Bombay High Court
Jer Rutton Kavasmaneck vs Gharda Chemicals Limited on 20 December, 2012
Bench: R.D. Dhanuka
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IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
COMPANY APPEAL (L) NO. 41 OF 2012
IN
CLB COMPANY APPLICATION NO. 85 OF 2012
IN
CLB COMPANY PETITION NO. 87 OF 2010
1. JER RUTTON KAVASMANECK )
alias JER JAWAHAR THADANI, )
residing at 193, Jupiter Apartment,
Cuffe Parade, Mumbai 400 005.
)
)
2. DARIUS RUTTON KAVASMANECK )
residing at 626, Parsi Colony, )
Dadar, Mumbai 400 014. ) ... APPELLANTS
V/S
1. GHARDA CHEMICALS LIMITED )
a Company incorporated under the )
Companies Act, 1956 and having its )
registered address at Gharda House, )
48, Hill Road, Bandra (West), )
Mumbai 400 050. )
2. KEKI HORMUSJI GHARDA )
of Mumbai, Indian Inhabitant, )
having his address at Gharda House, )
48, Hill Road, Bandra (West), )
Mumbai 400 050. )
3. ABAN KEKI GHARDA )
of Mumbai, Indian Inhabitant, )
having his address at Gharda House, )
48, Hill Road, Bandra (West), )
Mumbai 400 050. )
4. ALMIRA H. PATEL )
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of Mumbai, Indian Inhabitant, )
having his address at Gharda House, )
48, Hill Road, Bandra (West), )
Mumbai 400 050. )
5. D.T.DESAI )
of Mumbai, Indian Inhabitant, )
having his address at Gharda House, )
48, Hill Road, Bandra (West), )
Mumbai 400 050. )
6. MAHARUKH MURAD OOMRIGAR, )
having her address at T/176, )
AA Palm Beach, Juhu Tara Road, )
Juhu, Mumbai 400 049.
ig )
7. PERCY RUTTON KAVASMANECK, )
residing at 134, Olivera Way, )
Palm Beach Garden 33418, Florida, )
USA. )
8. ABAN PERCY KAVASMANECK, )
residing at 134, Olivera Way, )
Palm Beach Garden 33418, Florida, )
USA. ) ... RESPONDENTS
...................
Mr Pravin Samdhani, Senior Advocate along with Mr.Shriraj Dhruv, Mr.Snehal
Shah, Ms Khyati Ghevaria and Mr.Manish Acharya, i/b. M/s Dhruv & Co. for
the Appellants.
Mr Ravi Kadam, Senior Advocate along with Mr.Suhas Tulzapurkar,
Mr.Nishad Nadkarni, Mr.Vineet Srivastava, Mr.Abhishek Adke, Mr.Ashutosh
Sampat, i/b. Legasis Partners for Respondent No.1.
Mr Vinod Bobde, Senior Advocate along with Mr.Suhas Tulzapurkar,
Mr.Nishad Nadkarni, Mr. Vineet Srivastava, Mr. Abhishek Adke, Mr. Ashutosh
Sampat, i/b. Legasis Partners for Respondent No.2.
Mr T.N. Subramaniyam, Senior Advocate along with Mr. Suhas Tulzapurkar,
Mr.Nishad Nadkarni, Mr.Vineet Srivastava, Mr.Abhishek Adke, Mr.Ashutosh
Sampat, i/b. Legasis Partners for Respondent No.3.
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Mr Sunip Sen along with Mr.Suhas Tulzapurkar, Mr.Nishad Nadkarni,
Mr.Vineet Srivastava, Mr.Abhishek Adke, i/b. Legasis Partners for Respondent
Nos.4 and 5.
Dr Birendra Saraf along with Ms. Ankita Singhania, i/b. M/s D.H.Law
Associates for Respondent Nos.7 and 8.
Mr.V.R.Dhond, Senior Advocate alongwith Mr.Amit Jamsandekar and
Ms.Pratibha Mehta, i/b. M/s.Little & Co. for Applicant Godrej Industries
Intervenor.
CORAM : R.D.DHANUKA J.
RESERVED ON : OCTOBER 16, 2012
PRONOUNCED ON : DECEMBER 20, 2012
ORAL JUDGMENT :
Admit. By consent of the parties, the present appeal was heard finally
at the admission stage and is disposed of by this Judgment.
2. The appellants have formulated following questions of law for
determination of this Court :
A. Whether the CLB does not have the power to review its
earlier Order when the earlier order was not obtained on fraud or
fabricated documents ?
B. Whether the CLB could not have entertained an application
filed by the 1stRespondent, which was in effect and even stated to
be for review of an earlier order passed by the CLB ?
C. Whether the CLB could not have vacated its Order dated May
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21, 2012 on the same grounds on the basis of which the Order
dated May 2012 was passed ?
D. Whether the CLB is required to "pronounce" its orders and
whether an order merely posted by speed post without its being
"pronounced" is not a judicial order in the eyes of law?
E. Whether the CLB could not have permitted the 1st
Respondent from implementing a resolution purportedly passed at
its Extraordinary General Meeting when :
(i) the CLB itself permitted amendment of the Company Petition
impugning the convening of the said EOGM, and
(ii) the CLB had adjourned another Company Application for
further amendment of the Company Petition questioning the
conduct at the impugned EOGM?
F. Whether the CLB could not have permitted the 1st Respondent
to implement the resolution purportedly passed at the impugned
EOGM when the conduct of the impugned EOGM was under
serious dispute and challenge and without even considering the
prima facie case made out by the Appellants ?
G. Whether the abrogation of the vested right of preemption
from the Articles of Association itself amounts to oppression?
H. Whether the majority rights cannot be abused for amending
the Articles of Association of a Company in a manner that is
oppressive to the minority shareholders ?
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I. Whether the Appellants are entitled to challenge the conduct
of the impugned EOGM as well as the rulings given by the
Chairman on the ground that the same were patently illegal, mala
fide and a part of the preconceived deliberate oppressive design ?
J. Whether the CLB could not have permitted the 1st
Respondent to implement the resolution deleting Article 57 on the
ground that it was invalid when the challenge to the validity of the
said Article was itself pending in the Hon'ble Supreme Court ?
3.
Some of the relevant facts which have bearing on various issues raised
by the parties and which emerge from the pleadings and documents filed by the
parties are as under.
This appeal filed under Section 10F of the Companies Act, 1956 is
directed against an order dated 13th August 2012 passed by the Company Law
Board, Mumbai (for short CLB) allowing Company Application No.85 of 2012
which was filed by the first respondent in Company Petition No.87 of 2010.
By the said order, the CLB has allowed Company Application No.85 of 2012
by which the first respondent had applied for vacating and/or modifying ad
interim order dated 21st May 2012 passed by the CLB. By order dated 21st
May 2012 in C.A.No.73 of 2012 filed by the appellants, the CLB allowed the
first respondent company to proceed with the Extra Ordinary General Body
Meeting (EOGM) on 22nd May 2012 and ordered that the resolutions passed if
any, in the EOGM on 22nd May 2012 shall be kept in abeyance till further
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orders. The said C.A. (73/12) was filed by the appellants in Company Petition
No.87 of 2010 under Sections 397, 398 read with 402 of the Companies Act,
1956 alleging oppression and mismanagement in respondent No.1 company by
respondent No.2. In the said Company Petition (87/10) filed by the appellants,
the appellants sought injunction against holding of EOGM then proposed to be
held on 12th November 2010 to consider resolutions to delete certain Articles
including Art.57 which provides for a right for preemption to the shareholders
of the first respondent company.
4. Jer Rutton Kavasmaneck @ Jer Jawahar Thadani (herein after
referred as JRK) is original first claimant in Company Petition No.
87/397-398/CLB/MB/2010. Darius Rutton Kavasmaneck (herein after
referred as DRK) is original second claimant in the said Company Petition.
DRK is a son of JRK.
The first respondent is a company (hereinafter referred as the said
company) in which the appellants and the respondents are shareholders. The
second respondent Mr Keki Hormusji Gharda (herein after referred as Dr
Gharda) is the brother of JRK and is Chairman and Managing Director of the
said company. The third respondent is wife of Dr Gharda and also a Director of
the said company. The fourth respondent is wife of ex Chairman and Director
of the said company. The fifth respondent is Chartered Accountant and is on
the Board of Directors of the said company. The sixth to eighth respondents
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were joined as additional respondents to C.A.No.73 of 2012 before the CLB.
The sixth respondent is daughter of JRK and sister of DRK. She owns and/or
controls 3814 equity shares of the said company constituting approximately
6%. The seventh respondent is the son of JRK and brother of DRK. The eighth
respondent is wife of the seventh respondent and they between themselves hold
and/or otherwise control 4301 equity shares of the first respondent constituting
approximately 7%.
5. On 28th April, 1962 under a Deed of Partnership of M/s Gharda
Chemicals, Kavasmanecks and Gharda became the partners. On 7th March,
1967 M/s Gharda Chemicals Pvt. Ltd. was incorporated to take away the
affairs of said M/s Gharda Chemicals. On 7th August, 1988, the said M/s
Gharda Chemicals Pvt. Ltd., became a deemed public company as a result of
turnover criteria under Section 43A of the Companies Act.
6. In 1990 JRK, DRK along with other Kavasmanecks and Rebello filed
Company Petition (77 of 1990) in this Court under Section 397 and 398 of the
Companies Act against the said company. After the first respondent
Company became a deemed public Company pursuant to Section 42 of the
Companies Act with effect from 17th August 1988, necessary changes were
carried out in the Certificate of incorporation by the Registrar of Companies.
Section 43(A) permitted deemed Public Limited Company to retain the
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provisions referred to in Section 3(i)(iii) of the Companies Act. Pursuant to the
Companies Amendment Act 2000, Section 3 of the said Act was amended to
add further requirement viz (d) prohibits any invitation or acceptance of
deposits from the persons other than its members and directors or their
relatives and Section 43(A) deleted by way of amendment in the year 2000.
Consequently the third category of the Company i.e. Deemed Public Limited
Companies which continued to be permitted to include provisions applicable
to Private Limited Company ceased to exist. Thereafter there are only two
categories of Companies in the Companies Act viz. 'Private' and 'Public'.
7. On 2nd April 2001, the first respondent Company issued a notice calling
upon EOGM to pass special resolution to amend Art. 3 of the Articles of
Association to insert clause (d) prohibiting acceptance of deposits from
persons other than members, directors or their relatives and also to change the
name of the Company from Gharda Chemicals Limited to Gharda Chemicals
Private Limited. However, the said resolution was defeated in the EOGM
dated 5th January 2001 by the appellants and their group who approx. hold
more than 32% of the paid-up capital.
8. By letter dated 17th May 2001, the first respondent Company informed
the appellant No.2 that a transfer notice dated
15th May 2001 from Ms P.E. Daruwalla had been received by the Company
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expressing her desire to transfer her shares of the first respondent company and
requesting the company to offer the same to all members as per Article 57 of
the Articles of Association of the Company. The Company requested
appellant No.2 to intimate his desire to purchase any or all such shares offered
by Mrs. B.E.Daruwalla within 15 days as stipulated in Article 57 of the
Articles of Association.
9.
By another letter dated 28th May 2001, the first respondent company
intimated the second appellant about a transfer notice dated 23rd May 2001
received from Shakuntala C. Gandhi expressing her desire of transferring 35
equity shares of the first respondent company and requesting appellant No.2 to
intimate his desire to purchase any or all her shares within 15 days.
10. By letter dated 6th June 2001, appellant No.2 informed the first
respondent Company which read as under :
" I have received Transfer Notices dated 17th May and 28th May
from Mrs. B.E.Daruwalla and Mrs. S.C.Gandhi, circulated by the
Company purportedly under Article 57 of the Articles of
Association of the Company.
I am surprised to receive the above Transfer Notices. I am unable
to understand as to how the Company continues to circulate
Transfer Notices under Article 57, especially in view of the recent
turn of events.
I wish to put on record my objection to the Company, circulating
Transfer Notices purportedly under Article 57 of the Articles of
Association. I am ignoring these Transfer Notices and shall ignore
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further Transfer Notices, if any, circulated by the Company
purportedly under Article 57.
11. On 30th September, 2002, Government of India, Ministry of Finance,
Department of Company Affairs issued a Circular and made it clear that these
companies which did not approach the Registrar of Companies, seeking
reversion back to private company's status, are deemed to have chosen to
remain as public company.
12. On 8th September, 2005, the JRK and DRK and Rebello withdrew from
the said Company Petition (77 of 1990) and other Kavasmanecks continued to
pursue the said petition. By an order dated 8th September 2005 passed by Shri
Justice A.M.Khanvilkar, in the said petition, this Court recorded statement of
the appellants and two other parties who were also petitioners in the said
petitions that those parties were not interested in prosecuting the Company
Petition (77 of 1990). This Court accepted the said request of the appellants
and two others to permit them to withdraw from proceedings by deleting their
names from the array of parties. Petitioner Nos.4 and 5 in the said petition,
however, continued to pursue the said company petition (77 of 1990). This
Court permitted petitioner Nos.4 and 5 to the said petition to carry out
necessary amendment to the said Company Petition (77 of 1990).
13. By an order dated 14th November 2008 passed by Shri Justice A.M.
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Khanvilkar, the said company petition No.77 of 1990 came to be dismissed. It
is a common ground that none of the parties have challenged the said Judgment
and Order dated 14th November 2008 passed by this Court.
14. On 11th December, 2009, JRK and DRK filed another company petition
before the CLB (CP 132 of 2009) under Section 397 and 398 of the Companies
Act. On 25th January, 2010, the CLB granted interim injunction in favour of
JRK and DRK in the said C.P.(132 of 2009). On 26th March, 2010, this Court
in Company appeal, did not interfere with the interim order passed by the CLB
on 25th January, 2010 however directing that the hearing of the C.P. (132 of
2009) be held and permitted inter member transfers. On 14th May 2010, the
CLB dismissed C.P.(132 of 2009) filed by JRK and DRK on the ground that
the Company was a public limited company and article 57 of the Articles of
Association was consequently invalid.
15. On 28th June, 2010 this Court admitted the appeal filed by JRK and DRK
under Section 10F of the Companies Act, 1956 and granted interim relief.
During the pendency of the said appeal, the said company convened an EOGM
for deleting Article 57 on the ground that it was declared as invalid by the
CLB by an Order dated 14th May, 2010. In the month of October, 2010, JRK
and DRK filed C.P.(87 of 2010) before the CLB interalia challenging the
action of the said company to convene an EOGM for deleting Article 57 of the
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Articles of Association. On 9th November, 2010, the CLB rejected the interim
injunction prayer for by JRK and DRK to restrain holding of the proposed
EOGM. CLB however, directed hearing of the petition on a later date and the
parties were directed to complete the pleadings.
16. On 10th November, 2010 JRK and DRK filed Company Appeal under
Section 10F of the Companies Act, 1956 in this Court which was numbered as
Company Appeal (2 of 2011).
ig This Court passed an Order dated 10th
November, 2010, directing holding of the meeting, however not to implement
the resolution passed therein till 18th November, 2010.
17. On 9th December, 2010, the said company withdrew notice of EOGM.
On 14th June, 2011, this Court dismissed Company Appeal filed by JRK and
DRK on the ground that the said company was a public company and thus
Article 57 was invalid.
18. The appellants challenged the Judgment and Order dated 14th June 2011
delivered by this Court by filing Special Leave Petition in the Supreme Court
(Special Leave to Appeal (Civil) No.16994/11). On 22nd July, the Supreme
Court passed the following order :
" Let this matter be listed on 27th July, 2011, before other
matters, to consider issuance of notice.
Till then, the interim orders which had been passed by the
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Bombay High Court, will continue.
19. On 27th July 2011, the Supreme Court passed the following Order in the
same Special Leave to Appeal No.16994/2011) filed by the appellant :
" Issue notice, returnable six weeks hence.
All the respondents, except for the respondent No.4, are duly
represented on caveat. Accordingly, service on the said
respondents is dispensed with. As far as the respondent No.4, is
concerned, since he was a nominee Director and is no longer on
the Board, service of notice on the said respondent is dispensed
with.
The respondents will be entitled to file their respective counter
affidavits to the special leave petition within 4 weeks. Rejoinder,
if any, may be filed within two weeks thereafter.
The interim order, which was passed on 22nd July, 2011, will
continue in the meantime.
Let the matter be listed on the returnable date."
The said Special Leave to Appeal (16994/11) is pending and is not yet
admitted by the Supreme Court.
20. On 8th August 2011, the appellants withdrew Company Appeal (2 of
2011). This Court passed the following order.
" 1. Mentioned. Not on board.
2. It is stated that two Company Appeals were on this Court's
board. One company Appeal has been disposed of, whereas no
orders are made on the other Company Appeal.
3. It is stated that by a letter dated 9-12-2010, the Extra
Ordinary General Meeting which was scheduled to be held on
10-12-2010 has been adjourned/postponed. A fresh notice will be
issued intimating the date of the Extra Ordinary General Meeting.
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4. In these circumstances, the Learned Counsel Mr Samdhani
appearing for the Appellants seeks leave to withdraw this Appeal
with liberty to adopt appropriate proceedings, in case an occasion
arises and if fresh meeting is convened.
5. The application for withdrawal is granted. The Company
appeal is allowed to be withdrawn and is dismissed as such with
liberty to the Appellants to adopt appropriate proceedings in case
a fresh Extra Ordinary General Meeting is convened. All
contentions of both the sides in that behalf including the
maintainability are kept open.
6. Needless to, therefore, state that if the Appellants adopt
appropriate proceedings, the Company Law Board or such other
Forum may decide the same on its own merits and in accordance
with law.
7. Needless to state that a fresh Extra Ordinary General
Meeting is convened, that would necessarily mean a fresh cause
of action and once this Appeal is withdrawn, there is no doubt that
the Company Law Board or such other forum which is
approached by the Appellant, will decide the proceedings
independent of the observations made in the earlier order."
21. On 31st March 2012, the respondent Nos.6 to 8 collectively holding
12.58% of the paid-up share capital issued by the first respondent Company,
issued a notice under Section 169 of the Companies Act 1956 and Article 76 of
the Articles of Association to convene an Extra Ordinary General Meeting
(EOGM) of the members of the Company to transact the following business by
special resolution.
" Amendment of Articles of Association of the company for
deletion of Article 57 of the Articles of Association of
company."
"RESOLVED THAT pursuant to section 31 of the
Companies Act, 1956 and other applicable provisions
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thereof, if any, the Articles of Association of the Company
be amended by deleting the existing Article 57 of the
Articles of Association of the Company."
The said notice was received by the first respondent company on 20th
April 2012.
22. On 25th April 2012, the first respondent company issued a notice to the
shareholders in compliance with requisition dated 31st March 2012 under
Section 169 of the Companies Act 1956 and Article 76 received from
respondent Nos.6 to 8 and proposed to hold EOGM on 22 nd May 2012 at 11.30
am to pass a following resolution as special resolution.
" RESOLVED THAT pursuant to section 31 of the
Companies Act, 1956 and other applicable provisions
thereof, if any, the Articles of Association of the Company be
amended by deleting the existing Article 57 of the Articles of
Association of the Company."
23. Along with the said notice, the Company annexed the copy of requisition
dated 31st March 2012 and informed that the original could be inspected at the
registered office of the company. It was made clear that a member entitled to
attend and vote in the meeting was entitled to appoint a proxy to attend and
vote instead of himself and the proxy need not be a member. It was also
conveyed that no explanatory statement had been received by the company
from the requisitionists and hence did not form part of the said notice.
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24. The appellants filed C.A.(73/12) before the CLB in C.P.(87 of 2010) and
sought amendment to C.P.(87/10) and stay in respect of the notice dated 25th
April 2012 issued by the first respondent company from convening EOGM on
22nd May 2012 or on any subsequent dates for the purpose of considering
and/or passing resolution referred to in the said notice dated 25th April 2012 or
any part thereof or any other resolution similar thereto.
25. On 19th May 2012, one of the requisitionist Ms Mahrukh Oomrigar
respondent No.6 holding 6% shares addressed a letter to her Advocates and
Solicitors M/s Juris Corp instructing to support the C.A.(73 of 2012) filed by
the appellants and to concede to the injunction prayed for in the said
application. The sixth respondent conveyed that she did not propose to move
or support the proposed resolution for deletion of Art.57. She informed that a
copy of the said letter was also sent to the Registrar of CLB and to the
Advocates for the petitioner/applicants.
26. On 19th May 2012, M/s Godrej Industries Ltd., addressed a letter to the
first respondent company informing that the Godrej Industries Ltd., was
pledgee of 6355 shares of Gharda Chemicals standing in the names of Darius
and Jer Kavasmaneck and hold the said shares as security for loan aggregating
to Rs. 10.34 crores granted by Godrej Industries Ltd. to them and to certain
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other shareholders of the company. The said shareholders had executed
loan/pledge agreement and irrevocable power of attorneys. Copies of powers
of attorney were annexed. It is stated that the power of attorney expressly
authorised Godrej Industries Ltd., to attend, vote and/or otherwise take part in
all meetings held in connection with the company in relation to shares and to
sign proxies for the purposes of voting and for any other purposes connected
therewith as freely as the shareholders could themselves do. By the said letter,
the Godrej Industries Ltd., authorized Mr Rajiv Bakshi, Executive Vice
President (Legal) to attend, participate and vote at the EOGM of the company
to be held on 22nd May 2012 or on any adjourned date thereof pursuant to the
powers contained in irrevocable powers of attorney. Godrej Industries Ltd.,
certified signature of Mr Bakshi appended thereon. The said letter was signed
by Mr Clemant Pinto, Vice President (Finance) on behalf of Godrej Industries
Ltd. The said letter was received by the first respondent company on 19th May
2012.
27. Mr Rajiv Bakshi signed a proxy form on behalf of the second appellant
on the strength of the powers of attorney granted in favour of Godrej Industries
Ltd. The said proxy form was in respect of 4645 shares held by appellant No.2
in the first respondent company. The said proxy form was received by first
respondent company on 19th May 2012. A similar proxy form was signed
by Mr Rajiv Bakshi on behalf of Godrej Industries Ltd. being constituted
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attorney (CA) of the first appellant in respect of 1710 shares. The said proxy
form was received by the first respondent company on 19th May 2012. It is the
case of respondent No.1 company as well as Godrej Industries Ltd., that the
appellants had authorized the Godrej Industries Ltd., to appoint Mr Rajiv
Bakshi as proxy to vote for the appellants at the EOGM to be held on 22nd May
2012 and at any adjournment thereof.
28.
On 21st May 2012, the CLB passed an Order in C.A.No.73/12 thereby
allowing the first respondent company to proceed with the convening of the
meeting, however directed that resolution if passed, cannot be allowed to
preempt adjudication of questions of law before the Apex Court and hence
resolution passed, if any, in the EOGM on 22nd May 2012 shall be kept in
abeyance till further orders. The relevant paragraphs of the said order dated
21st May 2012 are as under :
5. ... CLB has the jurisdiction on the issue of convening of
EOGM by the R-1 Company which is in the affairs of the R1
Company in which a petition No.87/10 is pending adjudication on
completion of pleadings which are not complete as yet. It is noted
that CP.No.87/10 has not become infructuous as alleged by the
Respondents. Besides the issue of deletion of Articles (including
Article 57) of this Public Ltd. Company which is not a listed
company, the petitioners have made other allegations as well as the
CLB in its order dated 9-11-2010 had required the parties to
complete pleadings in the matter. In the facts and circumstances of
this case, it is noted that filing of SLP before the Apex Court which
has also allowed the interim injunctions granted by the Hon'ble
High Court at Mumbai to continue, does not fetter the rights of the
requisitionists to move for convening of EOGM, nor does it restrict
the R-1 company from convening of EOGM. The R-1 Company
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has not choice under Section 169 of the Act but to convene the
meeting. Even if the R-I Company does not convene the meeting,
the requisitionists have the right, after the prescribed period, to go
ahead with convening of the meeting. This right of the
shareholders is, except in exceptional circumstances, not curtailed
by the CLB.
6. In view of the foregoing, I hereby allow the R-1 Company to
go ahead with the convened Meeting, but keeping in view the
questions of law raised in the SLP in which the Apex Court has
decided to permit continuation of the interim injunction granted by
the Hon'ble High Court, the Resolutions, if passed, cannot be
allowed to pre-exempt adjudication of the questions of law before
the Apex Court, hence, the Resolutions passed, if any, in the
EOGM on 22nd May 2012 shall be kept in abeyance till further
orders.
29. The Chairman of the first respondent company appointed the second
appellant and one Mr Michael Raj as Scrutinizers for the EOGM dated 22nd
May 2012. On 22nd May 2012, appellant No.2 and Mr Michael Raj submitted
a report to the Chairman in the said EOGM recording of various observations
made by them. In the said report, the appellant No.2 rejected the power of
attorney under which Mr Rajiv Bakshi had voted in respect of 1710 shares held
by the first appellant. It is submitted that Mr Rajiv Bakshi was not relative of
Godrej Industries Ltd., and hence power of attorney itself was to be considered
defective, invalid and ought to be rejected. In the said report, it was observed
that no board resolution authorizing Mr Rajiv Bakshi on behalf of Godrej
Industries Ltd. to attend and vote at the meeting was lodged with the company.
30. On 22nd May 2012 in the said EOGM of the first respondent, 8 members
were personally present. One power of attorney holder was present, two
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authorised representatives were present. Number of shares represented by
proxies were at 10408. The Chairman declared that special resolution was
passed to delete Art.57 of Articles of Association of the first respondent
company with requisite majority. The amended Article 57 before deletion
reads as under :-
ARTICLES OF ASSOCIATION
ARTICLE 57
(As amended)
The amended Article 57 of the Articles of Association
which has been deleted reads thus :-
57. Save as aforesaid, the following provisions shall apply
to the transfer of shares :-
(a) A member of the Company may transfer a share to his
lineal descendent, but save as aforesaid no share shall be
transfered 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 as hereinafter provided ;
(b) The member proposing to transfer any shares
(hereinafter called the proposing transferor) shall give notice
in writing (hereinafter called a transfer notice) to the
Company that he desires to transfer the same ;
(c) Within the period of seven days from the receipt of a
transfer notice as aforesaid the Company shall offer to each of
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the existing members of the Company respectively such
number of the shares included in the transfer notice as a pro
rata or as nearly as may be to the holding of each member
respectively on the footing that if he desires to purchase any
or all of such numbers of the said shares at the fair value he
shall within fifteen days of the offer be entitled to apply for
the purchase and transfer of the same and the Company shall
be bound, upon payment to the transferor of the fair value of
such shares to transfer the shares of member applying;
(d)
In case of any member or members shall not have
applied for the purchase and transfer of any or all of the shares
to which he is entitled, the Company shall within seven days
of the date at which the offer closed, offer the untaken shares
to such of the members as have applied for the purchase and
transfer of all of the shares to which they were entitled by the
terms of the original offer in proportion as the holding of each
of such members bears to the total number of shares held by
them and they shall be entitled within fifteen days of the offer
to apply for the purchase and transfer of a pro rata number of
the said untaken shares and the Company shall be bound,
upon payment to the transfer of the fair value of such shares to
transfer the shares to the member applying;
(e) The proposing transferor shall be bound to execute a
transfer in respect of any shares so sold and in default thereof
be deemed to have executed such a transfer. The Company
shall thereupon cause the names of the members who have
purchased the shares to be entered in the Registrar as the
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holders of such shares and thereafter the validity of the
proceedings shall not be questioned by any person;
(f) In case no member shall apply for any of the shares
included in the transfer notice or in case any are untaken after
compliance with the foregoing provisions of this Article the
intending transferor shall have the right (which right shall
endure for the period of one year from the date of transfer
notice) to sell and dispose of his shares to any person and at
any price and to apply for registration of the transfer of the
same and the company shall be bound to give effect to the
transfer of such shares accordingly;
(g) For the purpose of this clause the fair value of the share
shall be such sum, if any, as the auditors for the time being of
the Company shall certify as the fair value thereof provided
that it expressly declared that the fair value shall be (1) the
amount of capital paid up thereon plus, (2) a sum bearing the
same proportion to the value as appearing in the Company's
last balance sheet of any reserve fund or other fund of the
Company as the capital paid up on all the shares of the
Company for the time being issued plus or minus as the case,
may be, (3) a sum bearing the same proportion to the value as
appearing in the Company's last chance sheet of any balance
in the profit and loss account consisting of or representing
undivided profits or losses account consisting of or
representing undivided profits or losses as the capital paid up
on such shares, bears to the total capital paid up on all the
shares of the Company for the time being issued.
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Amendment to Articles : Article Nos. 57(h), 57(i), 57(j) and
57(k) were inserted as additional clauses to Article 57
pursuant to Special Resolution dated 15th February, 1990.
Nothing contained in clauses 57(a) to 57(g) hereof shall
apply to any transfer of shares which falls under any one or
more of the following circumstances :-
57(h) transfer by a person to another person who is a
"relative" within the meaning ascribed thereto in the
Companies Act, 1956.
57(i) transfer to a body corporate in which a majority of
directors (or other persons who in law are to be regarded as
Directors) or shareholders holding not less than 51% of the
voting rights are persons who are the members of the
company.
57(j) transfer by way of gift whether on account of love and
affection between persons who are relatives of each other or
by way of philanthropy.
57(k) transfer by a person to another person who is an
existing member of the company.
PROVIDED THAT in each case the question as to
whether the case falls under any of the foregoing circumstance
shall be subject to a decision by the Board of Directors who
shall be entitled to call for such information and particulars as
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may be reasonably required to examine as to whether the case
does infact bona fide fall under any of the foregoing
circumstances."
31. The Chairman of the meeting signed minutes of EOGM dated 22nd May
2012. According to the said Minutes, the Chairman gave ruling after giving
due consideration to the objection and observations made by both the
scrutinizers as referred in the minutes of meeting and announced the result of
the poll.
According to the said minutes of meeting of EOGM dated 22 nd May
2012, the total votes polled were 62883. Votes in favour of the resolution were
47623 (75.73%) and the votes against the resolution were 15260 (24.26%).
32. On 9th June 2012, the appellants filed CA (91/12) for further amendment
to CP(87/10) before the CLB challenging the meeting dated 22nd May 2012 and
seeking injunction on implementation of the resolution dated 22nd May 2012.
On 12th June, 2012, the first respondent company filed CA (85/12) before CLB
for vacating and/or modifying interim injunction order dated 21st May 2012
passed by CLB in CA (73/12).
33. On 10th August, 2012 arguments on C.A. (73/12) and C.A.(85/12) were
closed and orders were reserved. C.A.(91/12) was adjourned to 6th September
2012. On 13th August 2012, the CLB passed a detailed order and judgment
allowing C.A.(73/12) seeking amendment to C.P.(87/10) filed by the
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appellants. The CLB also by the same order allowed C.A. (85/12) filed by the
first respondent company and vacated order dated 21st May, 2012.
34. Being aggrieved by order dated 13th August 2012 passed by the CLB
allowing CA No.73/12 filed by the appellants herein, the first respondent
company has filed Company Appeal (L) No.45/12 under Section 10F of the
Companies Act 1956 in this Court which was heard along with present
company appeal and being disposed of by a separate order. Being aggrieved
by order dated 13th August 2012 allowing C.A. No.85/12 filed by the first
respondent company, the appellants have filed this appeal.
35. Some of the relevant provisions of Companies Act and Company
Law Board Regulations, 1991 relied upon the parties are extracted as
under :
Section 3. Definitions of "company", "existing company",
"private company" and "public company".
(1), (2) Not relevant.
(3) Every private company, existing on the commencement of the
Companies (Amendment) Act, 2000, with a paid-up capital of less
than one lakh rupees, shall, within a period of two years from such
commencement, enhance its paid-up capital to one lakh rupees.
(4) Every public company, existing on the commencement of the
Companies (Amendment) Act, 2000, with a paid-up capital of less
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than five lack rupees, shall within a period of two years from such
commencement, enhance its paid-up capital to five lakh rupees.
Section 9. Act to override memorandum, articles, etc. :-
(a) the provisions of this Act shall have effect
notwithstanding anything to the contrary contained in the
memorandum or articles of a company, or in any
agreement executed by it, or in any resolution passed by
the company in general meeting or by its Board of
directors, whether the same be registered, executed or
passed, as the case may be, before or after the
commencement of this Act; and
(b) any provision contained in the memorandum, articles,
agreement or resolution aforesaid shall, to the extent to
which it is repugnant to the provisions of this Act, become
or be void, as the case may be.
Sec.10F. : Appeals against the order of the Company Law Board :-
Any person aggrieved by any decision or order of the Company
Law Board may file an appeal to the High Court within sixty days
from the date of communication of the decision or order of the
Company Law Board to him on any question of law arising out of
such order:
Provided that the High Court may, if its is satisfied that the appellant
was prevented by sufficient cause from filing the appeal within the
said period, allow it to be filed within a further period not exceeding
sixty days.
