9911796707
TMI Blog1998 (9) TMI 680X X X X Extracts X X X X X X X X Extracts X X X X ..... ication filed by Sri Bajrang Prasad Jalan against the appellants and other respondents under Sections 155/397/398/399/402/403 and 406 of the Companies Act. 4. B.P. Jalan for self as Karta of a Hindu undivided family filed an application against 32 persons including Akshay Nidhi Ltd. the respondent No. 1 and its four subsidiaries, viz. respondent Nos. 2 to 5 claiming various reliefs stated in the application. 5. The matter has a chequered career. 6. One Mohanlal Jalan was the father of the applicant - B.P. Jalan (Applicant-Respondent, Mahabir Prasad Jalan (Respondent No. 1-Appellant) and one Tolaram Jalan. They held the properties left by the aforementioned Mohonlal Jalan jointly. Tolaram Jalan separated his 1/3rd share from the joint family however, remained as a result whereof a partition took place Mahabir Prasad Jalan (MPJ), and Bajrang Prasad Jalan (BPJ). The sisters of the aforementioned B.P. Jalan, Mahabir Prasad Jalan and Tolaram Jalan allegedly relinquished their right, title and interest in the properties and assets of Mohanlal Jalan. 7. Allegedly after the death of Mohanlal Jalan his sons Bajrang Prasad Jalan, (BPJ) and Mahabir Prasad Jalan (MPJ) came in control of 32 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anies viz. 1. Lovelock Properties Pr. Ltd. 2. Balaji Development Pr. Ltd. 3. Shree Hanuman Properties & Finance Ltd. 4. Dover Part Builders Pr. Ltd. 5. Mahabir Holdings & Finance Ltd. 6. Nityanand Merchantile Ltd. (R-19). 7. Dee Cee Trading & Finance Ltd. 8. Phool Holdings Ltd. (R. 20) 9. Juban Leasing Ltd. 10. Aarkay Mercantile Ltd. 11. Pursuant to or in furtherence of an agreement the said two groups and their family members began to control and manage in equal shares the affairs of 31 companies which allegedly are domestic companies as also other companies, as indicated hereinbefore. In middle of 1988, the Jalan family retained through Dinesh Vinyog Ltd. about 48% control of the shareholding of Oriental Gas Co. Ltd. Allegedly the shareholdings of the aforementioned companies pursuant to the family arrangement was in the following manner: (i) Directly equally between the two brothers, MPJ and BPJ and their respective family members of with the slight majority in favour of one or the other of such families. (ii) Directly in the names of MPJ and BPJ and their respective family members and by interweaving and inter-locking of shareholding amongst the other c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rted to by M. P. J. and his son to cause prejudice to the Applicant and his family members which led to filing of 3 proceedings under the Companies Act viz. Application under Section 397 and 398 of the Companies Act against Sandip Investment and Marut Jute Udyog Limited being Company Petition No. 493/89 (Re. Sandip Investment Pvt. Ltd.), application under Section 397/398 of the Companies Act against Debonair Agency Ltd. and its subsidiary Dinesh being Company Petition 494/89 as also the present proceedings in respect of Akshay Nidhi Ltd.... Allegedly during course of hearing of those proceedings, inspections were made resulting discovery of various others acts of omissions and commissions. The proceedings in relation to Sandip Investment Ltd. was disposed of by a learned single judge of this Court which has been affirmed by the division bench with certain modification. The matter is said to be now pending before Hon'ble the Supreme Court of India. The matter in respect of Debonair Agency Ltd. has also been disposed of by B.L. Jain, J., by a judgment and order dated 17-6-96 and an appeal there against is being disposed of. In this proceedings an interlocutory order was passed be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reto to matter was heard again and by a dictated order dated 20th June, 1997 the said judgment was suitably modified in terms whereof Their Lordships merely directed disposal of the stay application. As against the said order a special leave petition was filed by the applicants herein and the Apex Court directed hearing of the appeal afresh without reference to the said judgment dated 19-6-97. 16. However, as stated hereinbefore, before us the counsel for both the parties prayed that the main Company Petition itself be disposed of. By a separate judgment we have disposed of the appeal in respect of that portion of the order passed by the learned trial Judge dated 6-2-97 whereby criminal proceedings under Schedule XI of the Companies Act were directed to be initiated. 17. The present application was filed on 12th September, 1990. Affidavits thereafter were exchanged. During the course of hearing written submissions have also been presented before this Court. As in the other two cases a preliminary objection had been taken as regard maintainability of the application, inter alia on the ground that as a suit having been filed, the instant application is not maintainable, and further ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 00 7.67% M.P. Jalan (HUF) 10,000 5.12% B.P Jalan (HUF) 25,000 12.80% A. Jalan 10,000 5.12% Aditya Kanoria/Nityanand Merchantile Ltd. 15,000 7.67% Pholl Holding Ltd. 20,000 10.23% Bhanu Traders Ltd. 20,000 10.23% Aarkay Mercantile Ltd. 15,000 7.67% Misc. Shareholders (Various) 10,425 5.35% Maruti Jute Udyog Ltd. 15,000 7.67% 40,000 20.47% 50,000 25.57% S. Choraria 10,000 5.12% TOTAL : 40,000 20.47% 60,000 30.69% 35,000 17.92% 60,425 30.92% SUMMARY M. P. JALAN : (DIRECT) 20.47% M. P. JALAN : (PROXY) 30.69% 51.16% B. P. JALAN : (DIRECT) 17.92% Others 30.92% TOTAL 100.00% 21. There cannot be any doubt that the Applicant (BPS) and his group are minority shareholders. However, the companies are so inter-linked and interwoven, there cannot be any doubt that one company had connection with the other subsidiary companies of Akshay Nidhi Ltd., as would be evident from the following chart:- 22. Furthermore, the fact as noticed hereinbefore, clearly shows that behind all the aforementioned companies individuals have their hand which allegedly were manoeuvring the affairs of the company in such a manner so as to oust others from the affa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ewey (I) Holdings Ltd., . 