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CASE NO.: Appeal (civil)  6359 of 2001

PETITIONER: Sangramsinh P. Gaekwad & Ors.                            

RESPONDENT: Shantadevi P. Gaekwad (Dead)thr.Lrs. & Ors.

DATE OF JUDGMENT: 20/01/2005

BENCH: N. Santosh Hegde & S.B. Sinha

JUDGMENT: J U D G M E N T W I T H CIVIL APPEAL NOS. 6360 AND 6361 OF 2001 S.B. SINHA, J :                  These appeals are directed against a judgment and order dated  9.8.2000 passed by a Division Bench of the High Court of Gujarat at  Ahmedabad in O.J. Appeal Nos. 6, 7 and 8 of 1995 whereby and whereunder  the judgment and order dated 17.12.1994 passed by a learned Single Judge  of the  said Court dismissing Company Petition No. 51 of 1991 filed by the  First Respondent herein,  was set aside.   

BACKGROUND FACTS :         Sir Pratapsinghrao Gaekwad was the Ruler of Baroda.  Maharani  Shantadevi Gaekwad was his wife.  They had eight children.  For certain  reasons with which we are not concerned, the estate of Gaekwad came into  the hands of their elder son, Fatesinghrao P. Gaekwad (FRG) even during  the life time of Sir Pratap Singh.  FRG floated several companies, three of  which are Baroda Rayon Corporation Ltd. (BRC), Gaekwad Investment  Corporation Company Ltd. (GIC) and Alaukik Trading & Investment  Corporation Pvt. Ltd. (Alaukik).  BRC came into existence in 1958.  At the  outset, it was being run under Managing Agency System which was  abolished in or about 1968 and later on the same was being managed by the  Board of Directors with the assistance of professional executives.  Appellant  No. 1 herein, the youngest son of Pratapsinghrao Gaekwad, joined the said  company in 1968.  He was the Director of Managing Agents till 31.12.1969  whereafter he became the Additional Director with effect from 1st January,  1970.  He in the same year became Joint Managing Director.  In April 1976,  he became the Managing Director of BRC.  He was reappointed as  Managing Director for two periods of five years each with effect from 19th  February, 1980 and 19th February, 1985.  FRG passed away on 1st  September, 1988, whereafter he was appointed as Chairman and Managing  Director on 23.9.1988.   

       GIC was a small investment company.  Its equity capital consisted of  425 shares of Rs. 100/- each.  The said shares were mainly held by the  family members.  A large chunk of shares was held by Jaisingh Ghorpade  Trust of which FRG was a trustee.  The beneficiaries of this Trust are said to  be outsiders.  Some shares of GIC were held by outsiders also.  The share  holding pattern of the Company was as under:

Sr.  No. Name No. of Shares 1. Shrimant Fatesinghrao Gaekwad 301 2.

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H.H. Maharani Shantadevi Gaekwad 7 3. H.H. Maharani Padmavatidevi Gaekwad 20 4. Prince Ranjitsingh P. Gaekwad 10 5. Shrimant Sangramsinh P. Gaekwad 1 6. Princess Shubhanginidevi Gaekwad 5 7. H.H. Mrunalinidevi Puar 10 8. Shrimant Lalitadevi Kirdatt 5 9. Shrimant Shivrajkumar  1 10. H.H. Padmavatidevi Gaekwar &  H.H. Maharani Shantadevi Gaekwar 4 11. Shrimant Pramila Raje of Jasdan 4 12. Shrimant Asharaje Gaekwad 5 13. Shrimant Ajaysinh Murarrao Ghorpade 1 14. Shrimant Vasundhara Raje Murarrao  Ghorpade 1 15. Shrimant Ashokraje Gaekwad 1 16. Shrimant Vimala Raje Gaekwad 1 17. Shrimant Devayanidevi Gaekwad 1 18. Shrimant Ajitsinh Gaekwad 1 19. Shri Jaysinghrao M. Ghorpade & H.H.  Maharani Padmavatidevi Gaekwad 5 20. Shrimant Dilipsinh G. Desai & Smt.  Kusumben D. Desai 5 21. Smt. Kusumban D. Desai & Shri  Dilipsinh G.Desai 5 22.

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Capt. V.S.Hazare 10 23. Smt. Pramilabai Hazare 10 24. Shri Malhari N. Khade 1 25. Shri Rameshchandra V. Dhaibar 10

Total equity shares 425

       Alaukik was a subsidiary of GIC.  Respondent No. 12, Mrs. Mrunalini  Devi Puar was its Managing Director.   

