Company Law Board
S. Varadarajan And P. ... vs Udhayem Leasings And Investments ... on 26 October, 2004
Equivalent citations: 2005 125 CompCas 853 CLB, (2007) 3 CompLJ 499 CLB, 2005 62 SCL 315 CLB
Bench: K Balu
ORDER K.K. Balu, Member
1. This company petition is filed under Sections 397, 398, 402 and 403 of the Companies Act, 1956 ('the Act') alleging that the affairs, of M/s Udhayem Leasings and Investments Private Limited ('the Company') are being conducted in a manner oppressive to the petitioners and prejudicial to the interest of the Company and claiming the following reliefs:
1) to declare that the allotment of 50,000 equity shares of Rs. 10/- each made on 08.04.2000, in favour of the respondents 2 & 3 is invalid;
2) to declare that the transfer of 40,000 equity shares effected by the respondents 5 to 8, in favour of the ninth respondent is invalid;
3) to declare that the appointment of the respondents 3 & 4 as directors of the Company made on 08.07.2002 is invalid;
4) to declare that the second respondent vacated the office as director on 04.02.2002;
5) to direct convening of the general meeting of the Company to elect a new set of directors to manage and administer the affairs of the Company; and
6) to set aside the acts performed by respondents 2 to 4 in their capacity as directors of the Company.
2. Shri R. Vidhya Shankar, learned Counsel appearing for the petitioners while initiating his arguments submitted that the Company was promoted in November, 1990 with main object of carrying on Non Banking Financial Companies (NBFC) activities by the first petitioner and the second respondent along with S. Kasthuri Swamy and C. Dhandapani, being subscribers to the Memorandum and Articles of Association and the first directors of the Company. The authorised share capital of the Company is 3,00,000 equity shares of Rs. l0/- each and the validly issued, subscribed and paid up share capital is only 2,50,000 equity shares of Rs.10/- each. The shares of the Company have been allotted and transferred from time to time ensuring parity among the three groups viz., the first petitioner group, the second petitioner group and the second respondent group. Consequently, as at 28.03.1997 each group came to hold 70,000 shares of Rs. 10/- each. Later in March, 1998 the Company had purchased certain immovable property from the fifth respondent and towards sale consideration, the Company allotted 40,000 equity shares of Rs.10/- each in favour of the respondents 5 to 8. The Board of directors of the Company was initially comprised of the four promoters. With the demise of C. Dhandapani, his wife became director, but resigned with effect from 28.02.1995. Thereafter, with the second petitioner securing the interest of Kasthuri Swamy group, he was inducted into the Board with effect from 14.11.1996. While the first petitioner was the Managing Director since the inception till 23.11.1994, the second respondent functioned for a short period till 13.02.1997 and thereafter the first petitioner again became the Managing Director of the Company. However, the second respondent not only failed to attend the Board meetings consecutively held on 12.03.2001, 18.06.2001, 17.09.2001, 28.12.2001 and 01.02.2002 in spite of the notices sent to him by the first petitioner but also did not seek leave of absence for not attending the Board meetings, forcing the Board of directors at the meeting held on 04.02.2002 to record the vacation of the second respondent from the post of director pursuant to Section 283 (1)(g) of the Act, as borne out by Form No. 32 filed before the Registrar of Companies, Tamilnadu, Coimbatore. The second respondent leased out the immovable property belonging to the Company without any authority and consent of the petitioners in favour of third parties, prejudicing the interest of the Company, resulting in a civil suit filed by the first petitioner on 11.07.2002 in O.S. No. 823/2002 before the District Munsif Court of Coimbatore to restrain the respondents 2 & 3 from interfering with possession and enjoyment of the immovable property of the Company and from inducting any third party as a tenant in property. In the meanwhile, the petitioners came to know about the allotment of 50,000 equity shares of Rs. 10/- each on 08.04.2000 in favour of the respondents 2 & 3, as seen from Form No. 2 dated 18.04.2000, but filed belatedly after expiry of 19 months with the Registrar of Companies on 12.12.2001 and the removal of the petitioners under Section 284(1) from the office of director at the extraordinary general meeting purportedly held on 08.07.2002, in terms of Form No. 32 filed before the Registrar of Companies on 17.07.2002. The allotment of 50,000 shares is claimed to have been made on 08.04.2000, on which date even according to the respondents the petitioners were on the Board of the