9911796707
TMI Blog2004 (7) TMI 667X X X X Extracts X X X X X X X X Extracts X X X X ..... he case of the petitioner is: The petitioner, formerly known as M/s. Prentice Hall Inc., an internationally well known publisher of text- books, desired to incorporate a wholly owned subsidiary in India to publish its books in India and accordingly applied to the Government of India for permission for the same. While according its approval, the Government stipulated that the foreign holding in the Indian company should be restricted to 49%. In view of this, the petitioner associated one late B.D. Laroia, a renowned academician, as its Indian partner with 51% shares. The company was incorporated in 1963 with the principal object to acquire the rights to print, reprint and publish Text Books of M/s. Prentice Hall Inc. It was because of such association and with the view to promote Prentice Hall titles in India, that the petitioner permitted the use of the petitioner's name by the Indian Company. A collaboration agreement for a period of 10 years was entered into between the petitioner and the company under which the company was to print and publish in India such of the petitioner's titles that had been specified in the collaboration agreement or such other titles that may be mutually ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by M/s. Prentice Hall Inc. and its associates were transferred to the senior employees of the company including the second respondent. Even though the company was to be a wholly own subsidiary of the petitioner, yet, in view of Government of India Regulations, it had to reduce its shareholding and all the shareholders were fully aware that the reduction in the shareholding of the petitioner was on account of Government Regulations and that the Regulations permitting, the petitioner could acquire majority shares. However, it was always understood that the petitioner, notwithstanding its reduced shareholding, would have dominant role in the Management of the Company and in fact the petitioner did so and the second respondent was looking after only day to day affairs of the company. In 1984 further shares were issued on proportionate basis to all the shareholders. In the same year, M/s. Prentice Hall Inc. was taken over by Gulf + Western Inc., which was the parent Corporation of Simon and Schuster and the understanding that the company was to function as an Indian Branch of the petitioner continued. The new management also reposed trust and confidence in the second respondent. In the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dent has increased his remuneration substantially from ₹ 3 lakhs in 1994 to ₹ 30 lakhs in 2003. The second respondent caused the company to file a suit against the petitioner for seeking enforcement of the 1983 Agreement due to which the petitioner was constrained to file a suit against the company in regard to the rights of the company to publish the titles of the petitioner. In spite of the petitioner demanding various documents/information in terms of section 163(3) and (4) of the Act, the second respondent refused to provide the same. Without the knowledge and consent of the petitioner, the second respondent had shifted all the records of the company from the registered office to a premise which is standing in the name of Mediamatics which is a proprietary concern of the third respondent. When the cases were going on in the High Court, the second respondent increased the share capital of the company by issue of further shares. Just to deny the benefit of further shares to the petitioner, he had sent the offer letter to an incomplete address and the offer was received by the petitioner only after the closure date due to which the petitioner could not subscribe to its ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng paid only the name of M/s. Prentice Hall Inc. The petitioner has not filed any document to show that it is the shareholder of the company. In Banford Investment Ltd. v. Magadh Spun Pipe Ltd. [1998] 93 Comp. Cas. 685 1 (CLB - New Delhi) the Company Law Board has laid down that to determine whether a person is a member of the company, it is to be examined as to whether a person claiming to be a member possesses relevant share certificate in his name, or whether there are independent records to establish that he is a member of the company or whether the company has treated him as a member. In the present case, the petitioner does not pass any of the tests indicated above. The contention of the petitioner that it was only a change in the name of the petitioner's company and that there was no transfer of shares is a camouflage and the transaction was to circumvent the provision of Articles. Therefore, till such time the petitioner's name is entered in the Register of Members of the company, it has no locus standi to file this petition. 