       Allegedly, GIC suffered a loss during the financial years ending 31st  March, 1987 and 31st March, 1988 as a result whereof substantial parts of  the equity and reserves were wiped out.  It could not even pay off the loans  and credits.  It had no funds to subscribe for the rights issue made in 1989 by  BRC.  Its share holding in BRC was likely to fall with which its forged  fortunes were closely linked as the dividend from the shares of BRC was the  major source of income of the company.  GIC came into financial trouble  when BRC did not declare dividend in 1986-87.  The value of BRC shares  also declined and, thus, it became difficult to avail of an overdraft facility  from the Banks.  It was then decided to raise funds from the existing  members.  The Board of Directors of GIC in a meeting held on 10.11.1987,  decided to broad-base the company, whereafter an extraordinary general  meeting was convened on 17.12.1987.  In the said EGM, a decision was  taken to increase the capital by issuing 25000 equity shares of Rs. 100/-  each.  The matter was again placed in a Board Meeting of GIC on 8th  January, 1988.  In the said Board Meeting presided over by Appellant No. 1   and attended by Mr. P.U. Rana and Mr. P.H. Chinoy, a resolution was  passed that 15000 equity shares of Rs. 100/- each be issued at par to the  members of the company.  The said resolution  reads as under:

"Resolved that out of 25000 equity shares of Rs.  100/- each, 15000 equity shares of Rs. 100/-  covering Rs. 15,00,000/- be issued at par to the  members of the Company at present and the  balance as and when required.

Further Resolved that the Management Committee  of the Company be and is hereby authorized to  issue equity shares to members in such proportion  as it deems fit.

Further Resolved that the Management Committee  be and is hereby authorized to do all such acts,  deeds and things necessary for the purpose."

       Pursuant to or in furtherance of the said resolution, the Company  Secretary, Mr. M.N. Khade issued a circular letter dated 12.2.1988 to all the  existing shareholders requesting them to subscribe for the equity shares at  par wherefor a time limit of three weeks was fixed.  It was stated that if no  reply is received by 10th March, 1988 it would be presumed that the  concerned shareholder was not interested in the offer.  The said circular  letter reads as under:

"12th February, 1988

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Shrimant Fatehsinhrao Gaekwad Hoechest House, Nariman Point Bombay \026 400 021

It has been decided to increase the equity capital of  the Company by the issue of 15000 equity shares  of Rs. 100/- each at par, to the members of the  Company.

You are hereby requested to convey your  acceptance for the number of shares for which you  would like to subscribe, along with a cheque  covering the full amount at the rate of Rs. 100/-  per share, within three weeks from the date of  receipt of this letter.  If no reply is received by 10th  March, 1988 it will be presumed that you are not  interested in the offer and the shares will be  offered to the other members.

Thanking you,

Yours faithfully, For Gaekwad Investment Corporation  Pvt. Ltd.

(M.N. Khade) SECRETARY"

       On or about 13th February, 1988, another meeting was convened  which was chaired by FRG wherein the resolution passed in the meeting  dated 8th January, 1988 was confirmed.  The Managing Committee, having  regard to the fact that no offer was received from the existing shareholders,  in its meeting dated 21st March, 1988 extended the time for the aforesaid  offer.  It was further decided that out of 15000 shares, 8000 shares be kept  apart for the time being for  FRG and the balance 7000 shares be kept apart  for other existing members.  Allegedly, on instructions of Appellant No. 1  herein, the Company Secretary gave first option to the other family members  to subscribe for shares according to their request and the remaining were put  in the name of Appellant No. 1 and his family; pursuant whereto only two  persons, Mrs. Puar asked for allotment of 500 shares and Mrs.  Shubhanginidevi Gaekwad for 25 shares respondent and, thus, the remaining  6475 shares were allotted to Appellant No. 1 and family.

       It is further alleged that FRG became disinterested in the 8000 shares  allotted to him.  The contention of the Appellants herein is that  the balance  7500 shares were renunciated by FRG in his favour and in favour of his  children in June, 1988 as  the same remained unallotted as other members  specifically refused to take up any share.  His sons and daughters applied for  further 3000 shares through Appellant No. 1 as guardian and the same was  allowed.  The remaining 4500 shares, however,  remained unallotted.  The  issue is said to have been closed on 10.12.1988.   

