Company Law Board
Sh. Harish Kumar Berry vs S. Berry'S Automotive Udyog Pvt. Ltd., ... on 23 August, 2004
Equivalent citations: [2005]60SCL531(CLB)
ORDER
K.C. Ganjwal, Member
1. Sh Harish Kumar Berry, is a non-resident Indian residing at Canada for last more than 2 years has earlier filed a similar company petition No. 34 of 2002 through his nephew Diraj Sobti as his attorney. Since the Petitioner and the Respondent No. 2 are the real brother. Petitioner applied to this Board for withdrawal of the said petition. Consequently, vide orders dated 10.12.2002 the Company Petition No. 34 of 2002 was allowed to be withdrawn with a liberty to the Petitioner to re-agitate the allegation and hence this petition.
2. The Learned Counsel for petitioner submitted: - the Respondent No. 1 is a family company by the name M/s S. Berry & Automotive Udyog Pvt. Ltd. The company was incorporated on 9.8.1985 under the provisions of Companies Act, 1956 registered with Registrar of Companies, Delhi & Haryana having its registered office at D-77, Okhla Industrial Area, Phase I New Delhi. The share capital of the company is Rs. 5,00,000 divided into 5000 shares of Rs. 10 each. The company was established to carry on the business of buying selling dealing in all and any kind of spare parts, auto parts, components and accessories of motor cycle, scooter, mopeds and every other kind of other automobile vehicle, car Jeep, buses etc. The Petitioner has 40% of the share holding in the respondent company and hence entitled to file the present petition Under Section 397/398 of the Companies Act 1956. The Petitioner before immigrating to Canada appointed his late father Colonel G.L. Beri as his attorney and also handed over the business to him. The Respondent No. 2 lost his job in ITDC and in order to facilitate the smooth running of the business and to absorb Sh. Satish Kumar Beri, Respondent No. 2 decided to form a private limited company under the name and style of M/s Beri Spare Parts Pvt. Ltd. Since G.L. Beri was continuously having ill health, the Respondent No. 2 started tightening his grip over the company alongwith his wife i.e. Respondent No. 3, prevailed upon the ailing late Col. G.L. Beri to change the name of the company to its former name i.e. M/s Berry Spares Pails Pvt. Ltd. to its present name i.e. M/s S. Berry's Automotive Udyog Pvt. Ltd. This was intended to put his own stamp on the company's name by using the first letter of his name. Otherwise, the Article and Memorandum of the Association remained the same. It was decided to construct the factory on the industrial plot No. D-77 Okhla Industrial Area, Phase I New Delhi which was transferred in the favour of the company. For the purpose of raising finance Late Col. G.L, Beri also sold his plot of land in Gurgaon on 26.9 1986. The Respondent No. 2 and 3 also sought financial assistance for the factory from the Petitioner and he sent money accordingly and counterfoils of the receipts have been placed on record. The Respondent No. 2, in a bid to get the control also appointed himself as director of the company. There is no record available nor any resolution filed by the company with Registrar of Companies, Delhi about as to when and how he was appointed as Director. The Petitioner now understands that the company negotiated in April 1987 with Indian oversees bank and took the following loans for the construction of the factory and for the business: -
a. Cash Credit Rs. 1,50,000
b. Term Loan for machine Rs. 2,80,000
c. Term Loan for building Rs. 2,00,000
3. Another term loan for Rs. 2.80 lakhs for machinery was taken on 15,3.1988. Late Colonel G.L. Beri and Respondents No. 2 were too keen for him to pump in more money and to have the Petitioner as NRI Director and also bring in foreign exchange which would help the company in its business. Consequently in the Board Meeting of the company held on 3.6.1988 and attended by Late colonel G.L. Beri (Chairman) Late Smt. Shakuntla Vati Beri, Director and Respondent No. 2. Managing Director and Respondent No. 3 (Director), it was resolved as under: -
1. Sh. H.K. Bed, who is now residing in Ottawa Canada and is a Non Resident Indian be included as Non-Resident Indian Director in the company.....
