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TMI Blog1986 (5) TMI 232X X X X Extracts X X X X X X X X Extracts X X X X ..... al Kaur, No. 6 20 Smt. Chanan Kaur, No. 7 20 It is alleged that the affairs of the company are being conducted prejudicially to public interest and in a manner oppressive to the petitioners, who are in minority, as detailed below: (i)The company had been allotted 490 equity shares of Punjab Iron and Steel Co. P. Ltd., Jalandhar Cantt. (hereinafter referred to as "PISCO"). The paid-up amount in respect of the above shares was Rs. 3.90 lakhs. They were transferred in the names of Pavittar Singh and his wife, Nasib Kaur (122 shares), Ravinder Singh, son of Pavittar Singh, and his wife (124 shares), Ramesh Inder Singh, son of Pavittar Singh (122 shares), and Swaran Singh, son of Milkha Singh, brother-in-law of Pavittar Singh (122 shares). These were transferred in a clandestine manner and without having been offered to any other shareholder including the petitioners, for a consideration of Rs. 3.90 lakhs in a meeting of the board of directors of the company held on December 30, 1978. No money in cash was paid by the purchasers to the company as the price of the shares. An amount of Rs. 2 lakhs alleged to be deposited with the company was adjusted towards the purchase pri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wound up. Consequently, it is prayed that action be taken under the aforesaid section. The respondents in the petition are: 1. Messrs. Paragaon Utility Financiers P. Ltd., 2. Late Pavittar Singh through his legal representatives, 3. Smt. Nasib Kaur, 4. Ramesh Inder Singh, 5. Ravinder Singh and 6. Swaran Singh. Later, the name of respondent No. 2, late Pavittar Singh, was ordered to be deleted. The petition has been contested on behalf of respondent No. 1 and respondents Nos. 3, 4, 5 and 6. Two written statements have been filed, one on behalf of respondent No. 1 and the other on behalf of the latter respondents. Respondent No. 1 alleged that the affairs of the company were meticulously looked after during the period when Col. P. S. Dhillon was the managing director. Col. Dhillon filed an application for rectification of the register of shareholders of PISCO under section 155. The application was decided against him but an appeal is pending in this court against that order. In the written statement on behalf of respondents Nos. 3, 4, 5 and 6, it is, inter alia, pleaded that the allegations in the petition do not make out a case of oppression and mismanagement of the affairs of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Sodhi sought to urge that the position reflected in exhibit P-88 relates to the month of June, 1982, whereas the petition was filed in October, 1982. He argues that it was incumbent on the petitioners to show the total number of shareholding held by them on the date of filing the petition which they failed to do. He made reference to Rajahmundry Electric Supply Corpn. Ltd. v. A. Nageswara Rao [1956] 26 Comp. Cas. 91 (SC), and the resolution of the board of directors dated October 29,1978, wherein 20 shares held by Smt.Kirpal Kaur were transferred to Smt. Rattan Kaur, daughter of Dalip Singh and Amarjit Singh Bajwa, son of Rattan Singh. I do not find any substance in this submission of learned counsel as well. The petitioners have shown that according to the latest list of members filed with the Registrar of Companies, they had 150 shares. Col. K. S. Dhillon, petitioner, affirmed in his statement that all the petitioners were shareholders of the company on the date of filing the petition. The proceedings of the board of directors dated October 29, 1978, however, show that 20 shares were transferred by Smt. Kirpal Kaur, petitioner. It cannot be ruled out that 20 shares might have be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ngful and mere lack of confidence between the majority shareholders and the minority shareholders would not be enough unless the lack of confidence springs from oppression by the majority in the management of the company's affairs and such oppression must involve at least an element of lack of probity or fair dealing to a member in the matter of his proprietary rights as a shareholder. It is now to be determined whether the allegations in the petition make out a prima facie case for the winding up of the company under section 433(f). The section says that a company may be wound up by the court if it is of opinion that it is just and equitable to do so. The question arises what the words "just and equitable" mean. It has been held in Hind Overseas' case [1976] 46 Comp. Cas. 91 (SC) that the principle of "just and equitable" baffles a precise definition. It must rest with the judicial discretion of the court depending upon the facts and circumstances of each case. These are necessarily equitable considerations and may, in a given case, be superimposed on law. Whether it would be so done in a particular case cannot be put in the strait-jacket of an inflexible