7. Learned Counsel further submitted: According to the petitioner, M/s. Prentice Hall Inc. was taken over by Pearson Group following the purchase and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... company is a contract among the members and, therefore, members are bound by the provisions in the Articles. Since the Article provides for prior approval of the Board for transfer of shares to a non-member, the transfer of shares to the petitioner is invalid as M/s. Prentice Hall Inc. did not apply for and obtained the prior approval of the Board. In Sunil Sidharthbhai v. CIT [1985] 4 SCC 519, the Supreme Court has held that for the purposes of Income-tax Act, the shares of a private limited company brought in by a partner as his capital contribution to the firm, would amount to transfer. Likewise, in Anarkali Sarabhai v. CIT [1997] 3 SCC 238 the Supreme Court has held that redemption of preference shares of a company amounted to a transfer in terms of the Income-tax Act and the benefit received by the assessee was taxable. In General Radio & Appliances Co. Ltd. v. M.A. Khader [1986] 2 SCC 656, the Supreme Court has held that, even in a scheme of amalgamation sanctioned by the Court, if the transferor- company had taken lease of a premises, then, it would amount to transfer of the premises to the transferee company and as such in terms of the lease deed, the transferee company is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Only the Board of the petitioner-company could authorize Mr. Ravi Oberoi and not a Director. There is noting in the power of attorney to indicate that the Board of the petitioner-company had applied its mind as contemplated by the provisions of section 399 to file this petition. A petition under section 397/398 can be filed only by shareholders of a company and this unique right cannot be presumed to have been conferred by a power of attorney. There is not even a whisper in the power of attorney that it confers right on the holder to institute the present proceedings. It obviously confers the power on him to act on behalf of the company only in the pending proceedings before the High Court. The objection of the respondent on the power of attorney is not a technical one but substantive in nature. The defects in the power of attorney cannot be cured by another power of attorney dated 7-10-2003 wherein the name of the Company Law Board appears. 9. To substantiate this argument in respect of power of attorney, the learned counsel relied on the following cases: In Kiron M. Lulla v. Vikron Fashions (P.) Ltd. [1994] 81 Comp. Cas. 566 (CLB - New Delhi), the CLB has held that where there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns of frauds, culpable negligence etc. against the defendants and the same is made under power of attorney, by merely putting on record the power of attorney, is wholly insufficient for the purpose as the plaintiff agent simplicitor holding an authority to sign the verification under the power of attorney would be incompetent to verify the plaint. Likewise in Bengal Luxmi Cotton Mills Ltd., In re [1965] 35 Comp. Cas. 187 the Calcutta High Court has held that if the petitioner has no personal knowledge of the charges made, he should rely upon supporting affidavits from persons having personal knowledge of the allegations of oppression, mismanagement and misconduct. In this case, there are no supporting affidavits and Shri Oberoi has no personal knowledge of any of the allegations made in the petition. Therefore the affidavit verifying the petition filed by Shri Oberoi, being not in accordance with law, should be rejected. 11. The learned counsel further submitted that this petition has been filed for a collateral purpose. The petitioner has already instituted proceedings in Delhi High Court seeking to restrain the company from publishing certain titles which was one of the objects ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wnership of a company holding shares in another company does not result in transfer of shares as contended by the Respondent. The term "transfer" in the Act has a special connotation. Provisions of section 108, which are mandatory, have to be complied with in a transfer of shares. Even Article 22 of the Articles of Association of the company provides that the transfer should be in writing and should be in the format as per Article 23. Therefore, the provisions of Article 24 relating to pre-emption would apply only in case of a direct sale of shares by a member. In Indian Chemical Products Ltd. v. State of Orissa AIR 1967 SC 253, in pursuance of an agreement consequent on merger of State of Mayurbangh into dominion of India, the State of Orissa, succeeded to the properties purchased by Maharaja of Mayurbangh in the capacity of as the ruler. It applied to the company for rectification of the Register of Members of the company to substitute its name in the place of the Ruler, which the company refused. The Supreme Court held that the title to the shares so purchased by the Maharaja would vest in Orissa State and that the Board of Directors had no power to refuse rectificatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e company, it is entitled to seek amendment to the cause title. This decision would also indicate that mere change of name of a company does not in any way affect the company's rights and liabilities. In Stadmed (P.) Ltd. v. Kshetra Mohan Saha AIR 1968 Cal. 572, it has been held that once an order of rectification is passed by a civil court, even if the company does not rectify the register to put the name of the petitioner in the register, he can file a petition under section 397/398 of the Act. In the present case, in law, the company is bound to rectify the register of members of the company to substitute the name of the petitioner in place of M/s. Prentice Hall Inc., as soon as intimation was given on the change of name to the company. The failure of the company to do so cannot disentitle the petitioner to file this petition. Further, in World Wide Agencies (P.) Ltd. v. Margarat T. Desor AIR 1990 SC 737, the court has held that in case of death of a member, his/her legal representatives are entitled to file a petition under section 397/398 even if their names are not entered in the register of members. All these cases bring out clearly the proposition of law that to institute a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... view of this general power of attorney, the petitioner has filed this petition to protect the interest of the petitioner-company. It has been held in Killick Nixon Ltd.'s case (supra), that a power of attorney holder can file a petition under section 397/398 of the Act. Even though the respondents have relied on the decision of this Bench in Kiron M. Lulla's case (supra) to the proposition that a power of attorney should be specifically authorized to file a petition under section 397/398 of the Act, that decision no longer holds good since the Madras High Court has set aside the order of this Board on appeal. 