26. In Loch v. John Blackwood Ltd. reported in 1924 AC 783, it has been held that certain companies may be treated as family or domestic concerns. In the instant case as noticed hereinbefore Akshay Nidhi Ltd. was managed by Jalans. When a partition took place amongst the three brothers, Akshay Nidhi Ltd. was not allotted in favour of Tolaram Jalan and remained in the joint venture of M.P.J and his sons and B.P.J and his sons. Therefore, the concept of partnership is also available in relation to such a company. 27. It is also a trite law that over the affairs of company in question its entire affairs including those of the subsidiary companies can also be looked into. 28. In World Wide Agencies Pvt. Ltd. v. Mrs. Margarat T. Desor , the Apex Court rejected an objection to the effect that the appellants before it were not members of the company as their nominees had not been recorded in the register of members. 29. Before considering the charges and counter charges in relation to the board meeting of Akshay Nidhi Ltd., it may be noticed that it has 5 Directors. R.K. Nakhat - respondent No. 14, N. Padia, M.G. Lakhotia, P.K. Dalmia in the Board Meeting dat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss Accounts which are at pages 53 to 55 of Vol-I of the Paper Book. 32. In the minutes of the meeting of the Board of Directors of Akshaya Nidhi Ltd., the following resolutions were taken :- "Resolved that Draft Balance Sheet of the Company as at 31st March, 1989, together with the Profit & Loss A/c. for the year ended on that date be and are hereby received approved and adopted." "Further resolved that the said Balance Sheet and Profit & Loss A/c. be signed in accordance with the provisions of the Companies Act, 1956 and be submitted to the Auditors of the Company for their report thereon." "Resolved that next Annual General Meeting of the shareholders of the Company be called at the Registered Office of the Company at 36, Chowringhee Road, Calcutta 71, on Thursday the 28th September, 1989 at 11 am to transact the business as specified in Draft Notice of the Annual General Meeting placed before the meeting and Sri M.G. Lakhotia Director of the Company be and is hereby authorised to sign the Notice of the meeting and to send the same to all the shareholders of the Company and also to make necessary arrangements to implement the Resolution." &q ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ner and Akshay Nidhi Ltd. respectively. 34. Apart from the fact that there has been a vague allegation and the bare denial or the contents of the letters of Sri Padia, it has been admitted that there has been no advertisement and it is only stated that C.E.S.C. was informed by a letter dated 1-9-89. The argument to the effect that similar such lapses had occurred earlier does not impress this Court inasmuch as according to the applicants such resolutions have been made with collateral object and preventing him from enjoying the benefits or shareholders in Akshay Nidhi Ltd. The submission of the learned Counsel for the respondents to the effect that the same being a family company no notice was required to be serves is stated to be rejected. 35. The argument of the respondents to the effect that it was incumbent upon the applicant to produce documents to show that on earlier occasions notices had been given is of no moment as issuance of such notice and advertisement is not only the requirement of law but the purported resolution itself states about issuance of such advertisement. Similarly the argument of the Respondent to the effect that the applicant had not shown as to what st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shares held by Akshay Nidhi Ltd. in Raigarh Trading Ltd. is concerned this Court is of the opinion that the same does not appear to have been made in normal course of business. Apart from lack of notice and material particulars in the affidavits filed by the respondents with regard to the persons to whom the shares had been sold the element of haste involved therein is a pointer to the fact that the same was sought to be done for some collateral purposes. Any decision to transfer the shares and recording the names of the transferees in the register of the companies without notice is void. See Turner v. Morrison (1935 Ltd.) reported in (1980) 50 Com Cas 296. 