Sec.43 : Consequences of default in complying with conditions
constituting a company a private company, - Where the articles
of a company include the provisions which, under clause (iii) of
sub-section (1) of section 3, are required to be included in the
articles of a company in order to constitute it a private company, but
default is made in complying with any of those provisions, the
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company shall cease to be entitled to the privileges and exemptions
conferred on private companies by or under this Act, and this Act
shall apply to the company as if it were not a private company:
Provided that the (Central Government) on being satisfied that the
failure to comply with the conditions was accidental or due to
inadvertence or to some other sufficient cause, or that on other
grounds it is just and equitable to grant relief, may, on the
application of the company or any other person interested and on
such terms and conditions as seem to the (Central Government) just
and expedient, order that the company be relieved from such
consequences as aforesaid.
Sec.43(A) : A private company to become public company in
certain cases :- (1) Save as otherwise provided in this section,
where not less than twenty-five per cent of the paid-up share capital
of a private company having a share capital, is held by one or more
bodies corporate, the private company shall :
(a) on an from the date on which the aforesaid percentage is
first held by such body or bodies corporate, or
(b) where the aforesaid percentage has been first so held
before the commencement of the Companies (Amendment)
Act, 1960 (65 of 1960), on and from the expiry of the period
of three months from the date of such commencement unless
within that period the aforesaid percentage is reduced below
twenty-five per cent of the paid-up share capital of the private
company, become by virtue of this section a public company:
Provided that even after the private company has so become a
public company, its articles of association may include
provisions relating to the matters specified in clause (iii) of
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sub-section (1) of section 3 and the number of its members
may be, or may at any time be reduced, below seven:
Provided further that in computing the aforesaid percentage,
account shall not be taken of any share in the private company
held by a banking company, if, but only if, the following
conditions are satisfied in respect of such share, namely;
(a) that the share -----
(i) forms part of the subject-matter of a trust,
(ii) has not been set apart for the benefit of any body
corporate, and
(iii) is held by the banking company either as a trustee of
that trust or in its own name on behalf of a trustee of that
trust, or
(b) that the share ---
(i) forms part of the estate of a deceased person,
(ii) has not been bequeathed by the deceased person by his
will to any body corporate, and
(iii) is held by the banking company either as an executor
or administrator of the deceased person or in its own name
on behalf of an executor or administrator of the deceased
person, and the registrar may, for the purpose of
satisfying himself that any share is held in the private
company by a banking company as aforesaid, call for at any
time from the banking company such books and papers as
he considers necessary.
Sec.43(2)(A) : Where a public company referred to in sub-section
(2) becomes a private company on or after the commencement of
the Companies (Amendment) Act, 2000, such company shall
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inform the Registrar that it has become a private company and
thereupon the Registrar shall substitute the word "private company"
for the word "public company" in the name of the company upon
the register and shall also make the necessary alterations in the
certificate of incorporation issued to the company and in its
memorandum of association within four weeks from the date of
application made by the company.
Sec.397. Application to Company Law Board for relief in cases
of oppression :- (1) Any member of a company who complain
that the affairs of the company are being conducted in a manner
prejudicial to public interest or in a manner oppressive to any
member or members (including any one or more of themselves)
may apply to the Company Law Board for an order under this
section, provided such members have a right so to apply in virtue of
section 399.
(2) If, on any application under sub-section (1), the Court is os
opinion :
(a) that the company's affairs (are being conducted in a
manner prejudicial to public interest or) in a manner
oppressive to any member of members; and
(b) that to wind up the company would unfairly prejudice
such member or members, but that otherwise the facts
would justify the making of a winding-up order on the
ground that it was just and equitable that the company
should be wound up,
the Company Law Board may, with a view to bringing to an
end the matters complained of, make such order as it thinks
fit.
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COAPPL41.12
Sec.398 : Application to Company Law Board for relief in cases of
mismanagement :
(1) Any members of a company who complain :-
(a) that the affairs of the company are being conducted in a
manner prejudicial to public interest or in a manner
prejudicial to the interests of the company; or
(b) that a material change not being a change brought about
by, or in the interests of, any creditors including debenture
holders, or any class of shareholders, of the company) has
taken place in the management or control of the company,
whether by an alteration in its Board of directors, or
manager), or in the ownership of the company's shares, or if
it has no share capital, in its membership, or in nay other
manner whatsoever, and that by reason of such change, it is
likely that the affairs of the company will be conducted in a
manner prejudicial to public interest or in a manner
prejudicial to the interests of the company,
may apply to the Company Law Board for an order under
this section, provided such members have a right so to apply
in virtue of section 399.
(2) If, on any application under sub-section (1), the Company Law
Board is of opinion that the affairs of the company are being
conducted as aforesaid or that by reason of any material change as
aforesaid in the management or control of the company, it is likely
that the affairs of the company will be conducted as aforesaid, the
Company Law Board may, with a view to bringing to an end or
preventing the matters complained of or apprehended, make such
order as it thinks fit.
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Sec.402. Powers of "Company Law Board" to apply under
section 397 and 398 : - Without prejudice to the generality of the
powers of the Company Law Board under section 397 or 398, any
order under either section may provide for
(a) the regulation of the conduct of the company's affairs in future ;
(b) the purchase of the shares or interests of any members of the
company by other members thereof or by the company ;
(c) in the case of a purchase of its shares by the company as
aforesaid, the consequent reduction of its share capital.
(d) the termination, setting aside or modification of any agreement,
howsoever arrived at, between the company on the one hand, and
any of the following persons, on the other, namely
(i) the managing director.
(ii) any other director,
(iii)
(iv)
(v) the manager, upon such terms and conditions as may,
in the opinion of the Company Law Board, be just and
equitable in all the circumstances of the case ;
(e) the termination, setting aside or modification of any agreement
between the company and any person not referred to in clause (d),
provided that no such agreement shall be terminated, set aside or
modified except after due notice to the party concerned and
provided further that no such agreement shall be modified except
after obtaining the consent of the party concerned ;
(f) the setting aside of any transfer, delivery of goods, payment,
execution or other act relating to property made or done by or
against the company within three months before the date of the
application under section 397 or 398, which would, if made or done
by or against an individual, be deemed in his insolvency to be a
fraudulent preference ;
(g) any other matter for which in the opinion of the Company Law
Board it is just and equitable that provision should be made.
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Company Law Board Regulations, 1991.
29. Order of the Bench.- (1) Every order of the Bench shall be in
writing and shall be signed by the member or members constituting
the Bench which pronounces the order.
(2) In case of difference of opinion among the members of the
Bench, the opinion of the majority shall prevail and the opinion or
orders of the Bench shall be expressed in terms of the views of the
majority: Provided that where a matter is heard by a Bench
consisting of an even number of members and such members are
divided equally in their opinion, it shall be placed before the
Chairman who may himself deal with the matter or nominate any
other member to deal with the same.
(3) Any order of the bench deemed fit for publication in any
journal, authoritative report or the Press may be released for such
publication on such terms and conditions as the Board may specify
by general or special order.
(4) A copy of every interim order granting or refusing or modifying
interim relief and final order passed on any petition or reference
shall be communicated to the petitioner or the applicant and to the
respondents and other parties concerned free of cost:
Provided that in the case of an order under section 17 confirming
change of registered office, two copies of the order shall be
supplied to the petitioner company free of cost.
(5) If the petitioner or the applicant or the respondent to any
proceeding requires a copy of any document or proceeding, the
same shall be supplied to him on such terms and conditions and on
payment of such fee as may be fixed by the Bench by general or
special order.
(6) The Bench may make such order or give such direction as may
be necessary or expedient to give effect to its orders or to prevent
abuse of its process or to secure the ends of justice.
(7) It shall be lawful for a Bench to fix, and award, costs to any of
the parties before it where it is of opinion that the award of such
costs is necessary.
33. Registers of petitions and applications :-
(2) In every register, referred to in sub regulation (1), there shall
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be entered the following particulars, namely,
(a) to (i) not relevant.
(j) the date when the formal order is drawn up and communicated
to the parties.
44. Saving of inherent power of the Bench.- Nothing in these Rules shall be
deemed to limit or otherwise affect the inherent power of the Bench
to make such orders as may be necessary for the ends of justice or
to prevent abuse of the process of the Bench.
36.
On question of maintainability of present appeal, Mr.Bobde, the learned
senior counsel appearing for respondent no. 2 submits as under :
(a) Under section 10F of the Companies Act, the appeal to the High
Court is maintainable from the order of the CLB only on the question of law.
CLB is the final authority on facts unless the said findings are perverse based
on no evidence and or are otherwise arbitrary. The jurisdiction of the appellate
court under section 10F is restricted to the question as to whether on the facts
as noticed by the CLB, the inference could reasonably be arrived at that such
conduct was against the probity and good conduct and or was mala fide or
for a collateral purpose or was burdensome, harsh or wrongful. The present
appeal makes out no case warranting any interference by this court.
Section 10F of the Companies Act, 1956 reads as under :
"10F. 3[ Appeals against the orders of the Company Law Board. Any
person aggrieved by any decision or order of the Company Law
Board may file an appeal to the High Court within sixty days from
the date of communication of the decision or order of the Company
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Law Board to him on any question of law arising out of such order:
Provided that the High Court may, if it is satisfied that the appellant
was prevented by sufficient cause from filing the appeal within the
said period, allow it to be filed within a further period not exceeding
sixty days.] "
(b) This court can only consider if the question of law has been
wrongly decided and can not substitute its own discretion with that of the
CLB and or inquire into the merits of the case on facts unless the order is
arbitrary, capricious or has ignored settled principles regulating grant or
refusal of injunctions or other interim orders. In the present case, no such
case is made out by the appellants warranting interference. The respondents
placed reliance upon the judgment of the Supreme Court in the case of V.S.
Krishnan Vs. Westfort Hi-tech Hospital Limited and Ors. (2008) 3
S.C.C. 363 and more particularly para 16 which reads :
"16. It is clear that Section 10F permits an appeal to the High
Court from an order of the Company Law Board only on a question of
law i.e., the Company Law Board is the final authority on facts unless
such findings are perverse based on no evidence or are otherwise
arbitrary. Therefore, the jurisdiction of the appellate Court under Section
10F is restricted to the question as to whether on the facts as noticed by
the Company Law Board and has placed before it, an inference could
reasonably be arrived at that such conduct was against probity and good
conduct or was mala fide or for a collateral purpose or was burdensome,
harsh or wrongful. The only other basis on which the appellate Court
would interfere under Section 10F was if such conclusion was (a) against
law or (b) arose from consideration of irrelevant material or (c) omission
to construe relevant materials."
37. Mr. Samdani, learned senior counsel appearing for the appellant submits
that the question of law have been framed in appeal and are to be found at
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Paragraphs (A) to (J). It is submitted that it is settled law that mixed question
of law and fact is also a question of law. The appellant placed reliance upon
the judgment of the Supreme Court in the case of Sree Meenakshi Mills Ltd.
Vs. Commissioner of Income Tax, AIR 1957 SC 47 more particularly para 10
which reads thus :
"10. It was next contended for the appellant that inference from facts
was a question of law, and that as the conclusion of the Tribunal that
the intermediaries were dummies and that the sales standing in their
names were sham and fictitious was itself an inference from several
basic facts found by it, it was a question of law and that the appellant
had the right under section 66(1) to have the decision of the court on
its correctness, and support for this position was sought from certain
observations in Edwards (Inspector of Taxes) v. Bairstow , Bomford
v. Osborne ; , Thomas Fattorini (Lancashire), Ltd. v. Commissioners
of Inland Revenue : 24 T. C. 328.], Cameron v. Prendergast ; 8 I. T.
R. Supplt. 75.] and The Gramophone and Typewriter Company, Ltd.
v. Stanley ; 5 T. C. 358.]. At the first blush, it does sound somewhat
of a contradiction to speak of a finding of fact as one of law even
when that finding is an inference from other facts, the accepted
notion being that questions of law and of fact form antithesis to each
other with spheres distinct and separate. When the Legislature in
terms restricts the power of the court to review decisions of
Tribunals to questions of law, it obviously intends to shut out
questions of fact from its jurisdiction. If the contention of the
appellant is correct, then a finding of fact must, when it is an
inference from other facts, be open to consideration not only on the
ground that it is not supported by evidence or perverse but also on
the ground that it is not a proper conclusion to come to on the facts.
In other words, the jurisdiction in such cases is in the nature of a
regular appeal on the correctness of the finding. And as a contested
assessment - and it is only such that will come up before the Tribunal
under section 33 of the Act, must involve disputed questions of fast,
the determination of which must ultimately depend on findings on
various preliminary or evidentiary facts, it must result that
practically all orders of assessment of the Tribunal could be brought
up for review before courts. That will, in effect, be to wipe out the
distinction between questions of law and questions of fact and to
defeat the policy underlying sections 66(1) and 66(2). One should
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hesitate to accept a contention which leads to consequences so
startling, unless there are compelling reasons therefore. Far from that
being the case, both principle and authority are clearly adverse to it."
38. In rejoinder on this issue the learned counsel appearing for the
respondent no.2 distinguished the judgment of the Supreme Court in the case
of Sree Meenakshi Mills (supra) on the ground that the said judgment did not
pertain to appeal under section 10F of the Companies Act, 1956 and in any
event does not hold that the question of law means mixed question of facts
and law or that this court is empowered to reconsider the facts and come to a
different conclusion on such reconsideration. It is reiterated that plain reading
of section 10F of the Companies Act makes it clear that the appeal may be
filed only on the question of law. The CLB has rendered findings of facts and
thus interference of this court under section 10F is not permissible.
39. In my view, the appeal lies to the High Court under Section 10F on any
question of law arising from any decision or order of the Company Law
Board. The finding of fact recorded by CLB Is final and is not appealable
unless it is perverse, based on no evidence or otherwise arbitrary. Even if the
court would have come to a different conclusion on the facts, appeal cannot be
entertained on a mere finding of fact. The Supreme Court in case of
V.S.Krishnan (supra) has held that section 10F can be invoked only on a
question of law and CLB is final authority on facts unless such findings are
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perverse based on no evidence or otherwise arbitrary. The jurisdiction of
appellate court under section 10F is restricted to the question as to whether on
the facts as noticed by the CLB and has placed before it, an interference could
reasonably be arrived at that such conduct was against probity and good
conduct or was malafide or for a collateral purpose or was burdensome, harsh
or wrongful. The appellate court can also interfere if the conclusion was
against law or arose from consideration of irrelevant material or omission to
construe relevant materials.
40. The appellants have formulated various questions which are setout in
para (2) of this order which shall be dealt with by this court in the subsequent
paragraphs of this order as to whether any question of law as formulated by the
appellants arise for the determination of this court or not.
41. Mr. Samdhani, learned senior counsel appearing for the appellant
submitted that the impugned order passed by the CLB in Company Application
(85 of 2012) on 13th August, 2012 is in the nature of review. It is submitted
that the CLB has no power to review and thus Company Application (85 of
2012) ought to have been rejected. In the alternate, it is submitted that even if
CLB did have power to review its earlier order, it could not come to the
diametrically opposite conclusion on the same arguments that were advanced
before passing the order of 21st May, 2012. It is submitted that Company
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Application (85 of 2012) was thus not maintainable and thus injunction order
dated 21st May, 2012 could not have been vacated by the CLB. It is submitted
that under the guise of clarification or modification one can not seek review.
The learned counsel submits that notwithstanding that the appellant had
contended that the order was an ad interim order, the fact remains that the
respondents did not agree with that interpretation of the appellants. It is
submitted that the nature of the order dated 21st May, 2012 has to be
ascertained on the perusal of the order itself. From the reading of the order, it
clearly states that the order of 21st May, 2012 was not ad interim order but
was interim order disposing of the application regarding injunction. The only
new event was that the impugned meeting had now been held. It is submitted
that merely because meeting was held would not entitle the respondents to
seek vacation/modification/review of the order dated 21st May, 2012. The CLB
had already considered possibility of the resolution being passed.
42. Mr. Bobde, the learned senior counsel appearing on behalf of the
respondents, on the other hand submits as under :
(a) The power of review is vested in civil courts by section 114
and order XLVII Rule 1 of Code of Civil Procedure, 1908 in relation to final
decrees/orders passed under the Code. The order sought to be reviewed must
have finally disposed of the case. No review is permissible under the Criminal
Procedure Code. Variation, modification or vacation of interim order does
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not amount to review of that order. By its very nature, interim order or ad
interim orders are capable of being modified or vacated on the latter date.
(b) Order XXXIX rule 1 and 2 of C.P.C. 1908 provide for grant of
temporary injunction. Rule 4 expressly provide for discharge, variation or
setting aside of a temporary injunction. The CLB exercises inherent powers
when granting, refusing, modifying or vacating an interim order. It is
submitted that the sole question is whether the interim order is just and
equitable and secures the ends of justice. Earlier order dated 21st May, 2012
was ad interim order "till further orders" and was passed without having
benefit of resolution which was passed next day. It is submitted that the order
was passed on the very preliminary view of the order since the EOGM was
scheduled for the next date and that is why it was expressly stated to be "till
further orders". It is submitted that when EOGM was held, the respondent no.
1 company filed Company Application (85 of 2012) for vacating/modifying
the order dated 21st May, 2012 after bringing on record the resolution passed
In EOGM by Respondent No. 1. The respondents placed reliance on the
judgment of the Supreme Court in the case of Manohar Lal Vs. Seth Hiralal,
AIR 1962 SC 527 and more particularly para 23 thereof which reads thus :
"The section itself says that nothing in the Code shall be deemed to
limit or otherwise affect the inherent power of the Court to make
orders necessary for the ends of justice. In the face of such a clear
statement, it is not possible to hold that the provisions of the Code
control the inherent power by limiting it or otherwise affecting it.
The inherent power has not been conferred upon the Court; it is a
power inherent in the Court by virtue of its duty to do justice
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between the parties before it. "
43. The learned counsel for the respondents placed reliance on Regulation
29(4) of the Company Law Board Regulation, 1991 which reads as under:
"A copy of every interim order granting or refusing or modifying
interim relief and final order passed on any petition or reference
shall be communicated to the petitioner or the applicant and to the
respondents and other parties concerned free of cost."
44.
Relying upon Regulation 29(4) it is submitted that the said Regulation
postulates that CLB has power to grant interim order or refuse or modify that.
It is submitted that the source of that power is to be found in section 403 of
the companies Act, 1956 read with regulation 44 which saves inherent power
of the Bench. It is submitted that on a conjoint reading of Regulation 44 and
29(4), the CLB has inherent powers to grant interim relief and to modify or
vacate or refuse interim relief as may be necessary for the ends of justice or to
prevent the abuse of the process of the Bench.
45. Mr. Kadam, the learned senior counsel appearing for respondent no. 1
submitted that no provisions in law can control inherent powers of the court.
The inherent powers are exercised to do complete justice. It is submitted that
the order dated 21st May, 2012 passed by CLB clearly provide that the same
was "till further orders". The first respondent company had applied for
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vacating the said ad interim order and the said application was not for seeking
any review. It is submitted that the as per Order XXXIX rule 4, the order of
injunction also may be varied if there is change in circumstances or if
hardship is caused to the party. The learned counsel for the first respondent
placed reliance upon the judgment of the Supreme Court in the case of
Gujarat Bottling Co. Ltd. Vs. Coco Cola Co. (1995) 5 S.C.C. 545 and
more particularly para 47 which reads thus :
"46. The grant of an interlocutory injunction during the pendency of
legal proceedings is a matter requiring the exercise of discretion of
the court. While exercising the discretion the court applies the
following tests - (i) whether the plaintiff has a prima facie case; (ii)
whether the balance of convenience is in favour of the plaintiff; and
(iii) whether the plaintiff would suffer an irreparable injury if his
prayer for interlocutory injunction is disallowed. The decision
whether or not to grant an interlocutory injunction has to be taken at
a time when the existence of the legal right assailed by the plaintiff
and its alleged violation are both contested and uncertain and remain
uncertain till they are established at the trial on evidence. Relief by
way of interlocutory injunction is granted to mitigate the risk of
injustice to the plaintiff during the period before that uncertainty
could be resolved. The object of the interlocutory injunction is to
protect the plaintiff against injury by violation of his right for which
he could not be adequately compensated in damages recoverable in
the action if the uncertainty were resolved in his favour at the trial.
The need for such protection has, however, to be weighed against the
corresponding need of the defendant to be protected against injury
resulting from his having been prevented from exercising his own
legal rights for which he could not be adequately compensated. The
court must weigh one need against another and determine where the
'balance of convenience' lies. See : Wander Ltd. and Anr. v. Antox
India P. Ltd. MANU/SC/0595/1990 . In order to protect the
defendant while granting an interlocutory injunction in his favour the
Court can require the plaintiff to furnish an under taking so that the
defendant can be adequately compensated if the uncertainty were
resolved in his favour at the trial."
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46. Mr. Sen, the learned counsel appearing for Respondent nos. 4 and 5
invited my attention to Para 6 of the order dated 21st May, 2012 passed by CLB
allowing the first respondent company to go ahead with convening the
meeting, however, making it clear that the resolution passed, if any in the
EOGM on 21st May, 2012 shall be kept in abeyance till further orders. The
learned counsel invited my attention to the order sheet dated 21st May, 2012
in the Company Application (73 of 2012) which reads thus :
"Part heard. Company Application No. 74 of 2012 with
respect to interim injunction as prayed for in Company Application
No. 73 of 2012. R-I company is hereby allowed to hold EOGM
scheduled on 22-5-2012 at 11.30 a.m. That the resolution if any
passed, shall not be given effect to till further orders. Detailed order
follows."
47. Mr. Sen, the learned counsel submits that it is clear that the order passed
by the CLB on 21st May, 2012 was pro tem/ad interim order and the matter
being part heard, was to be heard subsequently after EOGM was held on 21st
May, 2012. Company Application (73 of 2012) was specifically kept part
heard. The learned counsel submits that thus the CLB has not passed any
order reviewing its earlier order but has passed the final order on the
Company Application (85 of 2012) after hearing the parties after EOGM
meeting came to be held. The final order dated 13th August, 2011 also
records that the order dated 21st May, 2012 was ad interim order and the
matter was part heard. It is submitted that the order dated 21st May, 2012 was
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thus operative only until further orders as recorded in the said order. Since no
date was posted, the matter did not appear on board and therefore, the first
respondent company applied for further orders. Thus, there is no question of
any review or modification or any other similar issue having arisen. It is
submitted that in any event, any interim/ad interim order can always be
modified or recalled under Regulation 29(4) of the Company Law Board
Regulations, 1991.
48. In rejoinder, Mr. Samdhani, learned counsel appearing for the appellant
submits that in the pleadings the first respondent had categorically stated that
the Company Application (85 of 2012) was for the review of the order dated
21st May,2012 passed in Company Application (73 of 2012). It is submitted
that the power of review is not inherent power. It is submitted that even if
the CLB modified its earlier order, it can do so only on some additional
material or in the changed circumstances. In the present case there was neither
any additional material nor any changed circumstance. It is submitted that
even if holding of EOGM was to be viewed as the changed circumstance, its
conduct was expressly subject matter of the challenge in Company Application
(91 of 2012) and without adjudicating the Company Application (91 of 2012),
CLB could not have vacated the injunction granted earlier. The learned
counsel placed reliance on the judgment of the Supreme Court reported in
(2010) 9 S.C.C. 437 and more particularly para 12 which reads as under :
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"12. It is settled legal proposition that unless the statute/rules so
permit, the review application is not maintainable in case of
judicial/quasi-judicial orders. In absence of any provision in the Act
granting an express power of review, it is manifest that a review
could not be made and the order in review, if passed is ultra-vires,
illegal and without jurisdiction. (vide: Patel Chunibhai Dajibha v.
Narayanrao Khanderao Jambekar and Anr. MANU/SC/0287/1964 :
AIR 1965 SC 1457 and Harbhajan Singh v. Karam Singh and Ors"
49. The CLB has dealt with the issue of Review raised by the appellant in
the impugned order in Paragraphs 25, 28 and 34. para 34 of the impugned
order as under :
" The Applicant has rightly contended that what it is seeking
in Application 85 is modification/variation/vacation of an ad interim
order dated 21.05.2012 given in C.A. 73/2012 which was not
disposed off when this ad interim order was given and further that
this ad interim order was given till further orders.
Variation/modification/Vacation of an ad interim order of CLB in a
Company Application/Company Petition can by no stretch of
imagination be called review of CLB's orders. It has also been
correctly pointed out that this order was till further orders in this
matter which can in all events be considered for
Vacation/modification/Variation depending upon the facts and
circumstances of a case. Considering the facts and circumstances of
this case, in view of the final hearing of Applications in this mater
and perusing of further affidavits clarifying the parties contentions
before the higher courts, I find no reason for not considering the
Applicant's prayer for modification/Vacation of the ad interim given
till further orders."
50. The question that arises for consideration of this court is whether the
impugned order passed by CLB on 13th August, 2012 in Company Application
(85 of 2012) is in the nature of review of its earlier order dated 21st May, 2012
and if it is in the nature of review, whether CLB has power to review its
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earlier order under the provisions of the Companies Act, 1956 or under the
Company Law Board Regulation, 1991. By the impugned order dated 13th
August, 2012 the CLB has vacated the order dated 21st May, 2012 by holding
that there was no justification in restraining the first respondent company
from implementation of the special resolution passed and from filing of the
requisite forms with R.O.C. in that regard. The CLB has rendered a finding
of fact that the first respondent in Application (85 of 2012) was seeking
modification/varification/vacation of the ad interim order dated 12th may, 2012
passed in Company Application (73 of 2012) which was not disposed of
when that ad interim order was passed and the same was till further orders. It
has been held that the variation/modification/vacation of the ad interim order
of the CLB in Company Application by no stretch of imagination be called
review of the CLB's orders.
51. On 21st May, 2012, the CLB passed order in Company Application (73
of 2012) filed by the appellants herein seeking impleadment of respondent
nos. 6, 7 and 8 and amendment of the Company Petition on the ground of
subsequent alleged acts of oppression and also seeking stay of the notice of
requisition dated 31st Mach, 2012, notice dated 25th April,2012 as well as
seeking injunction against holding of the EOGM on 22nd May, 2012. In the
order dated 21st May, 2012, CLB observed that the first respondent company
had no choice under section 169 of the Companies Act but to convene the
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meeting and if the company does not convene the meeting, the requisitionists
have the right after the prescribed period to go ahead with the convening of
the meeting. It is observed that this right of the shareholders is except in
exceptional circumstances not curtailed by the CLB. In view thereof, the CLB
allowed the first respondent to convene the meeting proposed to be held on
22nd May, 2012 and recorded that the resolution passed if any in the EOGM
dated 22nd May, 2012 shall be kept in abeyance till further orders. The
attendance cum order sheet dated 21st May, 2012 indicates that the Company
Application (73 of 2012) was part heard with respect to interim inunction as
prayed for in the said application. It is not in dispute that the meeting was
thereafter held on 22nd May, 2012 as scheduled and it was resolved to delete
article 57. Perusal of the Company Application (85 of 2012) filed by the first
respondent company shows that the company had prayed for
modifying/vacating and/or varying ad interim order dated 21st May, 2012.
From the perusal of the order dated 21st May, 2012, it is clear that the said
order was an ad interim order and was operative only until further orders.
Company Application (73 of 2012) filed by the appellants for seeking interim
injunction was part heard and was pending. The CLB had not fixed any
further date for hearing of the said company application and this mater did not
appear on board. The first respondent thereafter applied for
vacating/modifying and or varying the said order dated 21st May, 2012 in view
of the meeting having been held on22nd May, 2012 and the resolution to delete
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article 57 having been passed by requisite majority. The record indicates that
the CLB considered the detailed affidavits filed by the parties in response to
the said application (85 of 2012) and considering those affidavits and
considering the fact that the resolution was already passed by the requisite
majority to delete article 57, ad interim order passed on 21st May, 2012 came
to be modified and/or vacated. The CLB itself had directed convening of the
meeting on 22nd May, 2012 while passing ad interim order dated 21st May, 2012
and was conscious of the fact of passing of resolution if any would have to
be considered while hearing the matter finally which was admittedly part heard
on 21st May, 2012. In my view, the first respondent was justified in making the
application for modifying and vacating and/or varying the ad interim order
dated 21st May, 2012 in the pending application in view of the subsequent
events more particularly passing of the resolution to delete article 57. While
hearing the matter finally by the CLB, in my view, the CLB was justified in
considering the subsequent events and more particularly crucial events of
passing of the resolution to delete article 57 while disposing of the Company
Application (85 of 2012). In my view, any ad interim order in the pending
matter is capable of being modified, vacated and/or varied at the time of final
disposal of the interim application and it does not amount to review. In my
view, the order sought to be reviewed shall be an order finally disposing of the
case. However, in this case it is clear that when the order dated 21st May, 2012
was passed by the CLB, it was ad interim order in the pending company
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application which was part heard. In my view in no circumstances, the
impugned order dated 13th August, 2012 passed by the CLB can be construed
as an order reviewing the earlier order i.e. dated 21st May, 2012.
52. Since, the counsel for both the parties have made submissions about the
powers of the CLB to review, I am considering the said submissions also.
53. In my view, the Companies Act, 1956 is a self contained code. Unless
statute/rules permit or provides power to the court or quasi judicial authority
to review its own order, no order in review can be passed by the court or such
authority. In my view inherent powers cannot be exercised so as to review
any order passed by the court and or authority. In my view, Mr.Samdani,
learned senior counsel appearing for the appellant is right in placing reliance
upon the judgment of the Supreme Court reported in (2010) 9 S.C.C. 437 by
which it has been held that in the absence of any provisions under the Act
granting express power of review, it is manifest that the review cannot be
made and the order in review if passed is ultra vires, illegal and without
jurisdiction. In my view, section 403 which empowers the CLB to pass interim
order pending making of the final order under section 397 or 398 read with
Regulation 29(4) of the Company Law Board Regulation 1991 does not
empower the CLB to review its order. The judgment relied upon by the
respondents in the case of Manoharlal (supra) and in the case of Gujarat
Bottling (supra) are not applicable to the facts of this case as the said
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judgments does not deal with similar provisions, either under the provisions
of the Companies Act, 1956 or under the CLB Regulation 1991.
54. In my view, CLB does not have power to review its earlier order.
However, in the facts of this case, after considering the pleadings and record, I
have already taken a view that the respondent company had not sought any
review in Company Application No. 85 of 2012 and the CLB has not reviewed
its earlier order. In my view, thus CLB has rightly entertained an application
filed by the 1st respondent (85/2012) for modification and/or vacation of the
order dated 21st May, 2012 as the said order was ad-interim order operative
during the pendency of the Company Application (85 of 2012). On perusal of
the impugned order passed by CLB, it is clear that the CLB has not vacated its
earlier order dated 21st May, 2012 on the same grounds on which order dated
21st May, 2012 was passed. It is common ground that pursuant to the said
order dated 21st May, 2012, the CLB permitted the 1st respondent to conduct
EOGM on 22nd May, 2012 but not to implement resolution if any during the
pendency of the company application (85 of 2012). It is not in dispute that the
meeting was thereafter held on 22nd May, 2012 and resolution was passed
resolving to delete Article 57 from Articles of Association. Both parties
thereafter filed affidavit before CLB which have been considered by CLB
while passing final order on 13th August, 2012 in (85 of 2012). The CLB has
given various reasons in the impugned order dated 13th August, 2012. In my
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view, there is no question of law arises as formulated by the appellant and
setout in paragraphs 2B and 2C of this order.
55. The next submission of Mr. Samdhani, the learned counsel for the
appellant is that the impugned order passed by the CLB had not been
pronounced. It is submitted that the respondents had received the impugned
order and took steps to implement it even before the appellants learnt and/ or
received the said order. It is submitted that the order that is not pronounced is
not an order in the eyes of law.
56. On the other hand, Mr.Bobde, the learned senior counsel for the
respondent no.2 submits that :
(a) Pronouncement or delivery of a judgment or order "in open court"
has a two-fold object, firstly, the court or tribunal cannot alter the judgment
once it is delivered and secondly, the parties know with certainty as to what
the judgment, or its operative part, is and how their rights are affected and the
period of limitation for challenging the judgment beings to run. It matters not
that the judgment is signed later and certified copy is received later. The
essence of the matter is to make known to the parties exactly what the
judgment is, that is to say, communication of the judgment to the parties. The
knowledge of the judgment may be either actual or constructive. It is actual
when parties or their counsel are present when the judgment is delivered
immediately after the hearing is concluded, or in case of a reserved judgment,
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parties or counsel are present pursuant to a notice intimating them about the
date of delivery of judgment. The notice may be by the cause-list or by a
separate notice. It is constructive when parties or counsel have notice of the
date of delivery but choose not to remain present in court, in either case, the
delivery "in open court" makes the judgment effective against the parties
because it stands communicated to them.
(b) Where the Act or Rules do not require pronouncement "in open
court", the pronouncement or delivery does not have the effect of making the
judgment known to the parties. The manner of making such pronouncement
or delivery is a matter of practice of that tribunal and it matters not how it is
done. While the tribunal cannot alter the judgment so delivered, the parties
come to know when the copies of the judgment are communicated to them by
post or e-mail or hand delivery. Such communication makes the judgment fully
effective so far as the parties are concerned by imparting to them knowledge of
the judgment.