17. As far as the validity of the affidavit filed by Shri Oberoi verifying the petition is concerned, the same is in conformity with the Company Law Board Regulations. It has been specifically mentioned in the affidavit that the Statement of Facts made in the petition were true and correct to the best of his knowledge upon information received from the records of the case maintained by the petitioner and believed by him to be true while the Statements of Law were based upon legal advise received and believed by him to be true. Nowhere, he has mentioned in the affidavit that h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... artner. Accordingly, it chose an eminent academician Dr. B.D. Laroia. This company was incorporated on 6th June, 1963 with the petitioner being allotted 49% shares and Dr. B.D. Laroia and his wife with 51% shares. As per the collaboration agreement at Annexure P-3, it was the petitioner and its associates who were to grant exclusive right of publication to the company of the petitioner's titles. The collaboration agreement also provided that the agreement could be terminated in the event of the petitioner's shareholding coming to below 20% and on termination the company would omit the words "Prentice" and "Hall" from its name. In view of this agreement, the company cannot publish any of the titles of the petitioner without its permission. When the term of this agreement expired in 1973 the 2nd respondent, in his capacity as the Managing Director, sought for approval of the Government of India for renewal of this agreement. In his proposal to the Government, he had submitted that it was a National advantage to have the benefit of books on various subjects made available to the Universities as well as to the reading public in India. The same proposal stated that M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the company was not aware of the correct address of the petitioner. In the letter dated 21-12-1998, (Annexure P-12) communicating the information that Pearson Group had taken over the petitioner, the address of the petitioner was given. The second respondent had written two letters dated 17-2-2000, to the address given in Annexure P-12. By sending the offer to an incomplete address, the second respondent had ensured that the petitioner could not apply for the right shares. Late receipt of the offer was communicated to the second respondent by a letter dated 4th May, 2001 (Annexure P-21). In the same letter, the petitioner had also sought for changing its name from Prentice Hall Inc. to Pearson Education in the records of the company. Further there was no financial need for increasing the share capital. The company was financially sound when the issue was made. As on 31st March, 2000, the company had earned a profit of ₹ 1.31 crores and had a general Reserve of 4.34 crores with a bank balance of ₹ 1.56 crores. On that day an amount of over ₹ 27 lakhs was due from Mediamatics. The amount raised by the right issue was a nominal sum of only ₹ 18 lakhs. Even duri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was substantial, the 2nd respondent has enriched himself at the cost of the company. Therefore, this allotment is not only a grave act of oppression against the petitioner, but also against the interests of the company. 22. The learned counsel further submitted : The second respondent has been guilty of various acts of mismanagement. First, he inducted his wife as a Director when there was no active participation of the petitioner in 1990. His daughter has also been appointed as an Executive with substantial remuneration. Mediamatics is a proprietorship concern of his wife. Not only the company is a tenant in the premise of Mediamatics paying substantial rent, it has also been engaged as a distributor of the publications of the company with preferential credit terms even though it has no previous experience in the business of distribution of books. Substantial funds of the company has been diverted to Mediamatics. The second respondent and his wife do not have any known source of income other than that derived in course of the association with the company. Only because the petitioner was not involved in the affairs of the company, the second respondent could increase his remunera ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uld be handed over to the petitioner. "Prentice Hall" is a registered trade mark of the petitioner and therefore, cannot be used without its permission. If the said name is used without permission or without associating the petitioner with the management of the company, it would be misleading the public and as such is not permissible in law. Now, the 2nd respondent is not interested to associate the petitioner with the management of the company, but wants to use its name, its books and its goodwill. It is highly inequitable. Only because the petitioner had to comply with the Regulations of the Government of India, it could not acquire the majority shares, initially at the time of incorporation, and when Mrs. Laroia decided to sell her shares. As a matter of fact, the petitioner had to further reduce its holding in 1973 due to GOI regulations. Therefore, the