2. For including Sh. H.K. Beri as Non-Resident Indian Director prior permission of Reserve Bank of India should be sought asunder:-
(a) Shares not exceeding more than 40% but with the prior permission of D.D.A.
(b) The Shares will be allotted on Non- Repatriation clause.
(c) Formal Application on Reserve Bank, of India format be submitted.
4. The Learned Counsel for Petitioner further submitted that the Respondent No. 2 wrote to RBI on 27.1.1989 with a copy to the Petitioner seeking it permission for induction of the Petitioner as and an NRI non Executive Director under the 40% scheme. At the back of the copy of the letter sent to Petitioner the Respondent No. 2 under his signatures made in his own hand endorsement indicating the above 5 steps which he was to take for completion of formalities including clearance and information to DDA, ROC, sale tax and other authorities. The copy of this letter placed on record the RBI gave its No objection to the Petitioner's appointment as Non Executive Director vide their letter No. EC/DELCI/1734/24 (Spl. 17)-89 dated 6.2.1989. Apparently Respondent No. 2 got the other formalities completed and on his asking the Petitioner sent one demand draft No. 0356-9267-2 dated 15.5.1989 of Canadian Dollars 5000 drawn on the Canadian Imperial Bank of Commerce, Ottawa, Canada favouring the Respondent No. 1 company. This draft was duly deposited on 12.6.1989 by the Respondent No. 2 in the company's account with the Oriental Bank of Commerce, Nehru place, New Delhi for encashment. Thus a binding contract for 40% shareholding and appointment of Petitioner as NRI Non-Executive Director was concluded. The Petitioner has been visiting India for short durations from time to time mainly to see his ailing parents. Whenever he raised the issue of the share certificate of 40% shareholding with his elder brother Respondent No. 2 he was told the same was safe in the office and he had nothing to worry about and that he would give the same in due course. The Petitioner did not doubt the bonafide and integrity of his elder brother, This condition continued till the end of year-2000 when the Petitioner was shocked to read the court notice in the press of the pendency of the Probate petition No. 137 of 2000 in the court of district judge Delhi. After reading the probate petition the Petitioner developed some doubts about the bonafide and integrity of his elder brother. He therefore again asked for the share certificate and inspection of the company's records and supply of the copies of the same. Again the Respondent No. 2 kept putting off on one pretext or the other and also kept assuring him of his bona fides. The Respondent No. 2 had filed the probate petition against all the legal heirs on the basis of a fabricated Will depriving all the legal heirs of their shares of estate of his father, the Petitioner specially came to Delhi in December 2001 to sort out the problem with his brother about his 40% shareholding and the share certificate after inspecting records of the company. But again the company and Respondent No. 2 neglected to do the needful, Consequently Petitioner sent legal notice on 12.12.2001 on the Respondent company and Respondent No. 2 and 3 requiring them to furnish the share certificate to the Petitioner of the 40% shareholding against the money he had made in Foreign exchange and also to allow inspection and furnish copy of annual return of 1987 to 1993. In reply, the Respondent No. 2 vide his letter 24.12.2004 mentioned that he was never appointed an NRI director of 40% shareholding of equity share. It was further denied that the Petitioner had pumped in the company large sums of money both in foreign exchange as well as in rupees. As also the probate case No. 137 of 2001 was pending in Hon'ble Court of District Judge, Delhi.