39. This Court for the purpose of disposal of the matter cannot consider the price at which such shares were purchased by Akshay. It is stated that despite the fact that in Calcutta Stock Exchange the rate was quoted at ₹ 103/- the shares were sold at the rate of ₹ 25/-. In this context it was submitted that such shares were purchased by Akshay Nidhi Ltd. on 4th November, at the rate of ₹ 19-03 per share. The learned Counsel for the respondents had produced before us an Income Tax Ready Reckoner to show that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aft accounts of the company were placed before the Board and approved. Resolutions were passed inter alia, in connection with the approval of Directors' Report, holding of Annual General Meeting, closure of Register of Members and Share Transfer Register, representation under Section 187 in the Annual General Meeting of various Jalan Group Companies, etc. This meeting is illegal, irregular, null and void and not binding upon me or the company as no notice of the meeting was given to me. (4) You informed me that the Sixth Annual General Meeting of the Company was purportedly held on 28th Sept. 89 at 11.00 a.m. at its Registered Office. This alleged meeting is irregular and illegal as no Board Meeting was held to finalise the notice to convene the purported Annual General Meeting. (5) Another Board Meeting of the company has been purportedly held on 16th October '89 at 2.30 p.m. Once again I was not given any notice of the said meeting and, therefore, the same is illegal, irregular null and void and not binding upon me or the company. The resolutions passed at that meeting inter alia of. transfer of shares from Nityanand Merchantile Ltd. to Mr. Aditya Kanoria and from Swa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... placed before the Board for approval and the resolution was passed inter alia in connection with the Directors' Report, holding an Annual General Meeting, closure of Register of Members and Share Transfer Register, representation under Section 187 in the Annual General Meeting of various Group companies, etc. Since no notice for the said meeting was ever given to me either in writing or otherwise, the meeting is illegal, irregular, null and void and not binding upon me or the Company. (4) I understand that the Sixth Annual General Meeting of the Company was purportedly held on 28th Sept. '89 at 11.00 a.m. at its Registered Office where Mr. M.G. Lakhotia, Mr. R.K. Nakhat, Mrs. Madhuri Devi Jalan (representing Deepa Trade and Commerce Ltd.), Mr. M.P. Jalan, Mr. S.N. Bagri (representing Bhanu Traders Pvt. Ltd.), Mr. R. Bedi (representing Aarkay Merchantile Ltd.) and Mr. M.C. Pandiya (representing Bhool Holding Ltd.) have been shown present. This purported meeting is also irregular, illegal, null and void and not binding upon me or the Company as no Board Meeting was ever held in order to convene the Annual General Meeting. (5) I understand that the Board Meeting of the Com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... respondent No. 27. The same bears the initial of respondent No. 17. Documents have been brought on records to show that such interpolation appeared to have been made on 24-2-90 which was the date of first inspection after Order dated 20th February, 1990 was passed in Suit No. 849/89 as also prior to 27-2-90 which was the date of second inspection. It has also been brought on records that respondent No. 13 is shown to have Chaired in Annual General Meeting of respondent No. 23 at New Delhi at 3.30 p.m. on the same date and is said to have also attended the meeting in Calcutta at the same time. The respondent No. 13 had not affirmed any affidavit denying the said fact. It has further been brought on record that there was no flight from Calcutta to Delhi between 11 a.m. to 3.30 p.m. Similarly the respondent No. 12 has also been shown to be present at the same meeting, although he was not of town. At appears that although Sri Padia having attended in the meeting after issuance of notice to him, might have become stagnant as has been held in Parmeshwari Prasad v. Union of India, but the fact remains that such interpolation in the meeting have been detected. 43. There are allegations an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alteration was done after the first inspection of shareholders' minute book which was taken by B.P. Jalan on 24th February, 1990 and was noticed on the second inspection taken by B.P. Jalan on 27th February, 1990. Madhuri Jalan could not have been present at the said meeting as authorised representative of Deepa as Deepa had sold all its shares in Akshay and in fact did not authorise any such representation as would appear from a letter dated 9th March, 1990 allegedly issued by Deepa to B.P. Jalan, (f) M.C. Pandiya and R. Bedi who were shown to be present at the said meeting could not have been present because they were shown to be present in meetings of other companies held on the same day and at the same time. (g) As Anushree Jalan, M.C. Pandiya and R. Bedi could not have been present at the said meeting, there was no quorum for the purpose of the said meeting. (h) There has been violation of the provisions of Section 256 of the Companies Act, 1956 regarding retirement of directors." 