claimed by the respondents that the minutes produced by them reflect the correct proceedings of the meeting, they could have established the same by producing certified copies of the letters to the banks (SIC) the bank operation instructions. They have not done so. As a (SIC) act, the agenda for the board meeting on 26.2.2001 contains (SIC) for change in the bank operations but the minutes for the (SIC) on that day do not reflect any discussion on this item. All these aspects indicate that the minutes of the Board meeting on 2.2.2001 have been fabricated after the petitioners had served the requisition notice. Further, while in 1995, it was decided to issue shares to the non member directors, in 1994, the company had issued shares on right basis. Since as per the minutes of the meeting on 2.2.2001, the Bank would be requiring the increase by the end of the financial year, the board could have easily decided to issue the shares on a right basis as there was enough time to make the offer to the shareholders and getting the allotment made. Therefore, it appears that in the garb of requirement of the Bank, the Board had decided to issue additional shares to the directors only with the view to create a new absolute majority in favour of the 2" respondent as is evidenced by subsequent events. As per the impugned minutes, he last date for receipt of application for the shares was 23.2.2002. The 2nd 4th, 7th and 8th respondents apply for 80,000, 73,000, 1000, and. 1,0,000 shares by similarly worded letters dated 16.2.2001, tendering in cash 10% of the consideration. The 2nd respondent had paid Rs 1.04 lakhs and the 3rd respondent Rs 94,900 in cash towards consideration for the shares. Normally such huge sums are not paid in cash. Unless and otherwise, the respondents were definite that the petitioners group would not apply for the shares for want of knowledge, these four persons could not have applied for all the shares that too before the closure date.
20.As far as the Board meeting on 26.2.2001 is concerned in which the shares were allotted, the admitted fact is that no director from the petitioners group attended this meeting. The stand of the respondents is that notices for this meeting were sent by UPC. The respondents have not been able to justify as to why the company suddenly adopted this practice of sending notices for this meeting by UPC. As held by this Board in Bombay Dyeing case (supra), the onus to establish that notices were sent by UPC is on the respondents which they have failed to do with other independent evidence. Therefore, strong presumption has to be drawn that the certificates furnished in this regard are procured ones. If so, then the meeting on 26.2.2001 had been held with out notice to the directors from the petitioners, group. The settled law is that any business transacted in Board meetings without notice to all directors is invalid and therefore, the allotment made in that meeting without notice has to be declared as invalid. (Parmeswar Prasad Gupta case-supra) . The respondents have justified that the allotments made in this meeting was only a follow up on the decision in the meeting on 2.2.2001, which was attended by the 3rd petitioner and the 11th respondent. I have already held that the minutes containing the decision to issue further shares is a fabricated one and as such the respondents cannot take shelter under the same for not sending notices for the Board meeting on 26.2.2001. Even the decision to issue an odd number of 1.55 lakh shares appears that it was with the view to allot the same to the 2nd respondent group as this number would make them a clear majority. This has been obviously done after the petitioners had disclosed their togetherness in the requisition notice along with the details of the shares held by them totaling to about 52%. Therefore, it is clear that the issue of further shares was made, in breach of the fiduciary duties of the directors, only to create a new absolute majority in favour of the 2nd respondent group in the company in which there had never been such a majority. Even though the obvious reason for doing so is to defeat the proposal by the petitioners for appointment of Shri DK Basu, yet, they have also used the shares for removing the directors of the petitioners' group. In this connection I may refer to the case of Deepak C Sriram v. General Sales Ltd (2001 4 CLJ 450- CLB). In that case, the petitioners group held 49% shares and the respondents group held 40% shares. There were some disputes relating to the remaining 11% shares held in the name of a Trust. The petitioners group requisitioned an EOGM to induct 3 directors on the Board of the company. The respondents claimed that in a Board meeting attended by one of the petitioner directors, a decision was taken to allot shares on right basis on the requirement of the Bank but none from the petitioners group applied for the right shares inspite of offers made to them and as such all the shares were allotted to the respondents group in another meeting attended by the same petitioner director. By this allotment the respondents group became absolute majority. The petitioner director denied any knowledge of the alleged Board meetings as according to him he did not attend those meetings for want of notice and that none of the petitioners had received the letter of offer. This Bench held that the petitioners, having given a requisition notice for appointment of directors, would not have rejected the offer if the same had been made as their failure to apply for shares would result in the respondents gaining majority. The same logic could be applied here also. It is inconceivable that the 3rd petitioner and the 11th respondent, being aware of the proposal to allot shares, without applying for the same, would requisition an EOGM within a short period knowing well that on their failure to apply for shares, all the shares would be allotted to the respondents group resulting in their gaining majority. Therefore, the petitioners are justified in claiming that the act of issuing shares only to the 2nd respondent group is a grave act of oppression. Shri Sarkar relied on Indian Motor Co and Nanalal Zaver cases for the proposition that acquisition of shares by lawful means is not an act of oppression and that in raising funds for the requirement of the company, even if the directors are benefited, then such issue of shares cannot be an act of oppression. In the present case, as indicated above, the sole motive for issue of shares was to create a new majority and as such not bonafide or lawful but oppressive. Whether, the respondents are justified in creating a new majority as a counter to the proposal given by the petitioners to handover the entire management of the company to an outsider requires examination.