5. It was also submitted that the Respondent had taken a stand now that the company has already paid back and refunded the money back to the Petitioner but they have not produced any documentary proof regarding date of payment or amounts or mode of payment etc. It is blatant lie to cheat and defraud the Petitioner. The Petitioner has already submitted that he had paid 5000 Canadian dollars in lieu of being allotted 40% shareholding an NRI Director of the company and till date not even a single paisa has been returned to the Petitioner. Since there is a concluded and binding contract for allotment of 40% of shares between him and Respondent No. 1 Company, he is entitled to be allotted and share certificate issued to him of 40% of the shareholding. This will apart from the shares the Petitioner is entitled to inherit out of the shares holding of both of the late parents which is in issue to the present petition only as to how their shareholdings could be transferred to Respondent No. 2 without obtaining a probate or succession certificate. The Respondent in reply have admitted that there was a proposal for appointing the Petitioner as NRI Director in the Respondent No. 1 company and certain resolution was passed but the appointment was subject to various formalities which were to be completed by the Petitioner which he never did. Though his name figures as NRI Director for about a year which was subsequently removed but as regards shares Respondent No. 1 Company never allotted any shares to the Petitioner. The Petitioner never made any application as per Law for becoming a shareholder nor he had paid any share money, The Learned Counsel for Petitioner submitted that the Board resolution 3.6.1998 had resolved that the Respondent 2 was to complete all the formalities. Pursuant to this, the Respondent No. 2 had made notes in his own hand and signature at the back of the letter issued to RBI on 27.189 which has been placed on record wherein he had noted down the formalities he had undertaken.
6. It was further submitted the Petitioner at the time of arguments took the plea that the Petitioner was removed as NRI Director Under Section 283(1)(G) of the companies Act, 1956 for the non-attendance of Board meetings but not for non completion of formalities as alleged. The Petitioner name did appear as NRI Director in the annual returns made upto 30.9.1990 and there is no record of any notice as to how and when the Petitioner ceased to be the NRI Director.
7. The Learned Counsel for Petitioner submitted that it was only after the filing of the probate case by the Respondent No. 2 in May 2000 in which the Petitioner appeared in March 2001 and came to know of the contents of the probate petition. The limitation is deemed to have commenced w.e.f. 12.12.2001 when the legal notice was sent to Respondent from 24.12.2001 when the Respondent replied to the notice and the present petition was filed on 27.3.2003, As there was a conclusive and binding contract between the Petitioner and Respondent No. 1 company for the issue of shares certificate with respect to 40% of the company's total shareholdings valued and once the share money had been received, the Respondent No. 1 company was under legal obligation Under Section 113(1) of the Companies Act, 1956 to issue share certificate within 3 months from the dale of the receipt of the share money. The Petitioner being an NRI and young brother of Respondent No. 2 believed his brother's assurances that share certificate was ready and will be handed over to him but he always made some excuse or the other. The Petitioner submitted that the share certificate is a prima face evidence of a person being the member of the company but when there is conclusive and binding contract with the company in respect of the membership of the company, he is a deemed to be a member of the company with 40% shareholding and as an NRI-Director of the respondent company. The respondent company is directed to issue share certificate to the petitioner and also restore him as NBJ Director. The Respondent cannot be allowed to take advantage of their own wrongs.
8. The Learned Counsel for Respondent submitted:- the petition as framed is totally misconceived , false vexatious, devoid of any merit and has been filed of oblique considerations. The Petitioner has not approached this Board with clean hands and is, therefore, not entitled to any kind of indulgence in exercise of the equitable jurisdiction Under Section 397 & 398 of the Companies Act, 1956. As the Petitioner has no locus standi to file and maintain this petition. The preliminary issues at the threshold that whether the Petitioner is member of the Respondent Company and if he is so, whether he constitutes "minority shareholder", The pre-requisite for invoking jurisdiction under Sections 397 and 398 which has been statutorily provided for in Section 399(1) is that the complaint must come forth from a member, One has to be a member before he can complain of oppression as member of the company. One can only complain of oppression or conduct prejudicial to public interest if he is a member of the company. Thus it is absolutely well settled and also well evident of the plain reading of the provisions of Sections 397 & 398 of the Companies Act that the oppression complained of must in the capacity of the members. The language of the said sections leaves no room of doubts that the oppression complained of must only be complaint of by a member of the company. The complaint must come forth from a member and it must be a complaint to be made to the Court by a member, The Learned Counsel relied on the decision in "In re: Harmer Ltd. (1958) 47 All E R 689 and approved by Hon'ble Gujrat High Court in Gulabrai Kalidas Naik v. Laxmidas Lallubhai Patel (1947) 47 Comp Cases 151." In this judgement it was held that it would be open to the court having jurisdiction under Companies Act to decide the question of title to share, in order to ascertain whether the person claiming to be a member is in fact a member or not and whether his name has been rightly entered or wrongly omitted. But, till the name is entered, it could not be said that he can enjoy the powers of a member conferred by the Companies Act on the members of a company.