(c ) The real purpose of delivery "in open court" and delivery
otherwise, followed by communication, is to make known to the parties what
the judgment is. The essence of both modes is communication of the judgment
to the parties. There is no universal or inflexible rule or principle of law that a
judgment must always be pronounced "in open court"by every tribunal. The
mode of delivery of judgment or order depends on the particular Act and Rules
or Regulations. Moreover, the exact way in which such delivery takes place
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may take various forms.
(d) The Companies Act, 1956 enacted by Parliament provides in
Section 397 and 398 that the CLB shall "make such orders as it thinks fit".
Section 10E(4B) provides for "order made" by a bench of the CLB. Section
10F provides that the limitation for the appeal shall commence from the date
of communication of the decision or order". Hence, the Act prescribes two
essential things, firstly, the making of the order and secondly, the
communication of the order. The CLB Regulations of 1991 framed by the CLB
under Section 10E(6) vide Regulation 29(1) that the order shall be in writing
and shall be signed by the member or members constituting th bench which
pronounces the order. This is the manner of"making" the order and the
essential elements are that the order is in writing and is signed. The emphasis
in Regulation 29(1) is on the order being written and signed by the Member or
Members who pronounced it. Regulation 29(1) does not say that the order shall
be pronounced nor does it prescribe the mode of pronouncement. The word
"which pronounces the order" merely describe the bench which delivers the
order in writing and signs the same. Pronouncing the order is simply the act
of making, delivering or rendering the written and signed order. In the context
of Regulation 29(1), the word "pronounces"must take its colour and meaning
from Section 397 and 398 which use the word "make" and hence, cannot, in
or under a statute, have the meaning of only an oral utterance in open court.
The Bench by deciding the case and making an order, pronounces it.
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(e) It is further submitted that there is no requirement that the
pronouncement has to be "in open Court",. The purpose of providing that the
order shall be in writing and signed is to "secure certainty in the
ascertainment of what the judgment was". The absence of the words "in open
court" clearly indicates that the pronouncement or delivery of the order is not
required to be done in open court.
(f) It is further submitted that the second step is of the utmost
importance, namely, to make the order known to the parties so that they know
what it is and not it affects their rights and enables them to pursue the remedy
of appeal. Regulation 29(4) provides for communicating copies of the order to
the parties free of cost. This provision obviates the need for applying for
certified copies which needs to be done when an order or judgment is
pronounced in open court under Order XX of Civil Procedure Code, 1908.
Communication imparts knowledge of the order and concludes and binds the
parties.
(g) It is further submitted that it is settled law that even in cases
covered by the CPC and Cr.P.C. where the judgment has to be pronounced in
open court, the Hon'ble Supreme Court has held that small irregularities in the
manner of pronouncement or the mode of delivery do not matter and
irregularities in the manner which the judgment is authenticated or signed and
sealed can be cured because they are all rules designed to secure certainty
about the contents of the judgment.
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57. The learned senior counsel Mr. Bobde, placed reliance upon the
judgment of the Supreme Court in the case of State Bank of India and Ors
Vs. S.N. Goel (2008) 8 S.C.C. 92 and more particularly paragraph 28 which
reads thus :
".....The position is different with reference to quasi judicial
authorities. While some quasi judicial tribunals fix a day for
pronouncement and pronounce their orders on the day fixed, many
quasi judicial authorities do not pronounce their orders. Some
publish or notify their orders. Some prepare and sign the orders and
communicate the same to the party concerned. A quasi judicial
authority will become functus officio only when its order is
pronounced, or published/notified or communicated (put in the
course of transmission) to the party concerned. When an order is
made in an office noting in a file but is not pronounced, published or
communicated, nothing prevents the Authority from correcting it or
altering it for valid reasons. But once the order is pronounced or
published or notified or communicated, the Authority will become
functus officio......"
58. The learned senior counsel also placed reliance upon the judgment of the
Supreme Court in the case of Harish Chandra Raj Singh Vs. Land
Acquisition, AIR 1961 S.C. 1500 and more particularly para 6 which reads
thus :
"The knowledge of the party affected by such a decision, either
actual or constructive, is an essential element which must be satisfied
before the decision can be brought into force. Thus considered the
making of the award cannot consist merely in the physical act of
writing the award or signing it or even filing it in the office of the
Collector; it must involve the communication of the said award to
the party concerned either actually or constructively. If the award is
pronounced in the presence of the party whose rights are affected by
it it can be said to be made when pronounced. If the date for the
pronouncement of the award is communicated to the party and it is
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accordingly pronounced on the date previously announced the award
is said to be communicated to the said party even if the said party is
not actually present on the date of its pronouncement. Similarly if
without notice of the date of its pronouncement an award is
pronounced and a party is not present the award can be said to be
made when it is communicated to the party later. .........."
59. The learned senior counsel also placed reliance upon the judgment of the
Supreme Court in the case of Transport Commissioner Vs. Nand Singh
(1979) 4 S.C.C. 19 and more particularly paragraph 2 which reads thus :
"The order must be communicated either directly or constructively in
the sense of making it known, which may make it possible for the
authority to say that the party affected must be deemed to have
known the order in a given ease, the date of putting the order in
communication under certain circumstances may be taken to be the
date of the communication of the order or the date of the order but
ordinarily and generally speaking, the order would be effective
against the person affected by it only when it comes to his
knowledge either directly or constructively, otherwise not......"
60. The learned counsel placed reliance upon the judgment of the Supreme
Court in the case of Commissioner of Central Excise Vs. M.M. Rubber
and Co. 1992 Supp (1) S.C.C. 471 and more particularly para 13 which reads
thus :
"The knowledge of the party affected by such a decision, either
actual or constructive, is thus an essential element which must be
satisfied before the decision can be said to concluded and binding on
him. Otherwise, the party affected by it will have no means of
obeying the order or acting in conformity with it or of appealing
against or otherwise having it set aside. This is based upon, as
observed by Ranmannar, CJ in Muthia Chettiar vs. CIT, AIR 1951
Mad. 204 "a salutary and just principle." The application of this rule
so far as the aggrieved party is concerned is not dependent on the
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provisions of the particular statute, but is so under general law."
61. The learned senior counsel submitted that whenever parliament
considers it necessary that the courts must pronouncement in the open court,
it provides for express provisions under the statute. The learned counsel placed
reliance upon Order 20 rule 1 and Order 41 rule 30 of Code of Civil Procedure,
section 397 and 398 of the Companies Act, Regulation 29(1) and Regulation
29(4) of the Company Law Board Regulation 1991, section 31(5) of the
Arbitration and Conciliation Act, 1996, various provisions of Central Excise
Act, 1944, Customs Act, 1962, Mines and Minerals Development Regulation
Act, 1957, Electricity Act, 2003, Administrative Tribunals Act, 1985, Telecom
Disputes Settlement and Appellate Tribunal Procedure, 2005, Consumer
Protection Regulation 2005, Computation Commission of India (General)
Regulation, 2009, Mineral Concession Rules, 1960. The learned counsel
placed reliance on the judgment of the Court of Appeal, New Zealand reported
in Bell-Booth Vs. Bell-Booth (1999) 4 L.R.C. 1, the judgment of the Supreme
Court in the case of Ram and Shyam Co. Vs. State of Haryana, (1985) 3
S.C.C. 267, Vinodkumar Vs. Banaras Hindu University (1988) 1 S.C.C. 80,
Yadlapati Vs. State of Andhra Pradesh 1995 supp (2) SCC 590 in support of
the plea that the pronouncement of the judgment by the CLB in the open
court was not mandatory.
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62. Mr. Sen, the learned counsel for respondent nos. 4 and 5 submits that
neither under the provisions of the companies Act, 1956 nor under the
Company Law Board Regulations, 1991, there is any requirement for
pronouncement. The word used "pronouncement" in the context of the
requirement for signature of all the members of the Bench are only with a
view to identify the Bench and could not have been intended to impose the
obligation to pronounce much less in open court. It is submitted that the
order stands "communicated" once it is pronounced in an open court. Once the
order is pronounced in open court, there should be no further requirement of
communication of the same. It is submitted that Regulation 29(4) requires
communication of the order inspite of the word "pronounced" used in
Regulation 29(1). If the intent of the Legislature In using the word
"pronounced" under article 29(1) was to require pronouncement in open court,
the provisions in Regulation 29(4) requiring communication shall be totally
redundant since the order already have been communicated upon
pronouncement. It is submitted that Regulation 29 therefore, has not required
pronouncement of the order in the open court.
63. In rejoinder Mr. Samdhani learned senior counsel appearing for the
appellant submits that the Regulation 29 itself caste obligation on the CLB
"to pronounce the judgment and order. It is submitted that the word
"pronouncement" indicate that it can only be done in the open court. The
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learned counsel invited attention of this court to order at page 380, Vol. III
which is another order of CLB to demonstrate that it was practice of CLB of
making pronouncement of order/judgment in the open court. The learned
counsel submits that even the judgment relied upon by the second respondent
and particularly reported in AIR 1954 S.C.C. 194 and (1988) 1 S.C.C. 80
holds that the communication of the judgment has to be done in the judicious
way by pronouncing it. It is submitted that the judgment that is not signed but
pronounced is a valid whilst the judgment that is signed but not pronounced is
invalid.
64. It is not in dispute that the impugned order dated 13th August, 2012
passed by the CLB was not pronounced in the open court. It is also not in
dispute that the impugned order was communicated to all the parties and copy
of the same had been received by all the parties from CLB. The grievance
however, made by the appellant is that the respondent had received the copy of
the impugned order from CLB before the same was communicated to the
appellants and as a result whereof the respondents took steps to implement it
even before the appellants learnt and or received copy of the said order.
Regulation 29(1) and 29(4) of the CLB Regulation, 1991 is pressed into
motion by the learned counsel appearing for the appellant and the respondents
in support of their respective arguments. On conjoint reading of Article 29(1)
read with 29(4) it is clear that there is no mandatory requirement of
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pronouncement of the order by the CLB in open court. From reading of
Regulation 29(1) and (4) it is clear that it is the intention of the legislature that
the order passed by the CLB has to be communicated to the parties in the
absence of any mandatory requirement of pronouncement of the judgment
and order in the open court. The essence of pronouncement and
communication is that the parties are made aware of the order or judgment
exactly. Once the order or judgment is delivered, the parties have constructive
notice of
delivery. Once the parties are communicated with the order of
judgment, the CLB cannot make any alterations in the said judgment so
delivered. In my view, once the order is communicated to the party, it
becomes fully effective. The limitation for challenging to such order or
judgment would commence when the certified copy is received. The Supreme
Court in the case of State Bank of India Vs. S.N.Goel (supra) has held that
the position in the case of quasi judicial authorities is different. Many times,
the quasi judicial authorities though fix the date for pronouncement, the orders
are not pronounced. Some time orders are signed and communicated to the
parties concerned. It is held that the quasi judicial authority will become
functus officio only when its order is pronounced, published and notified or
communicated to the party concerned. It is held that once the order is
pronounced or published or notified or communicated, the authority would
become functus officio. In my view even if the order of CLB impugned in
this proceedings was not formally pronounced in the open court, but
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admittedly communicated either on the same or the next day at most, it would
lead to small irregularity in the matter of pronouncement or mode of delivery
and cannot be construed as illegal or invalid order. I am not inclined to accept
the submissions made by Mr. Samdani the learned senior counsel appearing
for the appellant that the impugned order was though served by the CLB,
however, not having been pronounced in the open court, is invalid and/or
illegal.
65. Though the learned counsel for both the parties have placed reliance on
various judgments referred to in the earlier paragraphs of this order, in view of
the clear wording of Regulation 29, I need not to deal with all the
judgments referred to and relied upon by the learned counsel in detail. In my
view there was no illegality committed by the CLB in not pronouncing the
impugned order in the open court.
66. As far as question 2D formulated by the appellant regarding
pronouncement of the order is concerned, in my view issue raised by the
appellant raises question of law. I have already dealt with this question in
detail and have taken a view that even if impugned was not formally
pronounced in the open court but was admittedly communicated, it would lead
to small irregularities in the matter of pronouncement and the order cannot be
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construed illegal. I have already taken a view that once the order is
communicated to the parties, it becomes totally effective. The question of law
formulated by the appellant in para (2D) is answered accordingly.
67. Mr. Samdani, the learned senior counsel for the appellants submits that
the record and the proceedings reveals that there are serious justifiable
allegations with regard to the manner in which the resolution is purportedly
passed and the said allegations forms part of the Company Application (91 of
2012) which is pending before the CLB. It is submitted that by the impugned
judgment passed by the CLB Company Application (91 of 2012) has been
rendered infructuous. The CLB has permitted the first respondent to implement
the resolution, challenge to which is pending adjudication. The CLB has
recoded a finding that the resolution had been validly passed without even
adjudicating upon various objections raised by the appellants.
68. On the other hand, the learned counsel appearing for the respondents
submits as under :
(a) Company Application (85 of 2012) was first mentioned on 18th
June, 2012 and was directed to be listed for hearing on 28th June, 2012. On
this date, the Company Application (91 of 2012) was not even filed. The
Company Application (91 of 2012) was filed on 19th June, 2012. On 28th June,
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2012 the Company Application (85 of 2012) was argued, part heard and
adjourned to 10th July, 2012 when the direction for completion of pleadings in
Company Application (91 of 2012) were given. On 10th July, 2012, Company
Application (85 of 2012) and (73 of 2012) were heard partly and were
adjourned for conclusion of hearing on 21st July, 2012. The respondent was
granted liberty to file sur-rejoinder in Company Application (91 of 2012). The
appellant sought adjournment of the hearing on 21st July, 2012 and accordingly
the matter was adjourned to 10th August, 2012. Hearing of the Company
Application No. 73 and 85 of 2012 was completed on 10th August, 2012 when
the appellant sought time to argue Company Application No. 91 of 2012.
(b) The appellants themselves in their affidavit in reply in Company
Application (85 of 2012) had sought to challenge the conduct of the EOGM
held on 22nd May, 2012 as also passing of the resolution therein. The
observations made in the impugned order with regard to the conduct of the
EOGM held on 22nd May, 2012, the decision of the Chairman and passing of
the resolution therein are correct and does not require any interference. The
CLB was correct in making observations in relation thereto in the impugned
order and no fault can be found in not having heard the Company
Application (91 of 2012).
69. In its alternate submission, the respondent no.2 submits as under :
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The pleadings, facts and documents in Company Application No. 91 of
2012 filed in the present appeal in Volume VII cannot be considered for the
purposes of the present appeal since the same were not the record before the
Hon'ble CLB and not under consideration for the purposes of the impugned
order dated 13.8.2012. The facts contained therein are therefore, beyond the
scope of and can not be considered in a section 10F appeal filed against an
order passed in Company Application (85 of 2012).
70. In rejoinder, Mr. Samdhani learned senior counsel for appellants submits
that all the parties have made their submissions on the various claims and
issues raised by the appellants in Company Application (73/2012) and also in
Company Application (91 of 2012) and in view of the fact that the CLB also
in the impugned order has made certain observations in respect of the
subsequent events, this court shall consider subsequent events also which are
permitted to be brought on record in Company Application (73/2012) which
were forming part of the Company Application (91 of 2012) while deciding
this appeal. It is submitted that the CLB has referred to Company Application
(91 of 2012) in Para 28 29, 32 and 36 to 40 of the impugned order.
71. The appellants have formulated, the question 2E and F based on the
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contention that CLB could not have permitted the 1st respondent from
implementing a resolution purportedly passed at its EOGM when the CLB
itself permitted the amendment in the company petition impugning convening
of the said EOGM and has adjourned the company petition (91 of 2012) for
further amendment of the company petition questioning the conduct at the
impugned EOGM. Though initially the appellants raised this issue, later
invited my attention to paragraphs 4, 28, 36 to 39 of the impugned order
passed by CLB referring to and dealing with the facts and issues raised by the
appellant as well as respondents arising out of application for amendment
(73/2012) and also company application (91/2012). Mr.Samdhani, the learned
senior counsel also invited my attention to the pleadings and documents which
are produced in various compilation filed by both parties. The learned senior
counsel submits that the CLB could not have deferred the hearing in Company
Application Nos. 91 of 2012 and 73 of 2012 in which appellant had questioned
the conduct at the impugned EOGM and the same was pending.
72. The learned counsel submits that as a result of the CLB deferring the
hearing in Company Application Nos. 91 of 2012 and 73 of 2012 , decision
rendered by the CLB in Company Application No. 85 of 2012 has made the
applications filed by the appellants which are pending before the CLB
infructuous. The learned counsel accordingly submits that since all parties in
this proceedings have relied upon the pleadings and documents including the
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applications which are pending before the CLB, considering that and also in
view of the fact some of this facts are observed and dealt with in the impugned
order by CLB, this court shall render its decision on all such issues in the
present appeal. It is not in dispute that though the respondents initially
opposed that fact that pleadings and documents forming part of the Company
Application Nos. 91 of 2012 and 73 of 2012 were not subject matter of
Company Application No. 85 of 2012, this court shall not permit the appellants
to agitate those issues in this appeal, however, have during the course of
argument relied upon the pleadings and documents filed by the respondents on
those issues and have made their detail oral and written submissions in the
present proceedings. This court, therefore, permitted all parties to make their
submissions on all such issues which are forming part of the Company
Application Nos. 91 of 2012 and 73 of 2012 and has dealt with all those issues
in the subsequent paragraphs of this order.
73. Mr.Samdhani, the learned senior counsel appearing for the appellant
submits that by convening EOGM On the requisition of the requisitionist for
the purpose of deleting Article 57 was without any such direction in the order
passed by Shri Justice S.C.Dharmadhikari and was during the pendency of
Special Leave Petition filed by the appellant challenging the said order, the 1st
and 2nd respondents have committed an act of oppression in continuation of its
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past oppressive acts which are prejudicial to the public interest and oppressive
to the members of the 1st respondent company. It is submitted that thus, the
CLB ought not to have permitted the company to give effect to the resolution
passed in the EOGM held on 22nd May, 2012. The learned counsel submits
that the appellants were thus justified in filing petition under Sections 397 and
398 read with Section 402 of the Companies Act, 1956 which is still pending
before the CLB. It is submitted that the said company petition is maintainable
as the appellants have made out a case for reliefs under those provisions of law.
74. On the other hand, the learned senior counsel appearing for the
respondent no. 2 submits that the Company Petition filed by the appellants
under section 397 and 398 read with section 402 of the Companies Act,1956
itself is not maintainable and made the following submissions :
(a) The petition filed by the appellants under section 397 and 398 of
the Companies Act, 1956 does not disclose any cause of action under
section 397 and 398. The appellants have not made out any case as to why the
facts of the present case would justify winding up of respondent no.1
company on just and equitable grounds as per requirement of section 397 and
398. Consequence of section 402 would only be applicable if the appellant
have made out any case under section 397 and 398 of the companies Act.
(b) The first respondent company has acted in accordance with law in
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calling EOGM at the instance of the requisitionists under section 169 of the
Companies Act and passing of the resolution in the EOGM can never
amount to oppression of the minority or mismanagement or justify winding up
on just and equitable cause under section 433. It was simple corporate
democracy and an action pursuant to and in compliance with law. The
deletion of Article 57 benefits all the shareholders and is also in the interest of
company and in the public interest since the shareholders can sell their shares
at market value and the public can freely buy the shares of the company
subject to the powers of the Board of Directors of the Company to either
register or refuse to register the transfer.
(c) Calling of the EOGM was in compliance of the notice received
from the requisitionists under section 169 of the Companies Act read with
Article 76 of the Articles of Association. There was no option available to the
first respondent company but to call EOGM in compliance with the
provisions of the law. The respondents place reliance upon section 169 of the
companies Act and Article 76 of the Articles of Association which reads as
under :
"Section 169 - Calling of extraordinary general meeting on
requisition :
(1) The Board of directors of a company shall, on the requisition of such
number of members of the company as is specified in sub-section (4),
forthwith proceed duly to call an extraordinary general meeting of the
company.
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(2) The requisition shall set out the matters for the consideration of
which the meeting is to be called, shall be signed by the requisitionists,
and shall be deposited at the registered office of the company.
(3) The requisition may consist of several documents in like form, each
signed by one or more requisitionists.
(4) The number of members entitled to requisition a meeting in regard to
any matter shall be--
(a) in the case of a company having a share capital, such number of
them as hold at the date of the deposit of the requisition, not less than
one-tenth of such of the paid-up capital of the company as at that date
carried the right of voting in regard to that matter;
(b) in the case of company not having a share capital, such number of
them as have at the date of deposit of the requisition not less than
one-tenth of the total voting power of all the members having at the
said date a right to vote in regard to that matter.
(5) Where two or more distinct matters are specified in the requisition,
the provisions of sub-section (4) shall apply separately in regard to each
such matter; and the requisition shall accordingly be valid only in
respect of those matters in regard to which the condition specified in that
sub-section is fulfilled.
(6) If the Board does not, within twenty-one days from the date of the
deposit of a valid requisition in regard to any matters, proceed duly to
call a meeting for the consideration of those matters on a day not later
than forty-five days from the date of the deposit of the requisition, the
meeting may be called--
(a) by the requisitionists themselves;
(b) in the case of a company having a share capital, by such of the
requisitionists as represent either a majority in value of the paid-up
share capital held by all of them or not less than one-tenth of such of
the paid-up share capital of the company as is referred to in clause (a)
of sub-section (4), whichever is less; or
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(c) in the case of a company not having a share capital by such of the
requisitionists as represent not less than one-tenth of the total voting
power of all the members of the company referred to in clause (b) of
sub-section (4).
Explanation.--For the purposes of this sub-section, the Board shall,
in the case of a meeting at which a resolution is to be proposed as a
special resolution, be deemed not to have duly convened the meeting
if they do not give such notice thereof as is required by sub-section
(2) of section 189.
(7) A meeting called under sub-section (6) by the requisitionists or any
of them--
(a) shall be called in the same manner, as nearly as possible, as that in
which meetings are to be called by the Board; but
(b) shall not be held after the expiration of three months from the
date of the deposit of the requisition.
Explanation.--Nothing in clause (b) shall be deemed to prevent a
meeting duly commenced before the expiry of the period of three
months, aforesaid, from adjourning to some day after the expiry of
that period.
(8) Where two or more persons hold any shares or interest in a company
jointly, a requisition, or a notice calling a meeting, signed by one or
some only of them shall, for the purposes of this section, have the same
force and effect as if it had been signed by all of them.
(9)Any reasonable expenses incurred by the requisitionists by reason of
the failure of the Board duly to call a meeting shall be repaid to the
requisitionists by the company; and any sum so repaid shall be retained
by the company out of any sums due or to become due from the
company by way of fees or other remuneration for their services to such
of the directors as were in default."
Article 76 of the Articles of Association :
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"76. All General Meeting other than Annual General Meeting shall
be called Extraordinary General Meeting. The Board may,
whenever it thinks fit, call an Extraordinary Meeting. The Board
shall also call an Extraordinary General Meeting on the requisition
of members of the Company in accordance with all the provisions
of Section 169 of the Act, which shall apply to this Company."
(d) The provisions of section 397 can not be attracted to passing of
the resolution permitted under section 31 and mandated under section 169 of
the Companies Act, for altering or deleting articles in public interest. Merely
because some of the requisitionists had withdrawn their consent or ceased to be
members the requisition does not become invalid and more particularly by
virtue of the letter dated 19th May 2012 addressed by respondent no.6 to the
first respondent company. The learned senior counsel placed reliance upon
paragaph 2.1 from Ramaiya's Guide to Companies Act, 1956, Part II, 17th
Edition at page 1982 which reads thus :-
Once a valid requisition has been submitted, the directors can act
upon it and it remains their obligation to call the meeting even if
some of the requisitionists have withdrawn their consent or
ceased to be members.
75. Mr.Samdhani submitted that the decision of the Chairman is subject to
judicial scrutiny and would be subject matter of section 397 and 398 petition.
Such decision is not conclusive or unchallengable.
76. The Supreme Court in the case of Shri. V.S. Krishnan (supra) has called
out the situation in which the oppression attracting section 357 would be
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made out. The Supreme Court in the said judgment has held thus :
"10. In a number of judgments, this Court considered in extenso the
scope of Sections 397 and 398. The following judgments could be usefully
referred to:
(a) Needle Industries (India) Ltd. and Ors. v. MANU/SC/0050/1981
: Needle Industries Newey (India) Holding Ltd. and Ors.
[1981]3SCR698 .
(b) M.S. Madhusoodhanan and Anr. v. MANU/SC/0553/2003 :
Kerala Kaumudi (P) Ltd. and Ors. (2004)9SCC204 .
(c) Dale and Carrington Investment (P) Ltd. and Anr. v.
MANU/SC/0748/2004 : P.K. Prathapan and Ors. (2005)1SCC212 .
(d) Sangramsinh P. Gaekwad and Ors. v. MANU/SC/0052/2005 :
Shantadevi P. Gaekwad (Dead) Through L.Rs. and Ors.
AIR2005SC809
(e) Kamal Kumar Dutta and Anr. v. MANU/SC/8408/2006 : Ruby
General Hospital Ltd. and Ors. 2006(7)SCALE668 .
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 even if legally permissible, if the action is
otherwise against probity, good conduct or is burdensome, harsh or
wrong or is mala fide or for a collateral purpose, it would amount to
oppression under Sections 397 and 398.
(e) Once conduct is found to be oppressive under Sections 397 and
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398, the discretionary power given to the Company Law Board
under Section 402 to set right, remedy or put an end to such
oppression is very wide.
(f) As to what are facts which would give rise to or constitute
oppression is basically a question of fact and, therefore, whether an
act is oppressive or not is fundamentally/basically a question of
fact."
77. In my view, in the proceedings filed under Sections 397 and 398, the
petitioners have to show that there has been some sort of oppression on the part
of majority shareholders of the company on the minority shareholders. In my
view, an isolated act or incident is not oppressive. Petitioner has to prove the
act of oppression which must continue upto the date of filing of the petition.
The petitioner has to prove that oppression was of minority shareholders by
majority shareholders and that facts exist which would justify winding up of
the company on the ground that it would be just and equitable to do so but in
the facts and circumstances, to wind up the company would unfairly prejudice
the petitioners.
78. The expression "public interest" has not been defined under the
provisions of the Companies Act, 1956. It may have to be distinguished from
self interest of individual or sectional or class or group interest, as
circumstances may indicate. What is required is that it should not be such as to
be prejudicial to public interest i.e. common ground or general welfare of the
community.
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79. Mr.A.Ramaiya in his work "Guide to the Companies Act" has
considered the Dictionary Of Sociology on this aspect and says "it is
essentially anything is said to the public interest where it is or can be made to
appear to be contributive to the general welfare rather than to the special
privileges of a class, group or individual". In my view, in the absence of any
proof that affairs of the company are being conducted in a manner prejudicial
to the public interest or in the manner oppressive to the petitioners, the CLB
would not have jurisdiction to pass an order under Section 397. Oppression or
management is not enough. The act of oppression must have continued or
existed at the time of application filed under section 397 of the Act. In my
view, past acts which have come to an end would not attract section 397. The
averments in the petition filed by the appellant shows that the same is basically
filed on the basis of alleged past oppressive conduct on the part of the majority
shareholders which have been already considered in the earlier proceedings
filed in this case and have been dealt with and negatived.
80. In the order and judgement delivered by this Court on 14th June, 2011, a
finding is rendered that there was no act of oppression on the part of the
majority shareholders on the minority shareholders. Question now arises for
the consideration of this court in this proceeding is that by the requisitioning
EOGM by the management of the 1st respondent company and by passing a
resolution to delete Article 57 from the Articles of Association would amount
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to an act of oppression and would attract section 397 read with section 402 of
the Companies Act, 1956 which shall be dealt with by this court in the later
part of this order.
81. Both parties have addressed this court at length on the issue as to
whether order dated 14th November, 2008 passed by Shri Justice
A.M.Khanwilkar in Company Petition No. 77 of 1990 would apply to the
present appellant and would operate in rem and also on the issue as to whether
order and judgment dated 14th June, 2011 in Company Appeal No. 24 of 2010
would be executable and binding on the parties in the absence of stay of the
said judgment by the Supreme Court in the pending Special Leave Petition
filed by the appellants. Both parties have also addressed this court on the
effect of the pendency of Special Leave Petition filed by the appellants on the
present proceedings. The submission of the respondent is that admittedly, the
judgment delivered by this court on 14th June, 2011 in Company Appeal No. 24
of 2010 has not been stayed and was not even applied for by the appellant
whereas the submission of the appellant is that the issues arises in the present
appeal is subjudice before the Supreme Court in the pending Special Leave
Petition and thus order and judgment delivered by this court on 14th June, 2011
cannot be relied upon by the respondents. The submission of the respondent is
that independently of pendency of the matter in the Supreme Court, this court
can decide the issue raised in the present appeal on the basis of the pleadings
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and documents placed on record by both parties and this court can come to the
conclusion as to whether majority shareholders have committed any act of any
oppression on the minority shareholders in requisitioning the meeting and
passing a resolution for deletion of the Article 57 from the Articles of
Association and pass resolution thereon.
82. I shall, therefore, first decide whether on the basis of the pleadings and
documents produced by both the parties on record before the CLB whether
CLB was justified in recording the finding that no act of oppression was
committed by the majority shareholders on minority shareholders under section
397 of the Companies Act, 1956 or not. In that context, I shall also decide that
if the order and judgment dated 14th June, 2011 passed by this court holding
that Article 57 is void and is of no effect, whether an act of convening EOGM
and resolution passed therein pursuant to the requisition of a meeting at the
instance of the members for the purpose of deleting Article 57 and to give a
effect to the order passed by this Court would amount to an act of oppression
or not. I shall also decide the issue as to whether in case of the respondent no.1
being a public limited company, Article 57 in the Articles of Association was
redundant, dead and was unenforceable considering the effect of Section 9 of
the Companies Act.
83. It is not in dispute that the 1st respondent company was incorporated on
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6th March, 1963 under the Companies Act, 1956, as private limited company.
On 17th August, 1988, the 1st respondent became the deemed public limited
company pursuant to Section 43(A) of the Companies Act, 1956. At the
meeting of the members of the 1st respondent held on 5th May, 2001, a special
resolution was proposed to insert an additional clause (d) in its Articles of
Association pursuant to the Companies (Amendment) Act, 2000. On and from
December 13, 2000 when the Companies (Amendment) Act 53 of 2000 came
into effect, the concept of the deemed public limited company was done away.
The 1st respondent company which was initially incorporated a private limited
company became a deemed company by virtue of section 43(A) of the
Companies Act. 1st respondent company had accordingly issued notice of
EOGM on 2nd April, 2001 seeking to amend Article 3 of the Articles of
Association and also to change its name from Gharda Chemicals Ltd. to
Gharda Chemicals Pvt. Ltd. and thereby revert to be a private limited company.
In the said meeting, the appellant and other members of Kavasmaneck Rebello
group collectively held 32% of the shareholding of the 1st respondent defeated
the said resolution. As a consequence thereof on and from 5th May, 2001, the
1st respondent company became and continued to be a public limited company.
As a result thereof, all the statutory filing of the 1st respondent have been made
on the basis of the fact that it is a public company. It is not in dispute that the
1st respondent has more than 50 members and has more than three directors as
is obligatory under the Companies Act, 1956 in case of a public limited
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company. The 1st respondent has also accepted the deposit in the form of fixed
deposit from the public and is public limited company for all purposes. It is
not in dispute that the appointment of the managing director of the 1 st
respondent was also after following the provisions of section 269 of the
Companies Act as applicable to the public limited company. The requisite
approval of the State Government has been sought and obtained which are not
required in case of the private limited company. The 1st respondent has done
various acts which are applicable to a public limited company and not to
private limited companies.
84. On 17th May, 2001 and 20th May, 2001 respectively the 1st respondent
company received from its members Mr.B.E.Daruwalla and Mr.S.G.Gandhi
expressing their desire to transfer their shares in the first respondent which
transfer notice came to be circulated amongst all the members under Article 57
of the Articles of Association by the 1st respondent. In response to the said
letters, the appellant no.2 by his letter dated 6th June, 2001 stated that he was
unable to understand as to how the company continue to circulate transfer
notice under Article 57 especially in view of the recent turn of events being a
non passing of special resolution for amendment of articles. Appellant No.2
recorded his objection that he would be ignoring the transfer notice if any
circulated by the 1st respondent under Article 57 of the Articles of Association.
The appellant no.2 applied for transfer of some of his shares as a result where
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the strength of members of 1st respondent exceeded 50 and increased to 54.
85. In my view, this conduct on the part of the appellant and defeating the
resolution which was proposed by the 1st respondent company in EOGM held
on 5th May, 2001 and thereafter by taking a stand that notice inviting objection
from the appellant for transfer of shares by two of the members under Article
57 was unwarranted and any such notice given in future would be ignored, one
of the appellant having transferred some of his shares in favour of his family
members in the 1st respondent company and thereby membership of the 1st
respondent having exceeded 50 and thereby taking advantage of 1st respondent
having become a public limited company, in my view, the appellants are
estopped from challenging the status of the 1st respondent company as public
limited company. The appellants have acted upon and have proceeded on the
footing that the 1st respondent company has become public limited company.