Company. Therefore, the second respondent, a lone director could not have convened any Board meeting allotting the impugned shares. Moreover, the second respondent, being an interested director in the matter of allotment of shares could not legally allot shares in his favour. According to learned Counsel, the Board meeting was a concocted one and no notice of the Board meeting was either sent by the second respondent. The allotment is neither supported by any consideration. Though cash consideration is disclosed in Form No. 2 for the allotment of shares, the same is not reflected in the Company's bank account. The Company is a closely held Company, managed on partnership principles with transparency and utmost good faith maintained in respect of all acts and transactions. There was absolutely no justification on the part of the second respondent to allot the entire unissued share capital to his own group, behind the back of the petitioners. The alleged removal of the petitioners from the post of directors is in gross violation of the Act and against the quasi-partnership principles. The petitioners did not receive any notice at any point of time for any Board meeting or extraordinary general meeting said to have been held on 08.07.2002 for their removal from the Board. The mandatory requirements of Sections 284, 188 and 190 have not been complied with before the purported removal of the petitioners from the office of director. The certificates of posting on record to prove service of notice on the petitioners do not have any evidentiary value and such a practice has been strongly condemned by the Supreme Court. The transfer of 40,000 equity shares by the respondents 5 to 8 to the ninth respondent who is none other than daughter of the second respondent is in gross violation of the pre-emption clauses contained in the articles of association of the Company. The transfer of shares was not approved by the Board of directors. By virtue of the allotment of 50,000 shares in favour of the respondents 2 & 3 and the transfer of 40,000 shares to the ninth respondent belonging to the second respondent group, the second respondent enhanced his group holding from 70000 equity shares to 1,60,000 equity shares, thereby converting himself and his group into a majority and further usurped the Company from majority control of the petitioners by illegally removing them from the office of directors, which are illegal, oppressive lacking probity and fair play and are liable to be set aside. Shri. Vidhya Shankar in support of his legal submissions relied on following decisions:
* S.T. Ganapathy Mudaliar v. S.G. Pandurangan - 1999 Vol. 96 CC 919 - ,to state that normally, allotment of shares to the exclusion of shareholders especially in a family company without the need of any additional funds, has to be construed to have been made with a view to gaining undue advantage in the shareholding against other shareholders.
* Satish Chandra Sanwalka v. Tinplate Dealers Association Pvt. Ltd., - 2001 Vol. 107 CC 98 - to state that mere increase in authorised capital cannot be construed as an act of oppression but if, afterwards, shares are issued resulting in prejudicial effect on a set of shareholders then, such further issue could be considered to be an act of oppression.
* M.M. Dua v. Indian Dairy and Allied Services Pvt Ltd - 1996 Vol. 86 CC 657 - to show that where there is a provision in the articles of association of a company for pre-emption by members in the matter of transfer of shares, a transfer in violation of such provisions constitutes oppression.
* Praful M. Patel v. Wonderweld Electrodes (P) Ltd - 2002 6 Comp LJ 423 - to show that the issue of further shares exclusively to the respondent group, converting majority into minority or creation of a new majority is always held to be an act of oppression. Such an allotment having continues effect can be challenged in a petition under Section 397.
* Dale and Carrington Investments Pvt Ltd v. P.K. Prathapan - 2004 Vol. 112 CC 161 - to show that the directors shall exercise their powers bonafide and in the interest of the Company and further that any issue of shares solely to gain control over the company is not to be allowed.
* Akbarali A. Kalvert v. Konkan Chemicals Pvt. Ltd - 1997 Vol. 88 CC 245 - to show that any additional shares issued without offering them to the other shareholders in violation of the articles of association and without any notice for attending meetings and transferring shares in violation of the articles would amount to an act of oppression.
* M.K. Haridas v. Asal Malabar Beedi Depot Pvt Ltd - 2002 Vol. 110 CC 31 - to show that in a family company any disturbance in the long held shareholding would amount to an act of oppression and that there is no justification to exclude one group of shareholders when new shares are allotted.
