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TMI Blog1996 (3) TMI 396X X X X Extracts X X X X X X X X Extracts X X X X ..... ut of an order of the learned Single Judge dated 22-8-1995. In the present judgment, parties will be referred to in the same manner as they are described in the plaint. The learned Single Judge has allowed the Notice of Motion No. 2093 of 1993 taken out by the Plaintiff. By the said Notice of Motion, the Plaintiff had inter alia prayed for relief in respect of 840 shares issued by the Defendant No. 4 (as Puspaj). It was prayed in the Notice of Motion that the Defendant No. 2 be restrained from acting upon or in furtherance of the said issue and allotment of 840 shares that Puspaj be restrained from in manner acting upon or in furtherance of the said issue and/or re-organising Defendant No. 2 or anyone else as the holders of or being entitled to any rights or benefits in relation to the said 840 shares and that Court Receiver be appointed of the said shares. The learned Single Judge by her order under challenge has made the Notice of Motion absolute in terms of prayers (a) and (b). Thus, injunctions as prayed for and as described above have been granted. Being aggrieved by the said order, the Appellants, i.e., original Defendant Nos. 1 to 3 have preferred the present Appeal. 4. Bri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iff returned to India and he as well as Defendant No. 3 got 386 preference shares of Bakul on partial partition of the HUF of Defendant No. 1. The share capital of Bakul at that point of time was as under: Preference Equity Defendant Nos. 1 and 2 2,228 Nil Defendant No. 3 886 Nil Plaintiff 886 Nil Puspaj Nil 250 (vii)In December 1980, by virtue of powers bestowed on the Directors of Puspaj, the Defendant Nos. 1 and 2 issued and allotted 60 equity shares of that Company to the Plaintiff in the following manner: 30 equity shares to the Plaintiff jointly with his wife and 30 equity shares to the Plaintiff jointly with his mother, i.e., Defendant No. 2. Thus, the shareholding pattern of Puspaj became as follows: 100 equity shares in the names of Defendant Nos. 1 and 2 as Trustees of the Trust, and 60 shares as above, i.e., 30 shares held by the Plaintiff with his wife and the remaining 30 shares held by him with the Defendant No. 2. Thus, the Plaintiff's share in Puspaj became 37.5 per cent. (viii)In 1986, as Bakul required huge finance, it approached Gujarat Industrial Investment Corporation Ltd. (G.I.I.C.) which sanctioned the financial assistance and imp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 992 the issued capital of Puspaj was increased to 1,000 shares by issuance of 840 new shares to Defendant No. 2. Accord-ingly, the shareholding of Puspaj became: Defendant No. 2: 890 shares Defendant No. 3: 50 shares. The plaintiff has denied any knowledge /validity /the very fact of this issue. (xvi)On 14-10-1992, i.e., almost after three years of the extinction of the Trust, the Plaintiff through his Advocate's letter challenged the distribution as done by the Defendant Nos. 1 and 2 and pointed out that the distribution of corpus viz., 100 shares between the Defendant Nos. 1 and 2 was totally wrong. (xvii)On 2-11-1992, a reply was sent by the Defendant No. 1 through his Advocate inter alia stating that the distribution was done with full consent and approval of all the beneficiaries. (xviii)In March 1993, the tenure of the Plaintiff as managing director of Chemstar came to an end. On 30-4-1993, the Plaintiff through his Advocate's letter addressed to the Defendant No. 1, again made a grievance that the distribution of these 100 shares was not proper. A reply was sent by the Defendants through their Advocates on 6-5-1993 again refuting the charges made against them and stati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... spaj and through Puspaj that of Chemstar that 33 shares were transferred in his favour by Defendant Nos. 2 and 3 and that this was done on the basis that the total issued shares of Puspaj as on the date of the Family Arrangement were 160. On the other hand, Defendant Nos. 1 to 3 have denied that there was any intention of giving majority and thus the control of Puspaj to the Plaintiff and have submitted that the Plaintiff knew that the issued share capital was 1,000 shares and that the Family Arrangement was entered into setting at rest the disputes and differences between the parties regarding equal distribution of 100 shares originally held by Defendant Nos. 1 and 2 as trustees. With the factual conspectus given earlier as the backdrop, we shall now examine the issues raised in the present Appeal. 