21.The complaint of the respondents is that the petitioners had acted against the interest of the family by proposing to induct an outsider with enormous powers. There appears to be some, justification in this complaint. The resolution proposed by the petitioners is as follows:
"Resolved that in pursuant to Section 309 and other applicable provisions, if any, of the Companies Act, 1956, that the company hereby approves the appointment of Mr. Diptish Kanti Basu as the Chief Executive Vice Chairman cum Managing Director for a period of two years commencing from ........ on the terms and conditions set out in the draft agreement submitted to this meeting and signed by all undersigned requisitionists for the purpose of identification; that the incumbent Mr. Diptish Kanti Basu will have the powers to supercede other existing directors of the company, namely, Mr. Ranendranath Datta Gupta, executive Vice Chairman and Mr. S.P. Mitra, Managing Director, the powers of management of the whole or substantially the whole of the affairs of the company in the ordinary usual course of business exercisable under the superintendence and control of the Board of Directors of the company". When the claim of the petitioners is that the company is a family company and therefore to be managed by family members, then for making the above proposal that Shri Basu would have the powers to supercede the 2nd respondent and the MD, they should have given some justification. There is no explanatory statement along with the requisition notice. Only in the petition, the petitioners have stated that due to complaints from customers/employees and on account of financial mismanagement of the 2nd respondent, the petitioners had decided that the company should be managed by a professional. There is nothing on record that that the petitioners, being directors of the company at the relevant time, made any complaint in the Board meetings in this regard. In a company, which according to the petitioners themselves, is a family company, the petitioners should not have proposed the appointment of an outsider as the chief executive of the company, that too, with the powers to supercede the powers of a family member, invited by them to take over the control of the company. To this extent, I fully agree with the contention of the learned counsel for the respondents that the petitioners have acted against the established practice of a family member controlling the affairs of the company. However, I do not consider that this act of the petitioners could be a justification to create a new absolute majority.
22. As far as the removal of the 2nd and 3rd petitioners and also the 11th respondent as directors in the EOGM held on 25.4.2001 is concerned, it is obvious, as seen from the Explanatory Statement annexed with the requisition notice issued by the 2nd, 3rd and 4th respondents that their removal had been proposed in view of their requisition proposing the appointment of Shri D.K. Basu as Vice Chairman. This requisition notice is dated 19.3.2001. The respondents who have signed the requisition notice could not have known, in their capacity as shareholders, the requisition notice given by the petitioners as the same had not been circulated to the shareholders by then. In other words, the knowledge that they had gained in their capacity as directors regarding the requisition given by the petitioners has been misused by these respondents. In the requisition by the respondents, they have not indicated their shareholding unlike the petitioners who had given complete details. If the allotment of shares had been bonafide, they could have given the details of their shareholding. Further, any requisition given by a shareholder has to be considered in a Board Meeting before convening the EOGM to consider the requisition. In the absence of any particulars as to when and how a Board Meeting was convened to consider this requisition, the notice convening the EOGM on 25th April 2001 itself is invalid. Therefore, the resolutions passed removing the 2nd and 3rd petitioners and the 11th respondents as directors in the EOGM on 25.4.2001 is irregular and invalid, more so because their removal has been possible only on account of the further issue of shares to the 2nd respondent group on 26.2.2001 which I have already held as oppressive and invalid. It is also oppressive to the petitioners group as they would be without any representation on the Board of this family company. I must also point out, that the directors from the petitioners group themselves were not justified in convening a Board meeting on 2.4.001 on the ground that the Board of Directors had not convened a meeting to consider the requisition given by the petitioners. The petitioners had given a notice dated 13th March 2001 to the company. In terms of Section 169 of the Act the Board has 21 days time from the date of receipt of the requisition to convene an EOGM. Just because, the 2nd and the 3rd petitioners and the 11th respondents who were also directors of the company, were signatories to the requisition, they could not have assumed the role of the Board to convene the Board meeting on 2.4.2001. From the Articles of the company, I do not find any provision empowering a director to convene a Board meeting. Section 169 provides that in case the Board of the company does not proceed to consider the requisition within 21 days of lodgment and convene an EOGM within 45 days thereof, the requisitionists themselves could convene the EOGM. The action of the 2nd and 3rd petitioners and the 11th respondents in convening the Board meeting on 2.4.2001 shows that they had mixed up their capacity as directors with that of shareholders.