9. The prerequisite for invoking jurisdiction under Sections 397 & 398 which has been statutorily provided for in Section 399 (1) is that the complaint must come forth from a member. One has to be a member before he can complain of oppression as a member of the company, If the petitioner's title to the membership is in dispute and they have to seek relief under Section 155 for getting their names placed on the register of members to clothe themselves with the rights of members, it would be improper, till that dispute is settled, to permit such persons to maintain a petition under Sections 397 & 398. If the Petitioner's petition under Section 155 fails, obviously, they cannot maintain a petition under Section 397 & 398 because they are not members. It may be that, in a given case, the Petitioners invoking the court's jurisdiction under Sections 397 & 398 are in a position to show that, even though their names are not to be found in the register of members of the company, yet they have such an indisputable and unchallengeable title to the membership of the company that the court may entertain a petition at their instance.
10. The Learned Counsel for Respondent further submitted that if a person's title to the membership is in dispute he would first seek relief Under Section 155 of the Companies Act for getting his name placed on the register of members. It would be premature to admit the petition and the instance of the Petitioner who has never been a member of the Respondent No. 1 Company since its inception till date. Reliance was placed on the judgement in the case of Ved Parkash v. Iron Traders (AIR 1960 Punj 427) it was held as under: -
" A Petition under Section 397 and 398 can only be maintained by a person or persons who are shown as members in the register of the company, If the person who wish to file such a petition are not shown as members in the Register of the company, rightly or wrongly they must first have the register rectified before they can bring a petition."
11. The learned counsel submitted that the right of an allottee/transferee of a share is only to call upon the company to register his name and no more. No right arises till such registration takes place. The completion of the transaction by having the name entered in the register of members is essential, as laid down by the Hon'ble Supreme Court in the case of Hawrah Trading Co. v. Commissioner of Income Tax, Central, Calcutta (AIR 1959 SC 775).
12. As the Petitioner has no locus standi to file the petition as no share allotted to him, the Petitioner is therefore not qualified Under Section 399/ Companies Act, 1956 to maintain the present petition Under Section 397 & 398 and the same is liable to be dismissed in limine. The reliance was made in the judgement of Banford Investment Ltd. v. Magadh spun Pipe Ltd. (1998) 93 Comp Cases 685 wherein it was held as under:-
"The test to be applied, where the maintainability of a petition under Sections 397 & 398 is questioned on the ground that the Petitioner is not a shareholder and his name is not borne on the company's register of members are: (1) whether the Petitioner is in possession of relevant share certificates to claim the membership (2) whether there are independency records to establish that he is a member of the company. (3) Whether the company has treated the Petitioner as a member of the company in the past."
13. It was also submitted that Section 41 of the Companies Act, 1956 give definition of "Member". Further Rules 7 of the Companies (Issue of Share certificates) Rules, 1960 requires that the particulars of every shareholder should be entered in the register of members maintained in the form set out in the Appendix in those rule. The Hon'ble High Court of Delhi in H.H. Manabendra Shah v. Official Liquidator, Indian Electrim Tools Corporation Ltd. (1977) 47 Comp Cases 356 held that a written application for allotment of share is necessary before a person can be entered as a member in the register of shareholder. The essence of the matter therefore, is that they should be an agreement to become a shareholder which agreement can ripen into a concluded contract only by an offer to take certain amount of shares and the same being accepted,
14. It would thus be seen that the two conditions had to constitute a person a member of the company i.e. an agreement to become a members and entry in the register of members. An agreement to become a member alone does not create the status of membership, it is a condition precedent to the acquisition of such status that the shareholders name should be entered in the register, The allotment of shares is a matter of contract between the parties and a person may be treated as member of the company either by entering his name into the register of members or treating him as a member by any subsequent conduct. The Petitioner has, therefore, miserably failed to show that he is a shareholder of the Respondent No. 1 Company by virtue of allotment of share in his favour evidenced no only by the register of members but also by the statutory returns and documents maintained and filed by the company.