6. Shri Kapadia, the learned counsel appearing for the Appellants - Original Defendant Nos. 1 to 3, contended that the Family Arrangement arrived at was a result of resolution of all disputes and issues outstanding between the parties and that there remained no outstanding disputes and issues between them. Shri Kapadia further submitted that as far as the issue of 840 shares is concern ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have mutually and satisfactorily resolved the same for maintaining peace in the family and for maintaining cordial relations between them and under these circum-stances, the said Family Arrangement has been arrived at. The entire Family Arrangement from clauses 1 to 6 relates to transfer of 33 shares of Puspaj in favour of the Plaintiff from the Defendant Nos. 2 and 3 from the shares allotted to them earlier. Clause 7 records that the Trust having been dissolved on expiry, the Defendant Nos. 1 and 2 have thus distributed the Trust's funds on 28-11-1989. Clause 8 records that the beneficiaries, viz, the Defendant Nos. 2 and 3 and the Plaintiff confirmed that each of them have received their fair and equitable share on the dissolution of the said Trust. Clause 9 thereof records that in view of the mutual terms of settlement recorded therein, the Advocate's notices dated 14-10-1992 and 30-4-1993 (addressed on behalf of the Plaintiff) were treated as with- drawn. In our opinion, clause 10 is very important and it clearly records: "10. The parties hereby agree and declare that in view of the mutual settlement recorded hereinabove they have no claim against one another outstanding rela ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by he would have controlled the majority voting rights in Puspaj from that date and that in order to back out of understanding earlier arrived at whereby the Plaintiff was to get controlling interest in Puspaj, that the share capital was increased which action was mala fide and fraught with ulterior motive of continuing to deprive the Plaintiff of his just shares. It was further alleged therein that Defendant Nos. 1 to 3 had deliberately suppressed the relevant details like when the paid-up capital was increased and to whom the shares were allotted. In the plaint, the Plaintiff has inter alia averred that he was shocked to receive the confir-mation dated 9-7-1993 declaring that the issued capital of Puspaj was 1000 shares and not 160 shares; that the increase in capital was not disclosed to the Plaintiff; that the negotiations took place and the Family Arrangement was entered into on the 'representation' and 'basis' that the issued, subscribed and paid-up capital was Rs. 16,000 (160 shares) only; that the said Defendants had 'suppressed' the said increase; that the said increase and allotment was 'fraudulent' and mala fide and that all parties had 'accepted' and were 'acting on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... esentation. As far as the degree of proof is concerned, we again say that we are at an interlocutory stage and therefore, we have to satisfy ourselves whether the Plaintiff has made out a prima facie case as alleged by him. 9. This brings us again to the averments made by the Plaintiff in the plaint. The Plaintiff has, after narrating the factual background, averred that the Defendant Nos. 1 and 2 had, on the expiry of 18 years, unlawfully and illegally distributed the corpus of the said Trust only between the Defen-dant Nos. 2 and 3; that the real position regarding increase in the paid-up capital of Puspaj to Rs. 1 lakh was never disclosed to the Plaintiff and was suppressed although the Plaintiff in good faith relied upon the represen- tation made by the Defendant Nos. 1 to 3 and that the said representation was to the effect that the understanding/agreement arrived at between the parties in 1980 to continue to be implemented and on that basis he entered into negotiations on the footing that the issued share capital of Puspaj was 160 shares only. The Plaintiff has further alleged in the plaint that the increase of share capital of the Puspaj was illegal, mala fide and made with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ant as can be seen from his conduct, i.e., obtaining a copy of the annual report in February 1993 from the Registrar of Companies and keeping a watch over the working of Puspaj, cannot be heard to say that he was left in the dark. It was submitted that the said shares were issued in favour of the Defendant No. 2 for a legitimate purpose, i.e., in order to repay the loan which was advanced