3. Shri V. Ramakrishnan, learned Counsel opposed the company petition on the following grounds:-
The statutory records of the Company are in custody of the first petitioner. The names of the allotees furnished in many of the share certificates are different from those furnished in Form No. 2 filed with the Registrar of Companies, Tamilnadu, Coimbatore, establishing a large scale fabrication of share certificates by the petitioners. The petitioners have taken undue advantage of custody of the statutory records, blank papers and documents with signature of the second respondent. The minutes of the annual general meeting held on 23.09.1996, show that the first petitioner's daughters viz., V. Nitya and V. Anita, who were then minors attended the meeting and signed the minutes. Similarly, V. Nitya attended the annual general meetings held on 28.09.1998, 28.09.1999 and 07.07.2000 and signed the minutes of these meetings. The minutes of the annual general meeting dated 28,09.1997 reveal an item of business styled as 'any other matter', under which the second petitioner was reportedly appointed as a permanent director, when there is no such enabling provision in the articles of the association of the Company. The manner in which the resolution purporting to appoint the second petitioner was recorded indicates that the same was an interpolation made at a later point of time. According to the respondents, they never received any notice for any such general meetings and the minutes are fabricated ones created by the petitioners to their advantage. Thus, the petitioners have come with unclean hands and therefore, must be declined any equitable remedy. No parity was maintained at all times among the various groups at the time of allotment and transfer of shares made form time to time. The shareholdings were flexible and invariably changed with every allotment or transfer. By virtue of the transfer of 40,000 shares in favour of the respondents 5 to 8, parity, if any, maintained between the petitioner group and the respondent group has been disturbed. The Company stopped doing any finance business, but was bound to repay several lakhs of fixed deposits made with the Company. The second respondent took efforts to repay the depositors and the petitioners had no objection in transfer of the liabilities towards the depositors to the account of the second respondent in lieu thereof, as borne out by a certificate of the Company's auditor as well as the letters of discharge of the various depositors. Subsequently, shares were allotted to the respondents 2 & 3 in lieu of the amounts available to the account of the second respondent. The annual return dated 07.07.2000 signed by the first petitioner discloses the issued and paid up share capital of the Company as 3,00,000 equity shares which include the allotment of 50,000 equity shares in favour of the second respondent group. The allotment of shares by a company to any person in lieu of a genuine debt due towards him is in perfect compliance with the provisions of Section 75(1) and in consonance with the guidelines issued by the Department of Company Affairs. Similarly, if consideration for the allotment of shares is actual cash, then only the allotment would be for cash. In the present case the allotment of shares in favour of the respondents 2 & 3 as seen from Form No. 2 was for cash, though in fact the allotment was made in lieu of the liability of the Company taken over by the second respondent. Therefore, the allotment of shares in favour of respondents 2 & 3 cannot be impugned. The transfer of shares by the respondents 5 to 8 to the ninth respondent was in accordance with the articles of association of the Company. On 09.04.2002 the respondent 5 to 8 sent notices to the Board of directors under clause 17 of the articles of association offering to sell their shares. The Board of directors however did not take any action in terms of the articles. After waiting for the prescribed time for the Board to find out eligible buyers, the respondents 5 to 8 exercised their right of transfer under clause 21 of the articles of association and transferred their shares to the ninth respondent. The Board of directors at a meeting held on 24.07.2002 approved the transfer of shares in favour of the ninth respondent and therefore, cannot be challenged by the petitioners. The first petitioner not being the Managing Director of the Company is not competent to represent the Company in these proceedings. As per the annul returns dated 23.09.1996, 28.07.1997, 28.09.1998, 28.09.1999 and 07.07.2000 filed with the Registrar of Companies, the second respondent has been designated as the Managing Director and not the first petitioner. The petitioners are not directors of the Company and they have been removed from the office of director by the shareholders and appointed the respondents 3 & 4 as directors at an extraordinary general meeting held on 08.07.2002 as borne out by Form 32 filed with the Registrar of Companies, Coimbatore. In any event, the second petitioner who was appointed only as an additional director on 14.11.1996, vacated office at the annual general meeting held on 28.07.1997 and was not re-appointed as director and thus ceased to be director on and from 28.07.1997. The second respondent never failed to attend the Board meetings consecutively leading to his vacation of the office of director under Section 