formula. Clause ( f) is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment. The matter does not require any elaborate discussion as it has been settled by the Supreme Court in Shanti Prasad Jain's case (supra) that in order to file an application under section 397, if must be shown that the conduct of the majority shareholders was oppressive to the minority members and this requires that events have to be considered not in isolation but as part of a consecutive story. There must be continuous acts on the part of the majority shareholders, continuing up to the date of the petition, showing that the affairs of the company were being conducted in a manner oppressive to some part of the members. Same view was expressed by P. N. Bhagwati, J. as he then was, in Mohanlal Ganpatram's case (supra). It was observed therein that sections 397 and 398 postulate that there must be at the date of the application a continuing course of conduct of the affairs of the company which is oppressive to any shareholder or shareholders or prejudicial to the interests of the company. I am in respectful agreement with the above observations. It is true that in Sindhri Iron Foundry case (supra), it was held by a learned single judge of the Calcutta High Court that if the court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lete; secondly, no notice of the meeting was given to the directors and, thirdly, that, in fact, no meeting was held on that date. The first question that arises for determination is as to whether the quorum for the meeting in which resolution, exhibit P-l, was passed was incomplete. Mr. Jain has contended that there were 32 directors of the company on November 30, 1978, and, therefore, the quorum for the meeting was 11. However, only 8 directors were present. Out of them Smt. Indarjit Kaur and Shri Pavittar Singh ceased to be directors on September 27, 1977, and January 30, 1978, respectively, as they failed to attend three consecutive meetings and thus they would be deemed to be not present in the meeting. In this way, only six directors would be deemed to be present. On the other hand, Mr. Sodhi has argued that 8 out of 32 directors of the company, namely, Smt. Gurmej Kaur, Shri Gurcharan Singh, Smt. Rattan Kaur, Shri Bakhtawar Singh, Smt. Nasib Kaur, wife of Bakhtawar Singh of Phagwara, Smt. Inderjit Kaur, Shri Avtar Singh and Shri Ravinder Singh, had ceased to be directors. Thus, the total number of directors on that date was 24. The number for determining the quorum will be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e other hand, Mr. Sodhi, has argued that the only requirement under section 286 is that the notice of the meeting should be in writing. It does not prescribe the manner in which it is to be served on the directors. The notice under article 82 of the articles of association can be served personally. He submits that notices were not sent by post but through a messenger. It is not disputed by Mr. Sodhi that the notices were not entered in the despatch register. There is no reliable evidence on record to prove that notices were sent through messenger and, therefore, it cannot be held that notices were given to the directors. It is essential that the notices of the meetings have to be sent to all the directors, otherwise, the resolutions passed in such meetings are invalid. In this view, I am fortified by the observations of the Supreme Court in Parmeshwari Prasad Gupta v. Union of India [1974] 44 Comp. Cas. 1 , wherein it was observed that notice to all the directors of a meeting of the board of directors is essential for the validity of any resolution passed at the meeting and where no notice was even given to one of the directors, the resolution passed at the meeting of the board of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all except Smt. Santosh were directors of the company. Mr. Jain has contended that out of the ten directors present in the meeting, five directors were transferees. Out of them, Pavittar Singh, Smt. Nasib Kaur and Shri Ravinder Singh had also ceased to be directors. Smt. Inderjit Kaur had further ceased to be a director. If the presence of the five transferee-directors and that of Smt. Inderjit Kaur is not taken into consideration, then the quorum is incomplete. On the other hand, Mr. Sodhi has argued that Shri Pavittar Singh, after he had ceased to be a director, was re-elected on June 30, 1978. However, he admits that Smt. Inderjit Kaur ceased to be a director. He further submits that the transferees did not cease to be directors at the time of passing the resolution and at the most they ceased to be so after the resolution had been passed. First, it is to be seen whether Shri Pavittar Singh was re-elected as director on June 30, 1978, as argued by Mr. Sodhi. Exhibit R. 2/5 is the copy of the resolution of the shareholders dated June 30, 1978, from which it is clear that he was re-elected as director on June 30, 1978. Thereafter, it is not shown that he ceased to be so. Consequ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r