by the Defendant No. 2 and thus the fresh issue was for meeting a liability of the Company and therefore the same cannot be questioned. On the other hand, Shri Chinoy relied on the decision of the Supreme Court in the matter of Needdle Industries ( India) Ltd. v. Needle Industries Newey (India) Holdings Ltd. AIR 1981 SC 1298 and submitted that the law was well settled notwithstanding that the issue of shares was intra vires the Directors' power was a fiduciary power and although an exercise of such power may be formally valid, it can be attacked on the ground that it was not exercised for the purpose for which it was granted. It was his submission that the Directors viz., Defendant Nos. 2 and 3 had not exercised the said power in good faith but with a mala fide intention of not to allow the contro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... star as it was then known) after extensive discussions amongst the members of the Majmudar family, it was agreed in or about November/December 1980 that he would be given the controlling interest in and charge of Bakul and this was done by ensuring that he would control Puspaj by holding sufficient controlling interest in Puspaj and that this was done in December 1980 by increasing the issued capital of Puspaj to 160 and issuing and allotting 60 shares to the Plaintiff (30 thereof jointly held with his wife and remaining 30 with Defendant No. 2). The plaint further proceeds to state how the so-called agreement/arrangement continued to be implemented. The question arises as to why, when such an agreement/arrangement was arrived at in November/December 1980, that he was issued only 60 shares (jointly as mentioned above) in December 1980 and not more as to give him such a majority and control? Further, why all throughout, i.e., right up to his Advocate's letter dated 16-10-1992, that the Plaintiff remained quiet? More importantly, why there is no mention of such an agreement/ arrangement in the Family Arrangement which specifically records the agreement between the parties that they h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . In these circumstanc-es, we do not agree with the learned Single Judge that no allotment was made on 9-10-1992 or on 12-10-1992 but that the shares (840) were issued merely to oust the Plaintiff. With respect, the learned Single Judge seems to have proceeded on the basis that the Plaintiff had in fact majority shareholding in Puspaj and that she has on that basis held that the action of issue of 840 shares was in breach of trust and that the Defendants have played fraud and issued the shares with a view to gain a majority. The Plaintiff has based his entire case on the alleged agreement/arrangement arrived at in November/December 1980 whereunder he was to be given a majority and not that he already had a majority. In fact, the Plaintiff has all throughout his plaint maintained that he was given to understand that the share capital of Puspaj was 160 shares only out of which admittedly lie-was holding 60 shares (jointly with wife/mother), thus not a majority, and that in order to give him majority, 33 shares were transferred to him. Id support of his contention that the issued capital of Puspaj was only 160 shares, the Plaintiff relied upon a copy of the annual return of Puspaj as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y and willing to pay the price of the additional P.I.C. shares to be allotted to him at the same price at which the same are allotted to others". Paragraph 28 thereof makes the Plaintiff's stand such more clear. It is stated: "We are instructed by our client to call upon you to take immediate steps to issue and allot to our client appropriate number of shares of Puspaj out of its increased share capital in proportion to his holding of 93 shares of Puspaj out of 160 shares in total failing which our client would adopt such legal proceedings as he may be advised against you for enforcement of his rights at your entire risk as to costs and consequences." From the above statements, it is clear that although the Plaintiff started by challenging in the correspondence prior to the filing of the suit, the further issue of shares which according to him was contrary to the Family Arrangement under which he was sought to be given a control of Chemstar through his control of Puspaj, the plaint prays for a totally different relief. The Plaintiff, in our opinion is estopped now from challeng-ing the legality of the said issue. Significantly, coming back to the Family Arrangement again, it is o ..... 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