company, using the name of the petitioner without its participation, is a grave act of oppression against the petitioner. After all the 2nd respondent joined the company as an employee and acquired the Indian Promoters' shares at Re. 1 per share when the book value was substantial, and had enjoyed the benefit of office ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is not correct. It was a right issue and in case of right issue the question of reduction in one's shareholding does not arise. An offer was sent to the petitioner on 26-2-2001 with the closure date as 18th March, 2001. The offer was addressed to the address as noted in a number of the books published by the petitioner. Therefore, it is wrong to contend that the offer was sent either to a wrong address or to an incomplete address. Further, even though the petitioner alleges that the offer letter was received after the closure date, yet, it has not indicated the date of receipt of the offer letter. The petitioner was not interested in the affairs of the company as is evident from its letter dated 4th May, 2001 (Annexure P-21) wherein it has stated that the offer letter was received after the closure date but had not asked for being given an option to subscribe to its entitled shares, other than stating that all future communications should be sent to the address given in that letter. Further, till the petition was filed, the petitioner had never complained of non-allotment of right shares, perhaps because the petitioner had started its own parallel business in India. Even in the su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned counsel, the remuneration paid to the 2nd respondent had not only the approval of the shareholders but also the Central Government. In terms of section 309 of the Act, remuneration of the director shall be determined either by Articles of the company or by a resolution or the Articles so required by a special resolution in a general meeting. However, sub-section (9) of section 309 of the Act provides that the provisions of this section are not applicable to a private company unless it is a subsidiary of a public company. Articles 83 and 94 of the Company provide for payment of remuneration to the directors. Therefore, the question of determining the salary of a director is within the power of the Board and there is no need for taking permission from the shareholders. Therefore, there is nothing illegal in fixing the remuneration of the 2nd respondent. 26. As far as the appointment of the 5th respondent as Marketing Manager is concerned, the learned counsel pointed out that she was so appointed by a special resolution at the AGM held on 26th March, 2001 and thereafter the company had taken the approval of the Central Government in terms of section 314(1B) of the Act. Further, s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f seeking for appointment to the Board in terms of the Articles of Association, on the ground that he was carrying on a competing business with the company and that he had exhibited lack of interest in the affairs of the company on account of its own business. Therefore, when the petitioner is carrying on a competing business and has not taken any interest in the affairs of the company for a long period, it is not entitled to have its nominee on the Board even if so entitled in terms of the Articles. The allegation that notices for Board Meetings or AGMs have not been given to the petitioner is not correct as notices were always sent to the petitioner but it never chose to attend any meeting. The shifting of the records of the company from the registered office was approved by a special resolution on 29th September, 2000 in the general meeting as the space available in the registered office was not adequate. Insofar as the allegation that sale proceeds of certain publications have not been accounted for in the books of account is concerned, this allegation has been made only because, the company had not included these titles in the royalty statement furnished to the petitioner as t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t could be granted in this petition would be different from those in the civil suits. 31. The main preliminary objections of the respondents are two fold-that the petitioner has no locus standi to file this petition and secondly the power of attorney given by the petitioner does not authorize Shri Ravi Oberoi to file this petition. As far as the locus standi is concerned, again the objection is two fold. One is that the petitioner's name is not in the register of members. I do not find any merit in this contention. The petitioner has produced the documents relating to change of the name of M/s. Prentice Hall Inc. to that of M/s. Pearson Education Inc. A certificate issued by Secretary of State of the State of Delaware dated 12th January, 2001 has been produced, from which, I find that the change of name was to take effect from 1st January, 2001. As rightly pointed out by Shri Sarkar, section 23 of the Act clearly stipulates that the change of the name of a company shall not affect any rights or obligations of the company. The certificate relating to change of name of a foreign company issued by an authorized person in that country is conclusive evidence of the change of the name a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bers in place of Prentice Hall Inc., and it does not possess share certificates in its own name, Pearson Education Inc. can exercise all rights that are available to Prentice Hall Inc. as a shareholder of the company and therefore the contention of the petitioner that since the petitioner's name is not in the register of members, it cannot file this petition has no merit. 