a holding company of a public company. Therefore, it is in the case of a public company and a private company which is a subsidiary or a holding company of a public company, that if a director takes part in the proceedings of the board of directors and votes regarding any contract in which he is interested, his presence for the purposes of forming a quorum shall not be counted and his vote shall be void. However, it will not be so if the company is a private company. In the present case, the company is a private company. Therefore, the presence of the aforesaid five directors for the purposes of quorum and their vote for the purpose of passing the resolution cannot be excluded. They shall, however, cease to be directors after the passing of the said resolution. Consequently, the resolution, exhibit P-2, cannot be held to be invalid on this ground. However, it may be reiterated that the shares were transferred in the names of some of the directors. Thus, the action of the directors in passing the resolution amounts to oppression of the minority shareholders in spite of the fact that it is not an invalid resolution. In the above observation, I find support from Mohanlal Ganpatram's ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pted. Consequently, transfer of the shares to the transferees without offering the shares to the other shareholders in terms of the resolution dated November 30, 1978, exhibit P-1, is oppressive to the other shareholders. Mr. Jain has further argued that the consideration for the 490 shares purchased by Shri Pavittar Singh, etc., was not paid in cash by them. The purchase price of the shares was Rs. 4,90,000, out of which an amount of Rs. 2,00,000 was got adjusted by them towards their deposits. An amount of Rs. 1,90,000 was taken as loan by them from the company for interest at the rate of 15% per annum and that amount has not been repaid till today. I have duly considered the argument. The facts are not disputed by Mr. Sodhi. It is not disputed that some amount was shown payable to the transferees in the account books of the company. In case that amount was got adjusted by them towards the payment of consideration of the shares, no fault can be found therein. However, the act of advancing a loan by the company to the transferee-directors at the juncture when the company was not in sound financial condition was an oppressive act on the minority shareholders. It is also relevant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he meeting was eight. I am, therefore, of the opinion that the resolution dated February 28, 1979, is also invalid. The second question is whether the resolution is invalid as the notices of the meeting were not sent to all the directors. In the despatch register, exhibit P-74, admittedly, the despatch of the notices of the meeting to the directors is entered. Therefore, I am of the view that this formality had been fulfilled by the company and the resolution cannot be held to be invalid on this ground. Mr. Jain has further argued that the resolution was invalid as Shri R. S. Johal and ten other directors protested against the resolution and walked out of the meeting. He made reference to the letter dated February 28, 1969, exhibit P-76. There is force in this submission also. It is stated in the letter, exhibit P-76, that in the meeting of the board of directors held on February 28, 1979, the directors who signed the letter did not agree to the proposal for transfer of the 490 shares held by the company in PISCO to Sarvashri Pavittar Singh, Rameshinder Singh, Ravinder Singh and Swaran Singh and voted against the resolution. The resolution, therefore, stood defeated. The director ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y be called after giving shorter notice than that specified in sub-section (1), if consent is accorded thereto- (i)in the case of an annual general meeting, by all the members entitled to vote thereat; and (ii)in the case of any other meeting, by members of the company (a) holding, if the company has a share capital, not less than 95 per cent, of such part of the paid-up share capital of the company as gives a right to vote at the meeting, or (b) having, if the company has no share capital, not less than 95 per cent, of the total voting power exercisable at that meeting: Provided that where any members of a company are entitled to vote only on some resolution or resolutions to be moved at a meeting and not on the others, those members shall be taken into account for the purposes of this sub-section in respect of the former resolution or resolutions and not in respect of the latter". A reading of the section shows that 21 days' notice is necessary for convening the annual general meeting. However, a shorter notice for such a meeting can be given, if all the members who are entitled to vote in the meeting accord their consent for doing so. Previously, fourteen days' notice was pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uoted on the stock