283 (1)(g). The second respondent neither received any notice of the Board meetings nor convened any Board meeting and the certificate of posting under which the second respondent was purportedly intimated of his vacation of the office is fabricated document. Shri Ramakrishnan, learned Counsel pointed out that the registered office of the Company was at Gandhipuram, while the second respondent was allegedly removed. However, none of the notices for the Board meetings said to have been issued by the petitioners bears address of the registered office at Gandhipuram, but they contain address of the new registered office which took effect at a later point of time. In this connection, learned Counsel referred to the letter heads of the Company both old and new to show that the notices are fabricated. Moreover, both the petitioners and the second respondent had jointly signed an acknowledgement of liability in favour of the Company's banker on 07.02.2002 representing the Company in which case the second respondent could not have ceased to be director on 04.02.2002. Shri Ramakrishnan, learned Counsel while concluding his submissions expressed the willingness of the second respondent group for verification of the accounts of the Company by an independent Chartered Accountant, to find out details of the amounts incurred in connection with carrying on day to day affairs of the Company as well as the amount of deposits repaid by them as well as the petitioner group, if any and for valuation of shares. The second respondent group having the support of the fifth respondent group, constituting the majority may be given the option to purchase the shares held by the first petitioner group and second petitioner group at a value determined by the Chartered Accountant.
4. Shri Vidhya Shankar, learned Counsel, in his reply submitted that the respondents failed to produce the minutes of the Board meeting reportedly held on 08.04.2000 allotting 50,000 shares in favour of the respondents 3 & 4. The petitioners do not have any objection for the second respondent to be on the Board and consequently not pressed the prayer made under para VIII (4) of the company petition. The second respondent being a party to the statutory records and having had signed the share certificates, cannot point out any irregularity or defect in the share certificates issued by the Company. Though the minutes of certain annual general meetings were signed by minor members, the minutes have never been questioned till date and even without the minors, the minutes could not become invalid as they were approved by the minimum required number of members. The second petitioner is shown as director in all the balance sheets and annual returns for the period subsequent to the year 1997 and he is a signatory of the balance sheet and annual returns during some of the years. In these circumstances, status quo in regard to the shareholding of the parties may be restored by setting aside the impugned allotment as well as transfer. In the alternative, the parties may be allotted equal number of shares maintaining parity between them, upon which the members may elect their directors and the accounts of the Company may be duly verified with reference to the investments made by the parties by way of discharge of the deposit liability of the Company, expenses incurred by each of the groups on behalf of the Company etc, safeguarding the interests of the Company and the shareholders.
5. I have considered the pleadings and arguments of learned Counsel. The main grievances of the petitioners relate to the allotment of shares in favour of the respondents 2 & 3 in exclusion pf the petitioners, the transfer of shares by respondents 5 to 8 to ninth respondent in violation of the pre-emption clauses contained in the article of association and the illegal removal of the petitioners from the office of directors. It is on record that the first petitioner and the second respondent along with S. Kasthuri Swamy and C. Dhandapani are the promoter-directors subscribing to the Memorandum of Association of the Company. The shares held by C. Dhandapani, upon his demise came to be transferred by his wife in favour of the first petitioner group and the second respondent group. The shares held by Kasthuri Swamy were transferred to the second petitioner and his associates. As at 28.03.1997 the entire equity share capital of the Company was held among the first petitioner group, (70,000 shares) second petitioner group (70,000 shares) and the second respondent group (70,000 shares) till the allotment of 40,000 shares made on 12.03.1998 in favour of respondents 5 to 8, who subsequently transferred their shares in favour of ninth respondent, who is daughter of the second respondent. It is therefore clear that the Company is closely held within a close knit group of different families. Against this back ground, the allotment of 50,000 shares made in favour of the respondents 2 & 3 and the transfer of 40,000 shares by the respondents 5 to 8 to the ninth respondent must be considered. By virtue of article 5, the Company's shares shall be under the control and discretion of the Board who may allot or otherwise dispose of the same to such person or persons, whether he is a member of the Company or not, for such consideration and on such terms and conditions, as the Board may in their absolute discretion think fit. While according