32. The other limb of the objection of the respondents relating to locus standi of the petitioner is that the taking over of M/s. Prentice Hall Inc. by Pearson Education Inc. amounted to transfer of shares of the company and as such the relevant provisions of the Articles giving pre-emptive rights to other members of the company should have been complied with and since there is no such compliance, Pearson Education Inc. cannot be entered as a member in the register of members as the transfer would be invalid ab initio. It is true that Article 24 gives pre-emptive rights to existing members in case of transfer of shares by a member and also prohibits transfer of shares to a non-member without the permission of the Board of Directors. The only issue is whether taking over of M/s. Prentice Hall Inc. by Pearson Group ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shares and in the absence of such an action, the transfer would not be valid in law. A reading of this judgment would also indicate that this is applicable in case of physical transfer of shares. The respondents have relied on all these cases to contend that the term "transfer" used in Article 85 has a wide meaning and as such should not be restricted to direct transfer of shares but should be applied even to an indirect transfer-that is when the control over the shares is passed on by transferring the shareholding company itself. While interpreting the provisions of the Articles, especially in the case of a private limited company, one has to ascertain as to how the parties have understood the provisions of the Articles. If they have understood the provisions of an Article in a particular manner for a long time, then, they cannot seek to interpret the Articles in a different manner when it is convenient to do so. In the present case, the admitted fact is that M/s. Prentice Hall Inc. was taken over by M/s. Gulf + Western Inc. in the year 1984 and it continued to be so till 1998 when Pearson Group acquired the control of M/s. Prentice Hall Inc. During the long period of 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... beroi to file this petition. According to the learned counsel for the respondents, the power of attorney dated 29th May, 2003 given in favour of Shri Ravi Oberoi was limited to the proceedings before Delhi High Court and did not authorize Shri Oberoi to file this petition. He also submitted that the power of attorney signed by a director of the petitioner is not valid as only the Board of a company has powers to appoint the power of attorney. I do not know whether the second limb of the argument was advanced in the High Court in the civil suits as the same power of attorney authorized Shri Oberoi to prosecute the civil suits on behalf of the petitioner. If it was not done so in the High Court, the respondents cannot raise the issue before this Bench. Even otherwise, I find from the power of attorney, that the petitioner-company, in its Board Meeting held on 9th March, 2000 had resolved to appoint Shri Ravi Oberoi for a period of one year and that when the same came to an end after one year, by another power of attorney dated 30th May, 2001, he was again appointed for a further period of two years and that the present power of attorney was being given until expressly revoked by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ack to this Bench for deciding on merits observed "Clause 19 of the power of attorney deed empowers the poser of attorney holder to act as the attorney in relation to the business, firms and companies mentioned in the deed wherever the principal is a partner, is a managing director, director or a shareholder. The clause although do not impose any limitation with regard to the matter in which the power agent can act, which merely states that in any matter in which the principal is interested or concerned or on behalf of the business to execute and to do all deeds, acts or things as fully and effectually in all respect as if he could do if personally present. So, the power of attorney holder has been given the full power to deal in respect of the business on behalf of the principal. When once the power agent has given such unlimited power, normally, it would include dealing of the shares also. Though specifically, there is no mention with regard to the dealing of the shares the matter in which the words have been couched the clause 19, it can be construed that it also includes the power of attorney, the power to deal with the shares. Hence, the power of attorney can sign on beha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this case to the proposition that the power of attorney should be strictly construed and if the authority is given for doing a particular act, any general words following the same should be restricted to what is necessary for performance of that particular act. In that case, one of the issues examined was, whether, when the right to apply under section 397/398 of the Act is a personal right of a member, he could delegate his rights to anybody else. In that case, two shareholder banks as well as consenting members had delegated their rights to the 4th and 5th petitioners to file a petition under section 397/398. It was contended that the petition having been filed on such delegation of authority, the petition was bad in law and not maintainable. This contention was rejected by the Court. The Court, after examining the matter in detail, came to the conclusion that there was nothing in the Companies Act to suggest that it prohibited the application of the normal law of agency to the acts and obligations required to be performed under the Act. It also examined as to