exchange. No reliable data has been provided by the petitioners showing that the value of the shares was more. In the first two balance-sheets, the company is shown to have suffered losses to the tune of several lakhs of rupees. In the balance-sheet ending December 31, 1978, some profit is shown to have been earned. After adjustment of the profit, the loss carried forward is Rs. 5 lakhs odd. The aforesaid figure shows that PISCO was not faring well. The respondents produced Arun Joshi, R-2/3. He deposed that no dividend was declared or paid to the shareholders during the aforesaid period. The face value of each share was Rs. 1,000. He further deposed that, according to the assets of the company, the value of each share was about Rs. 600 in the years 1976 and 1977 and about Rs. 625 in the year 1978. After taking into consideration the circumstances, it cannot be accepted that the value of the shares was more than Rs. 1,000 per share when they were transferred to the respondents. Mr. Jain then contends that the accounts of the company were not even operated by duly authorised persons. To fortify his argument, he made reference to the copy of the resolution of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... otice by Mr. Sodhi, it cannot be held that Jagtar Singh was a fictitious person. The next contention of Mr. Jain is that Shri Mohinder Singh who was appointed as a manager by the respondent had embezzled a huge amount of the company but no effective step was taken to recover the amount from him. In order to prove the aforesaid facts, Mr. Jain placed reliance on the resolutions of the board of directors, exhibit P-87, dated December 30, 1976, exhibit P-67, dated April 16, 1977, exhibit P-68, dated May 25, 1977, exhibit P-69, dated June 25, 1977, exhibit P-70, dated July 6, 1977, exhibit P-71, dated September 27, 1977 and exhibit P-72 dated December 13, 1977. In the resolution, exhibit P-87, it was stated that a sum of Rs. 5,21,000 odd was due on May 31, 1975, from M/s. Sundeep Bus Private Ltd., Mansa, District Bhatinda. However, Shri Mohinder Singh reconstructed the record and showed an amount of Rs. 2,68,000 due from the said company. Thus, a benefit of Rs. 1,67,580 was given to the company. It is further stated that Shri Mohinder Singh had introduced false credits in the account books in favour of Sarabha Land and Motor Finance (P.) Ltd. in connivance with Shri Raghbir Singh of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... own as due from Mohinder Singh as on December 30, 1978. In exhibits P-64 to P-66, amounts are shown to have been advanced to Shri Paramjit Singh and an amount of Rs. 33,830 is shown to be due from him as on January 1, 1977. No amount of interest was debited to their account. No document was got executed from the said debtors. The aforesaid amounts have not been repaid by the said persons. Col. K. S. Dhillon, petitioner, deposed that Shri Pavittar Singh was the managing director of PISCO and Shri Swaran Singh, Shri Ravindar Singh, Shri Rameshin-der Singh and Amar Singh were its directors. It appears that the amounts were advanced to PISCO without interest because the said directors wanted to help their concern. After taking into consideration all the circumstances, I am of the view that the affairs of the company were conducted by the respondents in a manner oppressive to the petitioners. Before parting with the judgment, an argument advanced by Mr. Sodhi may be noticed. It is that once the resolutions, exhibits P-1, P-2, P-17, P-18, R-2/6 and P-20, were passed by the directors, they could not be challenged in view of section 290 of the Act. In support of this contention, he refers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... worthy that some of the resolutions were oppressive to the minority shareholders. In Sunder Lal Jain's case [1986] 60 Comp. Cas. 77 (P. & H.), it was observed by me that even if a director ceased to be so in view of section 283, the resolution of the board of directors could not be held illegal in view of section 290 which provided that the acts done by a person would be valid notwithstanding that it might afterwards be discovered that his appointment was invalid by reason of any defect or disqualification or had terminated by virtue of any provision contained in the Act or in the articles. The facts of that case were that a boiler was sold by the company after a decision had been taken in a meeting of the board of directors. The purchaser had no concern with the company. He took a plea that he was a bona fide purchaser for valuable consideration. The case is clearly distinguishable and, therefore, the observations therein are of no help in deciding the petition. Consequently, in view of the finding that there were no continuous acts of the majority shareholders which had been oppressive to the petitioners, I dismiss the petition. However, the parties are left to bear their own co ..... X X X X Extracts X X X X X X X X Extracts X X X X
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