23. As far as the alleged diversion of business of the company to DG Industries is concerned, there is nothing on record to show that the company itself could have undertaken the work given to DG Industries, in which case, there is justification for alleging diversion. On the contrary, the petitioners themselves have given details that the company was sub contracting certain electrical works to other agencies. I do not find anything wrong in a company subcontracting some work to another family company, unless it is established that the same work could have been given on more favourable terms to an outside company. To examine this aspect, the petitioners have not furnished any comparative details to show that the subcontracting to DG Industries had been unfavourable to the company or that by the subcontracting work, DG Industries has been benefited at the cost of the company. Therefore, this complaint could be put an end to by directing the company that before subcontracting any work to DG Industries, the approval of the Board of the company should be taken. Accordingly I direct so.
24. In regard to the alleged financial mismanagement, no particulars have been given substantiating this allegation other than pointing out differences in the carry forward figures of 1997-98 in the Balance Sheet as on 31.3.1999. In Balance Sheets, along with the current year figures, the figures for the previous year as per the Balance Sheet of that year is shown against each head. In the Balance Sheet as on 31.3.1998, under the head "Advance Recoverable in cash and hand" an amount of Rs. 3,68,44,428 is indicated while the same is indicated in the Balance Sheet as on 31st March, 1999, as Rs. 39,38,329, In the same way, under the head "sundry debtors" as on 31st March, 1998, the figure shown is Rs. 5,97,87,916 but, it is shown as Rs. 2,68,81,817 in the Balance Sheet as on 31.3.1999. The difference in both the heads is equal, that is on both assets side and liabilities side and as such the Balance Sheet tallies. It is a standard accounting practice that when the previous year figures are shown in the next Balance Sheet, there can be no change in the figures. However, if there is a change, then there should be a proper explanation either by the statutory auditor or by the Board of Directors. However, in the annual report for the year 1998-99, no explanation is found. Even in the reply to the petition, there is no explanation in this regard other than stating that certain heads had been grouped. Whether the change in these figures reflect siphoning/misapplication of funds as alleged by the petitioners cannot be determined without additional material. Therefore, I consider it appropriate that the statutory auditors of the company should furnish a report to the Board of Directors of the company indicating the reasons for the difference in these figures as such a difference would have affected the figures for the year 1998-99 also. If the report suggests any siphoning of funds, the company should take action to recover the same from those responsible for the same. The whole exercise should be completed within 2 months from the date of this order. As far as the performance of the company under the control of the 2nd respondent is concerned, I fully agree with the submissions made by the learned counsel for the respondents.