to the petitioners, the allotment of 50,000 shares exclusively in favour of the respondents 2 & 3 disturbing the parity maintained among the petitioner group and second respondent group, suffers from lack of probity and fair play, it is contended by the second respondent that the allotment impugned in the company petition was with the knowledge and consent of the petitioners. At this juncture it shall be borne in mind that the directors are in a fiduciary position vis-a-vis the company and must exercise their power with utmost good faith for the benefit as well as interest of the company and ensure fair play in action in corporate management and further must act bonafide in exercise of their fiduciary responsibilities in further allotment of shares. While it is the prerogative of the Board to allot shares, it is not that law has given absolute liberty to the directors of private limited companies to deal with their shareholders in any manner as they wish. With regard to the issue of additional shares, the responsibility of the directors towards the members becomes more onerous in a private Company. Though Section 81 of the Companies Act which containing certain requirements in the matter of issue of further share capital by a company does not apply to private limited companies, the directors in a private limited company are expected to make a disclosure to the shareholders of such a company when further shares are being issued. Any issue of shares solely to gain control over the company is not permissible. The legal position of directors is enumerated by Supreme Court in Dale & Carrington Investment (P) Ltd v. P.K. Prathapan - (2004) Vol. 122 CC 161. In the present case there is no record to show as to whether any offer was made to the petitioners before making the impugned allotment exclusively in favour of the respondents 2 & 3 or any disclosure to the shareholders on further issue of shares or any issuance of notice of further shares. While the impugned allotment of shares was made in lieu of the amounts available to the account of the second respondent the quantum of which is under dispute, Form No. 2 filed with the Registrar of Companies is not in consonance with the stand taken by the second respondent. Form No. 2 filed after a delay of 19 months remains unexplained. It is not denied that the petitioners had also repaid the matured deposits in favour of certain depositors on behalf of the Company, towards which no shares were allotted in favour of the petitioners. Furthermore, there is no documentary evidence establishing the allotment of shares at any meeting of the Board of directors of the Company. By allotment of the impugned shares in favour of the respondents 2 & 3, the shareholding of the petitioner group has been reduced to a minority. In a number of cases, this Board has categorically held that, if further issue of shares results in conversion of majority into minority, or creation of new majority, then such issue of shares is an act of oppression. I am, therefore, of the "view that the allotment of shares impugned in the company, petition made for personal gains and with a view to gain advantage against the other shareholders of a closely held Company was neither in compliance with the legal requirements nor ensured the fair play and probity in corporate management, resulting in the enhancement of the. shareholding of the second respondent, which would constitute an act of oppression, as held in Praful M. Patel v. Wonderweld Electrodes (P) Ltd; Akbarali A. Kalvert v. Konkan Chemicals Pvt. Ltd and M.K. Haridas v. Asal Malabar Beedi Depot Pvt Ltd. (supra). The second respondent cannot in any way derive support from the annual return dated 07.07.2000 claiming the impugned allotment, notwithstanding the serious dispute raised by the petitioners in regard to the genuiness of the figures in relation to the paid up capital contained therein. The transfer of shares of the Company is governed by articles 15 to 25, which are mandatory. Article 16 provides that no shares in the Company, shall be transferred unless and until, the rights of pre-emption are exhausted in the manner prescribed in the articles. The respondents have produced copies of the notice dated 09.04.2002 said to have been issued by the respondents 5 to 8 separately under article 17 to the Board of directors expressing their desire for sale of their shares. In this connection, the averments made in the counter statement assuming importance are reproduced here below;
"On 9.4.2002 the 5th to 8th Respondent sent notices to the Board of directors under clause 17 of the Articles of Association offering to sell their shares. The Board of directors however did not take any action in terms of the articles. After waiting for the prescribed time for the Board to find eligible buyers, the 5th to 8th Respondent exercised their rights of transfer under clause 21 of the Articles of Association and transferred their shares to the 9th Respondent. Copies of the letters dated 23.7.2002 written by the 5th to 8th Respondents to the Board of directors informing them about the transfers are enclosed herewith. The Board of directors held a meeting the next day on 24th July 2002 and approved the transfer of shares in favour of the 9th Respondent. The transfers were thus legal and valid and were in conformity with the Articles of Association." (para 35 of counter-statement).