In my view 1st respondent is a public limited company.
86. The CLB in para 40 of the impugned order has rendered a finding that
passing of the resolution by the shareholders of the company in exercise of
their democratic rights in a EOGM requisitioned by the shareholders of the
company does not in any manner amount to oppression or mismanagement and
cannot form a subject matter of a petition under Section 397/398 of the
Companies Act and thus there is no reason to interfere with the internal
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democracy of the company. In my view the conclusion drawn by the CLB that
passing of a resolution by the shareholders of the company in EOGM did not
in any manner amount to oppression or management and cannot be subject
matter of the petition under section 397/398 of the Companies Act cannot be
interfered with. In my view, the decision was taken by the majority of the
share holders and the said decision was rightly upheld by the CLB keeping in
mind principles of corporate democracy. In my view, the CLB has rightly
vacated the ad-interim order dated 21st May, 2012. In my view, the
respondents have not committed any act as alleged by the appellants which can
be called as an act of oppression by the majority shareholders on minority
shareholders.
87. The question that now arises for consideration of this court is that in
view of the 1st Respondent Company being the public limited company,
whether Article 57 of the Articles of Association which was inserted in the
Articles of Association giving right to preemption to the members when the
status of the company was private limited company could be continued in the
Articles of Association or the same is inconsistent and not inconformity with
the provisions of the Companies Act, 1956.
88. The question that arises for consideration of this court is whether there
can be any restriction on transfer of shares of the first respondent. In this
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regard reference to Section 82 of the Companies Act, 1956 would be relevant
which reads thus :-
Section 82 in The Companies Act, 1956
82. Nature of shares. The shares or other interest
of any member in a company shall be movable
property, transferable in the manner provided by
the articles of the company.
89. On the plain reading of Section 82, it is clear that shares in the company
are moveable property transferable in the manner provided in the Articles. In
my view in case of a public limited company, articles cannot impose and
onerous terms which would affect substance of right to transfer shares by
applying right of preemption. The appellants had also understood the effect of
the status of the 1st respondent company being a public limited company and
had rightly opposed the consent sought by the company in the year 2001 for
transferring shares applied for by few other members of the company. Under
Section 111 of the Companies Act and more particularly Section 111(14) which
was inserted w.e.f. 20th September, 1995, it was clarified that Section 111
applies to the company which is a private company and include the private
limited which has became public limited by virtue of Section 43(A) of the
Companies Act. On reading of Section 111 read with Section 43(A) of the
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Companies Act, it is clear that Section 111 is not applicable to the 1 st
respondent. Section 111A deals with register of transfer and sub-section (1) of
Section 111A provides that the word "company" unless the context otherwise
requires means a company other than a company referred to in sub-section 14
of section 111 of the Companies Act and immediately by sub-section 2 clarifies
that subject to the provisions of section 111A the shares or debentures and any
interest therein of a company shall be freely transferable. In my view, article
57 which provides right of preemption became redundant and infructuous in
view of the change of status of 1st respondent company as public limited
company. In my view, 1st respondent company could no longer be governed by
Article 57 in view of the change of status. The 1st respondent company is thus
right in passing resolution to delete such article which had become redundant,
infructuous and dead in view of the change in status of the 1 st respondent
company in conformity with Section 9 of the Companies Act which reads
thus :-
9. Act to override memorandum, articles,
etc.- Save as otherwise expressly provided in the
Act -
(a) the provisions of this Act shall have effect
notwithstanding anything to the contrary contained
in the memorandum or articles of a company, or in
any agreement executed by it, or in any resolution
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passed by the company in general meeting or by its
Board of directors, whether the same be registered,
executed or passed, as the case may be, before or
after the commencement of this Act; and
(b) any provision contained in the
memorandum, articles, agreement or resolution
aforesaid shall, to the extent to which it is
repugnant to the provisions of this Act, become or
be void, as the case may be.
90. In my view the 1st respondent company has rightly exercised its right for
alteration of Articles under Section 31 of the Act by following procedure under
Section 169 read with Articles of Association. In my view, continuity of
Article 57 in the Articles of Association after 1st respondent having become a
public limited company would be inconsistent with the provisions of
Companies Act 1956. Under Section 9 of the Companies Act, the provision of
the act shall have effect notwithstanding anything to the contrary contained in
the Articles of Association of such company and any provisions in such articles
terms or agreement to the extent which is to the provisions of the Act become
void. In my view Article 57 thus being inconsistent contrary to and repugnant
to the provisions of the Companies Act became void, redundant, dead and thus
has been rightly deleted from the articles of association with a view to make
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articles of association consistent with the provisions of Companies Act, 1956.
In my view steps taken by the 1st respondent company to impleadment the
mandate provided under Section 9 of the Act by deleting, such articles which
was redundant and repugnant to the provisions of the Companies Act cannot
amount to oppression under Section 397 of the Companies Act. In my view
any legal steps taken by the company to follow provisions of law cannot
amount to oppression. In my view, on the contrary by making the shares freely
transferable, such act on the part of the 1st respondent would be in the public
interest and not against it. In my view, action taken by the 1 st respondent and
majority of the shareholders in passing a resolution to delete Article 57 was a
simple corporate democracy and is in compliance with law. Such powers
given to the Board of Directors to transfer shares of the company by allowing
shareholders to transfer shares and market value is undoubtedly subject to the
powers of the board of the directors to either register or refuse to register the
transfer in accordance with law.
91. In my view, action on the part of the appellant in opposing the resolution
passed by the 1st respondent company to delete Article 57 cannot be construed
in public interest. The application filed by the appellants under section 397 of
the Companies Act thus does not satisfy the conditions for attraction of
Sections 397 and 398 of the Companies Act in this case. In my view
requisitioning of a meeting by the board of the 1st respondent company was a
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ministerial act of convening EOGM for the purpose of deleting Article 57 so as
to comply with the provisions of law and to delete the articles which has
become redundant and void and does not amount to act of oppression under
section 397 of the Act. In my view, deletion of Article 57 and allowing free
transferability of shares is for the benefit of all the shareholders of first
respondent company and in the interest of justice and public interest.
92.
In my view, the appellants have failed to prove that conduct on the part
of the majority shareholders is harsh, burdensome, wrong, malafide, is for
collateral purpose, advantageous to some of the shareholders vis-a-vis others,
against probity and good conduct. CLB can exercise discretionary powers
under Section 402 read with Section 397 of the Companies Act to set right,
remedy or put an end to such oppression only if the criteria laid aforesaid are
satisfied. Thus in my view, petition filed by the petitioner under Sections 397,
398 read with Section 402 itself is misconceived and not maintainable.
93. In the alternate to the submissions referred in this order, the learned
senior counsel for respondent no.2 submits that the judgment and order dated
14th May, 2010 passed by CLB in Company Petition No. 132 of 2009 is upheld
by the judgment and order dated 14th June, 2011 passed by this court in
Company Appeal (24 of 2010) after considering all the submissions and
contentions on behalf of the appellants and holding that Article 57 is void
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and unenforceable.
94. The CLB has recorded a finding of fact and has followed the judgment
of this court. It is submitted that the order and judgment delivered by this court
on 14th June, 2011 has not been stayed by the Supreme court. The judgment
of this court was thus rightly followed by the CLB as the same is binding not
only on the parties, CLB but also on single Judge of this Court. It is submitted
that order passed by this Court on 14.6.2011 in Company Appeal (24 of 2010)
operates in rem. The respondents also placed reliance upon the following
paragraphs of the order and judgment delivered by this court on 14th June, 2011
in Company Appeal No. 24 of 2010 which reads thus :
78] Mr.Samdhani, learned counsel appearing for
appellants submits that the impugned order is illegal and deserves
to be set aside. The conclusions are unsustainable and are contrary
to law. The CLB has failed to notice certain vital provisions and its
conclusions are, therefore, vitiated.
79) He submits that there is no fixed statutory definition for
"oppression". It can take various forms. Whether or not there is
oppression is a question of fact. Actions that may be perfectly legal
have also been held to be oppressive. Acts or omissions that are
burdensome, harsh and wrongful are recognised to be "oppressive".
Actions that are lacking in probity and fair dealing in the affairs of
a company to the prejudice of some portions of the members are all
held to be oppressive. Even a single act of oppression can be subject
matter of a company petition as Sections 397 and 398 are a
complete code in themselves. The Court has wide and unlimited
powers and can pass orders to prevent oppression of the minority.
80] It is further submitted that GCL is a family company which
has been incorporated and continued by the Kavasmaneck/Gharda
families on the basis of the relations existing between them and on
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the basis of the mutual trust and confidence. There exists a special
underlying obligation between the members where in the event one
partner chooses to sell his share, the same should be first offered to
the others so that any outsider cannot be permitted to enter the
venture without the consent of the other partners. In fact, GCL is a
glorified partnership and the principles of partnership would apply.
81] It is submitted that Articles of Association constitute a
contract not only between the company and its members but also
amongst the members inter se. The right of preemption contained in
the Articles is a solemn contract not only between the shareholders
and the company, but also between the members inter se. In fact, the
right of preemption that has been enshrined in the articles is merely
a reiteration of the earlier understanding whereby a stranger
cannot be inducted in the partnership (which was taken over by
GCL) without the consent of the other partners and forms the
fundamental understanding on the basis on which the families got
together to constitute and continue GCL.
82] It is further submitted that breach of Articles would be ultra
vires and breach of the right of preemption constitutes an act of
oppression. To that effect, taking away or cancelling a right of
preemption will also amount to oppression and will be actionable.
What cannot be done directly cannot be permitted to be done
indirectly. The right of preemption is a vested right of a shareholder
and cannot be taken away or cancelled without his consent. The
power to amend articles cannot be used to oppress the minority and
or take away their vested rights.
83] Further it is submitted by Mr.Samdani that the notice and
explanatory statement dated 16th October 2010 are misleading and
are not in conformity with section 173 of the Companies Act, 1956.
The material facts of (i) the pendency of the Appeal No.24 of 2010,
(ii) the said appeal having been admitted, (iii) this Court having
granted an injunction not to violate Article 57, (iv) the questions
formulated have all been omitted-giving a totally misleading
picture. It is further stated that compliance of section 173 is
mandatory. A meeting convened on the basis of a notice which is not
compliant with section 173 will be bad in law and so will the
resolutions passed thereat.
84] He submits that the questions of law, therefore, as framed arise
for determination and they can be broadly indicated thus:
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(a) Whether the 2000 amendment is prospective which states
that section 43A will not apply "on and after" its introduction is
prospective and companies that had already acquired such status
earlier would continue to retain such status?
(b) Assuming that the 2000 amendment is construed as a
'repeal' of section 43A, whether under section 6 of the General
Clauses Act, such repeal would not disturb the status of companies
that had already acquired the status of deemed public companies?
(c) If a company, which was incorporated as a private
company prior to the 2000 amendment (a) does not alter its article
by introducing clause (d) of section 3(1)(iii); (b) or by fiction of law
is treated as a public company, it does not loose its character/fabric
of a private company?
(d) Whether a deemed public company or an unlisted public
company can validly provide for a right of preemption in its
Articles?
(e) Section 111A is the only provision that talks of free
transferability. In view of section 111A (1), read with section
111(14), the provisions of section 111A do not apply to a private
company which had become a public company by virtue of section
43A. Accordingly, section 111A is not applicable to GCL. Thus,
there is no provision that provides for free transferability of shares
of GCL.
(f) Alternatively, there is nothing in the Companies Act that
prohibits a 'public company' from providing any of the matters set
out in sections (a) to (d) of Section 3(1)(iii). Thus, the Articles of a
public company can contain a right of preemption.
(g) Section 82 of the Companies Act, 1956provides that the
shares are movable property transferable in the manner provided
in the Articles. The Articles of GCL continue to provide for
preemption and Section 9 thereof has no applicability. Whether the
attempt by the majority shareholders to sell the shares in breach of
the right of preemption constitutes oppression; and
(h) whether taking away or cancelling a right of preemption
by amending the Articles will also amount to oppression and will be
actionable.
85] Mr.Samdani submits that if the judgement of the Company
Law Board is perused carefully, it would be apparent that there is
no finding rendered on sections 111A(1) read with section 111A(14),
although a specific contention is raised by the appellants and which
is recorded. The preemptive right is recognised. In these
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circumstances, the finding recorded is vitiated by non application of
mind. The conclusion that there cannot be any reversal of Status
from public limited to private limited company and, therefore,
Article 57 must yield and give way to section 111A of the Companies
Act is not accurate, because assuming that if GCL is a public
limited company it is a unlisted public company. The shares are not
listed on the stock exchange. Such a company can always have a
right of preemption. Upon this vital issue and question, no finding is
rendered by the Board. There is no finding on question of
oppression as well. Mr.Samdani submits that it is also to be borne in
mind that the dispute is between family members. The principles of
partnership apply to a family concern/ company. It cannot also be
forgotten that initial partnership and later on becoming a company
is only an arrangement to take over business of partners. The initial
partners are appointed as Founder Directors. Mr.Samdani submits
that ground of oppression and mismanagement of minority and the
background for filing the petition cannot be lost sight of by this
Court. Mr.Samdani then contended that section 43A of the
Companies Act, 1956 should have been properly construed and
interpreted. He invites my attention to section 43A(2) and submits
that this provision ceases to apply after 13th December 2000.
Inviting my attention to section 82, 111(14) and 111A(1), he submits
that these provisions have no application to a private company or to
a company which has become public company. Section 111A(2) is
also not applicable and in these circumstances, the impugned order
is patently erroneous and unsustainable and should be set aside.
Mr.Samdani has taken me through the paras of the company petition
and he read out almost all affidavits and highlighted each of the
Acts which are terms as mismanagement and oppression of
minority. He emphasised the allegations of dividend squeezing and
unjust enrichment. He also invited my attention to the allegations of
diversion of funds by the majority to trusts and educational
institutions controlled by Dr.Gharda. He also referred to some
documents on record and particularly the report of Earnest Young
and Arthur D'Little dated 9th November 2009. It is his contention
that on the basis of available record, the company petition should
not have been dismissed and therefore, this appeal deserves to be
allowed.
86] On the other hand, Mr. V.A.Bobde, learned Senior Counsel
appearing on behalf of respondent No.2 submits that the company
petition filed before the Company Law Board alleged breach of
preemptive rights, adoption of unfair dividend squeezing and
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respondent No.2 unjustly enriching himself. He submits that first
two grounds relate to oppression and third is mismanagement. He
submits that the presumption on which the allegations in the petition
proceed is that the respondent No.1 is a glorified partnership and,
therefore, the appellants continue to have preemptive rights under
Article 57. Further, the company is not a public limited company
under section 3(1)(iv) but a deemed public company under section
43A(1)(A) and, therefore, section 111A(2) is inapplicable. In other
words, the shares are not easily transferrable.
87] Mr.Bobde submits that first two grounds and contentions
based thereon are not available in view of the unconditional
withdrawal of the appellants from the Company Petition No.77 of
1990. That company petition contained all these grounds and
allegations and once the appellants have withdrawn from the same
unconditionally, they cannot seek to raise them in the present
proceedings and particularly when they filed a petition before CLB
without any opportunity being granted by this Court. Mr.Bobde
submits that even the effect of final judgement dated 14th November
2008 in Company Petition No.77 of 1990 will conclude this issue. In
his submission, Company Petition No.77 of 1990 was pursued by
remaining petitioners. The findings of the learned Single Judge in
the judgement in Company Petition No.77 of 1990 bind the
appellants. It is held by the learned Judge that the present appellant
consciously acquiesced in the acts complained of and this can be
inferred by their unconditional withdrawal from the proceedings on
8th September 2005. Their conscious acts relate back to the petition
in relation to the grievances made by them. Further according to
Mr.Bobde, even the act of unjust enrichment of respondent No.2 as
alleged was taken up and raised in Amendment Application (CA 403
of 2005), which Company Application was moved in Company
Petition No.77 of 1990 on 18th March 2005. Even that issue cannot
be raised because of unconditional withdrawal of the appellants
from the proceedings on 8th September 2005. Mr.Bobde invites my
attention to Order XXIII of CPC and submits that this provision
must be read into the Companies Act, 1956 and the Company Court
Rules, 1959 and in that behalf relies upon Rules 6 and 88 of the said
Rules. In these circumstances and when those petitioners who did
not withdraw from proceedings gave up ground of mismanagement
and confined their arguments to the ground of oppression alone,
then all the more that issue now cannot be raised and agitated by
the appellants. Mr.Bobde invites my attention to the findings of the
learned Single Judge in the order dated 14th November 2008.
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88] Mr.Bobde then submits that the main issue is about free
transferability of shares. That issue, for being answered must
necessarily require a finding and conclusion as to what is the Status
of GCL i.e. Respondent No.1. Mr.Bobde submits that this Court has
held that as a result of special resolution moved in EOGM dated 5 th
May 2001 having been defeated, GCL has become a public limited
company. Once it acquires that status the restriction on the right of
transfer of shares applicable to a private limited company would
not apply and it would be open to the present appellants to sell the
shares to any outsider as per the price finalised with them inter se.
Mr.Bobde submits that the effect of the judgement in the company
petition must be considered. However, he submits that respondent
No.2 is not running away from answering this issue and core
question.
89] In this behalf, Mr.Bobde submits that the two events of vital
importance occurred in 2001 which, taken even singly, made the
company cease to be a private company as defined by Section 3(iii)
and to become a public company as defined by section 3(1)(iv). The
first event was that notice was given on 2nd April 2001 for a
meeting on 5th May 2001 for the purpose of incorporating the
requirements of clause (d) of section 3(1)(iii) which was added in
2000 and for changing the name to 'Private Ltd'. The Appellants
and their supporters opposed the resolution and the same was
defeated. They voted to make the company, which had been a
deemed public company, into a public company. Thus, the EOGM of
the company decided that the Articles shall not contain the
provision required by clause (d) of Section 3(1)(iii). Thus, ipso facto
and ipso jure, the company ceased to be 'private company' and
became, by operation of law a public company. This factual and
legal position is, in effect, admitted by the appellant No.2 in his
letter dated 6.6.2001 wherein, in response to transfer notices issued
as a result of transfer requests from Mr.Daruwalla and Mr.Gandhi,
he refers to 'the recent turn of events' (i.e the defeat of resolution of
5.5.2001) and says he doesn't understand why transfer notices are
being issued to members and that he would be ignoring such notices
under Article 57. Thus, appellant No.2 who was chiefly instrumental
in the defeat of the resolution of 5.5.2001, fully understood that the
company was now a public company and Article 57 had become
inoperative and void by reason of inconsistency between the Act and
the Articles as provided in section 9 of the Companies Act, 1956.
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90] It is further submitted by Mr.Bobde that in 2005 before the
present appellants withdrew from C.P.No.77/1990, they filed an
amendment application being C.A.No.403/2005. Therein, they
proceeded on the basis that the company is a public company and
averred, inter-alia that "the amendment to the terms of appointment
of second respondent whereby the payment of remuneration is
altered/enhanced is also illegal and violative of Section 268 of the
Companies Act, 1956." It is clear that section 268 applies only to
public companies. Hence, the appellants herein had, in effect,
admitted that the company is a public company.
91] It is submitted that the second event was that appellant No.2
applied on 30.10.2001 for transfer of five shares held by him. The
company registered the transfer on 31.12.2001 as a result of which
the number of members became 54. Section 3(1)(iii)(b) requires that
a private company cannot have more than 50 members. Hence, on
31.12.2001, yet another requirement of the law for being a private
company disappeared.
92] He further submitted that in the light of the above
indisputable factual and legal position that the company was no
more a private company which became a deemed public company
under section 43A, after 13.12.2000 and this position being
reinforced and made permanent from 5.5.2001 when the resolution
to make the company a private company was defeated, sections 3(1)
(iv) and 111-A (2) have operated with full force and made the shares
of the respondent No.1 public company freely transferable.
109] Both sides also made a reference to section 9 to point out that
the Companies Act, 1956 would over ride the memorandum and
Articles of Association even if there is anything contrary contained
in the same. Thus, the argument is that by sub-clause (b) of section
9 any provision contained in the memorandum/Articles/agreement
or resolution to the extent to which it is repugnant to the provisions
of this Act become void as the case may be.
110] Then comes section 43 and 43A which read thus:
"43. Where the articles of a company include the provisions which,
under clause (iii) of sub-section (1) of section 3 are required to be
included in the Articles of a Company in order to constitute it a
private company, but default is made in complying with any of those
provisions, the company shall cease to be entitled to the privileges
and exemptions conferred on private companies by or under this
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Act, and this Act shall apply to the company as if it were not a
private company:"
Provided that the Central Government on being satisfied that the
failure to comply with the conditions was accidental or due to
inadvertence or to some other sufficient cause, or that on other
grounds it is just and equitable to grant relief, may, on the
application of the company or any other person interested and on
such terms and conditions as seems to the Central Government just
and expedient, order that the company be relieved from such
consequences as aforesaid."
"43A. (1) Save as otherwise provided in this section, where not less
than twenty five per cent of the paid up share capital of a private
company having a share capital, is held by one or more bodies
corporate, the private company shall -
(a) on and from the date on which the aforesaid percentage is first
held by such body or bodies corporate, or
(b) where the aforesaid percentage has been first so held before the
commencement of the Companies (Amendment) Act, 1960 on and
from the expiry of the period of three months from the date of such
commencement unless within that period the aforesaid percentage is
reduced below twenty five percent of the paid up share capital of the
private company,
become by virtue of this section a public company,"
Provided that .....
Provided further that .....
(a) ....
(i) ...
(ii) ....
(iii) ....
(b) ....
(i) ...
(ii) ....
(iii) ....
Explanation:- .....
(1A) ......
Provided that .....
(1B) ......
(a) .....
(b) ......
Provided that ....
(1C) Where, after the commencement of the Companies
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(Amendment) Act, 1988 a private company accepts, after an
invitation is made by an advertisement, or renews, deposits from the
public, other than its members, directors or their relatives, such
private company shall, on and from the date on which such
acceptance or renewal as the case may be, is first made after such
commencement, become a public company and thereupon all the
provisions of this section shall apply thereto;
Provided that even after the private company has so become a
public company, its articles of association may include provisions
relating to the matters specified in clause (iii) of sub-section (1) of
section 3 and the number of its members may be, or may at any time
be, reduced below seven;
(2) Within three months from the date on which a private
company becomes a public company by virtue of this section, the
company shall inform the Registrar that it has become a public
company as aforesaid, and thereupon the Registrar shall delete the
word "Private" before the word "Limited" in the name of the
company upon the register and shall also make the necessary
alterations in the certificate of incorporation issued to the company
and in its memorandum of association.
(2A) Where a public company referred to in subsection (2) becomes
a private company on or after the commencement of the Companies
(Amendment) Act, 2000, such company shall inform the Registrar
that it has become a private company and thereupon the Registrar
shall substitute the word "private company" for the word "public
company" in the name of the company upon the register and shall
also make the necessary alterations in the certificate of
incorporation issued to the company and in its memorandum of
association within four weeks from the date of application made by
the company"
(3) ....
(4) ....
(5) ....
(6)& (7) omitted by Act 31 of 1988
(8) ....
(a) ....
(b) .....
(c) .....
(d) .....
(9) .......
(a) ......
(i) .....
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(ii) ......
(iii) .......
(b) ........
(c) ........
(10) .......
(11) Nothing contained in this section, except subsection (2A), shall
apply on and after the commencement of the Companies
(Amendment) Act, 2000."
111] A perusal of these sections would indicate that they deal with
private companies and they appear in Part II of the Companies Act.
Prior thereto is Sec.26 which appears below the sub-heading
"Articles of Association." A perusal of Sec.26 would indicate that
there may, in the case of a public company limited by shares, and
there shall in the case of an unlimited company or a company
limited by Guarantee or a private company limited by shares, be
registered with the Memorandum,Articles of Association signed by
the subscribers of the Memorandum, prescribing Regulations for the
company. Thus, the registration of Articles of Association with the
Memorandum of Association is mandatory for a private limited
company by shares whereas there is no such mandate in the case of
a public company limited by shares. After providing for Articles of
Association and Membership of Company and their registration,
sections 43 and 43A appear in the Statute book and it is clear from
a reading of the same that whenever there is any provision which
under clause (iii) of section 3(1) is required to be included in the
Articles of Company in order to constitute it as a private company,
then, that is a private company. However, in default of compliance
with the same, the company would lose the privileges and exemption
conferred on private companies by or under the Companies Act but
the Act continues to apply to it and it will be then treated as if it is
not a private company.
112] Section 43A provides for a private company to become public
company in certain cases. This provision was inserted by Act 65 of
1960 with effect from 28th December 1960. Thereafter, there have
been certain amendments inasmuch as by Act 91 of 1974 change
was effected from 1st February 1975 and sub-section 1(A) was
inserted in Section 43A. Thereafter, an explanation below
subsection 1 of 43A came to be inserted and at the same time
subsection 1A which was inserted in 1974 had to be amended.
113] By 1988 Act so also prior thereto by 1974 Act, sub-sections
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1B and 1C were inserted in section 43A and in 2000 by Act 53 of
2000, with effect from 13th December 2000 sub-section 2A was
inserted. That dealt with the situation of a public company
becoming a private company. In other words, this section permitted
a private company to become a public company in certain cases and
once the word private is deleted it becomes a public company.
However, there was nothing which permitted such public company
to again become private company and that is achieved by insertion
of section 43(2A). Sub-section 43A(11) which also was inserted by
Act 53 of 2000 from 13th December 2000, clarified that nothing
contained in section 43A, save and except sub-section 2A shall
apply on and after the commencement of Companies (Amendment)
Act 2000. In other words, whole of section 43A except for one sub-
section viz., subsection 2A ceases to apply after the commencement
of Companies (Amendment) Act, 2000. The reason for this is
obvious because the Parliamentary Standing Committee submitted a
report which is known as 64th report on Companies Second
Amendment Bill 1999. It recommended that entire section 43A must
be deleted. The recommendation was that some part and
particularly section 43A(4) may be retained so that deemed public
companies may submit certificate of incorporation to Registrar of
Companies for correction by adding the word "Private" before the
word "Limited", in the name as indicated in the certificate of
incorporation. However, when that bill became an Act, new sub-
section 2A came to be inserted in the aforesaid terms. Thus, section
43A itself became inapplicable by virtue of sub-section 11. The
effect of all this is that the concept of deemed public company under
section 43A and introduced by the Companies (Amendment) Act has
now been abolished based on the recommendation of the working
group the Companies Act, 1956.
114] In my view, the legal consequences of the amendments, which
have been termed as of far reaching importance and substantial by
none other than Mr.A.Rammaiyya in his work "Guide to the
Companies Act", cannot be ignored. If these amendments are
placed in the forefront, then, there is much substance in the
contentions of Mr.Bobde, learned Senior Counsel appearing on
behalf of respondent No.2.
115] Mr.Bobde is right in his contention that after these
amendments are noted only two broad categories of companies viz.,
public company and private company remain and there is no scope
for introduction of any third type or category. The amendment was
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made with obvious purpose. If a private company is to become
public company in certain cases, then, all attributes and
characteristics of a public company get attached to it. Thereafter,
there should be no scope left for it to revert back to the status of a
private company. If while amending section 43A care was taken to
introduce sub-clause (d) in section 3(1)(iii) of the Companies Act,
1956 and at the same time substitute section 3 (1)(iv)of the
Companies Act, 1956, then, there is no warrant for creation of third
category or permitting reversal of status from a public company to a
private company. In other words if sub-clause (d) was inserted to
provide for a prohibition against inviting or accepting deposits from
persons other than the members of a private company, its Directors
or their relatives in addition to the prohibition from inviting the
public to subscribe for any shares or debentures of a private
company, then, the demarcation and distinction ought to be clear
and specific. If the broad definition of the term "public company" is
that it means a company which is not a private company and further
requires minimum paid up capital, but importantly the term "public
company" also means a company which is a private company but is
a subsidiary of company which is not a private company, then, this
only shows that the Legislature wanted to include within the term
"public company" a private company which is a subsidiary of a
company which is not private. If the holding company is not a
private company but its subsidiary is a private company such
subsidiary also becomes a public company now. If all this is read
together and seen as a whole, it becomes at once clear that the
Legislature did not desire to continue any concept of deemed public
company which was in force on account of the amendment made in
the year 1974 to the Companies Act. The effect and implication of
1974 amendment is to be wiped out completely and that has been
done by the 2000 Act to the extent it made the whole of section 43A
except sub-section 2A inapplicable and from ineffective from 13th
December 2000.
116] It is clear from the factual position that the attempt to amend
the Memorandum and Articles of Association of the first respondent
was unsuccessful. The said resolution proposed in the meeting held
on 5th May 2001 was not carried but in fact defeated. Once it was
defeated, then, the first respondent which had become a public
company on 17th August 1988 continued with that status. It would
be of relevance to note that the resolution was moved in the meeting
held on 5th May 2001. That resolution was defeated on that day.
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However, the Companies Amendment Act 2000 had come into effect
already and to be precise from 13th December 2000. On 13th
December 2000, GCL was not a deemed public company but a
public company. Once it was a public company, then, the argument
of the appellants that it continued to retain its fundamental and
basic character as a private company cannot be accepted. The
status is conferred by law. The status was sought to be changed or
amended by moving an amendment to the Articles of Association.
Once that amendment to insert an additional clause (d) was
defeated, then, there is no scope to alter the status of the respondent
No.1 company by either terming it as a deemed public company or a
public company retaining the fundamental and basic character of a
private company. Both these concepts are unknown to law. Once
they are contrary to the statutory mandate flowing from the terms as
defined in the Companies Act, 1956, read together with section 43A
and particularly sub-section 11 thereof, then, all the more the
arguments of Mr.Samdani cannot be accepted. Mr.Samdani's
attempt was to show that sub-section 11 of section 43A is not
attracted in the facts of this case. Mr.Samdani argued that the
principles of partnership which govern the administration and
management of first respondent through out hold good in any event.
His first contention was that section 43A(11) ceases to make section
43A inapplicable after 13th December 2000. Alternatively and even
if the amendment is taken as a repeal, that repeal of section 43A will
not affect the underlying character of the first respondent as a
family concern or glorified partnership.
117] Mr.Samdani is not right on both counts. The amendment to
Section 43A was brought into effect on 13th December 2000. The
amendment to the Articles of Association was proposed and it was
to be considered at a meeting held on 5th May 2001. That
amendment was to alter the status of the company by insertion of
sub-clause (d) in the Articles of Association. That amendment was
not carried. Therefore, sub-section 11 of section 43A and the entire
amendment of 2000 as far as section 43A is concerned, is operative
and is applicable to respondent No.1. The appellants and others
proposed the change in the status of GCL after the amendment had
come into force. In such circumstances, emphasis on the words "on
and after" as appearing in Section 43A(11) will not be of any
assistance to the appellants.
118] In any event, as far as the principles of statutory
interpretation are concerned, long back in a decision reported in
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A.I.R. 1988 S.C. 740 Bhagatram Sharma Vs. Union of India, the
Supreme Court held that it is a matter of legislative practice to
provide, while enacting and amending a law, that an existing
provision would be deleted and a new provision substituted. Such
deletion has effect of repeal of the existing provision. Such a law
may also provide for introduction of new provision. There is no real
distinction between "repeal" and "amendment". The Supreme
Court holds that amendment is in fact a wider term and it includes
abrogation or deletion of a provision in a existing statute. If the
amendment of existing law is small the act professes to amend the
Act. If it is wide, it repeals a law and re-enacts it. (see paras 16 to
18 pgs.745-746).
119] Therefore, in my view, once the first respondent is a public
company as evidenced by the certificate referred to above, with
effect from 17th August 1988, then, the amendment made in 2000
would be applicable and section 43A ceases to apply to it. That the
words "On and After", are used makes no difference as far as
present case is concerned. In the present case, the status of the first
respondent as a public company remains and it is now academic to
find out whether it was a deemed public company earlier as
contended. Once the law makes only a broad categorisation as
noticed above, then, it is not necessary to deal with this contention
any more.
120] Once it is understood that GCL is public company, then, all
that remains is to find out as to whether there is any restriction on
the transfer of its shares. In this behalf, Part IV of the Companies
Act, 1956 which contains section 82 clarifies that the shares or
debentures, other interest of any member in a company shall be
moveable property, transferable in the manner provided by the
Articles of the Company. That they are moveable property and,
therefore, transferable is amply clear in law. The Articles only
provide for the manner in which the transfer has to be effected. In
this behalf section 111 of the Companies Act 1956 was referred to by
the Counsel. That provision reads thus:-
"111. Power to refuse registration and appeal against refusal --- (1)
If a company refuses, whether in pursuance of any power of the
company under its articles or otherwise, to register the transfer of,
or the transmission by operation of law of the right to, any shares or
interest of a member in, or debentures of, the company, it shall,
within two months from the date on which the instrument of transfer,
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or the intimation of such transmission, as the case may be, was
delivered to the company, send notice of the refusal to the transferee
and the transferor or to the person giving intimation of such
transmission, as the case may be giving reasons for such refusal.