15. It was further submitted by the Learned Counsel for Respondent that in every case it is obligatory on the part of complainant to establish persistence course of unjust conduct. It is well settled that past acts which has come to an end would not be taken for the purpose of invoking the court jurisdiction under Sections 397 & 398 of the Companies Act, 1956. In the case of Chander Krishan Gupta v. Pannala Girdhari Lal Pvt. Ltd. (1984) 55 Comp Cases 702, it was held by Hon'ble Delhi High Court that stray illegal acts may not amount to acts which would constitute a ground for an action under Sections 397 & 398 of Companies Act. It is settled by Supreme Court decision that isolated acts of oppression or stray illegal acts would not amount to oppression or mis-management unless the strayed illegal acts may have continuing or lasting consequences. In the case of Needle Industries Newey (India) Holding Ltd. (1981) 51 Comp Cases 743, the supreme court held that the person complaining oppression must show that he has been constrained to submit to a conduct which is unfair to him and which causes prejudice to him in the exercise of his legal and proprietary rights as a shareholders. The Learned Counsel also referred to the case of V.M. Rao v. V.L Dutt (1987) 61 Comp Cases 20 wherein the Madras High Court formulated the following conditions for maintaining a petition Under Section 397 & 398 of the Act; -
(a) It must be established that the oppression complained of affected a person in his capacity or character as a member of the company as harsh
(b) There must be continuous acts constituting oppression up to the date of the petition
(c) The events have to be considered not in isolation but as part of an continuous story
(d) It mast be shown as preliminary to the application of Section 397 that there are just and equitable grounds for winding up the Company,
(e) The conduct complained of can be said to be oppressive only if it can be said that it is burdensome, harsh and wrongful and the oppression involves at least an element of lack of probity and unfair dealing to a member in matters of proprietary rights as a shareholder.
The subscribed issued and paid up share capital of the Respondent No. 1 company was Rs. 5 lakh (100 per share) and the share allotted to each shareholders against the paid capital was as under:-
(i) Late Lt. Col G.L. Beri; 2931 Shares,
(ii) Late Smt. Shakuntala Vati Beri : 261 Shares;
(iii) Sh. Satish K. Beri; 1479 shares;
(iv) Smt. Promila Beri : 327 shares;
16. The Smt. Shakuntala Vati Beri widow of Late Lt. Col G.L. Beri during her life time she had gifted her entire 261 share to her grandson, Sh. Nikhil Beri, the Respondent No. 4 vide gift deed on 26.3.1996 and entire shareholding of the Respondent No. 1 is held by the Respondent No. 2, 3, 4 in the following manner:-
1. Sh. Satish K Beri : 4410 (1479+293 1 by bequest)
2. Smt. Promila Bneri: 327 shares.
3. Sh. Nikhil Beri: 261 Shares by transfer
17. The Lt. Col. Beri had executed a last Will dated 21.11.91. The probate petition in respect of said Will is pending before the District Judge Delhi
18. In reply to the petition the learned counsel for respondent admitted that during the relevant time there was a proposal for appointing the Petitioner as NRI Director in the Respondent No. 1 Company and that certain resolutions were passed but the appointment was subject to various formalities which were to be completed by the Petitioner which he never did. Though his name figures as NRI Director for about a year which was subsequently removed but as regards shares it is submitted that Respondent company never allotted any share to Petitioner if at all any money paid to the Petitioner it the money he owe from Lt. Col. G.L. Beri rent received by him directly from one of the tenants who incidentally happened to the Petitioner's employer and used to visit Canada frequently.