45. In this connection it may be mentioned that we have been taken through the judgment in relation to the proceeding of Debonair Agencies Ltd. wherein similar allegations had been m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to some part of the members (including himself) may petition the Court which, if satisfied that the facts would justify a winding-up order on the just and equitable ground but that this would unduly prejudice that part of the members, may make such order as it thinks fit. The order may regulate the conduct of the company's affairs in future, may order the purchase of the shares of any members of the company by other members or by the company itself with a consequent reduction of capital or may otherwise bring to an end the matters complained of. Where an alteration of the memorandum or articles is ordered the company may not make any further alteration inconsistent therewith without the leave of the Court. As in the case of a winding-up petition on the just and equitable ground this affords an individual member a remedy for internal improprieties free from the trammels of the Foss v. Harbottle rule. And it has the enormous advantage over winding up that it is less drastic and more flexible; instead of killing the company it enables the Court to impose whatever solution it considers just and equitable. As a weapon in the shareholder's armoury it has often proved effective ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a good law. 54. Furthermore it may be borne in mind that while finally adjudicating upon a petition under Section 397/398 of the Companies Act, the Court can even distribute the asset of a Company which has been even prayed for in this application by the concerned respondents themselves. Reference in this connection may be made to Sishu Ranjan Dutta v. Bhola Nath Poddar, reported in (1983) 53 Com Cas 883 : (1981 Tax LR NOC 152) and in that view of the matter there is absolutely no reason as to why unregistered shareholders cannot be said to have any locus standi to maintain the application. Reference in this connection may also be made to Clemens v. Clemens Bros Ltd., reported in 1975 (2) All ER 268. 55. In Scottish Co-operative Wholesale Society Ltd. v. Meyer, reported in 1958 (3) All ER 66 also it has been held that when a Court is in seisin of a matter under Section 397/398 of the Companies Act it can take notice of the affairs of the subsidiary companies also. 56. Keeping in view the aforementioned principles, the affairs of the respondents Nos. 3 to 7 companies as regards 'Ultra' the validity and/or illegality of 5 Board Meetings and one Annual General Meeting in qu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as no complaint has been made by C.B. Gupta himself. As indicated hereinbefore the allegation is that the Directors have been co-opted with a view to oust the applicants' group. 60. Furthermore, in this case the letter dated 15-1-90 issued by Sri M. Padia is also relevant. He had requested for notice of the Board Meeting by registered post. Similar request had been made by a letter dated 15-1-90. The only statement made in the affidavit-in-opposition is that the said notice returned unserved. Whatever be the circumstances, the resolution purported to have adopted therein that a new Bank Account be opined and none of the Directors who are in the side of B.P. Jalan was authorised to operate said Bank Account also assumes significance. 61. In the Board Meeting dated 21st June, 1990 the following resolution was passed :- "Leave of absence :- Sri M. Padia placed a letter dated 19th June, 1990 from Sri M.C. Baid requesting grant of leave of absence and informing that notice to hold this meeting was not sent to him by the company. The chairman informed that the notice was duly sent by registered post and placed the R/C No. 128 dated 12-6-90 relating to the posting. The Direc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ho had also taken inspection earlier. The Chairman placed the companies reply dated 5th June, 1990. A letter dated 11 -6-90 of Mr. M. Padia has been received asking for inspection under Section 163(2) and 163(3) of the Companies Act, 1956. The Board noted the same. It was noted that Sri Padia has been inspection earlier and he is most welcome to take further inspection on 25-6-90 as per his desire." 62. In that case, allegedly the notice served by M.P. Baid was returned undelivered. Despite the same no further notice was given and Sri Baid was removed from the partnership. There also appears to be controversy as to whether letters of Mr. Padia to Ultra dated 2nd July, 1990 was replied or not. It may not be necessary to go into that question at this stage. 63. The next meeting which is sought to be under challenge, is the Annual General Meeting held on 27th September, 1989. Allegedly no such Annual General Meeting had been held and no notice had been given to the shareholders. As noticed hereinbefore important resolutions appear to have been taken in the final meeting. Annual General Meeting has its own importance. Such a meeting cannot be held without complying with the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctual board meeting was held and there was no valid quorum. 67. It has not been denied that relevant formalities by filling up forms in Form Nos. 29 and 32 as is required under Sections 303 and 307 of the Companies Act had not been complied with by respondent No. 16, although noting is on record to show that a date had been fixed for holding Annual General Meeting of Akshay Nidhi Ltd. on 29-9-89, a resolution was made that S. N. Bagri, R.K. Nakhat and P.K. Dalmia would represent the company at the Annual General Meeting to be held- on a near future. In the facts and circumstances of this case and for the reasons stated hereinbefore we also do not accept the argument that the applicants had not been prejudiced by reason of such resolutions. 