(2) The transferer or transferee, or the person who gave
intimation of the transmission by operation of law, as the case may
be, may appeal to the Tribunal against any refusal of the company
to register the transfer or transmission, or against any failure on its
part within the period referred to in sub-section (1) either to
register the transfer or transmission or to send notice of its refusal
to register the same.
(3) An appeal under sub-section (2) shall be made within two
months of the receipt of the notice of such refusal or where no notice
has been sent by the company, within four months from the date on
which the instrument of transfer, or the intimation of
transmission as the case may be, was delivered to the company.
(4) If --
(a) the name of any person ----
(i) is, without sufficient cause, entered in the register of members of
a company; or
(ii) after having been entered in the register, is, without sufficient
cause, omitted therefrom; or
(b) default is made, or unnecessary delay takes place, in entering in
the register the fact of any person having become, or ceased to
be a member including a refusal under sub-section (1)"The
person aggrieved, or any member of the company, or the company,
may apply to the Tribunal for rectification of the register.
(5) The Tribunal while dealing with an appeal preferred
under sub-section (2) or an application made under sub-section (4)
may, after hearing the parties, either dismiss the appeal or reject the
application, or by order ---
(a) direct that the transfer or transmission shall be registered by the
company and the company shall comply with such order within ten
days of the receipt of the order; or
(b) direct rectification of the register and also direct the company to
pay damages, if any,
sustained by any party aggrieved.
(6) The Tribunal, while acting under sub-section (5) may, at
its discretion, make ----
(a) such interim orders, including any orders as to injunction or
stay, as it may deem fit and just;
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(b) such orders as to costs as it thinks fit;and
(c) incidental or consequential orders regarding payment of
dividend or the allotment of bonus or rights shares.
(7) On any application under this section, the Tribunal ----
(a) may decide any question relating to the title of any person who
is a party to the application to have his name entered in, or omitted
from the register;
(b) generally, may decide any question which it is necessary or
expedient to decide in connection with the application for
rectification.
(8) The provisions of sub-sections (4) to (7) shall apply in
relation to the rectification of the register of debenture holders as
they apply in relation to the rectification of the register of members.
(9) If default is made in giving effect to the orders of the
Tribunal under this section, the company and every officer of the
company who is in default shall be punishable with fine which may
extend to ten thousand rupees and with a further fine which may
extend to one thousand rupees for every day after the first day after
which the default continues.
(10) Every appeal or application to the Tribunal under sub-
section (2) or sub-section (4) shall be made by a petition in writing
and shall be accompanied by such fee as may be prescribed.
(11) In the case of a private company which is not a
subsidiary of a public company where the right to any shares or
interest of a member in or debentures of, the company is transmitted
by a sale thereof held by a court or other public authority, the
provisions of sub-sections (4) to (7) shall apply as if the company
were a public company;
Provided that the tribunal may, in lieu of an order under sub-section
(5) pass an order directing the company to register the transmission
of the right unless any member or members of the company
specified in the order acquire the right aforesaid within such time as
may be allowed for the purpose by order, on payment to the
purchaser of the price paid by him therefor or such other sum as the
Tribunal may determine to be a reasonable compensation for the
right in all the circumstances of the case
(12) If default is made in complying with any of the provisions
of this section, the company and every officer of the company who is
in default, shall be punishable with fine which may extend to five
hundred rupees for every day during which the default continues;
(13) Nothing in this section and section 108, 109 or 110 shall
prejudice any power of a private company underits articles to
enforce the restrictions contained therein against the right to
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transfer the shares of such company;
(14) In this section "company" means a private company and
includes a private company which had become a public company by
virtue of section 43A of this Act."
121) A bare perusal of the entire section would denote that by
virtue of Act 22 of 1996 section 111(14) was inserted with effect
from 20th September 1995. By insertion of this provision it has been
clarified that section 111 applies to a company which is a private
company and includes a private company which had become public
company by virtue of section 43A of the Act. Once section 43A
ceases to apply in the present case to GCL, then, there is substance
in the argument of Mr.Bobde that Section 111 is inapplicable. In this
behalf it must also be noted that sub-section 14 was added to
section 111 by way of consequential amendment introduced by the
Depositories Act, 1996. The effect of amendment is that in case of
public companies to which Depositories Act would apply, instead of
section 111, section 111A of the Companies Act, 1956 would apply
which has also been introduced as consequential amendment by the
Depositories Act, 1996.
122] Section 111A deals with rectification of Register of Transfer
and sub-section 1 of this section states that the word "company",
unless the context otherwise requires means a company other than a
company referred to in sub-section 14 of section 111 of the
Companies Act and immediately by sub-section 2 clarifies that
subject to the provisions of section 111A the shares or debentures
and any interest therein of a company shall be freely transferable.
123] To my mind once the statutory scheme is noticed, then, there
is no difficulty in turning down the contentions of Mr.Samdani.
There is no question, therefore, of any preemptive right being
recognised. The articles of association that are referred to by
Mr.Samdani are that of a company which was a private company.
After 17th August 1988 and in any event after dated 13th December
2000, the position has undergone a change and Article 57
appearing in the Articles of Association would no longer be the
governing article. It is not necessary to then consider the argument
as to whether the said article is void or not. That article must give
way to the statutory provision. If the shares of public company are
freely transferable, then, the statutory provisions in that behalf will
take such effect notwithstanding anything to the contrary contained
in the Articles of Association of such company. The over-riding
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effect given to the Act by section 9 cannot be ignored and brushed
aside as desired by the appellants. Their alternate argument that
assuming that GCL is public company, its shares being non listed,
there can be a right of preemption, is equally unsound and not
tenable. There is no distinction made in the Act of this nature. That
argument is canvassed only by relying on the definition of the term
"listed public companies" appearing in section 2(23A). The
definition itself clarifies that a public company which has any of its
securities listed in any of the recognised stock exchange will be
termed as listed public company. Nonetheless it remains a public
company and merely because its shares are not listed in any
recognised stock exchange does not mean that there is any
restriction on their transfer. They are and continue to be freely
transferable as they are shares of a public company. The broad
distinction as noticed above, between the term 'Private" and
"Public" company, is enough to turn down this alternate argument.
126) Mr.Bobde, learned senior counsel appearing for respondent
No.2 and Mr.Sen appearing for respondent Nos. 1, 4 and 5 urge that
any wider question or controversy need not be gone into because
the essential difference between a preemptive and restrictive right
conferred by Articles of Association and an agreement between
members inter se or with third parties providing for a preemptive
right must be borne in mind. The inter se agreement conferring
such right is de hors the Articles of Association and is, therefore,
not affected by the character of the company, whereas, what is
impermissible by the Statute is that in case of a public limited
company, the Articles, even if having any such right, the same
stands over-ridden by the statutory provision and enactment and
must, therefore, give way to the same. The Division Bench
judgement does not indicate that such a preemptive right conferred
by the Articles remains intact or not and yet proceeds to over-rule
the Single Judge's judgement in WMDC Vs. Bajaj (supra). The
Division Bench over-rules Single Judge's view to the extent of the
preemptive right conferred by an agreement entered into inter se by
members or by members with third parties. To my mind, the
distinction as pointed out by Mr.Bobde and Mr.Sen will have some
bearing but for the purpose of present case, it is not necessary to
enter into any larger controversy. Any wider question is not required
to be answered because once the statutory scheme is noticed by me
and the character of the company in question being undisputed,
then, the matter can be decided with the aid and assistance of the
statutory provisions and applying them to the peculiar facts of this
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case. Therefore, the agreement between the members inter se or
between members and third parties containing a preemptive clause
or conferring a preemptive right and the ambit and scope thereof
even in case of public limited company is a matter which can be
gone into in an appropriate case. In the present case, it is not
necessary to go into and deal with the question and issues raised.
Therefore, reliance on the Division Bench decision by Mr.Samdani
is of no assistance to the appellants and particularly when I am of
the opinion that the conclusions of the CLB do not rest merely on
the view taken by the learned Single Judge but also on the facts and
circumstances peculiar to the case before me and brought to the
notice of the learned Member, CLB.
127] Mr.Samdani, learned Senior Counsel has contended that even
if GCL is a public company, still going by the definition of the term
"private company" as appearing in the Companies Act, 1956, the
character and nature of such a company is never lost upon
itbecoming a public company or losing its status and identity as a
private company. He has relied upon the requirements that are
stipulated in the Articles of Association of a private company in this
behalf.
128] On the other hand, Mr.Bobde, learned Senior Counsel has
emphasised that there can be only two categories of companies, a
public company and private company. I have in the foregoing
paragraphs dealt with this aspect in great details and accepted
Mr.Bobde's arguments that there cannot be any third category viz.,
"deemed public company". The arguments of Mr.Bobde are
accepted because on noticing the amendments made to the
Companies Act, 1956 and particularly in the year 2000, the third
category as projected (deemed public company), cannot be carved
out or if existing earlier, cannot be held to be continuing any
further. The arguments of Mr.Samdani that despite this amendment,
the character and fabric of GCL is not altered or changed and it
remains a glorified partnership or a private company or a family
concern, essentially revolves around the same category noted by me
above. For the reasons that have persuaded me not to read into or
add any third category other than a private company and public
company, these arguments must also fail. Once again, it must be
clarified that the categorisation that has been highlighted before me
is in the context of the assertions of the appellants that GCL is a
deemed public company. It must be clarified that I have not held
that the Act does not envisage any company other than a private
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company or public company limited by shares. The act itself points
out that there can be categories and sub-categories within the broad
categorisation pointed out above. Further, a perusal of the section
relating to kinds of share capital and voting rights would reveal that
there can be a company limited by shares, unlimited company, a
foreign company etc. Therefore, it should not be held that this
distinction or categorisation has not been noted by me.
129] Once all these arguments and contentions are dealt with,
then, other part of submissions of Mr.Samdani on oppression of
minority also fail. They are raised on the basis that the preemptive
right is defeated by respondent Nos. 2 to 5 by their several acts of
omission and commission. Once the preemptive right itself is not in
existence by virtue of the statutory provisions in the field, then, there
is no act of oppression. As held above, the plea of mis-management
has been given up and has not been pursued.
130] The other contentions that are raised to support the argument
of oppression are that irrespective of the character of the company,
the majority shareholders have by their acts oppressed the minority.
Several instances of denial of dividend have been brought to my
notice. The CLB in the impugned judgement has not commented on
the same nor rendered any finding but since the contentions have
been exclusively raised and argued, I have dealt with the same. In
this behalf, it must be immediately noticed that the appellants were
parties to Company Petition No.77 of 90. Some of the instances that
have been highlighted before me were part of the pleadings in this
company petition. Further, this company petition was extensively
amended. The original as well as amended petition has been dealt
with by the learned Single Judge of this Court by his judgement and
order dated 14th November 2008. He proceeded to dismiss the
same. While dealing with self same allegations, the learned Single
Judge has observed thus:-
"49. On the other hand, the respondents have not only
denied material grounds and would submit that proper
compliance has been observed. In addition, the respondents
would contend that the petitioners should be non-suited for
having approached this Court with unclean hands. In that
the fact that the petitioners have already entered into a
memorandum of understanding with Godrej Soaps Ltd., to
acquire shares in respondent No.1 company was kept a
secret arrangement till it became known for the first time to
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the respondent in February 2005. It is common ground that
even the present petitioners are signatories to the said
memorandum of understanding. In fact, even the present
petitioners have sold 27 and 66 shares respectively to
Godrej Soaps Ltd., without following the regime of Article
57. On the one hand, the petitioners were questioning the
intention of the 2nd respondent but at the same time, the
petitioners were themselves indulging in act which was not
only illegal but against the interests of the company.
According to the respondents, the petitioners group was
bent upon selling their shares to a person who happens to
be the competitor of respondent company. Besides, it is the
petitioners group who on the one hand were opposed to
increase of authorised share capital resulting in respondent
No.1 not being able to declare bonus shares; and on the
other hand were acting against the interests of the company
by committing themselves to sell their shares to person who
happens to be the competitor of respondent company.
According to the respondents the present petition is a
speculative petition for which reason also the grievance
made at the instance of petitioners with regard to meeting
dated 15th February 1990 cannot be countenanced."
" 50. The fact that even the present petitioners were party
to memorandum of understanding and have committed
themselves to espouse the cause of the alleged competitor
of the company and in fact transferred part of the shares to
an outsider, have come to the notice of the respondents only
in February 2005. Those material facts have been
suppressed by the petitioners. For this reason alone, the
petitioners deserve to be non-suited. It is well established
that no indulgence can be shown to a litigant who
approaches the court with unclean hands. In any case, as
observed earlier, after the withdrawal of other petitioners
from the present proceedings unconditionally, thereby
giving up all the allegations and claim against the
respondent company, the issue regarding validity of
meeting dated 15th February 1990 survives only at the
instance of present petitioners. They have less than 7% of
share holding in the respondent company. At their instance,
therefore, the question of overturning the decisions taken in
the said General Meeting particularly having referred to
their conduct does not arise. Even if the matter was to be
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examined on facts, on its own merits, the grievance of the
petitioners in respect of each of the grounds will have to be
stated to be rejected. By no standards, the decision to
convene meeting to consider the eight items stated in the
notice dated 16th January 1990 can be said to be
oppression against minority shareholders. The necessity to
increase borrowing powers was in the context of expansion
plans in relation to which ample explanation has been
offered by the respondent company. Insofar as changing of
name from private limited company to one of public limited
company was also out of necessity. Even the explanation
offered by the respondent company to increase the
authorised capital of the company can, by no standards, be
said to be oppression against the minority shareholders. No
tangible material has been produced to substantiate that
position. Even the amendments suggested to the A.O.A.
were not to favour only the majority shareholders but
would apply across the board and every member would be
benefited by the said amendment. The controversy
regarding deletion of Article 123 as raised is also without
any substance. Besides, it is common ground that the
company has now become a public limited company. Even
on account of this change, it has become redundant to
entertain the grievance of the present petitioners in relation
to the issues concerning extra ordinary general meeting
dated 15th February 1990. More so, when the stand taken
by the present petitioners at the time of arguments plainly
suggests that they are interested in walking out of the
company and sell their shares at a fair price."
131] In the earlier part of his judgement in para 47 the learned
Judge has dealt with the argument regarding declaration of low
dividend and found no substance in the allegation of oppression
based on the same. My attention is also invited to the earlier paras
of this judgement and in particular paras 35 to 37 wherein this
charge of low dividend has been dealt with extensively.
132] The argument is that the appellants were not parties to this
judgement and, therefore, it does not bind them. However, it is
pertinent to note that the appellants were original petitioners. They
withdrew from Company Petition No.77 of 1990. There is nothing
on record to indicate that they withdrew with liberty to raise the
pleas raised by them again. Once the learned Judge has found that
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the conduct of the remaining petitioners was entirely blameworthy
and they could not substantiate the charge and/or allegation
levelled of being oppressed as minority shareholders, then, I do not
see how the present appellants can on the same material succeed in
proving the said allegation. Apart from finding that they are raising
the same issues based on the same allegations and identical
arguments, I am of the opinion that the observations of the learned
Single Judge would be applicable to the present appellants too. Any
wider controversy, including about applicability of Order XXIII
Rule 1 of CPC to a Company Petition need not be gone into and
decided. Assuming that this provision and/or principles analogous
thereto apply, apart from the appellants not seeking any liberty from
the learned Single Judge while withdrawing themselves from
Company Petition No.77 of 1990, I find that their arguments in the
present appeal are identical to those raised by the remaining
petitioners in Company Petition No.77 of 1990.
133] Mr.Samdani, learned Senior Counsel has relied upon a
number of decisions and it is not necessary to refer to each one of
them. In the first compilation of the Authorities and Rulings, the
appellants have compiled judgements on the ambit and scope of
section 397 and 398 of the Companies Act and the reliefs that can
be sought and granted thereunder. In my view, each of these
judgements need not be referred to. The principles are too well
settled and I have decided this case by applying them. Therefore,
each of the decisions whether of the Hon'ble Supreme Court, this
Court, other High Courts or English Courts need not be referred to
seriatim.
134] Part II of the compilation contains broad questions and
propositions of law which I have already referred to and dealt with.
Suffice it to note that in the latest decision of the Supreme Court in
the case of V.S.Krishnan Vs. West Coast Hightech Hospital Ltd. &
Ors., (reported in 2008 (3) SCC 363) the Supreme Court has held
that whether an Act is oppressive or not is fundamentally and
basically a question of fact. Its answer must depend upon
circumstances in each case. However, the broad tests have been
indicated by the Hon'ble Supreme Court and they have been
summarised in para 14 of this decision.
135] After carefully perusing this paragraph and earlier
authorities, I am of the view that the judgement rendered by the
Hon'ble Single Judge, Justice A.M.Khanwilkar, J dated 14th
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November 2008 in Company Petition No.77 of 1990 applies to the
appellants as well. I have indicated the reasons for this conclusion
in the foregoing paragraphs. Therefore, it is not necessary for me to
decide any wider controversy and particularly whether the
judgement of the learned Single Judge (Khanwilkar, J) could be said
to be a judgement in rem and or whether the Civil Procedure Code
and particularly Order XXIII of the same applies to the present
proceedings or not. The submission of Mr.Samdani is that this
judgement cannot be a judgement in rem. Assuming it is not so, yet,
it binds the appellants for the reasons indicated above. The
appellants may have withdrawn from Company Petition No.77 of
1990 but in their independent proceedings before the CLB on which
the impugned order has been passed, they relied on the same
material and same circumstances as were set out in Company
Petition No.77 of 1990. They relied upon the same amendments
which were to Company Petition No.77 of 1990. There allegations
are also the same viz., of low dividend and unjust enrichment so
also diversion of funds by respondent No.2. These were the grounds
raised in Company Petition No.77 of 1990. Having found no
substance therein, for the reasons, which have been given by
Hon'ble Mr. Justice Khanwilkar, and finding them to be fully
applicable to the present facts as well, I see no justification for
taking a different view. If the appellants had placed any material
other than what has been referred to by Khanwilkar, J or had they
pointed out even during the course of arguments before me by
referring to the available record, anything in addition to what has
been noted by the learned Single Judge, possibly, they could have
urged that I should take a different view or that a further probe and
investigation into the matter was called for. Having found that they
placed no such material and that the available record does not
furnish substantial proof of the allegations of oppression of the
appellants, I am of the view that the judgement of Justice
Khanwilkar in Company Petition No.77 of 1990 binds the
appellants.
136] Once this view is taken, then, strictly it is not necessary to
refer to the judgements cited by Mr.Samdani on the applicability of
Order XXIII of the CPC and particularly Rule 1 thereof. Therefore,
the judgements in compilation III on this point need not be referred
in further details. Equally in the view that I have taken, it is not
necessary to refer to the judgement of the Supreme Court reported
in 2006(1) SCC 212 (S.Vijayarama Raju Vs. Immakka Jaya Raj &
Ors.). Lastly, the reliance placed on the judgement of the Supreme
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Court and other courts on the right of preemption is misplaced in
the view that I have taken. The nature of the right is not in dispute.
In the present case the question is of its availability. I have
proceeded on the basis that the Articles of Association of respondent
No.1 did contain a clause giving preferential or preemptive rights as
claimed by the appellants. However, upon the status of the company,
undergoing a change as noted above, this clause could not have
been invoked.
137] It is in the light of this view that I have not entered into the
controversy as to whether the view taken by the learned Single
Judge in WMDC Vs. Bajaj (supra) is correct and whether the
overruling of that view by the Division Bench was called for at all. I
have carefully perused both judgements with the able assistance of
Mr.Samdani and Mr.Bobde. In WMDC's case, the challenge was to
an arbitration award rendered by a sole arbitrator. The arbitration
covered a dispute between two public companies. The WMDC, a
Government of Maharashtra undertaking held 27% of shares of
Maharashtra Scooters Ltd. (MSL), a public limited company
whereas the respondent - Bajaj Auto held 24% shares. The balance
49% is held by public. The dispute as noted by the learned Single
Judge between the parties was whether clause 7 of the agreement
could form a valid basis for the conclusion of the arbitrator or not.
The learned Judge held that the shares in question are of a public
limited company. Those shares are freely transferable. The
stipulation in clause 7, therefore, is inapplicable and reliance was
placed on the provisions of the Companies Act in this behalf so also
the judgements of the Supreme Court. The learned Judge concluded
that section 111A applies to public companies and noticing the
difference between private company and public company, he
concluded that the effect of clause 7 is to create a right of
preemption between the petitioner and respondent before me in the
event either of them seeking to part with or transfer its shareholding
in MSL. The learned Single Judge concluded that a clause of
preemption is to impose restriction on free transferability of shares
and that is impermissible because the provisions of the Companies
Act have been given a over-riding effect. On such conclusion, he set
aside the Award and allowed the petition.
138] This view of the learned Judge was noted by the Division
Bench in Messers Holdings Vs. Shyam Madan Mohan Ruia. There
the issue was whether the defendant No.2 which is a public limited
company and having its shares listed on the stock exchange could
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resist a transfer of shares under share purchase agreement dated
23rd June 1997 between plaintiffs before Division Bench and the
defendant No.1. A suit was filed being Suit No.2494 of 1999 by the
plaintiffs for a declaration that the acquisition of the shares by
defendant No.3 under an agreement dated 12th May 1995 is illegal,
null and void ab initio and of legal effect. In other words, its 30,000
shares were the subject matter of the June 1997 Agreement between
plaintiffs and defendant No.1 and the attempt by defendant Nos. 1
and 3 to defeat that by relying upon prior agreement is not
permissible, was the issue. The Division Bench noted the arguments
of both sides during the course of which its attention was invited to
the view taken by the learned Single Judge in WMDC (Supra). The
Division Bench concluded that the consensual agreements between
particular shareholders relating to their shares can be enforced like
any other agreements. It is not required to be embodied in the
articles of association. In para 56 the Division Bench referred to the
view taken by the learned Single Judge in WMDC and in the paras
which I have reproduced above, the judgement of the learned Single
Judge is over-ruled. A proper and complete reading of this para
would reveal that the Division Bench proceeded to reverse the
view taken by the learned Single Judge essentially because of the
conclusion reached by it and noted above. Additionally, it reversed
it because an agreement of preemption even if willingly and
consensually entered into by a shareholder and third party or
between shareholders, imposes a restriction on the free
transferability of shares. Before me reliance is placed only on
Article 57 of the Articles of Association of GCL when it was a
private company and the wording thereof to urge that the
respondent No.2 cannot transfer the shareholding to any third party
and the shares must be first offered to the appellants in terms of this
Article. Whether this article and the right of preemption recognised
therein is itself applicable after the status of the company has been
altered and changed is the only issue before me. Therefore, the
controversy with regard to the judgement rendered by the learned
Single Judge in WMDC and whether it is rightly over-ruled or not
cannot be taken note of in the peculiar facts of this case. However, it
must be immediately noted that the Agreement or a consensual
arrangement relating to their own shares between shareholders
would bind them or not or whether that is void as not surviving in
the teeth of Section 9 or Section 111A of the Companies Act, 1956,
was the core issue in Messer Holding (supra) (see paras 48 to 57).
139] Mr.Samdani is in error in urging that the CLB has
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based its conclusion in the present case only on the view taken by
the learned Single Judge in WMDC's case. A complete reading of
the judgement of the CLB would show that the conclusion is with
regard to the status of GCL and merely to support it, that it referred
to the judgement of the Single Judge. The view taken by CLB is,
therefore, not founded only on the single Judge's judgement as
erroneously urged by Mr.Samdani.
140] For the reasons that persuaded the learned Single Judge
(A.M.Khanwilkar, J), I am also of the opinion that the appellants
have failed to substantiate their charge of oppression of minority. In
my view, these allegations being serious, the appellants ought to
have brought adequate and substantial proof. On the basis of the
materials produced, it cannot be held that there is any oppression of
minority. The conduct of the appellants in withdrawing from the
proceedings and settling their disputes with respondent No.2 is also
a relevant factor in denying them any relief. Now, their argument is
that the understanding and agreement between them has not been
adhered to and breached by respondent No.2. However, when they
talk of such breach and allege as such, they rely upon the very
events which have been made subject matter of Company Petition
No.77 of 1990 by the other petitioners therein. Therefore, there
being no independent proof and considering that the broad
principles enshrined in law and referred to by the learned Single
Judge would prevent the parties from raising same pleas again and
again, the arguments insofar as oppression of minority concerned,
also fail.
141] Having dealt with the submissions of parties, as noted above
and finding that the appellants have failed to make out any case for
intervention by this Court on the questions of law formulated above,
there is no alternative but to hold that the company Appeal fails.
Accordingly, it is dismissed but without any order as to costs.
142] At this stage, Mr.Samdani, learned Senior Counsel
appearing on behalf of the appellants submits that there is an
interim order which is made by this Court in Company Application
No.25 of 2010 which has been in force from 11th December 2009.
That order has been continued on 28th June 2010 by learned Single
Judge of this Court. Therefore, the interim order in terms of prayer
clause (iii) be continued till the appellants impugn this order in
Appeal. His request is that the order may be continued for a
reasonable period so as to enable the appellants to adopt
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appropriate proceedings.
143] This request is opposed by Mr.Sen who appears for
respondent Nos. 1, 5 and 6 and Mr.Tulzapurkar and
Mr.Subramanian, learned Senior Counsel appearing for respondent
Nos.2 and 3.
144] After having heard the learned Counsel at some length on this
issue, I am of the opinion that interest of justice will be served if this
interim order in terms of prayer clause (iii), is continued for a
period of six weeks from today, save and except, the bracketed
portion. The grant and continuation of interim order is without
prejudice to the rights and contentions of all parties. The prayer
clause (iii) after deleting bracketing portion reads as under:-
"(iii) that pending the hearing and final disposal of the
appeal, this Hon'ble Bench be pleased to restrain the 2nd/
3rd respondents by themselves and/or through their
servants and or agents from in any manner howsoever,
directly or indirectly, from selling, transferring,
alienating, pledging, encumbering or in any manner
creating any third party rights in to over or upon or in
respect of the shares held, directly or indirectly, by the
2nd/3rd respondents in the company."
95. The learned counsel appearing for the respondent No. 2 submits that by
order dated 22nd July, 2011 and 27th July, 2011, the Supreme Court has issued
notice and passed interim inunction against respondent nos. 2 and 3 and not
against the company and has not admitted the Special Leave Petition so far.
The learned counsel submits that there is no effect of the proceedings in
Company Application (73 of 2012) and Company Application (85 of 2012) in
Company Petition (87 of 2010) on the proceedings pending in the Supreme
court arising out of Company Petition No. 132 of 2009 or vice versa.
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96. It is submitted that the Company Petition No. 132/2009 was filed by the
Appellants to restrain sale of shares held by Respondent Nos. 2 and 3 because
of the apprehension, based on newspaper reports, that the sale was imminent.
The main question decided was whether the company is a public company or a
private company which was deemed to be a public company under Section 43-
A. The answer of the CLB was that on and after 5.5.2001 the company
became a public company and that Article 57 was void in view of Section 9 of
the companies Act, 1956. This Court took the same view and held that Article
57 does not exist as it must give way to the law. The question before the
Supreme Court is whether Article 57 has ceased to operate by reason of law or
remained validly in the Articles even after 5.5.2001. The findings on law
rendered in the said judgments therefore operate with full force. No injunction
was sought to restrain the Company from deleting Article 57 in accordance
with law. If sought, it is reasonable and respectful to assume that it would not
have been granted by the Supreme Court. In any case, even if stay had been
granted of the operation of the impugned orders, the stay would not prevent the
company from holding duly requisitioned extraordinary general meeting and
resolving to delete Article 57.
97. The submission of the respondents is that the result of the SLP before the
Supreme Court will have no bearing on the present proceedings because if the
Supreme Court allows the appeal of the present appellants, the only result
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would be that Article 57 continued to be in the Articles of Association until it
was deleted in the EOGM of 22-5-2012. If the Supreme Court dismisses the
SLP, the result will be that Article 57 ceased to be legally operative from
5-5-2001 but has been formally deleted in the EOGM of 22-5-2012. Thus
either way the present proceedings do not touch or impinge upon the
proceedings before the Supreme Court and the S.L.P. Is not rendered
infructuous. The CLB was clearly right in holding after careful consideration,
that the proceedings in the Supreme Court are not being pre-empted or
interfered with. It is submitted that the finding that the company is a public
company is clearly a judgment in rem and decides the status of the company, a
juristic person, and binds everyone generally; it is 'conclusive against all the
world". Similarly, the finding that the status of property viz. shares of the
shareholders, is that they are freely transferable, is equally binding and
conclusive. The effect of the judgment in rem is, firstly, to declare finally the
status of the company as being a public company and make it binding on the
Company, its members and all other generally, secondly, to declare the status
of the property viz. shares in such company as being freely transferable, and
thirdly, to preclude every member of the Company or any outsider, including a
transferee of shares from re-agitating the same issues again. The judgment of
this Hon'ble Court dated 14-11-2008 precludes all argument from anyone
about the status of the company as a public company and the free
transferability of shares.
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98. It is submitted that it is of no consequence that the Appellants herein had
withdrawn from Company Petition NO. 77/90 before it was heard or that the
judgment can be said to have proceeded on the basis of admission by the two
petitioners who continued with the petition. The withdrawal by the Appellants
herein precludes them from reagitating the questions raised in C.P. NO. 77/90,
as already held by this Hon'ble Court in judgment dated 14-11-2008.
Moreover, the finding on Respondent No.1 being a public company with effect
from 5-5-2001, even if it considered as being based on admission, operates as
an estoppel by judgment. The learned counsel relied upon the views of the
Privy Council in Hoystead's case as under :
"Very numerous authorities were referred to. In
the opinion of their Lordships it is settled, first,
that the admission of a fact fundamental to the
decision arrived at cannot be withdrawn and a
fresh litigation started with a view to obtaining
another judgment upon a different assumption of
fact; secondly, the same principle applies not only
to an erroneous admission of a fundamental fact,
but to an erroneous assumption as to the legal
quality of that fact. Parties are not permitted to
begin fresh litigation because of new view they
may entertain of the law of the case, or new
versions which they present as what should be a
proper apprehension by the court of the legal result
either of the construction of documents or the
weight of certain circumstances. If this were
permitted, litigation would have no end, except
when legal ingenuity is exhausted...."
99. The learned counsel appearing for the respondent nos. 4 and 5 submits
that the issues raised by the appellant in the present proceedings are governed
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by order dated 14th June, 2011 passed by this court i.e. whether company
became public company in 2001 and whether Article 57 will certify
transformation of the first respondent company into public company. It is
submitted that the issue in Special Leave Petition is not larger than this. It can
never decide that the respondent no. 1 company can never in future resolve to
become a public company or amend its articles even if appellants were to
succeed in SLP. It is submitted that as on the date, the judgment dated 14th
June, 2011 passed by Shri Justice S.C. Dharmadhikari in Company Appeal (24
of 2010) holds the field and the first respondent company is declared to be
public company and Article 57 is declared void in view of section 9 of the
Companies Act, 1956. The said judgment also covers the issue in this appeal.
It is submitted that in the said order and judgment dated 14th June, 2011, it is
submitted that the resolution being in consonance with the binding precedent
can never be oppressive which foreclosed the primary issue in the petition
itself. The learned counsel further submits that the findings recorded by this
court in the order and judgment dated 14th November, 2008 in Company
Petition (77 of 1990) are not based on concession. It is submitted that even if
it is assumed that it is based on concession, respondent no. 1 company has
invited the finding from this court on the basis that the first respondent
company is a public company and are bound by it, first respondent will have to
comply. The appellants have invited the findings from this court on the basis
that the respondent company is a public company. The learned counsel
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submits that even in the said judgment this court has held that the appellants
who withdrew from the said petition are also bound by the company's stand
and that the decision is final. It is not open to the appellants to claim that they
are not bound by the said order and judgment so long as the said judgment is
not set aside or modified. It is submitted that 17% minorities view cannot
prevail over the majority nor it can overrule the binding judgments. It is
submitted that the present proceedings filed by the appellants are hindrances
in functioning and abuse of process of court.
100. Mr.Kadam, the learned senior counsel appearing for respondent no.1
submits that first respondent company is bound by the judgments of this
court delivered on 14th November, 2008 and 14th June, 2011 by which it has
been held that Article 57 is void. The articles thus stood amended by virtue of
section 404 and only formal compliance was required i.e. filing with the
Registrar of Companies and the ministerial act of deletion. The learned
counsel relied upon the judgment of this court in the case of Gurudas s/o.
Dhondba Dadmal Vs. Scheduled Tribe Caste Certificate Scrutiny
Committee and others, 2005(3) Mh.L.J. 607 in support of the plea that since
the judgment of this court delivered on 14th June, 2011 is not stayed by the
Supreme Court, it is binding on parties as well as this court. Paragraphs 7 to
9 of the said judgment reads thus :
"7. Smt. S. W. Deshpande and Shri Charpe, the learned counsel
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appearing on behalf of respondents 1 and 2 respectively submit that
the judgment of this Court cited supra is challenged before the
Apex Court and the Apex Court is seized with the matter. Smt.
