9911796707
TMI Blog1998 (8) TMI 629X X X X Extracts X X X X X X X X Extracts X X X X ..... d vacation of the second petitioner as director under Section 283. (5) Removal of the first petitioner as director at the extraordinary general meeting held on April 30, 1996. (6) Failure to furnish copies of certain documents sought for. (7) Appointment of respondents Nos. 2 and 3 as directors. 2. Shri Harikrishnan, appearing for the petitioners, initiating the arguments, submitted that the company was incorporated in January, 1989, as a family company consisting of petitioner No. 1, the father ; petitioner No. 2, his second son ; and respondent No. 1, his first son, each holding 9,770, 9,600 and 9,980 shares, respectively, in the company while five other shareholders held among themselves 650 shares. This company was mainly incorporated to run a hotel to be built on a certain land in Kodaikanal, which was collectively purchased by petitioner No. 1 and his sons. All the three of them were directors of the company. Originally, the authorised capital of the company was ₹ 25 lakhs which was later increased to ₹ 30 lakhs and the shareholdings, as indicated above, emerged after such increase. The land in question was leased to the company for a period of three years ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been changes in the shareholding pattern of the company by non-family shareholders having transferred the shares to respondents Nos. 1, 2 and 3 and that respondent No. 1 has also transferred certain shares standing in his name to respondent No. 2 . Shri Harikrishnan submitted that the transfer of shares to non-shareholders is in violation of Article 17 of the articles of association of the company and, as such, has no validity. (2) There had been further increase of shares in respect of respondent No. 1, thus increasing the paid-up capital from ₹ 30 lakhs to ₹ 40 lakhs. This, Shri Harikrishnan submitted, is also in violation of the family understanding according to which further shares should have been allotted to all the family shareholders in the earlier proportion. As a matter of fact, he contended that neither the issue of further capital nor could the transfer of shares have been possible in a board meeting when both the petitioners holding substantial shares in the company were not present. He further added that even the issue of further shares and transfer of shares could be a matter of fabrication. (3) The second petitioner is reported to have vacated hi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e first respondent by which the company has been hijacked. Therefore, he prayed that the various reliefs sought in the petition should be granted so that the original family nature of the company should be maintained and that equal participation in the management of the company by the original family shareholders should be restored. 6. Shri Vedantham Srinivasan, appearing for the respondents, submitted that there is no basis for any of the allegations contained in the petition in view of an oral family settlement that had been reached between the original family shareholders in respect of various properties belonging to the family including that of the company. Pursuant to the oral family settlement, various steps had been taken by which the control of certain properties and companies under respondent No. 1 were transferred to petitioner No. 2 and that a part of the settlement was that control of respondent No. 4-company would vest in respondent No. 1. In view of the settlement, the petitioners never took any interest in the affairs of the company and they never attended any of the meetings of the board in spite of notices. Since they continued to be directors, in spite of the fam ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unsel for the respondents, there has been no violation of Article 17 of the articles of association of the company. 9. With regard to co-option of respondents Nos. 2 and 3 as directors, learned counsel for the respondents submitted that the co-option took place in a board meeting held on March 30, 1995, in which the first petitioner was present and since the control of the company had already been vested with the first respondent as per the family settlement, it was decided to induct his own wife and son as additional directors. This co-option had the full approval and consent of the first petitioner who was present in the board meeting. In view of this, he submitted that there was nothing wrong in the co-option. 10. In so far as the cessation of office of the director by the second petitioner is concerned, Shri Vedantham Srinivasan submitted that in view of the family settlement, the second petitioner was never attending any board meeting right from September 2, 1993. While he could have been deemed to have vacated his office much earlier for failure to attend three consecutive board meetings, yet the same was not given effect to. However, in a board meeting held on September 12 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tions made by the petitioners could justify such a winding up under the just and equitable ground. He relied on the following cases to substantiate his various arguments ; I. (a) Shanti Prasad Jain v. Kalinga Tubes Ltd. [1965] 35 Comp Cas 351 (SC), and (b) Needle Industries (India) Ltd. v. Needle Industries Newey (India) Holding Ltd. [1981] 51 Comp Cas 743 (SC) to state that- ". . . there should be continuous acts on the part of the directors which are burdensome, harsh and wrongful and that the petitioners should show that the alleged acts of 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." II. (a) Bharat Bhushan v. H. B. Portfolio Leasing Ltd. [1992] 74 Comp Cas 20 (Delhi) ; (b) Paramanand Choudkary v. Smt. Shukla Devi Mishra [1990] 67 Comp Cas 45 (MP) to state that- ". . . directors failing to attend three consecutive meetings of the board ceased to be directors." III. Shekhar Mehra v. Kilpest (P.) Ltd. [1986] 3 Comp LJ 234 (MP) to state that- ". . : vacation of office of director by reason of Section 283(1)(g) is automatic." IV. Ja ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his order. In view of the fact that the dispute relates to a family company wherein the petitioners are father and younger son and the main respondent is the eldest son, we advised the parties that the matter should be resolved amicably in the interest of every one. With our assistance and interaction, the parties were close to a settlement by which respondent No. 1 and his group were to purchase the shares held by the petitioners for a total consideration of ₹ 2.7 crores. However, for some reason, this settlement did not take place and we heard the matter on the merits. After the hearing was over, we again persuaded the parties to attempt an amicable settlement, which unfortunately also failed. Accordingly, this order is being issued. 