whether the consent required to be given by members in terms of section 399 for the purpose of filing a petition under se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re true to the knowledge of the deponent, information received by the deponent, belief of the deponent and the information based on the legal advice. Regulation 14(8) of CLB Regulations further stipulates that where the statement referred to in separate Regulation (7) is stated to be true to the information received by the deponent, the affidavit shall also include the name and complete residential address of the person from whom the information has been received by the deponent and whether the deponent believes that the information to be true. In the present case, according to Shri Oberoi that the statements contained in the petition were based upon the information from the records maintained by the petitioner and nowhere he has stated that he received any information from a third party. Thus, I find that the affidavit is in compliance with the CLB Regulations. The respondents have relied on proposition that verification of pleadings is an important matter having very serious consequences as in case of falsification, a person verifying may be liable to criminal prosecution and where a plaint contains serious allegations of fraud etc., mere putting on record the verification by a p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he company is in need of funds but also for other purposes like compliance with statutory provisions etc; if the issue of shares is in the interest of the company, even if the directors are indirectly benefited, such issue cannot be an act of oppression; if the sole purpose of the issue is for creating a new majority or conversion of an existing majority into a minority, then it is an act of oppression, in a closely held company, if the issue is made with the purpose of disturbing the existing shareholding percentage, it could be an act of oppression. Keeping these broad principles, the issue made in 2001 has to be examined. Insofar as further issue of shares in 2001 is concerned, it was a right issue. Normally in case of a right issue, the question of reduction in the percentage holding of a shareholder does not arise as the allotment would be on a proportionate basis. However, this Board had the occasion to deal with cases, where, even in case of a right issue, this Board came to the conclusion that the issue was not bona fide, but was made with the view to create a new majority or disturb the existing percentage shareholding. In Deepak C. Shriram v. General Sales Ltd. [2001] 4 C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e cases establish that, even in case of a right issue, the need for and the motive for the issue could be examined. In the present case, the allegation is that, even though the issue was on a right basis, by sending the offer letter to a wrong/incomplete address, the petitioner has been denied of its entitlement, by which its shareholding percentage has come down from 31% to about 19%. In regard to this complaint relating to sending of offer letters, I find substance in the complaint of the petitioner. The petitioner's correct address is "One Lake Street, Upper Saddle River, New Jersey, 07458 USA". To this address, the 2nd respondent, in his capacity as MD, had sent two letters on 17-4-2000. The letter head of the petitioner-company in its letter dated 21st March, 2000 and 1st August, 2000 carry the same address. However, the offer letter signed by the 2nd respondent dated 26-2-2001 was addressed to "M/s. Prentice Hall Inc., Upper Saddle River, New Jersey, USA.". It is quite obvious that the offer has not been sent to the correct address of the petitioner. In his letter dated 4th May, 2001, the petitioner had also brought to the notice of the company that the of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e decision of the Board of the company to issue further shares on the ground that the company was not in need of funds. The learned counsel for the petitioner pointed out the financial soundness of the company by referring to the annual reports of the company. He also cited a number of cases as indicated as a part of his arguments to contend that if an issue of shares is made with the intention to reduce the holding of the petitioner, it is an act of oppression. This issue would not have been relevant, if the offer letter had been addressed to the correct address, as, in case of right issue, as I have already observed, the question of reducing one's shareholding would not normally arise. Since I have held that sending of the offer letter to a wrong address was deliberate, the issue as to whether, the issue of further shares was a business necessity or was done to reduce the petitioner's shareholding. Normally, when further issue of shares is challenged, the company should produce all the documents, more particularly, the resolution of the Board, in which the decision to issue further shares was taken. This resolution would normally spell out the reasons for the need to issue furthe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uced any evidence to the effect that it had sought for appointment of its nominees and that the company or the 2nd respondent had refused the said request. However, from the stand of the respondents in the proceedings indicate that they are not willing to associate the petitioner with the management of the company for the reason that the petitioner is having its own business in competition with that of the company and as such the petitioner has lost its right to appoint it and appointing its nominee on the Board would result in conflict of interests. They have