Deshpande and Shri Charpe, therefore, requests that this matter
should be adjourned until the Apex Court decides the issue.
8. We have enquired from the learned counsel for respondents 1
and 2 as to whether the judgment of this Court is stayed by the
Apex Court or not. It is brought to our notice that only the matter is
admitted and no stay is granted.
9. In that view of the matter, we find that the judgment of this
court in the case of Mana Adim Jamat Mandal v. State of
Maharashtra, cited supra holds the field. Once the person proves
that he belongs to 'Mana Tribe', it is not necessary to prove that the
said 'Mana' has an affinity with 'Gond Tribe'. In that view of the
matter, the impugned order passed by the Scrutiny Committee dated
29 10-2001 is not sustainable in law and, therefore, will have to be
quashed and set aside. Since the termination of the petitioner is a
consequence of the order of the Scrutiny Committee, the
termination order dated 24-1-2002 will also have to be quashed and
set aside."
101. The learned counsel relied upon the Judgment reported in (2005) 11
SCC 723 para 23 to 27 in support of the plea that any action contrary to law
is ultra vires.
102. The learned counsel for respondent no.2 submits that the order passed
by this court on 14.11.2008 in Company Petition No. 77 of 1990 operates in
rem and is binding also on the appellants, respondents, CLB and this court. The
learned counsel placed reliance on the following paragraphs of the said order
which read thus :
" 6. As aforesaid, the original Petitioner Nos.1, 2, 3, 6 and 7
have withdrawn from the present proceedings unconditionally. As
per their request, they have been deleted from the array of
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Petitioners. The effect of unconditional withdrawal from the
proceedings by the said Petitioners is that they have given up
their challenge with regard to the alleged acts of oppression and
mismanagement. In that, those Petitioners have consciously
acquiesced in the acts complained of. It is further significant to
note that during the arguments, the Counsel appearing for the
present Petitioners, in all fairness, stated that although earlier
the ground regarding mismanagement was given up, but has been
once again introduced by way of amendment; nevertheless, the
present Petitioners shall confine to the ground of oppression of
minority. Indeed, learned Counsel had stated that the facts which
are pressed into service in the context of ground of oppression of
minority would, by itself, indicate mismanagement and be viewed
accordingly.
7.
The present Petitioners have filed elaborate written
submissions besides making oral arguments through Counsel.
During the submissions, the thrust of reliefs pressed on behalf of
the present Petitioners was that to meet the ends of justice, this
Court should pass appropriate order under Section 402 directing
the majority shareholders to buy out the shares held by them at
such value as the Court may deem fit. In the alternative, the Court
may consider granting relief in terms of prayer clauses (c) to (f),
(h) to (hhh) (v); (hhh) (xix); (xx); (xxii) and (xxiii) and prayers (i)-
(i) to (5). This position is restated even in the concluding part of
the written submissions filed on behalf of the present Petitioners.
8. I would, therefore, think it apposite to consider the entire
matter only in the context of reliefs pressed on behalf of the
present Petitioners and in particular the grounds referred to in the
written submissions, while dealing withindividual instances
referred to in the Petition as amended.
9. Ordinarily, as the allegation is one of oppression of
minority, the Court is bound to decide that aspect one way or the
other on its own merits. Dependent on the finding reached on the
said issue, the Court can proceed to pass appropriate order in
equity or otherwise. Significantly, in the present case, the present
Petitioners have made it more than clear that the principal relief
pressed by them is to issue direction to the majority shareholders
to buy out the shares held by the Petitioners at such valuation as
the Court may determine. Even if this relief is to be granted to the
Petitioners, in the first place, the same will have to be confined
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only to the present Petitioners (original Petitioners 4 and 5). For,
the other Petitioners (original Petitioners 1,2,3,6 & 7) have
consciously withdrawn from the proceedings unconditionally.
Insofar as the present Petitioners are concerned,as a matter of
fact they are free to deal with the shares held by them. In that, the
shares are now freely transferable. Indeed, when the Petition was
presented at the relevant time, the Respondent No.1 Company was
a Private Limited Company. As a result, there was restriction in
the transfer of shares. However, it is common ground that now the
Respondent No.1 Company has become a Public Limited
Company-as a result of Special Resolution moved in the Extra
Ordinary General Meeting dated 5th May 2001 having been
defeated. Having acquired the status of a Public Limited
Company, the restriction on the right to transfer the shares which
was applicable to Private Limited Company, would naturally get
diluted. That however, does not mean that there would be no right
in the Board of Directors to consider the transfer request on case
to case basis on its own merit, keeping in mind the best interests
of the Company so as to prevent any undesirable person becoming
its member and if enrolment of such person as a member, is likely
to be prejudicial to the Company. In other words, the Board of
Directors would be justified in declining to register a given
request for transfer of shares keeping in mind the paramount
interests of the Company, if so required. The only other
apprehension of the present Petitioners is that as has been cited in
the past in respect of some of the transfer request that the
maximum number of members provided in the A.O.A. (as 50
members) has already been exhausted. As a matter of fact, this
restriction will have no relevance after the Respondent No.1
Company has admittedly become a Public Limited Company. For,
restriction of maximum number of 50 members which may apply
to a Private Limited Company, will be of no relevance any more.
Notably, even in respect of a Private Company which limits the
number of its members to 50, as provided in the definition of
"Private Company" in Section 3(1)(iii) of the Act, it would not
include persons who are in the employment of the Company and
persons who, having been formerly in the employment of the
Company were members of the Company while in that
employment and have continued to be member after the
employment ceased. Indubitably, the Company will be bound to
process the share transfer request of the present Petitioners
keeping in mind the regulations on the subject applicable at the
relevant time as and when occasion arises.
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10. Suffice it to observe that even if the present Petitioners were
to succeed in establishing that it is a case of oppression and
mismanagement, direction that could be issued against the
majority of the members, is to buy out the shares held by the
present Petitioners at a fair value, keeping in mind parameters
provided in Article 57 (g) itself. At best, it could be further
ordered that in the event, the majority shareholders were
disinclined to buy out the shares held by the present Petitioners
within a reasonable time after the offer is made by the present
Petitioners in that behalf, it would be open to the present
Petitioners to sell the said shares to any outsider as per the price
finalised with them interse. Indeed, enrolment of the outsider
transferee as member of the Respondent No.1 Company would be
subject to scrutiny to be done by the Board of Directors in the best
interests of the Company for preventing any undesirable person
becoming a member of the Company. The Board of Directors will
have to assign tangible and legally sustainable reason to reject
the request to register the transfer of any share. In my opinion, the
principal relief claimed by the present Petitioners would stand
addressed with the above arrangement.
11. I shall now proceed to consider the alternative reliefs
pressed during the course of arguments by the Counsel for the
present Petitioners. Indeed, although the present Petitioners have
submitted that the reliefs to be presently reproduced are
alternative reliefs, the same in fact, are the substantive reliefs. I
would straightaway refer to the said reliefs pressed by the present
Petitioners, which read thus: "(c) That the 2nd Respondent be
restrained by an order of permanent injunction from exercising
any rights or receiving any dividends or any rights or bonus
shares or any accretions in respect of the said 3000 share
purportedly registered in the name of the 2nd Respondent and the
1st Respondent;
(d) For orders and directions directing Respondents 1 & 2
to offer the said 3000 equity shares of the face value of Rs.100/-
each (together with all accretions thereto) to the Petitioners in
accordance with Article 57 of the Articles of Association at the
value determined in accordance therewith and directing the 1st
Respondent to register the same in the name of the Petitioners and
make consequential notings on the 1st Respondent's records;
(e) For a declaration that the purported Extra Ordinary
General Meeting purportedly held on 15/10/1988 is null and void
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and of no effect.
(f) For a declaration that the purported Annual General
Meeting purportedly held on 29/12/1989 is null and void and of
no effect.
(h) Holding the Extra Ordinary General Meeting on
15-2-1990 and/or transacting any business thereat whether as set
forth in the said notice dated 16-1-1990 (Ex.'S'hereto) or
otherwise.
(hh):(i) that it may be ordered anddeclared that the purported
transfer of the said 4 shares described in Exhibit Q-42 hereto
from the name of Respondent Nos.11 & 12 to the name of
Respondent No.13 is contrary to the Articles of Association of the
1st Respondent Company and therefore, illegal, null and void and
is liable to be set aside;
(h):(ii) that the register of the members of the 1st Respondent
Company be rectified by deleting the name of Respondent No.13
from the register of members in respect of the said 4 shares
described in Exhibit Q-42 hereto and by restoring the names of
Respondent Nos.11 and 12 in respect of the said 4 shares.
(h):(iii) that Respondent No.1 and Respondent Nos.11 and 12 be
ordered and directed to take all such steps as may be necessary,
including the execution of transfer forms etc. in order to transfer
the said four shares from the names of Respondent Nos.11 and 12
to the name of the Petitioners or any of them.
(hhh)(i) This Hon'ble Court be pleased to declare that the
petitioner No.2 was and in a willing member/share holder of the
Company as per the Articles of Association of the Company in
respect of the 22 shares offered by Respondent No.5 and 6
referred to in para 14(a)(vii) above;
(hhh)(ii) that Respondent Nos.1, 5 and 6 be ordered and directed
to take all such steps as may be necessary including the execution
of transfer forms etc. in order to transfer the said 22 shares from
the names of Respondent Nos.5 and 6 to the name of original
Petitioner No.2 and the Register of members of the Company be
ordered to be rectified accordingly forthwith;
(hhh)(iii) that pending the hearing and final disposal of the
Petition, Respondent No.1 be ordered and directed not to register
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the transfer of the said 22 shares from the name of Respondent
No.5 and 7 to any outsider non-member of the company;
(hhh)(iv) that this Hon'ble Court be pleased to declare that the
purported sale or transfer of shares from Respondent Nos.33 to 36
in favour of Respondent No.27 to 32 and the Respondent No.1
Company's registration of such transfers as per particulars set out
in Exhibit-QQ20 hereto is void, invalid and illegal;
(hhh)(v) that this Hon'ble Court be pleased to order and declare
that the purported sale or transfer of the said shares in favour of
Respondent Nos.27 to 32 by Respondent Nos.33 to 36 and the
registration of the transfer of the said shares in the Register of
Members of the Respondent No.1 Company be cancelled and set
aside and the Register of Members of Respondent No.1 Company
be rectified accordingly;
(hhh)(xix) that it may be ordered and declared that the purported
transfer of the said 5 shares referred to in paragraph 16(S)(1)
(xiii) hereto from the names of Respondent Nos.2 & 4 to the name
of Respondent no.44 is contrary to the Articles of Association of
the 1st Respondent Company and therefore illegal null and void
and is liable to be set aside;
(hhh)(xx) that the Register of Members of the 1st Respondent
Company be rectified by deleting the name of Respondent No.44
from the Register of members in respect of the said 5 shares and
by restoring the names of Respondent Nos.2 & 4 in respect of the
said 5 shares;
(hhh)(xxii) that it may be ordered and declared that the purported
transfer of the said 5492 shares in favour of Respondent No.39
(Gharda Consultants Private Limited) is contrary to the Articles
of Association of the 1st Respondent Company and contrary to the
Companies Act, 1956 and is illegal null and void and is liable to
be set aside;
(hhh)(xxiii) that the Register of Members of the 1st Respondent
Company be rectified by deleting the name of Respondent No.39
(Gharda Consultants Private limited) from the Register of
members in respect of the said 5492 shares and by restoring the
names of the respective transferors in respect of the said 5492
shares; [the aforesaid numbering is given on the basis that the
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prayers proposed in Company
application No.130 and as communicated vide letter dated 26th
July, 1993 will be sanctioned.]
3. in the alternative to prayers (a) and (b) above(i) for
appropriate orders and directions under sections 397, 398 and
402 of the Companies Act, 1956 including appointment of an
Administrator or Special Officer of the 1st Respondent with all
powers of the Board of Directors for a period of 5 years or for
such other period as this Hon'ble Court may deem fit and proper
for managing the affairs of the 1st Respondent and the Board of
Directors of the 1st Respondent be displaced during such period;
(d) the 1st Respondent be ordered to issue and allot to the
Petitioners such number of equity shares of the nominal value of
Rs.100/- each in the capital of the 1st Respondent as is requisite
to give to the petitioners a majority on the issued and paid up
equity shares in the capital of the 1st Respondent as per value or
at such premium as may be fixed by the Controller of Capital
Issues, Government of India, or any other competent person as
this Hon'ble Court deem fit and proper and to that intent the
share capital of the Company be increased;
for orders and directions directing the Respondents 1 & 2 to offer
the said 3000 equity shares of the face value of Rs.100/- each
(together with all accretions thereto) to the Petitioners in
accordance with Article 57 of the Articles of Association at the
value determined in accordance therewith and directing the 1st
Respondent to register the same in the name of the petitioners and
make consequential notings on the 1st Respondent's records.
(ii)(1) that it may be ordered and declared by this Hon'ble Court
that the Extra Ordinary General Meeting purported to have been
held on 15th February, 1990 and the business conducted
therein/resolutions purported to have been passed therein are all
null and void and bad in law;
(2) that Respondent No.1 be restrained by an Order and
Injunction of this Hon'ble Court from taking any steps or action
on the basis or in pursuance of the resolutions purported to have
been passed at the said meeting of 15th February, 1990 or from in
any manner whatsoever giving effect thereto.
(3) that it may be ordered and declared that the purported transfer
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of 3,000 equity shares by Respondents No.5 in favour of 2nd
Respondent is illegal, null and void;
(4) that this Hon'ble Court be pleased to rectify the register of
members of the 1st Respondent by deleting the name of
Respondent by deleting the name of Respondent No.2 and 4 in
respect of 3000 equity shares standing in their name and
substituting the name of Respondent No.5,
(5) that Respondent No.2 be restrained by a permanent order and
injunction of this Hon'ble Court from in any manner whatsoever
exercising any rights of membership whatsoever including the
voting rights in respect of 3000 equity shares standing their
names."
60. What is intriguing is that the principal prayer of the present
Petitioners during the argument was that direction be issued to
the majority shareholders to buy out the shares held by the present
Petitioners. On the one hand, the present Petitioners are keen to
walk out of the Company by selling their shares to the majority
shareholders at a price to be determined by this Court. I have
already adverted to the provisions of the A.O.A. which govern the
procedure for determining fair value of the shares, in the event,
the shares were to be offered to the existing members. In my
opinion, in the fact situation of the present case, there is no
question of issuing direction to the majority members to buy out
the shares of the present Petitioners. If the Petitioners are keen to
walk out of the Respondent Company, it does not stand to reason
as to why the Petitioners are questioning every singular transfer
of share, especially between 1989 to 5th May 2001. After 5th May
2001, as the Company has become a Public Company, the issues
raised on behalf of the Petitioners would become insignificant.
Assuming that the Petitioners were to succeed in their assertion, it
is only the present Petitioners who would be entitled to claim
prorata shares allocable to them (original Petitioners 4 and 5)
and not to invalidate the transfer of 5492 shares in its entirety.
However, as has been found earlier, since the transfer of said
5492 shares was between member-to-member, the same was
legitimate and even consistent with the norms of Article 57.
Accordingly, no relief in terms of prayer clauses under
consideration can be granted to the present Petitioners.
61. The only other reliefs that need to be addressed are the
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alternative reliefs to prayer clauses (a) and (b) being prayer
clause (I) and in particular clauses I(i) to (iii) and II(i) to (v). All
these reliefs are also incidental to the reliefs pressed at the time of
arguments which have already been dealt with in the earlier part
of this decision. For that reason, it is not necessary to separately
deal with the same.
62. Taking overall view of the matter, I have no hesitation in
concluding that no case regarding oppression of minority
shareholders has been established by the present Petitioners.
Assuming I were to hold to the contrary, I would still be inclined
to hold that no tangible grounds are made out to conclude that it
is just and equitable to wind up the Respondent No.1 Company.
For, on this finding as observed in the case of Jaladhar
Chakraborty (supra), no further direction needs to be issued.
However, insofar as the direction pressed by the present
Petitioners against the majority shareholders to buy out the
shares of the present Petitioners, I have already dealt with that
aspect in the earlier part of this Judgment."
103. The learned senior counsel for respondent no. 2 submits that the order
passed by this court on 14th November, 2008 in Company Petition No. 77 of
1990 was a judgment in rem and not in action in personam. It is submitted that
the proceedings under Sections 397 and 398 are not personal actions for
enforcing personal rights but are representative actions on behalf of the
shareholders and the public at large since public interest is a factor for
consideration under these sections. The learned counsel placed reliance on
Section 399(3) of the Companies Act and submits that the said proceedings
reinforces the view that they are representative actions on behalf of
shareholders. It is thus submitted that the petition was thus as action "in rem"
and therefore the judgment dated 14th November, 2008 is a judgment in rem. It
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is submitted that the judgment in rem determines an issue of right, status or
property in a way and thus binding persons generally. The learned counsel
placed reliance on the Halsbury Laws of England 4th Edition, paragraphs
970 to 972 which read as under :-
970. Classification of judgments; in general.
Final judgments which give rise to an estoppel are
divided into two classes: judgments determining
status, known as 'judgments in rem' and judgments
determining the rights of parties, known as
'judgments in personam' or 'judgments inter
partes'. The distinction is important because, as is
discussed below, it affects the parties who will be
bound by the judgment.
971. Importance of distinction between
judgments in rem and judgments in personam
or inter partes. The most important distinction
between judgments in rem and judgments in
personam or inter partes is that, whereas the latter
are binding only between the parties to them and
those who are privy to them, the judgment in rem
of a court of competent jurisdiction is, as regards
persons domiciled and property situated within the
jurisdiction of the court pronouncing the judgment,
conclusive against all the world in whatever it
settles as to the status of the persons or property, or
as to the right or title to the property, and as to
whatever disposition it makes of the property itself,
or of the proceeds of the sale. In other words, all
persons, whether party to the proceedings or not,
are estopped from averring that the status of
persons or things, or the right or title to property, is
other than the court has by such a judgment
declared or made it to be. A judgment in rem can
have no effect as such, however, beyond the limits
of the state within which the court delivering the
judgment exercises jurisdiction, unless the thing
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affected is situated or the person affected is
domiciled within those limits.
972. Meaning of 'judgment in rem'. The term
'judgment in rem' has been judicially described as
'a specialised and somewhat misleading term of art
limited to judgments concerned with status. A
judgment in rem may be defined as the judgment
of a court of competent jurisdiction determining
the status of a person or thing, or the disposition of
a thing, as distinct from the particular interest in it
of a party to the litigation. Apart from the
application of the term to persons, it must affect the
subject matter of the proceedings in the way of
condemnation, forfeiture, declaration of status or
title, or order for sale or transfer.
104. Mr.Bobde, the Learned Senior Counsel appearing on behalf of the
respondent no.2 distinguishes the judgment of this court in case of
M/s.Holdings Ltd. vs. Shyam Madanmohan Ruia & Ors. Reported in 2010
Vol. 112 (9) Bom.L.R. 4005 on the ground that the said judgment has been
considered and dealt with in the judgment and order dated 14th June, 2011
passed by this Court. It is submitted that ratio in the said case has no
application to the facts of this case. He submits that the said judgment in case
of M/s.Holdings Ltd. (supra) case reported only deals with a scenario where a
restriction on transfer of shares by way of pre-emptive rights is included in a
shareholders agreement i.e. an agreement inter se shareholders and effectively
holds that such an agreement is an imposition of a restriction by the
shareholders upon themselves and is in furtherance of the principle of free
transferability of shares. The said judgment does not deal with a blanket
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restriction on the transferability of shares which is imposed upon a
shareholder through a pre-emptive right contained in the articles of association
of the company. It is submitted that in the present case there is no agreement
inter se the appellants and the respondents and the blanket pre-emptive rights
as contained in the articles of association are therefore found to be
unenforceable and void.
105. The learned counsel appearing on behalf of the appellants submit that
the 1st respondent was and is a private company by incorporation that became a
deemed company under section 43A and at best, it would be unlisted public
company. It is submitted that by defeat of resolution dated 5th May, 2001
and/or the amendment to the Companies Act, status of the 1st respondent does
not change and it continue to remain what it was prior thereto. It is submitted
that in any event, the issue is pending in the Supreme Court. It is submitted
that the effect of Articles of Association of pre-existing private limited not
having clause (d) is the question of law. By voting against such amendment,
the appellants cannot be estopped. In so far as letter dated 6th June, 2001
addressed by the appellants is considered, it is submitted that said letter was in
reply to the 1st respondent circulating notice under Article 57. It is submitted
that the 1st respondent should be estopped from contending that Article 57 is
invalid after 5th May, 2001. It is submitted that in any event, there can't be any
estoppel against the statute. If in future, Article 57 can remain in the articles in
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the company, then any stand taken in letters cannot operate as an estoppel.
106. Mr.Samdhani, the learned senior counsel appearing for the appellants on
the other hand made following submissions on these issues :-
(a) The judgment of Shri Justice A.M.Khanwilkar dated November
14, 2008 did not declare Article 57 as void. In the said Judgment, no order is
passed under Section 402 of the Companies Act to delete Article 57. On the
contrary, it is held that Article 57 is a complete code. Further, that judgement
is based on a consensual arrangement between the Petitioners in CP 77 and the
Respondents and as such it is a judgement by concession by parties. Relying
upon the judgment of Supreme Court reported in AIR 2001 SC 1273 it is
submitted that the judgment obtained by concession is not a binding precedent.
In the alternative it is submitted that it is a consensual judgment and therefore
cannot bind persons who are not parties thereto. The Appellants names in the
said Petition had been deleted. The appellants placed reliance on Halsbury
laws of England, 3rd Edition, para 370 which reads thus :-
370 Consent judgment in rem. Although a
judgment by consent may well create an
estoppel between the parties (m), it is at least
doubtful whether a judgment in rem obtained by
consent of parties (o) can ever be conclusive
against persons who were not and do not claim
through the parties to it, except so far as may be
necessary to protect the title of a person who
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purchases the res on the faith of the judgment.
It has been laid down that a judment by consent
cannot effect a res judicata so as to bind the
public or absent parties (p), and that a judgment
by consent establishing a will in solemn form
does not bind a party who, though served with a
citation to see proceedings, has not appeared or
been represented at the hearing, so as to prevent
him from taking proceedings to revoke probate
(q).
(b) If Shri Justice A.M.Khanvilkar had already decided the issue as to
whether Article 57 was invalid or void as is sought to be contended by the
respondents then there was no requirement for Shri Justice Dharmadhikari to
go into the said question and render a finding to that effect. It is significant that
in CP 77 the parties were not at issue on the validity of Article 57. Neither
were any arguments advanced nor recorded nor decided by Shri Justice
A.M.Khanvilkar on that point.
(c) In law or under the Companies Act, there is no prohibition on a
public company from having a right of pre-emption. This is more so in view of
a company that has become a deemed public company under Section 43A of
the Companies Act and equally so for a company that is an unlisted public
company.
(d) Section 111A is the only provision shown by the respondents to
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submit that a public company cannot have a right of pre-emption is
inapplicable to the 1st respondent. The said section does not apply to a
company defined under Section 111(14). Section 111(14) of the Companies
Act states as under:
"In this section company means a private
company and includes a private company
which had become a public company by
virtue of section 43A of this Act."
It is submitted that admittedly, the 1st Respondent had become a public
company by virtue of S. 43A, and thus the provisions of S. 111A would be
inapplicable.
(e) The question whether the amendment to S. 3(1)(iii) is prospective,
the question whether the abrogation of S. 43A of the Companies Act is
prospective, the question whether the absence of article (d) in pre-existing
private companies would denude them their status of a private company etc are
all questions that are presently pending in the Supreme Court. The question
whether a public company can validly provide a right of pre-emption is also
pending in the Supreme Court.
(f) The Judgment of Shri Justice Dharmadhikari whilst holding
Article 57 to be void does not order its deletion. The said Judgment also does
not hold that Article 57 may be deleted without properly conducting an EOGM
or in a manner contrary to S. 31 and S. 189 of the Companies Act, 1956.
(g) The grievance of the appellants against the attempt of the majority
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shareholders to remove Article 57 from the Articles of Association on the
ground that it has been declared as void cannot amount to defiance of the
Order of this Court when the correctness of the judgment is presently pending
in the Supreme Court.
(h) It is true that the said Judgment dated 8th August, 2011 is not
stayed. However, by Order dated August 8, 2011 Shri Justice Dharmadhikari,
has given liberty to adopt appropriate proceedings to challenge a fresh EOGM
if convened for the purpose of deleting Article 57. This order was passed after
the learned Judge was informed of the fact that an SLP had been filed against
his earlier Order dated June 14, 2011 in which the Supreme Court had issued
notice and granted injunction. The learned Judge has also stated that the said
fresh proceeding would be decided uninfluenced by "the earlier order".
Whether "earlier order" means the Order of CLB dated November 9, 2010 or
the Order of High Court dated June 14, 2011 - the effect is the same - that the
fresh proceedings should be decided uninfluenced by the earlier finding that
Article 57 is void. It is submitted that the very issue itself is pending in the
Supreme Court.
(i) The Judgment and Order dated November 14, 2008 does not hold
that Article 57 is void. In that case, this issue was not even considered and in
fact the parties proceeded on the basis of a concession that the 1st respondent
has become a full fledged public company. In any event the Appellants were
not parties to that judgment and the same cannot bind the Appellants.
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(j) This Court by its Order dated June 14, 2011 has held that the 1st
respondent has become a full fledged public company and consequently
Article 57 is void. The question of the status of the 1st Respondent and the
validity of Article 57 is to be adjudicated by the Supreme Court.
(k) The Judgment and order dated 14th June, 2011 was challenged in
Supreme Court and SLP against the said order is pending wherein not only
the Supreme Court has issued notice but has also granted injunction
restraining second and third respondent from transferring the shares directly
or indirectly held by them so as to protect the appellant's pre-emptive right
under Article 57. It is submitted that the conduct of EOGM dated 22nd May,
2012 by which the respondent contended that the resolution for deleting
article 57 was allegedly passed is the subject matter of substantive challenge
in Company Application No. 91 of 2012 which is still pending. The learned
counsel submits that the submission of the respondents that even if the
Supreme Court dismissed the SLP, Article 57 would be finally declared to be
invalid and even if the Supreme Court allows Special leave Petition, Article
57 would be valid until 22nd May, 2012 and thereafter will cease to exist is
self-defeating argument. It is submitted that the entire purpose of deleting
Article 57 by the respondent is to interfere with the matter pending in
Supreme Court and is an attempt to render it infructuous and academic. It is
submitted that if Supreme Court holds that article 57 is valid, the said article
would be valid for all time unless lawfully deleted. Even if the Supreme
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Court holds that article 57 is invalid, it will have to be deleted in accordance
with law and at properly convened EOGM. It is submitted that if respondents
are allowed to delete article 57 now and the Supreme Court subsequently
holds that it was valid or if the appellant succeeds in their contention that
the resolution was wrongfully passed on 22nd May, 2012, it would give rise to
innumerable complications and multiplicity of proceedings to set the clock
back. It is submitted that it would be impossible to set the clock back as
several third party rights may have been created on the basis that there there
is no right of pre-emption.
107. In my view the proceedings filed under section 397 and 398 are not
personal action in personal rights but are representative actions on behalf of
the shareholders and public at large in view of the fact that the public
interest is the factor for consideration in these sections. In my view learned
counsel Mr. Bobde is right in his submission that the petition filed under
section 397 and 398 (Company Petition No. 77 of 1990) was an action in rem
and therefore, the judgment dated 14th November, 2008 passed therein by this
court is a judgment in rem. Shri Justice A.M. Khanwilkar in the said
judgment has given categorical finding that respondent no. 1 company is a
public limited company. The present appellants who are parties to the said
petition filed under section 397 and 398 had not obtained any leave to file the
proceedings again on the basis of the same cause of action in future. I am not
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inclined to accept the submissions made by Mr. Samdani, the learned senior
counsel that the order dated 14th November, 2008 passed by this court in
Company Petition No.77 of 1990 is based on concession and is not binding on
the appellants. In my view, in the said judgment dated 14th November, 2008
this court has decided after considering all the facts that the first respondent
company is a public limited company. This court has thus decided the status
of the company which is juristic person and thus in my view, the said judgment
has attained finality not having been challenged by the petitioners and thus
operates in rem and binds every one generally inclusive of the appellants.
In my view the said judgment is also biding on the single judge of this court.
The finding of this court rendered in the said judgment that the shares of the
first respondent company are freely transferable is also in my view equally
biding and conclusive not only on the parties thereto but also this court.
108. The learned author says that the judgment in rem may be defined as
judgment of the court of competent jurisdiction determining the status of the
persons or thing or disposition of the thing as distinct from the particular
interest in it of the party to the litigation. Apart from the application of the
term to persons it must affect the subject matter of the proceedings in the
way by condemnation, forfeiture, declaration of status or title. In my view,
such declaration rendered by this court in the said judgment that the first
respondent company is a public limited company and its shares are freely
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transferable declares the status and purport of the first respondent company
and thus in my view the said judgment operates in rem and is binding on all
the parties. In my view these appellants are estopped from challenging the
status of the first respondent company as public limited company and also the
finding that the shares of the first respondent company are freely transferable.
In my view CLB in the impugned order in Para 13 has rightly followed the
judgment of this court in Company Petition No.77 of 1990 by holding that the
said decision is binding on the petitioners who had unconditionally withdrawn
from the said petition filed under section 397 an 398 of the Act. It is further
held that the decision is also binding on CLB. In my view the said decision of
this court has been rightly followed by CLB. There is no substance in the
submission made by Mr. Samdani that if this court had already decided the
issue as to whether Article 57 was invalid or void, there was no requirement
for this court to decide the said judgment again and render finding to that
effect. Shri Justice S.C. Dharmadhikari has followed the judgment of this
court delivered by Shri Justice A.M. Khanwilkar.
109. I shall now decide as to whether the judgment dated 14 th June, 2011
passed by this court in Company Appeal No. 24 of 2010 was binding on the
CLB and also this court, not having been stayed by the Supreme Court and as
to whether the appellant can agitate the issues which are already decided by
this court in order dated 14th June, 2011 in the present proceedings.
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110. Apart from the fact that in the present proceedings, I have already taken
a view after considering the pleadings documents and arguments advanced by
the parties that respondent no.1 company is a public limited company and
shares are freely transferable and that the resolution passed by the first
respondent company in its EOGM held on 22.5.2001 can not be construed as
the act of oppression but shall consider whether the order and judgment
delivered by Shri Justice S.C. Dharmadhikari is binding on this court in the
absence of stay to the said judgment by the Supreme Court.
111. On perusal of the order and judgment dated 14th June, 2011 it is clear
that the issue as to whether respondent no. 1 company has become public
limited company, whether shares are freely transferable or not, whether article
57 has become void or not, amongst several other issues were subject matter of
the said appeal decided by this court. The appellants had canvassed
proposition that the breach of articles would be ultra vires and breach of
right of pre-emption constitutes act of oppression. It was submitted by the
appellants that the power to amend the articles could not be used to oppress
minority and take away their vested rights. In the said judgment various
questions of law formulated by the appellants were summarized in para 84 of
the judgment. Para H reads as under :
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"(h) whether taking away or cancelling a right of
preemption by amending the Articles will also amount to
oppression and will be actionable."
112. On these issues this court has rendered finding that on 13th December,
2000 the first respondent became the public limited company but the public
company and the argument of the appellant that it continued to retain its
fundamental and basic character as private company was negatived. This court
has also considered the fact that the amendment to insert additional clause (d)
was defeated by the appellants. This court has held that once preemption
alleged itself not in existence by virtue of statutory provisions then there is no
act of oppression. In so far issue as to whether the order passed by Shri Justice
A.M.Khanwilkar in Company Petition No. 77 of 1990 would operate in rem
is concerned, this court considered the same and has rendered finding that the
arguments in the proceedings in C.P. No. 132 of 2009 and the arguments in
Company Petition No. 77 of 1990 were identical. This court held that the
observations made by this court in the order passed in Company Petition No.
77 of 1990 would be applicable to the appellants also. This court also
observed that once this court in the said proceedings had found that the
conduct of the remaining petitioners was entirely blameworthy and they
cannot substitute the charge and/or allegations leveled of having oppression,
the minority shareholders other than present appellant can not on the same
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material succeed in pursuing the said allegations. This court also observed that
the appellants were raising the same issues based on the same allegations and
identical arguments. This court after considering the arguments of the parties
and the order and judgment delivered by Shri Justice A.M. Khanwilkar in
Company Petition No. 77 of 1990 held that the finding rendered in the said
judgment were fully applicable to the facts in the said Company Appeal No.