19. The Petitioners have no locus standi for complaining oppression and mismanagement, The Petitioner has no shareholding in the Respondent No. 1 company hence he has no right of a member. Consequently he is mere stranger. The Petitioner is not entitled to any relief as claimed and the petition deserves dismissal being false, frivolous & vexatious.
20. 1 have considered the pleadings and argument of the learned counsels of both sides and also written submissions filed by them. The case of Petitioner is that he had from time to time was pumping money in the business and to avail of certain other faculties, in the event of foreign exchange being invested in the company. It was decided to offer the Petitioner to put some investment and induct him as 40% shareholder and as a NRI director. A Board Meeting was held on 03.06.1988 which was attended by all four Directors namely;-
1. Lt. Col. G.L Beri (Retd.)
2. Sh. Satish Kumar Beri
3. Smt. Promila Beri
4. Smt. Shakuntala Vat Beri The following resolutions were adopted:-
1. Sh. H.K. Beri, who is now residing in Ottawa in Canada, and is a Non Resident Indian, be included as a Non Resident India Director in the Company. Sh. H.K. Beri is the younger son of Lt. Col. G.L. Beri & First Blood relation.
2. For including Sh. H.K. Beri as a Non Resident Indian Director, prior permission of Reserve Bank of India should be a sought as under:-
a) Shares not exceeding more than 40% but with prior permission of DDA as per letter of mutation of DDA dated 14.9.1987 & Conveyance Deed registered vide No. 1936 Addl. Book No. I. Vol. No. 5943, Pages from 17 to 22 dated 23/9/97 at the office of Sub-Registrar, New Delhi.
b) The shares will be allotted on Non-Repatriation Clause.
c) Formal application on Reserve Bank of India format be submitted.
3. Sh. S.K. Beri, Managing Director should take necessary action, for filling necessary papers with the Reserve Bank of India for obtaining permission, with Indian Overseas Bank, Defence Colony intimating inclusion, with DDA for seeking permission, with the Registrar of Companies for allotment of shares as per Companies Act, 1956. Further, as per Rules & Prevailing Law under various Acts of Government of India, all statutory and mandatory obligations should be met with.
4. Sh. H.K. Beri in the meantime has sent his letter of intent for purchase of shares on the personal name addressed to Sh. S.K. Beri, But only after Reserve Bank of India permission is obtained that allotment of shares shall take place. Further Sh. S.K, Beri, Managing Director should intimate Sh. H.K. Beri accordingly & obtain formal letter of intend addressed to the company from Sh. H.K. Beri for becoming Director in the company and subsequent purchase of shares
5. It is further resolved that after allotment of shares Sh. H.K. Beri will be Governed by the Rules as contained in the Companies Act, 1956. In totality, Sh. H.K. Beri, should also appoint attorney in India who will be attending the AGM's on his behalf & intimate in writing to the Managing Director about the same to enable Sh. S.K. Beri to take further action in the matter.
21. Further, in pursuance or the above resolutions of the Board Meeting the company had taken action to appoint as NRI Non-Executive Director and a letter to this effect had been written to RBI on 27.1.189. The approval of RBI had also been received in February 1989. While forwarding a copy to the petitioner of letter dated 27.1.1989 written to RBI, Respondent No. 2 had listed on back of the letter in his hand indicating 5 steps he was to take for completion of formalities including clearance and information to DDA, ROC, Sale Tax and other authorities. The Petitioner had been sending money to the then Chairman Col. G.L. Beri the petitioner has specifically mentioned that one demand draft dated 15.5.1989 of Canadian dollar 5000 drawn on the Canadian Imperial Bank of Commerce Ottawa Canada favouring the Respondent company was sent by him as asked by Respondent No. 2. This draft was duly deposited on 12.06,1989 by the Respondent No. 2 in the company's account with Oriental Bank of Commerce, Nehru Place, Delhi for encashment. The Petitioner has alleged that the Respondents have not complied with the provisions of the resolutions dated 03.06.1988. Col G.L. Beri then Chairman, the father of the Petitioner and Respondent No. 2 expired on 24.10.1994 and Respondent No. 2 has filed a probate petition in the Court of District Judge Delhi for the probate of his purported Will dated 21.1.1991, which is still pending. The said Will inter alia states the 100% of his shareholding will fall to the shares of Respondent No. 2. The Petitioner and his sister are contesting the said probate petition on the ground that the purported will is fabricated and procured documents. The Petitioner has submitted that in view of the resolution of Board of Directors dated 03.06.1988 a binding contract of 40% shareholding and appointment of Petitioner as NRI Non Executive Director was duly completed. The respondent No. 2 had been intentionally delaying the matter and after the death of Col. Berri, he has tried to grab the company and always made some excuse or the other when share certificates were demanded from him. He has transferred all shares of the company in his own name and in the name of his family, members.