cited the cases of British Murac Syndicate (supra) and Bharat Bhushan (supra) for the proposition that a company cannot be forced to appoint directors who are doing competing business with the company. Normally, in closely held companies, especially when the Articles themselves provide for representation on the Board, the denial of the same is an act of oppression. In the present case, it is an admitted fact that the company was incorporated as a sort of quasi partnership between the company and late Laroia and the petitioner always had its nominees on the Board till 1995. The object with which the company was incorporated wo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s far as the failure of the company to supply the documents sought for by the petitioner, I find that even though there was a delay, the company has supplied all the documents sought for by the company (Annexure P-19). 41. The petitioners have alleged mismanagement in the affairs of the company on the ground that the 2nd respondent has increased his remuneration and that he has appointed his own wife as a director and also his own daughter as a marketing executive and that the company is having dealings with Mediamatics which is a proprietary concern of the wife of the 2nd respondent and that the proceeds of publication of certain titles have not been accounted for in the books of the company and have been siphoned of by the 2nd respondent. According to the petitioner, these acts are in breach of the fiduciary duties of the 2nd respondent. In regard to increase in the remuneration of the 2nd respondent, they have also alleged that legal provisions have not been followed. In regard to the appointment of his wife as a director, I find that she was appointed so in 1989 when the nominees of the petitioner were on the Board. One cannot challenge an appointment made more than a decade e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. Article 57 of the Articles of Association of the company clearly spells out that except for the four businesses in terms of section 173, all other businesses shall be deemed to be special. This being the case, all the resolutions relating to remuneration to the 2nd respondent should have been passed as special resolutions. Even though, the petitioner has sought that remuneration approved without special resolutions should be directed to be recovered from the 2nd respondent, considering the fact that provisions of section 309 are not applicable to the company, and the Articles do not specify that shareholder approval is necessary after the Board has approved the remuneration, I do not consider that approval given by ordinary resolution would invalidate the increase in the remuneration. In- sofar as dealings with Mediamatics, appointment of the daughter of the 2nd respondent as Marketing Executive and in relation to the allegation that proceeds of many publications have not been accounted for in the books of account, I am convinced with the submissions of the respondents and as such hold that these allegations have no basis. 42. Having given my findings on the various allegations ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lder or on the company. However, if the petitioner had also, by its continued association with the management of the company without any break, contributed to its growth, perhaps, purely on equitable grounds, I could have considered the justification adduced by the learned counsel for the petitioner, to direct the 2nd respondent to go out of the company. It is on record that the petitioner has not taken any interest in the company right from 1990, for whatever might be reason, and the 2nd respondent was managing the company by himself. During this period, the turnover has gone up from ₹ 3 crores in 1993 to over ₹ 24 crores in the year 2002-2003. To direct a person, who has nurtured the company by himself very profitably without the association of the petitioner in the management, to go out of the company would be highly unjust and inequitable. Further, he is the majority shareholder. The increase in the turnover of the company has benefited the petitioner also by way of higher royalty. This Board has not so far directed a majority shareholder who has been independently managing the company very profitably, to go out of the company. Therefore, this suggestion given by Sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rvation does not bar the petitioner to seek appropriate relief through a civil court in terms of its agreement with the company. 44. Having held that it would be inequitable to direct the 2nd respondent to go out of the company and that to direct the company to omit the words "Prentice Hall" from its name on the petitioner going out of the company would be against the interests of the company, the question of granting appropriate relief arises. Earlier, I have observed that in closely held companies, one of the parties is normally directed to go out of the company and such a party would normally be the minority. In the present case, considering the fact that any such direction may have impact on the civil proceedings before the High Court, I do not propose to give any such direction. Instead, I leave it to the option of the petitioner, the choice of either continuing with the company as a shareholder or going out of the company on receipt of fair consideration for its shares. In case, it decides to continue with the company, since I have held that non-allotment of shares issued in 2001 is an act of oppression against the petitioner, its shareholding percentage should be ..... X X X X Extracts X X X X X X X X Extracts X X X X
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