24 of 2010 and there was no justification for taking a different view. This
court rendered a finding that the appellants had failed to substantiate their
charge of oppression of minority and the allegations being serious, the
appellants ought to have brought adequate and substantial proof which the
appellants had failed. This court took a view that on the basis of the material
produced it could not be held that there was any oppression of minority. This
court also took into consideration the conduct of the appellants in withdrawing
from the proceedings of Company Petition No. 77 of 1990 and settling their
disputes with respondent no. 2 while denying any relief in their favour in
Company Appeal No. 24 of 2010.
113. The orders passed by the Supreme Court in the pending SLP, filed by
the appellants, indicate that the judgment delivered by this court has not been
stayed. From the perusal of the record, it is clear that the appellants have not
even applied for stay of the judgment delivered by Shri Justice S.C.
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Dharmadhikari. In my view, since the said judgment has not been stayed
admittedly by the Supreme Court, I am bound by the view taken by this court
in the said judgment delivered in Company Appeal No. 24 of 2010. Even
otherwise, from the facts examined independently, I am of the view that no
case is made out for taking a different view than that has been already taken by
Shri Justice S.C. Dharmadhikari.
114. Shri Justice S.C. Dharmadhikari in the said judgment has also
considered the judgment of this court in the case of Western Maharashtra
Development Corporation Ltd. Vs. Bajaj... (2010) 154 Company Cases 593
and the judgment of the division Bench rendered on 1st September, 2010 in the
case of M/s. Holdings Vs. Shyam Madanmohan Ruia (2010), 159 Company
Cases 29. After considering the judgment of the Division Bench, this court
has already rendered finding that the shares of the first respondent company
are freely transferable. In my view, the facts before the Supreme Court in the
case of Vodaphone Vs. Union of India are clearly distinguishable and the ratio
in the said judgment does not apply to the facts of this case. The Supreme
Court was not dealing with the similar clause. The issue in the said judgment
was totally different. The validity of article 57 in my view has been already
decided by this court in the judgment of Shri Justice A.M. Khanwilkar and
Shri Justice S.C. Dharmadhikari and thus these two judgments relied upon by
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the respondents in my view are binding on this court in the present
proceedings.
115. In my view, there is no merit in the submission of Mr.Samdhani, that
there is prohibition on a public limited company from having a right of
preemption. In the order and judgment delivered by Shri Justice
S.C.Dharmadhikari, this court has already decided that in view of the 1st
respondent company being a public limited company, Article 57 has become
redundant.
116. In so far as submission of Mr.Samdhani, the learned senior counsel that
this court shall not consider the finding rendered by Shri Justice
S.C.Dharmadhikari in view of the pendency of special leave petition is
concerned, it is common ground that the said judgment has not been stayed by
the Supreme Court so far. The appellants are not even able to show that the
appellants had prayed for stay of the said judgment before the Supreme Court.
The CLB in para 30 of the impugned order has dealt with the interim order
passed by the Supreme Court in the Special Leave Petition arising out of the
order dated 14th June, 2011 passed by this court. The CLB has held that the
Supreme Court has denied the modified relief sought by the appellants and the
special leave petition has not been admitted as yet. The CLB has also rendered
a finding in para 33 of the impugned order and has held that the petitioners
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were not claiming that any of the action of the respondents amounted to the
breach of the order of the Supreme Court or that it gave rise to any matter in
the nature of contempt of any court and on the contrary the petitioners elected
to approach CLB impugning EOGM as none of the legal issues raised in the
special leave petition transgraced to the corporate democracy and shareholders'
right to take corporate action including amendment of articles in accordance
with the provisions of the Act. In my view, there is no infirmity in this view
taken by the CLB and thus decision of the CLB permitting the 1st respondent to
implement the resolution to delete Article 57 on the ground that it was invalid
during the pendency of special leave petition cannot be faulted. In my view,
there is no question of law arising in this appeal as formulated by the
appellants and setout in para 2J of this order.
117. In my view, it is far too obvious that if the Supreme Court sets aside the
order of this court or takes some different view, the parties shall be bound by
the law declared by the Supreme Court. It is, therefore, neither necessary nor
desirable to say anything more on this issue.
118. This court has already decided in para 123 of the judgment in Company
Appeal No. 24 of 2010 that merely because its shares are not listed in any
recognised stock exchange, does not mean that there is any restriction on
transfer. Such shares are freely transferable as they are shares of the public
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company. In my view, appellants are not allowed to agitate the same issue
again in the present proceedings. Similarly the appellants cannot be permitted
to agitate the issue that the provisions of section 111A would be in applicable
to the 1st respondent company. In my view, there is no merit in the submission
of the appellant that in the order passed on 14th June, 2011 by Shri Justice
S.C.Dharmadhikari there is no specific direction to delete Article 57 and thus
conducting an EOGM was contrary to Sections 31 and 189 of the Companies
Act, 1956. In my view, even if no such directions are given in the said
judgment dated 8th August, 2011, once this court having declared that the said
article became redundant, 1st respondent company was fully justified in passing
a resolution to delete such redundant and void Article 57 so as to make it in
conformity with the provisions of Companies Act, 1956. There is no merit in
the submission made by the appellants that the company law board or this
court cannot consider the findings rendered by this court in the order dated 8 th
August, 2011 in view of the liberty granted in the said order to the appellants
to adopt appropriate proceedings to challenge fresh EOGM in continuity for
the purpose of deleting article 57 and in observing that the fresh proceedings
would be decided influenced by the earlier order. In my view, the record
produced by the parties in the present proceedings read with order dated 8th
August, 2011 passed by this court makes it clear that this court was referring to
the earlier order passed by CLB dated 9th November, 2010 which was
impugned therein and not the order passed by this court. In view of the fact
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that the judgment delivered by this court is not stayed. I am bound by the
decision of this court unless I take a different view and refer the matter to
larger bench which I don't propose to do.
119. The CLB has in para 30 of the impugned order has followed the
judgment of this court in Company Appeal No. 24 of 2010 on the issue that the
1st respondent company is the public company and once it is held to be a public
company, then its shares are freely transferable and article would not hold
good as they are contrary to the status. In my view, the order and judgment
dated 14th June, 2011 passed by Shri Justice S.C.Dharmadhikari not having
been stayed by the Supreme Court is binding on the CLB as well as on single
judge of this court. The CLB has thus rightly followed the said judgment and
has allowed the application filed by respondent nos. 1 and 2 for vacating
and/or modifying the order dated 21st May, 2012. In my view, the order passed
by Shri Justice S.C.Dharmadhikari operates in rem and is binding on the
parties to the present proceedings. In my view, the appellants are estopped
from re-agitating the issues which are already decided by this court in
Company Petition No. 77 of 1990 and in Company Appeal No. 24 of 2010 in
the present proceedings.
120. In so far as the question E and F formulated by the appellants as setout
in para 2 are concerned, it is common ground that by an order dated 21st May,
2012, the CLB had permitted the 1st respondent to hold EOGM on 22nd May,
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2012 and had kept the matter pending. It is also not in dispute that on 22nd
May, 2012, a resolution came to be passed in the said EOGM resolving to
delete Article 57. It is thus clear that CLB was fully conscious of the fact that
the resolution would be passed in the meeting allowed to be held on 22nd May,
2012. It is common ground that the appellants did not challenge the said order
dated 21st May, 2012 passed by CLB allowing 1st respondent to hold meeting
on 22nd May, 2012. The CLB could not have granted any injunction against
the 1st respondent from requisitioning or holding EOGM as the same was
requisition in accordance with law.
121. In so far as contention of the appellants that the CLB could not have
permitted the 1st respondent to implement the resolution in view of the order
passed by CLB itself having allowed the appellant to amend the company
petition questioning the conduct at the impugned EOGM and that the said
conduct was under serious dispute is concerned, in my view, this submission
does not survive in view of the fact the appellants having argued the issue
raised by the appellants in Company Application No. 91 of 2012 and 73 of
2012 in the present proceedings. In my view, the CLB was fully justified in
considering the effect of resolution passed in the meeting permitted to be hold
by order dated 21st May, 2012 in the impugned order. In my view, no question
of law arises as formulated and setout by the appellants in para 2E and F of the
judgment.
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122. In so far as question formulated by the appellants in paragraphs 2G and
2H are concerned, in view of this court having taken a view that the 1st
respondent company being a public limited company and its shares are freely
transferable, in my view the question of exercise of right of preemption in such
situation does not arise. The resolution thus passed by the 1st respondent
company in deleting Article 57 with a view to give effect to the said position in
accordance with law does not amount to an act of oppression. The CLB in
para (40) of its order has rendered finding that passing of resolution by the
share holders of the company in exercise of their democratic rights in extra
ordinary general meeting requisitioned by the shareholders of the company
does not in any manner amount to oppression and mismanagement and cannot
form a subject matter of the petition under sections 397 and 398 of the
Companies Act and there is no reason to interfere with the internal democracy
of the company. The CLB has also rendered a finding that keeping in view the
rights of the shareholders the principles of corporate democracy in the absence
of prima facie case shareholders' decision is prejudicial to the public interest or
at large CLB has no justification in restraining the first respondent company
from implementation of the special resolution passed and from filing of the
requisite forms with R.O.C. in that regard. In my view, the findings rendered
by CLB is correct and does not require any interference.
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123. In my view, there is no abuse of the majority rights in passing a
resoluton to delete Article 57 as the same in my view is not oppressive to the
minority shareholders. In my view, no such question of law as formulated by
the appellants in para 2G and 2H thus arise in the present appeal.
124. Both parties have addressed this court at length on the issue whether
order passed by Shri Justice A.M.Khanwilkar on 14th November, 2008 in
Company Petition No. 77 of 1990 operates in rem or not and is binding also on
the appellant or not.
125. Company Petition No. 77 of 1990 was filed by the appellants and also
few other parties under sections 397 and 398 of the Companies Act against the
1st respondent company. The appellant who were parties to the said petition
sought liberty to withdraw from the said proceedings unconditionally and
requested this court to delete their names from the array of the petitioners.
This court granted leave to the appellant herein who were petitioners alongwith
other parties to withdraw from the said proceedings unconditionally and
allowed their names to be deleted from the array of the petitioners. While
granting that liberty, this court observed that appellants herein and their names
have been deleted form the arrays of the petitioners. The effect of
unconditional withdrawal from the proceedings by the said Petitioners is that
they have given up their challenge with regard to the alleged acts of oppression
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and mismanagement. In that, those Petitioners have consciously acquiesced in
the acts complained of. This court also recorded that the appellant herein had
consciously withdrawn from the proceedings unconditionally. After recording
these facts, Shri Justice A.M.Khanwilkar considered the matter on merits
which was pursued by remaining two petitioners therein and held that there
was no case regarding oppression of minority. This court also held that the 1st
respondent company had become public limited company as a result of special
resolution moved in the Extra Ordinary General Meeting dated 5th May, 2001
having been defeated. It is held that first respondent having status of public
limited company, a restriction on the right to transfer the shares which was
applicable to the private limited company would naturally get diluted. It is
held that restriction under Article 57 shall have no relevance after the 1st
respondent company had admittedly become public limited company. It is held
that minimum of 50 members may apply to the private limited company will
have no relevance any more.
126. It is common ground that the order passed by Shri Justice
A.M.Khanwilkar in the said Company Petition No. 77 of 1990 was not
challenged by any of the parties. It is also not in dispute that the present
appellant did not obtain leave while seeking liberty to their withdrawal from
the said proceedings unconditionally and for deleting their names from the
array of the petitioner. In the order passed by this court, it has been clearly
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recorded that the appellant herein have consciously withdrawn from the
proceedings unconditionally and have given up their challenge with regard to
the alleged act of oppression and mismanagement. Thus in my view the said
judgment delivered by Shri Justice A.M.Khanwilkar is binding on the
appellants and other parties to the said proceedings, CLB and this Court and
also operates in rem.
127. The next submission of Mr.Samdhani, the learned senior counsel for the
appellants is that without prejudice to the rights of the appellants that the 1 st
respondent company is not the public limited company and the order passed by
this court in Company Petition No. 77 of 1990 and Company Appeal No.24 of
2010 are not orders in rem and are not binding on the appellants on the
submissions already made and respondent company thus could not pass any
resolution so as to delete Article 57, it is submitted that majority shareholders
had grossly misconducted in requisitioning EOGM and in passing resolution
therein and the same is totally contrary to the provisions of the Companies Act
and Articles of Association. It is submitted that the procedure followed in
conducting the meeting by the chairman was totally illegal and against the
interest of minority shareholders. The learned counsel submits that though
these allegations were forming part of Company Application No. 91 of 2012
filed by the appellants and is pending before the CLB, this court shall consider
the same in the present proceedings as the said issue could not be kept pending
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by CLB while deciding the challenge to the validity of convening of the
meeting and passing a resolution therein by first respondent. The learned
counsel submits that both proceedings ought to have been decided by CLB and
thus by granting adjournment of the Company Application Nos. 91 of 2012
and 73 of 2012 pending before CLB and only proceeding with and deciding
the Company Application No. 85 of 2012 filed by the 1st and 2nd respondents,
the pending proceedings filed by the appellants have become infructuous. At
the request of the appellants and in view of the fact that the parties have
addressed this court on all such issues which were pending before the CLB in
Company Application Nos. 73 of 2012 and 91 of 2012, pertaining to the
procedure followed by the respondent no.1 and majority shareholders in
requisitioning the meeting and passing a resolution therein. I shall now deal
with the issue as to whether there was any illegality in requisitioning the
meeting and as to whether procedure followed by the majority shareholders in
the said meeting held on 22nd May, 2012 was illegal or any of such acts
amounted to any misconduct.
128. I shall first decide as to whether the 1st respondent company was
justified and was right in convening EOGM and also as to whether such
meeting could be held though one of the requisitionist had alleged to have
withdrawn her consent before such meeting came to be held on 22nd May,
2012. It is not in dispute that respondent nos. 6 to 8 collectively holding
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12.5% of the paid up share capital issued by the 1st respondent company issued
a notice on 31st March, 2012 under section 169 of the Companies Act read with
Article 76 of the Articles of Association to convene EOGM of the members of
the company to transact the business by special resolution "amendment of
Articles of Association of the company for deletion of Article 57 of the Articles
of Association of company". It is not in dispute that the said notice issued by
respondent nos. 6 to 8 was received by the 1st respondent company on 20th
April, 2012. It is also not in dispute that when the said notice was received by
the 1st respondent company to requisition a meeting, the notice was issued by
such members having not less than 1/10th of paid up capital of the 1st
respondent company and had right of voting in that regard to the matter.
Pursuant to the receipt of such notice under section 169 of the Companies Act
read with Article 76 of the Articles of Association, the 1st respondent company
issued a notice on 25th April, 2012 proposing to hold EOGM on 22nd May, 2012
at 11.00 a.m. to pass a resolution pursuant to section 31 of the Companies Act,
1956 and other applicable provisions by deleting then existing Article 57 of the
Articles of Association. It was made clear that a member entitled to attend and
vote in the meeting was entitled to appoint a proxy to attend and vote instead
of himself and the proxy need not be a member.
129. On 19th May 2012, one of the requisitionist Ms Mahrukh Oomrigar
respondent No.6 herein holding 6% shares addressed a letter to her Advocates
and Solicitors instructing to support the C.A.(73 of 2012) filed by the
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appellants and to concede to the injunction prayed for in the said application.
The sixth respondent instructed her advocate that she did not propose to move
or support the proposed resolution for deletion of Art.57. Based on this letter,
the submission of the appellants is that no such meeting could be requisitioned
by the 1st respondent company at all as the judgment delivered by Shri Justice
S.C.Dharmadhikari was impugned in the Supreme Court, one of the
requisitionist holding 6% shares had already withdrawn her consent and thus
there was no requisite number of members as per Section 169(4) available out
of the members who had requisitioned meeting on the date of the EOGM.
130. On conjoint reading of Section 169 and Article 76 of the Articles of
Association, it is clear that Extra Ordinary General Meeting has to be
conveyed by a company if it is requisitioned by the members of the company
of having not less than 1/10th of the paid up capital of the company and had
right of voting in that regard to that matter.
131. The company is under obligation and it is mandatory for a company to
convene the meeting on receipt of such notice issued by such number of
members. Section 169(6) of the Act provides that if within 21 days from the
date of deposit of valid requisition, if the company does not proceed or call a
meeting for consideration of these matters on a day not later than 45 days
from the date of deposit of requisition, the meeting may be called by the
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requisitionist themselves. It is thus clear that there was no option available to
the 1st respondent company but to call EOGM in compliance with the
provisions of law. Perusal of the letter dated 9th May, 2012 addressed by Ms.
Mahrukh Oomrgar, respondent no.6 holding 6% shares to her advocates and
solicitors instructing to support the Company Application (73 of 2012) filed by
the appellants and to concede to the injunction prayed for in the said
application, in my view does not amount to withdrawal of consent by the 6th
respondent in holding EOGM. In any event, once a valid requisition was
received by the company from its members having requisite numbers in
accordance with section 169 read with Article 76 of the Articles of Association,
even if any of the requisitionist withdraws his consent or such member ceased
to be the member, in my view, the board of directors have no option but are
obliged to call such EOGM. In my view, once required number of members
have requisitioned the meeting in accordance with section 169(4) of the Act
read with Article 76 of the Articles of Association and such notice for
convening EOGM is received by the company, subsequent withdrawal of
consent or that any member ceased to be a member subsequently does not give
any discretion to the board of directors not to call a meeting due to such
change. Mr.A.Ramaiya in his work "Guide to the Companies Act, 1956" Part
II 17th Edition has commented upon the powers of the board of directors on
similar situation. In my view, the respondents are right in placing reliance
upon the said comment of the learned author on this issue. In my view,
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requisition of a meeting should be by requisite number of members under
Section 169 (a) and such mandatory strength is required on the date when such
notice is received by the company. Subsequent reduction in number after
receipt of such notice by the company, cannot prevent the company from
convening such a EOGM.
132. Without prejudice to the aforesaid submissions, it is submitted by
Mr.Samdhani that irrespective of the nature of the resolution, the impugned
EOGM has been grossly mis-conducted and procedure followed in conducting
EOGM was totally illegal which has vitiated the entire resolution. The
minority shareholders are entitled to independently challenge the said illegal
procedure.
133. Mr.Samdhani, the learned senior counsel appearing on behalf of the
appellants made following submissions on the issue as to whether conduct
of the EOGM by the Chairman was illegal or not :-
(a) That impugned EOGM held on 22nd May, 2012 had been illegally and
improperly conducted with a view to ensure that the resolution deleting Article
57 is shown as having been passed. The 1st respondent company delayed and
denied inspection of proxies, proxy register, inward register etc. so as to enable
the 1st respondent to manipulate the lodgment of proxies. The chairman of the
meeting, who owes allegiance to Dr.Gharda and who himself is a director of
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the 1st respondent company mis-conducted himself by mala fide disallowing
the 1st appellant from voting on 1710 equity shares belonging to her and
permitted Godrej to exercise votes on the said shares.
(b) The mala fides and the illegality of permitting Godrej to cast votes in
respect of 1710 equity shares is demonstrable from the following events:-
(i) Rajiv Bakshi could not vote as the 1st Appellant's power
of attorney holder under the loan cum pledge power of attorney.
(ii) The loan cum pledge power of attorney was not executed
in favour of Rajiv Bakshi, but was executed in favour of Godrej
Industries Limited. Godrej Industries Ltd. being a body
corporate could have in turn sub-delegated its rights in favour
of Rajiv Bakshi (a) either by passing a board resolution or (b)
by executing a power of attorney. In the present case neither
has been done.
(iii) The loan cum pledge power of attorney could never have
been accepted by the 1st respondent Company as the same had
already rejected these powers of attorney (Vol VII page 1363) in
the past and had filed a suit for cancellation thereof.
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(iv) These powers of attorney are admittedly not registered
with 1st respondent and it does not recognize/accept power of
attorney that are not registered.
(v) The record indicates that these Powers of Attorney are
also not lodged 48 hours before the commencement of
impugned EOGM and the entire exercise of introducing the
Godrej documents was ante dated.
(vi) On May 16, 2012 Godrej Industries Ltd. writes to the
minority shareholders to vote for the resolution. This letter
presupposes that Godrej would not be attending the meeting.
(vii) On May 17, 2012 Maharukh Oomrigar - one of the
requisitionists addresses a letter dated May 16, 2012 indicating
that she will oppose the resolution. This would result in
Dr.Gharda's not having the adequate 3/4th majority to carry the
resolution.
(viii) all letters lodging a proxy contain the time of receipt and
the inward number. Alleged letter dated May 19, 2012 neither
bears the inward number nor the time of receipt.
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(c) Rajiv Bakshi could not have exercised rights under the power of
attorney dated March 9, 2012.
i. The power of attorney dated March 9, 2012
is not issued in respect of the shares belonging to
the 1st Appellant in particular 1710 shares.
ii.
This power of attorney is not even lodged
with GCL but was produced at the meeting by
Mr.Rajiv Bakshi when his authority to attend and
vote on behalf of Godrej Industries Ltd. was
questioned.
(d) Rajiv Bakshi could not have exercised rights as a proxy :
i. By an alleged letter dated May 19, 2012, one
Mr.Clement Pinto is stated to have issued a letter
of authorization in favour of Mr.Rajiv Bakshi. The
authorization of the said Clement Pinto is however
not available. There is no Board Resolution
accompanying the same.
ii. This purported authorization does not entitle
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Rajiv Bakshi to sign a proxy.
iii. Yet, Mr.Bakshi purports to sign a proxy in
his favour and this is accepted by the Company.
(e) The impugned EOGM was wholly stage managed and reduced to a
farcical paper meeting with the end result already pre-planned. The 1st
Appellant hold 2961 shares. The voting slips were pre typed voting slips and
the 1st Appellant's proxy Mr.Hegde was handed over a pre typed polling slip
for 1251 shares (2961 - 1710) as if the Company knew the Chairman's ruling
in advance.
(f) By a pre meditated exercise the 1st Appellant was wrongly denied the
right to vote on 1710 shares and instead Godrej was wrongfully permitted to
vote on these shares. If Godrej was not permitted to vote on these shares and
the 1st Appellant was permitted to vote, the resolution would not have passed
as the total votes against the resolution would have been thus :
Name No. of shares %
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(g) The Chairman wrongly and illegally did not permit the 1st Appellant's
proxy Mr.Hegde to vote in respect of her 1710 shares and permitted and
Godrej to vote on the said shares. This action was mala fide and a part of the
fraudulent oppressive stratagem of Dr.Gharda. By such conduct, the EOGM
and its proceedings stand vitiated and the resolution stated to have been passed
is thus required to be set aside as illegal and bad.
(h) The conduct of the chairman, Dr.Gharda in conducting the EOGM was
totally illegal. It is submitted that the chairman of the meeting holds an
important position and he is responsible for the proper conduct of the meeting.
The chairman must exercise his powers bona fide. It is submitted that where
it is shown that the chairman has acted mala fide or that the chairman has acted
in a manner contrary to law, the affected shareholders are entitled to question
the decision of the chairman. The appellants placed reliance on the judgment
reported in (1943) 2 All ER 567 and judgment of Kolkata High Court reported
in AIR 1937 Cal. 645 and unreported judgment of this court dated 7th April,
1995 in case of Kavasmaneck vs. Gharda.
134. The learned counsel appearing on behalf of the respondent no.2 on the
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other hand submits on these issues as under :
(a) Godrej lodged 11 powers of attorney that
Appellant No.1 has issued in favour of Godrej. Each of
these powers of attorney issued in favour of Godrej
permit Godrej to attend and vote at meetings in respect
of an aggregate of 1710 shares. Each of these powers of
attorney are irrevocable
ig and are coupled with
consideration/interest and shall take precedence over
another power of attorney issued by Appellant No.1.
The 11 powers of attorney by themselves operate as a
proxy entitling Godrej to vote at a meeting and are duly
stamped. Since Godrej being a company cannot itself
attend the meeting it was essential to authorise a person
to attend the meeting as its representative. The letter
dated May 19, 2012 was merely such an authorisation
letter for which no format or requirements are prescribed
under the statute and for which no further stamping is
required. The provisions of section 187 of the
Companies Act do not apply as Godrej is not a
corporation/company which is a member/shareholder,
but is a company which is a power of attorney
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holder/proxy of a shareholder.
(b) The Judgment cited i.e. AIR 1928 Bom 80
therefore has no application in the present case.
(c) In view of the powers of attorney issued in favour
of Godrej, no further proxies were required to be issued
in favour of Godrej or its representatives and Mr.Bakshi
was entitled to attend the meeting only on the basis of
the powers of attorney read with the authority letter
dated May 19, 2012.
(d) In addition to the authority that Godrej had to
attend and vote at the meeting under the 11 PoAs lodged
with Respondent No.1 company, the PoA's also entitled
godrej additionally to also appoint a proxy on behalf of
Appellant No.1 to attend and vote at the meeting.
Though no further proxies were required to be issued in
favour of Mr.Bakshi, Godrej as constituted attorney of
Appellant No.1, also issued proxies in favour of
Mr.Bakshi in addition to and independent of the letter of
authority dated May 19, 2012. Once the letter of
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authority dated May 19, 2012 read with the 11 PoAs are
considered to be sufficient authority to Mr.Bakshi to
attend and vote at the EOGM on 22.05.2012, the
existence of the proxies lose significance. Whether
Mr.Bakshi had the authority to execute the proxies or
not as a representative of Godrej (which is the
constituted attorney of Appellant No.1 is irrelevant and
an internal matter of Godrej governed by the principles
of indoor management. In any event, admittedly Godrej
has not challenged the authority of Mr.Bakshi to execute
the proxies. Whether the letter dated 19.05.2012 was the
source of the authority of Mr.Bakshi to execute the
proxies or not is also therefore irrelevant.
(e) Appellant No.1 had issued multiple powers of
attorney/proxies. With respect to the 1710 shares, the
chairman pursuant to the powers conferred by the
Articles of Association, has permitted Appellant No.1 to
vote through one such power of attorney holder of
Appellant No.1. The said act cannot be construed as
denial of the right to vote, since votes were in fact cast
in relation to the 1710 shares. Similarly the votes in
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respect of the balance shares of Appellant No.1 other
than the aforementioned 1710 shares have also been
allowed to be cast by Mr.Hegde and have been allowed.
The challenge therefore is not in relation to a denial of a
right to vote of Appellant No.1 since the votes have been
allowed as opposed to rejected.
(f) The letter dated 16.03.2005 did not relate to any
of the 11 powers of attorney issued by Appellant No.1 to
Godrej, but related to the power of attorney issued by
Maharukh Oomrigar (Respondent No. 6 to the present
appeal) and hence the same is irrelevant. Furthermore
the rejection of the power of attorney was in a
completely different context, i.e. with regard to a request
for splitting of shares and hence is irrelevant for the
purposes of the issue at hand.
(g) The mere filing of the suit bearing No. 1170 of
2005 is of non consequence especially when no orders
have been passed in the said suit declaring the said
documents to be void. The facts and circumstances in
which Suit NO. 1170 of 2005 was filed are not relevant
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for the purposes of the present appeal and in any event
that same are not a part of the record in the present
proceedings in which only the prayers in the suit have
been reproduced.
(h) In view of article 107 of the Articles of
Association of the Company Godrej was entitled to
hours prior to the meeting, which it did, and the
Company bound by its articles of association would
have to accept the same for the purposes of voting. The
mere facts of the existence of the suit No. 1170 of 2005
does not alter that position.
(i) The Power of Attorney dated 09/03/2012 is
entirely irrelevant to the question of voting by Godrej.
This Power of Attorney was submitted by Mr. Rajiv
Bakshi though it was unnecessary to do so as it has
nothing to do with voting in respect of 1710 shares of
Appellant No.1. It is the 11 (eleven) Powers of Attorney
executed under the MOU dated 03/06/1992 which entitle
Godrej to vote in respect of the 1710 shares of Appellant
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No.1. These Powers of Attorney had been submitted
to/lodged with the Company more than 48 hours prior to
the EOGM.
(j) Godrej is not a "member" of the Company and
hence, Section 187 of the Companies Act and Article
104 have no application. It was therefore unnecessary
for Godrej to authorize Mr Rajiv Bakshi by a Resolution
of the Board of Directors nor was it necessary for Mr.
Pinto to be authorized by a Resolution of Board of
Directors. The letter dated 19/05/2012 is sufficient and
clear authority from Godrej in favour of Mr Rajiv
Bakshi to attend, participate in and vote at the EOGM.
It is noteworthy that filling and signing Proxy Form is
for the purpose of voting itself so that an authority to
vote would carry with it the incidental authority to fill
and sign a proxy form and vote. The circumstance that
on 16/05/2012 Godrej wrote to the Appellants to vote in
favour of the Resolution pursuant to its right under the
MOU of 1992 does not prevent Godrej from deciding to
attend the meeting and vote through Mr. Rajiv Bakshi
pursuant to the 11 (eleven) powers of attorney. Godrej
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may not have been confident that the Appellants would
vote as directed by it and hence it may have decided to
attend and vote. It may be noted that disputes between
Godrej and the Appellants arose in March 2012. In
these circumstances, Godrej took the aforesaid steps. It
is the Appellants own case that prior to the year 2012 the
Appellants and Godrej had a common interest and that
seems to be the reason why Godrej may not have
attended earlier meetings or excercised their right to do
so under the powers of attorney. The fact that Godrej
did not attend any earlier meeting is of no consequence.
The allegation that there is not time of receipt or inward
number etc., on the letter is of no consequence since the
letter is on record and Godrej stands by it. The date of
receipt of the letter and the two proxies are clearly noted
as 19/05/2012 and the time does not matter because even
midnight of 19/05/2012 is more than 48 hours before the
EOGM. Mere suspicion cannot be the basis for
doubting the existence and authenticity of the said letter.
There is no averment of material to establish that these
documents are inserted later or that there is any
wrongdoing on the part of a named person. The
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Company in its affidavit in rejoinder dated June 2012 in
Company Application No.85 of 2012 in Vol.VI pages
1187-1190 has fully explained the position with regard
to the filling of the inward register and stamping of date
and time on documents that are received by the
Company. In any case, such an enquiry is impermissible
since the Chairman is the sole judge of validity of votes.
A question of this nature cannot be the subject of
proceedings under Section 397 and 398 and much less
under Section 10F which is limited to appeal on a
question of law, not fact.
(k) The proxy form under Schedule IX was
apparently filed by way of abundant caution more than
48 hours before the EOGM even though it was
unnecessary in view of the authorization in letter dated
19/05/2012 by Godrej. In any case, since Appellant No.
1 had, by Powers of Attorney, authorized Godrej to vote
at meeting and Godrej in turn authorized its
representative Mr Bakshi to vote at the EOGM, Mr
Rajiv Bakshi was fully entitled to act on behalf of
Appellant No.1 through Godrej and sign the proxy form.
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(l) Section 176(1) empowers a member to appoint
another as his proxy. This was done by the 11 (eleven)
Powers of Attorney by Appellant No.1 in favour of
Godrej. Section 176(5) provides that the instrument of
proxy shall be in writing and signed by the appointer.
The Powers of Attorney satisfy this provision. Section
176(6) provides that instruments that are in the Form in
Schedule IX shall not be questioned on the ground that
they fail to comply with Articles. Thus filling a proxy
form is an alternative to any other instrument appointing
a proxy. In the present case, both were done. Hence
when Godrej was empowered by Appellant No.1 to vote,
which it did by letter dated 19/05/2012. Issuance of
authority by a company to vote at a meeting when a
company holds a power of attorney entitling it to vote is
not prohibited either by the Act or by the Articles of the
company.
135. Mr.Kadam, the learned senior counsel appearing for the 1st respondent
company on this issue submits as under :-
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(a) Power of Attorney itself amounts to proxy agent. The learned counsel
placed reliance upon the judgment in case of Gharda Chemicals vs. Jer
Kavasmaneck reported in (2005) 5 BCR 611 and more particularly paragraphs
21, 29 and 30 which reads thus :-
21. As stated earlier, the question before us is,
whether the power of attorneys executed by the
first holder in respect of the shares held jointly are
valid and whether the power of attorney is a proxy.
29. It is true that the issue as to whether the power
of attorney can be treated as a proxy was not
considered by the Chairman of the company while
deciding the validity of the votes cast by the power
of attorney holder. That issue was raised by the
applicants for the first time before the learned
Company Judge. As we have held that the votes
cast under both the power of attorneys are valid, it
is not necessary to consider the issue as to whether
the power of attorney is a proxy or not. However,
the above issue being raised and decided by the
Company Judge and the counsel on both sides
have also canvassed respective arguments before
us, we deem it proper to deal with the said issue as
well.
30. In our opinion, a shareholder may execute an
instrument of power of attorney or an instrument
of proxy empowering a specified person to vote on
his behalf at the meeting of the company. If the
instrument, is in conformity with the proxy form
set out in the Schedule IX of the Act, then the
company would register it and issue voting slip to
such authorised person. Thus, a person authorised
to vote under a validly executed power of attorney
under The Powers of Attorney Act, 1882 may not
be entitled to vote if the instrument of power of
attorney is not in conformity with the proxy form
set out in Schedule IX of the Act. In other words,
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only such an instrument of power of attorney
which is in conformity with the proxy form set out
in Schedule IX of the Act will entitle the
authorised person to vote.
