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TMI Blog2010 (2) TMI 577X X X X Extracts X X X X X X X X Extracts X X X X ..... he company. The action of the company and its board of directors in removing the appellant and the members of his family from the office of the directors is held to be illegal and is set aside. The appellant and the members of his family are restored as the chairman and joint managing director and the directors of the company. - O.J. APPEAL NOS. 245 AND 254 OF 2007 O.J. CIVIL APPLICATION NOS. 410, 421, 438 OF 2007, 20, 284 OF 2008 AND 04 OF 2009 - - - Dated:- 2-2-2010 - R.M. DOSHIT AND M.D. SHAH, JJ. K.G. Vakharia, Dipen Shah and Navin Pahwa for the Appellant. N.D. Nanavati, Sudhir Mehta, Ms. Kiran Chopra, Rakesh Gupta and Kunan B. Naik for the Respondent. JUDGMENT R.M. Doshit, J. - These two appeals preferred under section 10F of the Companies Act, 1956 ( the Act ) arise from the judgment and order dated 9-10-2007 passed by the Company Law Board, Principal Bench, New Delhi (hereinafter referred to as "the Board") in Company Petition No. 111 of 2007 [ Rajendra Kumar Tekriwal v. Unique Construction (P.) Ltd. [2009] 147 Comp. Cas. 737 (CLB - New Delhi)]. 2. The appellant in O.J. Appeal No. 245 of 2007 is one Rajendrakumar Tekriwal, chairman and jo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... p of the above-named Vishnuprasad Shukla. Since the said transfer on 19-11-2003, the authorised share capital of the company of Rs. 6,15,000 was increased to Rs. 9 lakhs. That was further increased to Rs. 25 lakhs on 11-7-2005. At first, 2,876 shares were allotted to respondent No. 2 and a further 14,000 shares were allotted by the company to the Hindu undivided family of respondent No. 2 and the son of respondent No. 2. A further allotment of 2,000 shares was made by the company to the Hindu undivided family of respondent No. 2. None of the aforesaid allotments were registered with the Registrar of Companies until the year 2005. 6. Feeling aggrieved, the appellant instituted a civil suit in the civil court at Indore, which came to be referred to the arbitrator. 7. The appellant then approached the Board under sections 397 to 401 of the Act in the above referred Company Petition No. 111 of 2007 [ Rajendra Kumar Tekriwal s case ( supra )]. The appellant complained of oppression. According to the appellant, the company and respondent No. 2 had surreptitiously removed the appellant and his family members from the directorship of the company; had connived to reduce the holding ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... No. 3 Anandrao Gaekwad appeared before the Board. He filed Civil Application No. 396 of 2007 seeking deletion from the array of the parties. According to respondent No. 3, he had entered into an agreement with the company. In the agreement between the company and the appellant, respondent No. 3 was not a party; that he was not connected with any dispute between the appellant and the company or respondent No. 2. The appellant had no cause of action against respondent No. 3. He was not a necessary or a proper party. His name, therefore, should be deleted from the proceedings. 10. The Board, by its judgment and order dated 9-10-2007 [ Rajendra Kumar Tekriwal s case ( supra )] allowed the petition partially. The Board recorded that the appellant had transferred 1,531 shares (50 per cent of his holding) to the group of Vishnuprasad Shukla of his own volition. The Board recorded that (page 742) : "The petitioner has withdrawn the prayer at paragraph 8.7 pertaining to the alleged transfer of 1,531 shares by the petitioners to one Mr. V. Shukla". The Board did accept that the action of the company in increasing its share capital from Rs. 6,15,000 to Rs. 9,00,000 and later to Rs. 25 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is set aside, the company and respondent No. 2 have preferred the above O.J. Appeal No. 254 of 2007 under section 10F of the Act. The company and respondent No. 2 have filed Civil Application No. 404 of 2009 to bring on record the developments that have taken place pending these appeals. It is contended that since the hearing of these appeals, the appellant Rajendrakumar Tekriwal has approached the District Court at Indore for appointment of a receiver for the preservation and safe custody of the property "Yashvant Plaza". 