14. It is an admitted position that the company was incorporated as a family company by a single family comprising father and two sons, each holding roughly one-third of the shares in the company with nominal holdings by five outsiders. All the three were directors of the company and the land belonging to all the three was collectively leased to the company for construction of a hotel. All of them pledged their shares as security for mobilisin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... family arrangement and handing over of the control of Esteji Exports to petitioner No. 2, nothing has been produced as to the status of petitioner No. 1 in the family settlement. He continued to be a director on the board of the company and who was also reportedly attending all the board meetings. If the non-attendance of petitioner No. 2 was on account of the family arrangement, how petitioner No. 1 continued to be attending the board meetings is a question which has not been answered satisfactorily. Therefore, we have to, per force, decide the issue before us relating to the company, keeping away the alleged family arrangement, which has not been proved. Even otherwise, as rightly pointed out by Shri Harikrishnan, the family arrangement relating to the affairs of the company unless otherwise has been approved by the company either in the board meeting or in a general body meeting or incorporated in the articles cannot be binding on the company. 17. We shall deal with various allegations : (1) Allotment of additional shares to respondent No. 1 on June 27, 1994. The articles of association of the company provide that shares shall be at the disposal of the directors and they c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... regard to transfer of shares, Article 17 stipulates that no shares shall be transferred to a person who is not a member of the company so long as any member is willing to purchase the same at the fair value to be determined by the auditors. However, there is an exception to this provision as contained in the said article itself that the directors can sanction, through a resolution of the board, a transfer without complying with the provisions of the articles. Admittedly, respondents Nos. 2 and 3 to whom the shares were transferred were not members of the company when the transfers took place, when the non-family shareholders transferred their shares. These transfers reportedly took place on December 30, 1994, in which respondent No. 1 and petitioner No. 1 were allegedly present. The spirit of the exception to this article is that if all the family shareholders who were also directors, agree for transfer of shares without following the procedure in that article, then shares could be transferred to non-members. At the time when the transfers were approved in the board meeting on December 30, 1994, admittedly petitioner No. 2 was not present. Any action relating to transfer without fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and, therefore, there would have been no quorum for inducting additional directors, it is the contention of respondent No. 1 that petitioner No. 1 was present in that meeting and, therefore, there was not only proper quorum, but also in view of the control of the company having already passed on to respondent No. 1 as per the family arrangement, there is nothing illegal in inducting respondents Nos. 2 and 3 as directors. It has to be noted that at the relevant time, when the co-option took place, the TIIC nominee was no longer a director and petitioner No. 2 did not attend this meeting as it is one of the meetings which had been considered for his vacation of office. Respondent No. 1 has produced the attendance slip signed by petitioner No. 1 for his attendance in the meeting on March 30, 1995. As we have already pointed out, this company is a family company having three family shareholders each holding more or less equal percentage of shares and all the three were on the board of directors. Even assuming that petitioner No. 1 was present in that meeting to constitute valid quorum and with his consent, the two directors were co-opted, since such co-option would completely upset th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essive and that legal and valid acts also could be oppressive, in giving our findings, we have confined ourselves to find out whether the various allegations, irrespective of whether they were legal or otherwise, were acts of oppression against the shareholders and our conclusion in respect of almost all the allegations is that the acts alleged are all oppressive to the majority by minority which would justify winding up of the company under the just and equitable ground. Accordingly, the following directions are given : (i) the additional share capital of ₹ 10 lakhs allotted in favour of respondent No. 1 shall either stand cancelled or at the option of the parties respondent No. 1 will transfer proportionate shares out of this additional allotment to petitioners Nos. 1 and 2 ; (ii) respondents Nos. 2 and 3 shall cease to be directors of the company ; (iii) petitioners Nos. 1 and 2 will continue as directors on the board ; (iv) the 680 shares of non-family shareholders transferred to respondent No. 3 shall be transferred to respondent No. 1, petitioner No. 1 and respondent No. 2 in equal proportion and they shall also pay the consideration for the shares as was origin ..... X X X X Extracts X X X X X X X X Extracts X X X X
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