(b) This court cannot sit appeal over the reasons given by the chairman to
conduct the meeting. The chairman has considered all the documents
including power of attorney and provisions of law in his ruling. The power of
attorney given by the Godrej to Mr.Bakshi to sale shares is not relevant.
Eleven power of attorneys were already on record of the 1st respondent
company which gave power to vote. It is submitted that other than 11 power
of attorneys on record referred by the chairman in his ruling is thus
insignificant. This surplussage does not detract from the merits of the
conclusion. The learned senior counsel placed reliance on the affidavit filed
by the 1st respondent company and more particularly paragraphs 13 to 17 to
demonstrate how the inward register was maintained and when proxies were
received. It is submitted that even letter from Dr.Gharda does not refer to
proxy which was received on 17th May, 2012. There was no inward number.
The documents received from Godrej by the 1st respondent bears the same
initial which was on the data received from Gharda Foundation. The
appellants does not make any grievance in respect of the proxy submitted by
Gharda Foundation.
136. Mr Dhond, the learned senior counsel appearing for M/s. Godrej
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Industries Limited allowed to be intervened by a separate order passed by this
court, made the following submissions :
(a) It is admitted that Godrej is the valid POA holder for Jer
Kavasmaneck. Consequently, Jer Kavasmaneck has voted through
Godrej. Therefore, the member of the company, through its POA
holder, Godrej had voted at the EOGM held on May 22, 2012.
(b) Dispute is between the rights of Mr. Hegde and Godrej, both
are not members of the company and their rights cannot be decided
in 397/398 petition. Darius Kavasmaneck did not seek to vote and
Mr. Hegde has not complained at all at the meeting or initiated any
proceedings. Mr. Hegde is also not party nor has he filed any
affidavit in the proceedings. Darius Kavasmaneck cannot substitute
himself for Mr. Hegde or raise any grievance on behalf of a non-
member in 397/398 petition. Mr Bakshi has voted as per the
authority given to him by Godrej which is valid.
(c) Without prejudice to the foregoing, Godrej is a valid POA
holder for Jer. Mr. Bakshi validly represented Godrej in respect of
the Jer Kavasmaneck PAO. Mr. Bakshi is in the employment of
Godrej and all his acts are ratifyble ex post facto. Without
prejudice, Godrej hereby confirms Mr. Bakshi's authority to
represent Godrej and if necessary even ratify all the acts of Mr.
Bakshi pursuant to the Authority given to him by Godrej and
recorded in the letter dated May 19, 2012. The authority given by
Godrej to Mr. Bakshi reads as follows :
" The powers of attorney expressly authorise GIL to
attend, vote and otherwise take part in all meetings held in
connection with the Company in relation to the shares and
to sign proxies for the purposes of voting thereat or for any
other purposes connected therewith as freely as the said
shareholder could themselves do. Pursuant to the said
power contained in the irrevocable powers of attorney, GIL
hereby authorise Mr. Rajiv Bakshi, Executive Vice
President - Legal to attend, participate in and to vote at the
extraordinary general meeting of the Company to be held
on May 22, 2012 or at any adjournment thereof. The
specimen signature of Mr Bakshi is appended below."
(d) The authority given to Mr. Bakshi included right to vote on
behalf of Godrej and all contentions made by the Appellants in
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relation to the same are untenable. The allegations made against
Godrej and/or Mr. Bakshi and grounds taken in the present Appeal
on the basis of the same are frivolous because Godrej has never
disputed the authority of Mr Bakshi. It is submitted that all the
necessary documents were deposited with the company 48 hours
prior to the meeting. The MOU dated 3rd June 1992 executed by
Darius Kavasmaneck and Jer Kavasmaneck in favour of Godrej is
valid and subsisting Darius Kavasmaneck has obtained relief
against Godrej on the basis of the same. Jer Kavasmaneck and
Darius Kavasmaneck had pledged the shares with Godrej and had
executed irrevocable POAs and binding on Darius Kavasmaneck
and Jer Kavasmaneck. Therefore, all acts of Godrej pursuant to the
said POA and loan cum pledge agreements are valid and Jer and
Darius Kavasmaneck are contractually bound by the same.
137. The learned counsel for respondent nos. 4 and 5 submits that admittedly
the first appellant gave power of attorney to different persons in which voting
powers were concurrently given to all. All of them have turned up at the
meeting and two out of them sought to vote on the same shares. It is
submitted that the appellant no. 1 herself created the situation and should
therefore be estopped from now blaming the Chairman for taking the decision
in the circumstances where problem itself was created by the appellants. The
decision of the Chairman is a fair decision. The learned counsel submits that
the Chairman had disallowed Godrej Industries Limited on the voting on
bulk of the shares. It is submitted that the decision of the Chairman was with
regard to the right of two contesting constituted attorneys, neither of whom
were members and neither of whom could maintain the petition under section
397 and 398 of the Companies Act, 1956.
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138. In rejoinder, Mr. Samdhani, the learned senior counsel appearing on
behalf of the appellants submit as under :-
(a) The Appellants have challenged the conduct of
the EOGM dated May 22, 2012. Thus even assuming
whilst denying that the convening of the EOGM was
valid, its conduct being illegal and oppressive, the
CLB ought to have adjudicated upon the validity of the
conduct of the EOGM before allowing the resolution
to be implemented. The challange to the conduct is not
moonshine or illusory - but substantial questions have
been raised by the Appellants particularly regarding
the denial of the 1st Appellant's right to vote on 1710
equity shares. If the 1st Appellant was permitted to vote
on the said 1710 shares, the resolution would not have
been passed.
(b) In the impugned Order in paragraphs 28 and 29
it is recorded that CA 91 of 2012 is pending. CA 91 of
2012 contains the specific challenge to the conduct of
the impugned EOGM dated May 22, 2012.
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(c) The CLB in paragraphs 37 and 38 of the
impugned Judgment has rendered findings on the
correctness and conduct of the impugned EOGM.
What is stated in the said paragraphs are matters
concerning CA 91 of 2012 which was not even
adjudicated upon. In any event the said statements are
factually incorrect.
(d) The Chairman at the meeting held that Mr.
Bakshi is entitled to vote (on behalf of Godrej) on the
basis of power of attorney dated March 9, 2012. This
is also what is recorded in the purported Minutes and
admitted by Godrej. Before the arguments commenced
in this matter, Godrej's contention was also the same
i.e. the power of attorney used to vote at the meeting
was the power of attorney dated March 9, 2012.
(e) Though the respondents through their learned
counsel admitted that reliance by the Chairman of the
meeting to the power of attorney dated March 9, 2012
is a 'mistake' argued that what mattered was the
alleged letter of authority dated May 19, 2012 signed
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by Mr. Pinto in favour of Mr. Bakshi. As such, the
Respondents now say that the power of attorney dated
March 9, 2012 is not relevant as the basis to vote at the
meeting. In view of the above, the Chairman's
decision is, on the face of it, wrong on the arguments
of the Respondents themselves.
(f)
The Chairman did not rely on the letter of May
19, 2012 to permit Mr. Bakshi to vote. Nor did the
Chairman rely on the purported proxy signed by Mr.
Bakshi in his own favour to allow him to vote at the
said EOGM. The submission on the basis that the
letter of Mr. Pinto (page 1356, Volume 7) to the 1st
Respondent is by itself a proxy since proxy requires no
particular form is not correct for the following reasons:
the said letter was not intended by Godrej to
be a proxy. If it was so intended, then reliance
would have been placed only on that letter
and Mr. Bakshi would not have signed an
alleged proxy separately. In law a proxy is
required to be stamped. The letter signed by
Mr. Pinto is unstamped. Reliance is placed on
AIR 1928 Bom 80. Headnote (l) which
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reads thus :-
I would only add that those proxies
which are unstamped, or upon which the
stamps have not been cancelled must be
excluded. Any votes recorded on the
authority of such proxies go out.
(g) Since the 1st Respondent had refused to furnish a
copy of the power of attorney dated March 9, 2012, the
2nd Appellant wrote a letter to Godrej asking for the
power of attorney on the basis of which Mr. Bakshi had
voted. Mr. Bakshi himself answered the said letter and
furnished the copy of power of attorney dated March 9,
2012. Therefore according to Mr. Bakshi also he derived
the authority to vote on the basis of this power of
attorney dated March 9, 2012. Admittedly, the power of
attorney dated March 9, 2012 neither gives a power to
attend or vote nor does it relate to the 1710 shares.
(h) It is the specific case of the Appellants that the 1st
Appellant was denied her right to vote in respect of 1710
equity shares. As such, by allowing Mr. Bakshi to vote
on shares which belongs to the 1st Petitioner, she was
denied the right to vote.
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139. Section 175 of the Companies Act provides that unless articles of the
company otherwise provide members personally present at the meeting shall
elect one of themselves to be the chairman thereof on a show of hands. (The
chairman has prima facie authority to decide all questions which arise at the
meeting which require decision at the time, member by submitting his
ruling and voting upon a resolution which the Chairman allows to be put is
not precluded from maintaining by litigation that he was wrong). Section 176
provides that any member of the company entitled to attend and vote at the
meeting of the company shall be entitled to appoint another person whether
member or not as his proxy to attend the vote instead of himself but proxy so
appointed shall not have any right to speak at the meeting. Section 176(5)
provides that the instrument appointing proxy shall be in writing and shall be
signed by the appointer or his attorney duly authorised in writing or if the
appointer is a body corporate, be under its seal or be signed by an officer or
an attorney duly authorized by it. Section 176(6) provides that the instrument
appointing the proxy, if in any forms set out in Schedule IX, shall not be
questioned on the ground that it fails to comply with any special requirements
specified for such instrument by the articles. Article 94 of the Articles of
Association provides that the Chairman of any meeting shall be the sole Judge
of the validity of every vote tendered at such meeting. The Chairman at the
conducting of the poll shall be the sole judge of the validity of any vote
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tendered at such poll. Article 97 provides as to how the voting rights are
computed. Article 104 provides for voting by proxy. Article 104 to 109 and
113 reads thus :
"104. Subject to the provisions of these Articles votes
may given either personally or by proxy but no Company
which is, a member of this company shall vote by proxy
so long as a resolution of its Board under Section 187
of the Act authorising any of its officials or any other
person to act as its representatives at any meeting of this
company shall be in force.
105. The instrument appointing proxy shall be in
writing under the hand of the appointer or of his
attorney duly authorised in writing or if such appointer is
a corporation, under its common seal or under the hand
of an officer or attorney so authorised. Members not
resident in India may revoke proxies by cable.
106. An instrument of proxy may appoint a proxy either
for the purposes of a particular meeting specified in the
instrument and any adjournment thereof or it may
appoint a proxy for the purpose of every meeting of the
Company and every adjournment of any such meeting.
107. The instrument appointing a proxy and the power
of attorney or other authority (if any), under which it is
signed or a notarially certified copy of that power or
authority shall be deposited at the office not less than
forty eight hours before the time for holding the meeting
or adjourned meeting as the case may be at which the
person named in such instrument proposes to vote or, in
the case of a poll, not less than twenty four hours before
the time appointed for the taking of the poll and in
default the instrument of proxy shall not be treated as
valid.
108. A vote given in accordance with the terms of an
instrument appointing a proxy shall be valid
notwithstanding the previous death or insanity of the
principal or the revocation of the proxy or of the
authority under which the proxy was executed or of the
transfer of the shares in respect of which the proxy is
given, provided no intimation in writing of such death,
insanity revocation or transfer shall have been received
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by Company at its officer for the commencement of the
meeting or adjourned meeting at which the proxy is used.
109. The instrument of proxy shall be as near as
practicable in the form set out in schedule IX of the Act.
113. No objection shall be made to the validity, if any,
except at the meeting or poll at which such vote shall be
cast and every vote whether given personally or by
proxy not disallowed at such meeting or poll shall be
deemed valid for all purposes of such meeting or poll
whatsoever."
140. The appellants through their learned senior counsel emphasized that the
power of attorney referred by the Chairman to the meeting while permitting
Mr. Rajiv Bakshi to vote was not in respect of 1710 equity shares of the
appellant. The counsel led emphasis on the issue that the appellant was not
permitted to vote in respect of 1710 shares and Mr. Bakshi was allowed to
vote illegally and if the appellants would have allowed to vote in respect of
1710 shares, the resolution that was passed in the EOGM held on 22.5.2012
would not have passed with requisite majority. The learned counsel was at
pains to point out that Mr. Bakshi and or Mr.Clemant Pinto did not have
authority to sign any proxy and it was not stamped. Much emphasis was led
on the issue that no instrument of proxy was submitted by Godrej Industries
Ltd. within time prescribed with first respondent before EOGM was held. The
counsel laid emphasis that pages of the proxies submitted to the company by
Godrej Industries Ltd. were undated, some of the proxies provided did not
indicate any date of receipt and or stamp of the company. It is submitted that
there was no inward number in some of such proxies and thus considering
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this material record, this court therefore shall hold that the Chairman had acted
mala fide in allowing Mr. Bakshi to vote and to deprive the appellants of
voting in respect of 1710 shares.
141. On perusal of the documents submitted by the parties which were on
record in Company Application No. 73 of 2012 and 91 of 2012 before CLB
and filed in the present proceeding indicates that 11 power of attorneys were
executed by the appellants in favour of Godrej Industries Limited. The power
of attorneys permits Godrej Industries Ltd. to attend and vote at the meeting
in respect of aggregate 1710 shares, all such power of attorneys are
irrevocable and are coupled with consideration. The record also indicates that
all such documents were lodged with the company prior to 48 hours of the
said EOGM came to be held. The first respondent company has given
inspection of the documents to the appellants. It is not in dispute that the
Chairman had considered the power of attorney dated 9th March, 2012 which
was not in respect of the shares belonging to the first appellant and in
particular 1710 shares. The question that arises for consideration of this court
is whether on the basis of all the material produced on record by both the
parties, whether it can be concluded that Mr. Rajiv Bakshi was authorised to
vote on behalf of the appellants and in particular 1710 shares.
142. It is not in dispute that M/s. Godrej Industries Ltd. was not a member of
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first respondent company. It is also not in dispute that the said power of
attorneys given by the appellants in favour of Godrej Industries Ltd. were in
force on the date of EOGM,. Since Godrej Industries Limited being a company
could not itself attend the meeting, it was entitled to authorize a person to
attend the said meeting as its representative. The said company accordingly by
its letter dated 19th May, 2012 authorised Mr.Rajiv Bakshi to vote in the
EOGM proposed to be held on 22nd May, 2012 to appoint representative on
power of attorneys and the said authority letter dated 19th May, 2012 it is
clear that Mr. Bakshi was appointed to attend the meeting and to vote in
respect of the 1710 shares on behalf of the first appellant duly authorised by
Godrej Industries Limited which was authorised by the first appellant. It is not
in dispute that the said authority letter dated 19th May, 2012 was also filed with
first respondent company by Godrej Industries Limited. On the basis of such
power of attorneys and such authority letter dated 19th May, 2012, Mr. Bakshi
exercised his powers on behalf of the appellants to sign the proxy in favour
of himself to vote. In my view, since the relevant power of attorney
authorised Godrej to vote and the authority letter dated 19th May, 2012 inturn
authorised Mr. Bakshi to vote, whether the proxy was stamped or not losses
its significance. Similarly whether the proxies in the proper format were
lodged or not also looses significance.
143. The appellants could not point out any prohibitory order in the suit filed
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by Godrej Industries Limited against the appellants and the first respondent
(suit bearing No. 1170 of 2005) restraining the parties from exercising rights
under the power of attorneys executed by the appellants in favour of Godrej
Industries Limited. In my view there is no merit in the submission of Mr.
Samdani that in view of the pendency of the said suit filed by Godrej itself the
first respondent could not have permitted the representative of Godrej to vote
in the meeting exercising its powers under the said power of attorneys. The
record indicates that the authority letter and two proxies were received by the
first respondent company on 19th May, 2012 which was prior to more than 48
hours before the EOGM came to be held on 22nd May, 2012. The appellants
could not demonstrate that any of these documents were inserted later or the
said documents were fabricated by Godrej or by respondent no. 1 or the
Chairman. In my view there is no merit in the submission of Mr. Samdani that
the documents filed by Godrej with the first respondent company allowing
Mr. Bakshi to vote did not carry proper acknowledgment, inward number or
the date thereon.
144. The Division Bench of this court in the case of Gharda Chemicals
Limited and Others Vs. Jer Rutton Kavasmaneck @ Jer Jawahar Thadani and
Ors. Reported in 2005(5) Bom C.R. 611 has considered section 176 of the
Companies Act, 1956 and has held that the shareholder may execute the
instrument of power of attorney or instrument of proxy empowering the
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specified person to vote on his behalf at the meeting of the company.
Paragraphs 21 to 26, 31 and 32 of the said judgment are relevant for this
matter and reads thus :
"21. As stated earlier, the question before us is, whether
the power of attorneys executed by the first holder in
respect of the shares held jointly are valid and whether the
power of attorney is a proxy.
22. The words "power of attorney" and "proxy" are not
defined under the Companies Act, 1956. Even the articles
of association of the company do not define these words.
23. Section 1A of The Powers of Attorney Act, 1882
defines the word 'power of attorney' to include any
instrument empowering a specific person to act for and in
the name of the person executing it.
24. Section 176 of the Companies Act, 1956 provides that
a member of the company entitled to vote at the meeting of
the company can appoint any other person (whether a
member or not) as a proxy to attend and vote instead of
himself.
25. Article 114 of the Articles of Association framed by the
appellant No. 1 company reads as under:
"114. On a poll taken at a meeting of the Company, a
member entitled to more than one vote, or his proxy
or other person entitled to vote for him as the case
may be, need not, if he votes, use all his votes or cast
in the same way all the votes he uses."
[Emphasis supplied]
26. On perusal of the aforesaid provisions of Companies
Act and the articles of association of the company, it is
seen that at the meeting of the company not only the
shareholder and the proxy holder but some other duly
authorised person is also entitled to vote. In other words, at
the meeting of the company the vote can be cast by the
shareholder and in his absence his proxy or other person
entitled to vote for him. As rightly contended by the
learned Counsel for the applicants, it is not the
nomenclature but it is a substance of the document which
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is relevant. In the absence of the member, a person seeking
to attend and vote at the meeting of the company must be
duly authorised to do so by a valid document. Such a
document may not be in the proxy form set out in
Schedule IX of the Act, but shall meet the requirement of
the company law i.e. the document contains all necessary
particulars set out in form in Schedule IX of the Act. In the
present case, both the power of attorneys have been found
to be substantially complying with the requirement and
contain necessary details and particulars and the appellant
No. 1 company after duly registering the said power of
attorneys has issued voting slips to the power of attorney
holder. In fact, the voting slips issued by the company
specifically provides that the power of attorney holder is
entitled to vote at the 28th Annual General Meeting of the
company. Even at the meeting all the parties proceeded on
the footing that the power of attorney holder is entitled to
vote at the meeting and the dispute raised was regarding
the validity of the power of attorneys executed by the first
holder instead of all the joint holders. Therefore, the
question to be considered is, whether the first holder alone
could execute a power of attorney in respect of shares held
jointly ?
31. Section 176 of the Companies Act provides that any
member of a company entitled to attend and vote at a
meeting of the company shall be entitled to appoint any
person (where a member of not) as his proxy to attend and
vote instead of himself. Although, Schedule IX of the
Companies Act sets out the general form of proxy, Article
62 of the Schedule 1 to the Companies Act provides as
follows:
"62. An instrument appointing a proxy shall be in
either of the forms in Schedule IX to the Act or a
form as near thereto as circumstances admit."
Similarly, Article 109 of the Articles of Association of
the applicant No. 1 company reads as under:
"109. The instrument of proxy shall be as near as
practicable in the form set out in the Schedule IX of
the Act."
Therefore, even though Schedule IX of the Act sets
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out the form of proxy, it may be varied if the
circumstances so require. In other words, the proxy
form as set out in Schedule IX is not mandatory. So
long as any instrument contains all the requisite
particulars set out in the form in Schedule IX it can be
treated as a proxy. If an instrument like power of
attorney contains all the requisite particulars, such as
the name of the company, the name of the person
executing the instrument, the name of the person
empowered to vote as a proxy, etc. as set out in the
form in Schedule IX to the Companies Act then such
an instrument can be treated as a proxy. As stated
earlier, the instrument of proxy is executed to
empower a third person to vote at the meeting of the
company for and on behalf of the person executing
the instrument of proxy. Proxy is one acting for
another. It is an authority or power to do a certain
thing. A proxy is a lawfully constituted agent. A
power of attorney is an authority given by a formal
instrument whereby one person, who is called the
donor or principal, authorises another person, who is
called the donee, attorney or agent, to act on his
behalf. In the absence of any specific bar, a power of
attorney that substantially complies with the
requirement of Schedule IX can be considered as
proxy. In the present case, it is not dispute that the
power of attorney executed by the applicant Nos. 4
and 5 contains all the particulars set out in the form in
Schedule IX and on being satisfied, the company has
issued the voting slips in favour of the power of
attorney holder. The fact that Clause 2 of the power of
attorney empowers the power of attorney holder to
vote himself or appoint a proxy, it does not mean that
the power of attorney holder cannot vote without
executing a deed of proxy in his own favour. Where
the power of attorney holder himself decides to vote,
then he has to forward the deed of power to attorney
to the company and if the same is in conformity with
the proxy form set out in Schedule DC, then the
company would register it and issue voting slip to the
power of attorney holder. In the present case, on
registration of power of attorney, voting slips have
been issued by the company to the power of attorney
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holder. Therefore, in the facts of the present case, the
learned Company Judge was justified in holding that
the power of attorney constituted a proxy.
32.The contention of the appellants that the words 'power
of attorney' and 'proxy' being different, the power of
attorney cannot be considered as proxy is without any
merit because, as stated earlier, the object of both the
instrument of power of attorney as well as the instrument
of proxy is to empower a third person to act for and on
behalf of the person executing such instrument. So long as
a document is in conformity with the form in Schedule IX
of the Act, there is no impediment to consider that
document as proxy. Similarly, the fact that the instrument
itself does not purport to be a proxy and the same is not
registered as proxy makes no difference because
admittedly the voting slips issued by the company
empowers both the power of attorney holder as well as the
proxy holder to vote at the meeting of the company. In this
view of the matter, we are of the opinion that in the facts
of the present case, no fault can be found with the findings
of the learned Company Judge that the power of attorney is
a proxy."
145. In my view what is relevant is an authority or power to do certain
things. The power of attorney is an authority given by a formal instrument
whereby one person who is called donor or principal authorizes another
person who is called donee, attorney or agent to act on his behalf. Perusal of
the power of attorney executed by the appellants in favour of Godrej
Industries Limited clearly indicate that it contains all the particulars set out in
schedule IX including power to vote on behalf of the appellants. In my view,
the Chairman was right in issuing voting slips in favour of Mr. Rajiv Bakshi
to vote in respect of 1710 shares and such decision cannot be faulted with.
The Division Bench of this court has already held that the proxy form as set
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out in schedule IX is not mandatory. So long as any instrument contains all
the requisite particulars set out in the form in schedule IX, it can be treated as
proxy. In my view separate proxy itself was not required in view of the fact
that he power of attorney itself authorized Godrej Industries Limited to vote
and the said company in turn and rightly authorized Mr. Bakshi to exercise
the votes on behalf of the appellants. In my view, the entire ruling of the
Chairman has to be considered as a whole and not few sentences in isolation.
Considering the entire ruling of the Chairman and the minutes of the meeting
held on 22nd May, 2012, it is clear that Chairman was right in permitting Mr.
Bakshi to cast vote on behalf of the appellants as duly authorised. I am bound
by the view taken by the Division Bench of this court in the case of Gharda
Chemicals Limited (supra).
146. Mr. Samdani, the leaned senior counsel appearing for the appellants
placed reliance on the judgment of this court in the case of Jar Ratan
Kavasmaneck alias Jer Jawahar Thadani and Ors. Versus Gharda Chemicals
Limited dated 7th April, 1995 delivered by Shri Justice A.P. Shah as he then
was, in Company Application No. 127 of 1995. The learned counsel submits
that where the voting has been disallowed by the chairman, shareholder has
got right to challenge the decision of the Chairman in the court. It has been
held that normally the court will be slow to interfere with the Chairman's
ruling but when the ruling is shown to be erroneous on the point of law,
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interference can be warranted in the facts and circumstances of the case.
This court has held that if it is brought to the notice of the court that the
Chairman's ruling is erroneous in law, recourse to certain provisions of the
articles are not brought to the Chairman's notice, it will be open for the court
to correct the said mistakes. This court took a view that the ruling of the
Chairman has resulted in causing serious prejudice to the minority
shareholders, as they are precluded from voting on the resolutions which are
of considerable importance. This court in the said matter has set aside the
ruling of the Chairman rejecting the votes cast on behalf of the applicants.
147. Mr. Bobde, the learned senior counsel appearing on behalf of the
respondent No. 2 invited my attention to para 15 of the said judgment and
submits that it has been held that where the voting has been disallowed by the
Chairman, shareholder has got right to challenge the decision of the Chairman
in the court and when such ruling is erroneous on the point of law. The
learned senior counsel submits that in this case the shareholders were not
disallowed by the Chairman to vote but were allowed to vote through
constituted attorney. The learned senior counsel submits that the ruling of the
Chairman is not erroneous on any point of law. The learned Chairman has
considered all the documents on record and was satisfied that Mr. Bakshi was
rightly authorised to cast vote and has then permitted to exercise such rights
on behalf of the appellant. The learned counsel submits that the ruling of the
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Chairman is final. It is submitted that the Article 109 provides that the
instrument of proxy shall be as far as possible in the format set out in
schedule IX. This instrument of power of attorney read with letter of authority
satisfies all the conditions required to treat the said document as instrument of
proxy. The learned counsel rightly placed heavy reliance on article 19 of the
Articles of Association which provides that the Chairman of any meeting shall
be sole Judge of the validity of every vote tendered at such meeting and shall
be sole judge of validity of any vote tendered at such poll.
148. In my view, Mr. Bobde, the learned senior counsel is right in his
submission that the Chairman was right in permitting Mr. Bakshi to cast vote
in respect of 1710 shares. In my view, all the documents which were on
record of the company before voting including power of attorneys and letter
of authority were required to be considered by the Chairman to find out
whether it satisfies the requirement of proxy. In my view, the appellants had
failed to show that the ruling given by the Chairman is erroneous on any
point of law. The appellants had failed to show that any serious prejudice is
caused to the minority shareholders by virtue of the Chairman permitting
Mr. Bakshi to cast vote. It is not in dispute that the power of attorney was
executed by one of the appellant authorising Godrej Industries Limited to vote
on their behalf in the meeting of the first respondent in respect of 1710 shares.
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149. In my view, the person who could raise objection in respect of the
exercise of voting by Mr. Bakshi was none other than M/s. Godrej Industries
Limited itself. Mr. Dhond the learned senior counsel appearing for Godrej
Industries Limited, in my view has rightly submitted that 11 power of
attorneys were executed by the appellants in favour of Godrej Industries
Limited which entitled Godrej Industries Limited to vote in respect of 1710
shares of the appellant no. 1 and these power of attorneys had been submitted
with first respondent company more than 48 hours prior to EOGM. The
learned counsel pointed out that it was unnecessary for Godrej Industries
Limited to authorise Mr. Bakshi by the resolution of Board of Directors nor
was it necessary for Mr. Pinto to be authorised by resolution of the Board of
Directors. It is submitted that issuance of letter dated 19th May, 2012 was
internal mater of Godrej Industries Limited and is covered by the affairs of
indoor management. The learned counsel submits that M/s.Godrej Industries
Limited had no prejudice at any point of time in Mr. Rajiv Bakshi exercising
vote in respect of 1710 shares and his action in any event are ratified by
Godrej Industries Limited.
150. In my view, on conjoint reading of section 176(1) with articles 104 to
109 and 113 it is clear that filling of the proxy form was alternate to the
power of attorney and authority letter already filed by the Godrej Industries
Limited 48 hours prior to the date of EOGM. It is not in dispute that Mr.
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Bakshi is in the employment of Godrej Industries Limited. M/s. Godrej
Industries Limited in its submissions made before this court has confirmed
that Mr. Rajhiv Bakshi was authorized to represent M/s.Godrej Industries
Limited and if necessary have been ratified all the acts of Mr. Rajiv Bakshi,
pursuant to the authority given to him by M/s. Godrej Industries Limited and
recorded in the letter dated 19th May, 2012. The said authority letter clearly
indicates that Mr. Bakshi was authorised to attend, participate in and to vote at
the EOGM held on 22nd May, 2012 or on any adjourned date thereof. In my
view since M/s. Godrej Industries Limited has not disputed the authority of Mr.
Rajiv Bakshi to vote and in view of the fact that Godrej Industries Limited
was authorised by 11 power of attorneys to vote on behalf of the appellants, in
my view no illegality is committed by the Chairman in permitting Mr. Rajiv
Bakshi to vote on behalf of the first appellant. I am therefore, of the view that
there is no merit in any of the submissions made by Mr. Samdani, the learned
senior counsel appearing for the appellant that the procedure followed by the
Chairman in conducting the EOGM was illegal. In my view the ruling of the
Chairman is final unless the same is erroneous on question of law.
151. The CLB in paragraph 37 and 38 of the impugned order has considered
even the issue arising out of the power of attorneys, letter of authority and
proxies and has rendered finding of fact that the petitioners themselves were
guilty of issuing multiple power of attorneys which were in force at the same
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time, causing confusion and forcing the Chairman to take the decision,
which he did in the bona fide manner. It is recorded that the petitioners by
having issued multiple power of attorneys being irrevocable power of
attorneys coupled with interest in favour of M/s. Godrej Industries Limited
which permitted them to attend and vote at the meeting of the company were
responsible for the presence as well as participation of Mr. Rajiv Bakshi at the
meeting. It has been further held that the articles of association of the
company as well as provisions of the Companies Act, mandate that the
Chairman shall be the sole judge of the validity of all votes cast at the
meeting and that the decision of the Chairman in that regard shall be
conclusive. In my view, CLB was right in rendering such finding of fact
based on the documents produced by both the parties and such finding in my
view cannot be faulted with. In my view no prejudice is caused to the
appellants by ruling of the chairman or the impugned resolution passed by the
first respondent.
152. The first respondent invited my attention to the affidavit in reply filed
by it which indicates that after passing of the impugned order by CLB on 13 th
August, 2012, the first respondent has filed/uploaded form No. 23 after
intimation of the resolution with the registrar of companies along with copy
of the resolution with the copy of the amended articles of association of first
respondent. The first respondent has also filed/uploaded form 21 after notice
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of order dated 21st May, 2012 and 13th August, 2012 passed by CLB in
Company Application No. 73 and 85 of 2012. The shareholders are already
informed by the first respondent company about the amendment to the articles
of association. Form No. 23 has been re-submitted by the first respondent with
the Registrar of Companies and has been approved. The first respondent
company has also approved the transfer of shares received from Manoj C.
Gandhi, Mr. Malte and Mrs. Hajvane to Protegenia Advisors Pvt.Ltd. and the
said transfers have been approved by the first respondent in the meeting held
on 20th August, 2012. The said transferee of the shares are
shareholders/members of the first respondent company. From the perusal of
the documents annexed to the affidavit in reply dated 4th August 2012 it is clear
that the first respondent has already implemented the resolution passed by it in
EOGM held on 22nd May, 2012. Article 57 has already been deleted. In my
view, there is no case made out by the appellants under Section 10F of the
Companies Act for interference with the order passed by CLB.
153. In my view, the appellants have failed to prove that the conduct of the
chairman in conducting impugned EOGM as well as ruling given by the
chairman is illegal or that he acted malafide or the same was part of any
alleged pro-conceived, deliberate, oppressive desire. The appellants have not
proved that affair of the 1st respondent company were conducted in the manner
prejudicial to public interest or in the manner oppressive to the appellants. It is
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also not proved that the facts exist which would justify making of order for
winding up of respondent no.1 on the ground that it is just and equitable to do
so but to wind up the company would unfairly prejudice to the appellants.
154. Thus in my view, the company law board was right and justified in
vacating and/or modifying its earlier order dated 21st May, 2012 and not
restraining the 1st respondent from implementing the resolution passed in the
EOGM held on 22nd May, 2012. No interference is thus warranted by this
Court under Section 10F of the Companies Act, 1956.
155. I, therefore, pass the following order :-
(a) Company Appeal (L) No. 41 of 2012 is dismissed.
(b) There shall be no order as to costs.
(c) In view of the dismissal of the Company Appeal (L) No. 41 of
2012, all pending Company Applications filed in the present
appeal also disposed of accordingly.
(R.D. DHANUKA, J.)
At this stage, learned counsel appearing for the appellants seek
continuation of ad-interim order dated 30th August, 2012. Learned counsel for
the respondents strongly opposes continuation of the ad-interim order.
Application for continuation of stay is rejected.
(R.D. DHANUKA, J.)