22. In reply the respondents have relied on number of judgments which have been discussed upon. In nutshell, the respondent have submitted that the petitioner is not a member of the respondent company and as such has no locus-standi to file and maintain the present petition, The oppression complained under Section 397/398 must come from a member of the company. It is also admitted by the respondent that late Lt. Col G.L. Berri was holding 293 1 shares and he expired on 24.10.1994. He executed a will dated 21.1,91 which is subject matter of the probate petition in case No. 137/2000 pending before District Judge, Delhi. In terms of this WILL, Col Berri bequeathed his 100% shareholding in favour of respondent No. 2. The respondents have also admitted that during the relevant time there was a proposal for appointing the petitioner as NRI Director in respondent company and that certain resolution have been passed but the appointment was subject to various formalities which were to be completed by the petitioner which he never did though his name figures as NRI director for about a year which was subsequently removed. As regards shares the respondent company never allotted any shares to the petitioner.
23. There are only two issues to be looked into the petition. The first issue is whether the respondent was ever appointed as NRI director and how he was removed . The second issue is regarding allotment of 40% shares in the respondent company.
24. Regarding first issue I find that all the four directors had passed a resolution under the Chairmanship of Lt. Col G.L. Berri at the Regd. Office of the company on (Sic)3.6,98 indicating that Shri H.K. Berri who is now residing in Ottawa in Canada and is non resident Indian, be included as non NRI in the director. Shri H. Berri is the younger son of Lt. Col G.L. Berri and first blood relation. Respondent No. 2 was present in this Board meeting in his capacity as Managing Director alongwith his mother and wife who were also directors in the company. There is no ambiguity to this resolution. The respondents have also not placed on record any other Board resolution superseding this resolution of 3.6.1998 during the life time of the Chairman who died as late as in 1994. In fact, the Respondent No. 2 in his capacity as Managing Director wrote a letter to RBI on 27.1.89 seeking their approval so that petitioner could be appointed as an NRI, non executive Director in the company under 40% scheme. The permission had been sought from RBI and they had given permission. 1 am not convinced by the arguments advanced by the respondents that for some time the petitioner was appointed non resident director and subsequently removed . There is nothing on record placed by respondent as to when and how the petitioner was removed from directorship.
25. The second issue remained to be discussed is regarding shares not exceeding more than 40% but with prior permission of DOA and other authorities, The minutes of the Board Meeting 3.6.88 relevant. Para 2 of the Board Meeting categorically said that shares not exceeding more than 40% shall be given to the petitioner with prior permission of DDA and other authorities. The shares were to be allotted on non-repatriation clause. The onus of seeking permission from various authorities was that of Shri S.K. Berri, Managing Director of the respondent company. This was specifically mentioned in para 3 of the said minutes of Board Meeting held on 3.6.1988. The arguments advanced by the respondent that the petitioner did not complete various formalities is not correct. The formalities were to be completed by the Managing Director which he failed to do for the reasons best known to him.