15. Learned advocate Mr. Vakharia has appeared for the appellant in O.J. Appeal No. 245 of 2007, Rajendrakumar Tekriwal. Mr. Vakharia has taken us through the pleadings, the memorandum and articles of association of the company, the above referred memorandum of understanding and the agreements. He has particularly relied upon articles 9 to 14 of the articles of association pertaining to transfer of shares. He has submitted that under the articles of association any member of the company who desires to sell his shares is required to make an offer to any other member who may be willing to buy the shares at the fair value determined by the auditors. He has submi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of its finding against the company and respondent No. 2, the Board has erred in not granting complete relief to the appellant. In support of his submissions, Mr. Vakharia has relied upon the judgments of the hon ble Supreme Court in the matters of M.S. Madhusoodhanan v. Kerala Kaumudi (P.) Ltd. [2003] 117 Comp. Cas. 19 ; of Dale Carrington Invt. (P.) Ltd. v. P.K. Prathapan [2004] 122 Comp. Cas. 161 ; of Sangramsinh P. Gaekwad v. Shantadevi P. Gaekwad [2005] 123 Comp. Cas. 566 ; of Kamal Kumar Dutta v. Ruby General Hospital Ltd. [2006] 1 34 Comp. Cas. 678 ; of V. S. Krishnan v. Westfort Hi-Tech Hospital Ltd. [2008] 142 Comp. Cas. 235 ; and of Needle Industries (India) Ltd. v. Needle Industries Newey (India) Holding Ltd. [1981] 51 Comp. Cas. 743 (SC). 19. Learned advocate Mr. Navin Pahwa has appeared for the company. At the outset, he has submitted that the present appeal under section 10F of the Act is not maintainable. In the submission of Mr. Pahwa, the appeal does not involve a question of law. He has submitted that the appellant disposed of 50 per cent of his holding of his own volition. The said act cannot be termed as an oppression. The appellan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3. In the matter of Dale Carrington Invt. (P.) Ltd. s case ( supra ) the hon ble Supreme Court considered the action of the appellant-company in increasing the share capital to reduce the majority shareholder to mino-rity shareholder by mala fide act of the company or its board of directors to be a case of oppression. 24. In the matter of V.S. Krishnan s case ( supra ), in paragraph 14 of the judgment, the hon ble Supreme Court has summarised the incidences which would make out a case of oppression as under : "From the above decisions, it is clear that oppression would be made out : ( a )Where the conduct is harsh, burdensome and wrong. ( b )Where the conduct is mala fide and is for a collateral purpose where although the ultimate objective may be in the interest of the company, the immediate purpose would result in an advantage for some shareholders vis-a-vis the others. ( c )The action is against probity and good conduct. ( d )The oppressive act complained of may be fully permissible under law but may yet be oppressive and, therefore, the test as to whether an action is oppressive or not is not based on whether it is legally permissible or not since ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0) 27. We have considered the record, the submissions made by the learned advocates and the above referred judgments. We agree with Mr. Rakesh Gupta. Respondent No. 3 had entered into an agreement with the company and its managing director, respondent No. 2, for development of the land bearing Municipal No. 79 and for the construction of the commercial complex "Yashvant Plaza". Respondent No. 3 is neither a member of the company nor has any connection whatever with the dispute between the appellant on one hand and the company and respondent No. 2 on the other hand. The appellant could not have and has not pleaded a case of oppression against respondent No. 3 nor did he claim any relief against respondent No. 3 in the petition before the Board. In our view, respondent No. 3 was not a proper party in the petition under section 397 of the Act filed by the appellant. Respondent No. 3 has been unnecessarily dragged into the present litigation. In our opinion, the Board ought to have accepted the plea of respondent No. 3 and ought to have discharged respondent No. 3 from the array of the party respondents. 28. As to the maintainability of the petition under section 397/398 of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct situation, we are of the opinion that the company and respondent No. 2 connived to ensure that the appellant and the members of his family did not attend the meetings of the board of directors of the company. In such meetings, the company increased its share capital and allotted the additional shares to respondent No. 2 and his son. Such allotments were made obviously with an intention to reduce the appellant to a frail minority. There could not have been a worse case of oppression. The Board has rightly set aside the allotment of 18,876 shares (2876, 14,000 and 2000) made on 24-11-2003, 14-7-2005 and 27-7-2005. 31. In view of its finding of oppression, the Board ought to have given complete relief to the appellant. The Board has stopped short of granting the complete relief. We are also of the opinion that the Board has rightly not entertained the complaint in respect of the allocation of shops and offices and the proceeds received from such transfer. That is the subject-matter of the arbitration pending before the arbitral Tribunal. 32. In the above view of the matter, we partly allow O.J. Appeal No. 245 of 2007. We hold that the company and respondent No. 2 prevented ..... 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