The above averments remain as averments without being substantiated by the respondents. Mere production of copies of the sale notices in no way could establish service of the notices upon the Board of directors, in due compliance with article 17 by the respondents 5 to 8. The minutes of the Board meeting dated 24.07.2002 approving the transfer of shares indicate that the Board did not initiate any action on the sale notices dated 09.04.2002 to find a member willing to purchase the shares. The Company is duty bound to speak on its non-action in terms of the relevant articles pursuant to the sale notices, especially when the transferee viz. the ninth respondent is daughter of the third respondent and niece of the fourth respondent, who being directors of the Company approved the transfer of impugned shares. At this juncture, it is worthwhile to observe that the disputes already surfaced between the parties, which ultimately resulted in filing of a civil suit by the petitioners against the second respondent. There is no material to substantiate that the petitioners or any other shareholders have been afforded any opportunity to exercise their right of pre-emption to purchase the shares sold by the respondents 5 to 8, which is clearly in violation of the articles, constituting an act of oppression in the affairs of the Company. In this connection beneficial reference is invited to M. M. Dua v. Indian Dairy and Allied Services (P) Ltd - (1994) 3 CLJ 529 - to show that where there is a pre-emption provision in the articles of association, a transfer in violation of such provision constitutes oppression and S. Bhuvaneswari v. ACI (Agro Chemicals Industries) Ltd - 2003 (4) CTC 690, wherein the High Court of Madras confirmed the order of this Board setting aside the transfer of shares and rectifying the register of members, for noncompliance with the procedure contemplated under the articles in regard to the transfer of shares. The removal of the petitioners from the office of director must be considered in the light of the provisions of Section 284 of the Act. Section 284 (1) provides that a company may, by ordinary resolution, remove a director not being a director appointed by the Central Government before the expiry of his period of office. Subsection (2) of Section 284 stipulates that special notice shall be required of any resolution to remove a director. Furthermore, Section 190 specifies that every special notice requires resolution, which is rather mandatory. According to the respondents, they being the majority shareholders made a requisition dated 10.05.2002 to the Company and its directors for convening an extraordinary general meeting for the purpose of removing the petitioners as directors of the Company, upon failure of which, the members themselves issued a notice dated 28.06.2002, convening an extraordinary general meeting on 08.07.2002, wherein the petitioners 1 & 2 were removed and respondents 3 & 4 appointed as directors in their place. Copies of the requisition notice dated 10.05.2002, certificates of posting dated 11.05.2002 and notice of the extraordinary general meeting of the Company dated 28.06.2002 are on record. The certificates of posting are in support of sending the requisition to the Company and its directors for convening the extraordinary general meeting. Mere production of the certificates of posting issued by the postal authorities would not be a conclusive proof of having served the communication upon the addressees and in the absence of posting the requisition dated 10.05.2002, there is no presumption of due delivery of the requisition upon the company and its directors. Furthermore, it is not safe to trust such certificates of posting as held by this Board in a number of decisions. There is nothing on record to show that the notice of extraordinary general meeting dated 28.06.2002 was served upon the petitioners, in the absence of which it cannot be said that the requirements of Section 284 have been duly met. Any omission to serve a special notice on the directors sought to be removed constitutes denial of their statutory right of reply and the absence of such notice to the directors, any resolution for their removal would be vitiated by such omission. I do not see any other material substantiating the fulfilment of the requirements of Sections 284 and 190, before removing petitioners from the post of directors. Moreover, the first petitioner is one of the promoter -directors of the Company. The second petitioner having had acquired shares of Kasthuri Swamy, yet another promoter of the Company, has been director of the Company. Under these circumstances, the resolution passed at the extraordinary general meeting on 08.07.2002, even if it were perfectly legal, yet would be oppressive, warranting appropriate reliefs. The various discrepancies appearing in the share certificates issued in favour of a number of shareholders and the irregularities as pointed out by Shri Ramakrishnan, learned Counsel in the minutes of certain general meetings of the Company, in my view, cannot disentitle the petitioners from claiming any equitable relief, especially when the second respondent was forming part of the management and no prejudices were shown to be suffered by the Company or the shareholders. Shri Vidhya Shankar, learned Counsel since not pressed the