25. Now the relief relating to the impugned shares and the management. While on one hand I have held that the petitioners, by proposing the appointment of an outsider with overriding powers, have acted against the spirit of the family arrangement, on the other hand, I have also held that the said act cannot be a justification for creation of a new absolute majority by issue of additional shares by the 2nd respondent. While in the petition, the petitioners have sought for cancellation of the impugned allotment and also for an order that each group should have a nominee on the Board, during the arguments, it was sought that the petitioners being in majority before the impugned allotment, they should have the control of the management of the company. For this purpose, it was sought that the 2nd respondent group should be directed to sell its shares to the petitioners. The learned counsel for the petitioners heavily relied on Tea Brokers case in this regard. This relief, 1 feel, has been sought, as a counter to the prayer made by the learned counsel for the respondents, that the petitioners being oppressed should be directed to sell their shares to the 2nd respondent who has been in control of the company for over 8 years. Shri Sarkar cited the cases of VLS Finance, Sindri Iron , Nikhil Rubber etc on the proposition that the oppressed shareholders should be directed to sell the shares to the oppressor, that the person in management should have the right to purchase the shares held by others etc. No doubt, this Board has adopted all these courses of action depending on facts of each case. But in the present case, I do not propose to adopt any of the alternatives suggested by the learned counsel. It is on record that the 2nd respondent assumed control of the company on invitation by other family members and has been in charge of the company only for about 8 years while the company has been in existence for over 50 years. Directing the petitioners to sell their: shares to the 2nd respondent would literally mean asking a landlord to transfer the ownership to a tenant because he is in occupation for some time. Likewise, asking the 2nd respondent and his group to sell their shares to the petitioners, who, without any confidence in themselves, had proposed the appointment of an outsider to take control of the company, would amount to handing over a family company to an outsider. Therefore, I propose to follow the decision of this Board in General Sales Ltd case (supra) wherein also the respondents therein had issued further shares only with a view to create a new majority. In that case, this Board did not cancel the allotment but directed the allottees of the shares to transfer proportionate shares to the petitioners. In the same manner, in the present case also, as the funds collected out of the impugned allotment have been utilized by the company, it would not be appropriate to cancel the allotment as the consideration received has been utilized by the company and the Bank has also sought for raise in the capital in its letter date 7.2.2001. Instead it would be appropriate to direct that the impugned shares should be equally divided among the four family groups. Accordingly I direct so. Shri Sarkar vehemently argued that in case the impugned allotment is cancelled, then the allotments made in 1995 to the directors and the transfer of shares effected in favour of Dabrabata earlier also should be cancelled as these had affected the equality in the shareholdings. Since there has been no challenge to the allotment and transfer all these years, his clients should be deemed to have acquiesced to these acts of Debrabata. In the allotment made on 26.2.2001, 80,000 shares were allotted to the 2nd respondent, 73,000 shares to the 4th respondent who is the son of the 2nd respondent. The balance 2,000 shares were allotted to non family directors. I do not propose to disturb the shares allotted to the non family directors as there is a precedence for allotment of shares to non family directors , with the stipulation that whenever these directors decide to dispose of these shares the same should be offered to the four groups of family members equally. Since there are four groups of family members, of the 1.53 lakh shares allotted on 26.2.200 to the 2nd respondent group, each group would be entitled to 38,250 shares. This being the case, the 2nd respondent group will also be entitled to only to 38,250 shares and the excess allotment made to that group will have to be adjusted against the entitlement of the other groups. Under the authority of this order, these three groups will send an intimation, in writing, to the company indicating number of shares that each group desires to acquire out of 38,250 shares along with a demand draft at Rs 13 per share drawn in favour of the 2nd respondent. This should be done by 10th December 2003. On receipt of the intimation along with the demand draft, the company will effect the transfer in its Register of Members by 25th December and send the demand drafts to the 2nd respondent thereafter. The usual procedure regarding transfer of shares is dispensed with. The certificates relating to the shares transferred as above will be cancelled and fresh certificates will be issued in respect of the transferred shares. The above directions will put an end to the complaint relating to the allotment of shares.
26. As far the management of the company is concerned, since the practice in the company has been that one of the sons of the promoters has been in control of the management of the company, the 2nd respondent being the only surviving son of the promoter will continue to be in control of the company in his present capacity as long as he is physically fit to manage the affairs of the company. He shall neither be removed nor his powers be curtailed by any action of the Board or shareholders, unless it is established that he has acted in a manner prejudicial to the interest of the company and/or shareholders. Presently, the 1st petitioner's group has two nominees on the Board, the 6th petitioner's group one nominee, the 2nd respondent's group two nominees and the 5th respondent group one nominee. This position will not be changed and each group will continue to have the same number of representation on the Board, which should not be disturbed by any act of the Board or the shareholders unless it is established that any of them has acted in a manner prejudicial to the interest of the company and/or shareholders. These directions shall override any provisions in the Articles of the company to the contrary including the provision relating to retirement by rotation.
27. The petition is disposed of in the above terms with out any order as to cost. I hope that with the above directions regarding the share holding and management, the parties would be in a position to resolve their disputes amicably so that the prosperity of the company which is beneficial to every shareholder is not in any way affected.