68. Again a meeting was held on 16-10-1989, the minutes whereof is as follows: "Resolved that Sri S.N. Bagri or failing him Sri A.C. Nakhat or failing him Sri P.K. Dalmia be and are hereby authorised severally to act as the Company's representative pursuant to the provisions of Section 187 of the Companies Act 1950 and to attend and vote on behalf of the company at the Annual General Meeting or any adjournment and postponement thereo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ear that there are reasons to hold that there had been acts of 'oppression' by the majority shareholders on the minority shareholders. 76. In a proceeding under Section 397/398 of the Companies Act, it is not necessary that all the allegations made in the application must be proved to the hilt. 77. For the purpose of holding that the conduct of a particular group amounts to oppression the same should be harsh and wrongful. It does not include an isolated incident but there must be a continuing course of oppressive conduct. However, such provisions are not confined merely to conduct designed to secure pecuniary advantage to the oppressors, they may cover wrongful usurption of authority even though the affairs of the company proper in consequences. See paragraph 1011 of Halsbury's Laws of England, Vol. 7, 4th Edn. 78. However, such an order can be passed also on just and equitable ground. What would be just and equitable principle, having a link with a partnership law have been stated in paragraphs 2208 and 2209 of Halsbury's Laws of England, 4th Edn. Vol. 7(3) and it is not necessary to reiterate the same. Suffice it to say that the words 'just and equitable&# ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... panies and subsidiary companies are treated to be separates but there are many restrictions and qualifications in relation thereto. But there cannot be any doubt whatsoever that for the purpose considering a matter of oppression, the action on the part of the majority shareholders of a holding company may also be applied in the case of the subsidiary companies as holding companies hold majority shares in the subsidiary companies particularly when both holding company and subsidiaries are family companies and for that limited purpose the corporate veil can be lifted. In the decision itself it has been held :- "The principles indicate that the wide powers of Sections 397 and 398 of the Companies Act, 1956 given to the Court should no doubt be used in appropriate cases, but they must be used with caution and not to substitute the company by the Court management for every difference of opinion between the shareholders." 85. In this view of the matter, it has to be held that the petitions must succeed the shareholding pattern of the parties have been stated hereinbefore. The respondents hold a majority share although the actions on the part of the respondents were taken in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Even transfer of shares had not been registered in normal course. Apart from lack of notice, lack of material particulars in the affidavits filed by the respondents with regard to the persons to whom the share had been sold and the element of haste involved therein is also a pointer to the fact that the same had been done with a view to wrestle the affairs of the company in their hands, he tilting the balance in their own favour. See Turner Morrison & Company Ltd. v. Shalimar Tar Products (1935) Ltd. reported in (1980) 50 Com Cas 296. 90. Even allegations had been made that shares had been transferred at nominal values. It is now a trite law that the burden of proof in such cases is on the persons who are beneficiaries of the transactions so as to show that such transfers had taken place either by way of necessity and/or the same were advantageous to the company as has been held in Turner Morison (1980) 50 Com Cas 296) (supra), which burden the respondents have failed to discharge. 91. The main question which now arises for consideration as to what relief should be granted in the matter. 92. In Re a company ex parte Shooter Re a company ex parte Broadhurst reported in 1990 BCLC ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt in Hathi Mal Pincha v. Kettela Tea Company Pvt. Ltd. OJ (Company Appeal) No. 45 of 1997) disposed of on 18-3-1998. In that case keeping in view the fact that an oppression was alleged in relation to a running concern, parties were directed to submit their respective bids in sealed covers. The aforementioned unreported decision is not an authority for the proposition that in all cases the Court will follow one pattern or the other. 95. There cannot be any doubt whatsover that the power conferred upon the Court in terms of Section 402 of the Company Act is very wide. The Court can, pass different orders in different cases keeping in view the nature of the allegations and the facts and circumstances of each case. 96. There cannot further be any doubt whatsoever that in all circumstances the minority or the oppressed has to sell or relinquish its shareholding as the main consideration is what would be for the benefit of the company. 97. The only property of all these companies is an immoveable property situate at 36, Chowringhee Road. It does not have any other business nor does run any industry and, thus, the question as to who manages the company takes a back seat. It is in thi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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