prayer for declaration that the second respondent vacated the office of director on 04.02.2002, there is no need to go into the rival contentions raised by either of the sides, in this behalf. I do not propose to consider the validity of the purported appointment of the respondents 3 & 4 as directors at the extra ordinary general meeting of July 2002, in view of the ultimate reliefs proposed by me. The correctness of discharge of the deposit liabilities and the various expenditure incurred by any of the groups before me on behalf of the Company shall be verified by an independent Chartered Accountant and the deposit amount so discharged and the expenses incurred by any group are binding on the Company. At present the Company is not carrying any non-banking finance business except collecting rentals from the property owned by the Company. There are differences and loss of trust between the parties, leaving little scope for their co-existence in pursuing any business whatsoever and in my view they must part ways by the exit of one group by sale of their shares held in the Company. While the petitioners are desirous of purchasing shares of the second respondent group, the latter group is ready and willing to buy the stake of the petitioners and their associates at a value determined by an independent valuer. Normally, this Bench orders valuation of shares only if it directs one of the parties to go out of the Company on the basis of merits of the case. Without identifying as to which of the parties should go out of the Company, carrying out valuation becomes a wasteful exercise. In the present case, the first petitioner and the second respondent, among others, are the promoter directors of the Company. The second petitioner supporting the first petitioner was inducted into the Board with effect from 14.11,1996. The fifth respondent, who is said to be supporting the second respondent acquired shares in the year 1998, which were transferred subsequently to the ninth respondent, being daughter of the second respondent in July, 2002. In these circumstances, it is not equitable to direct either the first petitioner group or the second petitioner group or the second respondent group to go out of the Company. Since these groups have been in the management of the Company at the relevant point of time they would be aware of the real worth of the Company. Therefore, I am of the view that the most equitable relief would be that the first petitioner group, the second petitioner group and the second respondent group shall quote their price per share and the group that quotes the higher price should purchase the shares of the other group at that price. In view of the foregoing conclusion and in exercise of the powers of the CLB under Section 402, the following order is passed :
i) The allotment of 50,000 shares in favour of the respondents 2 & 3 as well as the transfer of 40,000 shares by the respondents 5 to 8 in favour of ninth respondent are declared as invalid. Consequently, the paid up capital of the Company shall be reduced to 25,00,000/- only.
ii) The removal of the petitioners from the office of director of the Company is declared as null and void.
iii) The Board of directors of the Company shall stand reconstituted by the petitioners and the second respondent with the immediate effect.
iv) M/s Jaggannathan & Vishwanathan, Chartered Accountants, Coimbatore are appointed to verify all payments made towards repayment of deposits, financial obligations assumed and expenses incurred, whatever may be the nature, on behalf of the Company by the first petitioner group, second petitioner group and second respondent group as the case may be, after taking into account the submissions of the parties and the books of accounts, financial vouchers or any other document which may produced by them. The whole exercise shall be completed by 30.11.2004. The amounts so verified and found to be due to the various groups shall be reimbursed by the Company with ten per cent simple interest till date of settlement. The Company shall bear the remuneration payable to the Chartered Accountants.
6. All the groups, viz., the first petitioner group, the second petitioner group and the second respondent group will appear before this Bench on 15.12.2004 at 2.30 p.m. and submit their offers in closed covers indicating the price per share that they are willing to offer. The group which quotes the higher price should purchase the shares of the other group(s) at that price and the consideration for the same shall be paid within two months. The group(s) purchasing the other group(s) shall also ensure that the other group is relieved of all their financial obligations, the deposit liability assumed and expenses incurred by them on behalf of the Company in terms of the preceding para, viz. 5(iv) within the same two months period. If for any reason, the group quoting the higher price fails to purchase the shares of the other group(s) within two months, the other group(s) will have the right to purchase the shares of the defaulting group(s) within the next two months at the price quoted by the other group(s). With these directions, the company petition is disposed of, reserving the right to pass consequential order on 15.12.2004, when all the groups will present their offers quoting their price per share in closed covers.