26. The arguments advanced by the respondent that if a person's title to the membership as shareholder is in dispute, he should first seek relief under Section 155 of the Companies Act, 1956 (before amendment of the Companies Act), for getting his name placed on the register of members and till then that dispute is decided, it would be improper to permit such person to maintain a petition under Section 397/398 of the Companies Act. This argument is also not tenable as there is no dispute in the Board resolution passed in a family concern that 40% shares shall be allotted to the petitioner. Not only that action had been initiated by the company through its Managing Director to get permission of various authorities but also while forwarding a copy of one of such permission letter written to RBI New Delhi on 27.1.89, the Managing Director had indicated 5 steps in his own hand to the petitioner which he was to take in future to get the necessary permission. The judgement relied by the respondent in the case of Gulabrai Kalidas Naik v. Laxmidas Lallubhai Patel (1947) 47 Comp Cases 151, it is held that it may be that, in a given case, the petitioners invoking the court's jurisdiction under Sections 397/398 are in a position to show that, even though their names are not to be found in the register of members of the company, yet they have such an indisputable and unchallengeable title to the membership of the company that the court may entertain a petition at their instance. In the facts of this case the respondents have not denied the board meeting in which it was decided to give petitioner 40% shares as well as appoint him as NRI directors. The company was to take all subsequent steps to make sure that share certificate is issued, which was not done by the respondent company. It is also admitted by the respondent company that the petitioner was appointed NRI director for sometime. Similar position has been explained in the case of Balaji Textiles Mills P. Ltd. and Ors. v. Ashok Kalve and Ors. wherein it is clearly mentioned that allotment of shares is a matter of contract between the parties and that contract could be either expressed or implied, If a person is treated as a shareholder of the company his right of membership cannot be questioned by the company on the ground that he has not complied with the Section 41(2) of the Companies Act. In the present case there is not only implied contract but there is express resolution passed by the company to this effect.
26. From the circumstances of the case, it is clear that a valid resolution had been passed by the then Board of Director to allot 40% of the shares to the petitioner for which all clearances/actions were to be taken by the Managing Director of the respondent company, which he failed to do. Similarly, the same resolution of the Board Meeting clearly mentioned that the petitioner shall be taken as NRI director and they had started the process of getting clearance from RBI and DDA etc. Why and when this process of seeking clearances of various authorities for appointment of petitioner as NRI director was dropped is not known. The respondents have not placed anything on record contrary to this, Similarly, the petitioner had paid monies to the company from time to time alongwith 5000 Canadian dollars. This being a family company, the board resolution had decided to allot him 40% of shares. Nothing contrary has been placed on record by the respondent. The shares were not issued for the reasons unknown inspite of clear board resolution. In these circumstances, the reliance of respondents on other judgments do not come to their rescue and are of no avail, This Board has already held in the matter of Shri Jagjit Singh Chawla and Ors v. Tirath Ram Ahuja Ltd and Ors., (CP No. 57/99) that to treat a company as a partnership, it is not necessary to have equal shareholdings, no need for deadlock, no need for pre-existing partnership etc. It was also observed that an analyses of various decisions showed that the Courts have been looking for some basic understanding written or unwritten between the parties. In the present case, there was clear understanding among the parties who are all family members that the petitioner would be given 40% shares of the company as per minutes of the Board Meeting of 3.6.1988. There is no doubt that it was in the nature of family partnership company and application of partnership principles will apply.
28. Accordingly, the petition is allowed. The petitioner is reinstated as NRI Director in the respondent company with immediate effect. The respondent company is also directed to issue 40% shares to the petitioner within 30 days from the date of issue of this order, after deducting pro-rata shares of the present shareholders. After issuance of 40% shares, as ordered, liberty is given to the petitioner to sell his shares and go out of the respondent company as he has lost faith in the respondent company. He can no longer work with them. The shares will be bought by the respondent at the fair price to be fixed by a valuer to be appointed by this Board. The petitioner may file an application to this effect after having received the share certificates as directed.
29. With the above directions, the petition is disposed of. There are no orders as to cost.