       Respondent No. 12, Mrs. Puar who was the Managing Director of  Alaukik in a meeting held on 12.10.1989 which was chaired by her issued to  herself 1500 shares without allegedly issuing any notice to the existing  shareholders and wherefor allegedly no payment was even made.  It is  contended that by reason of such overt act, the Respondent No. 12 herein,   came in majority of Alaukik as a result thereof it would cease to be a  subsidiary company of GIC.  GIC had 84% shares in Alaukik but by reason  of the said allotment in favour of  Respondent No. 12, its share holding  therein was diluted to 32%.  The account of the Company was also said to  have been transferred to a current account.

       On 1.9.1990, a Civil Suit being No. 675/90 was filed by GIC against

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Alaukik questioning inter alia the allotment of 1500 equity shares of Rs.  100/- each to the defendant No. 2 therein.

       In the said suit, Mrs. Puar filed her written statement on 29.11.1990  wherein inter alia a stand was taken that 8000 shares kept apart for FRG  devolved on Shantadevi as a Class I heir of FRG.  She incidentally applied  for allotment of the said shares also on 29.11.1990.  A contention was also  raised in the said written statement that if the said shares are allotted,  Respondent Nos. 1 and 12 would be holding the majority shares in GIC and  Alaukik even if allotment of 1500 shares in Alaukik is held to be bad in law.   

       It is also not in dispute that Indreni Holding Pvt. Ltd. (Indreni) was a  wholly owned company of the Appellants herein.  Allegedly, by way of tax  planning, the Appellants herein decided to transfer 9415 shares in favour of  the said company wherefor allegedly a letter was prepared by the Company  Secretary on or about 15.11.1989 which reads as under:

"November 15, 1989 To All the Shareholders.

       The Company has received intimation from  existing shareholders about their intention to sale  some of their shares of Gaekwad Investment  Corporation the details of which are attached  herewith.   

       Pursuant to the provision of the Articles, it is  hereby brought to your notice about the sale of the  shares by the existing shareholders.  You are  therefore requested to intimate to the Company  about your interest in purchasing the share before  20th December, 1989.

       Please note that in case if the company does  not hear from you within stipulated period it will  be construed that you are not interested in  purchasing\005\005\005\005\005\005..of the same as board  deem fit.

Yours faithfully, For Gaekwad Investment Corporation  Pvt. Ltd.

(M.N. Khade) SECRETARY"

       It, however, stands admitted that the said letter was not circulated.            

       The Appellants herein were allegedly under a belief that the said  notice had been circulated and as no response thereto was received,  they  transferred 9415 shares out of 9481 shares to Indreni.  Questioning the said  transfer, three suits came to be filed by different shareholders marked as Suit  No. 305/90, 867/90 and 872 of 90.  Suit No. 305/90 was filed by Pramilaraje  Khacchar on 28.11.1990 in the  Rajkot Civil Court wherein inter alia  following reliefs were sought for:

"A. it be declared that the purported sales and  transfers by the defendants Nos. 3 to 7 of the 9415  equity shares owned by them in the first defendant  company in favour of the second defendant

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company are ultra vires their powers, illegal, null  and void ab initio and that the said shares continue  to be of the ownership of the respective defendants  Nos. 3 to 7 as if no such sale or transfer was ever  made.

B. a decree for permanent mandatory injunction be  passed in favour of the plaintiff and against the  first defendant directing it to offer and transfer the  said 9415 equity shares in the first defendant  company to the plaintiff and other remaining  members.

C. a decree for permanent mandatory injunction be  passed in favour of the plaintiff and against the  defendant No. 2 restraining the second defendant  from exercising or enjoying any voting or other  rights in respect of the said 9415 equity shares in  the first defendant company.

D. that a decree for permanent mandatory  injunction be passed in favour of the plaintiff and  against the second defendant directing the second  defendant to repay the first defendant company  dividend, if any, paid to the second defendant with  interest at 24 per cent per annum.

E. any other relief that the Hon’ble Court deems fit  in the circumstances of the case be granted."

       Suit No. 867/90 was filed by Shubhangini Gaekwad in Baroda Civil  Court on 12.12.1990 praying for identical reliefs.

       Suit No. 872 of 1990 was filed on 19.11.1990 by Ajit Singh Gaikwad,  the Respondent No. 8 herein, wherein one additional relief was claimed  which is in the following terms:

"it be decreed and first defendant be directed to  offer and transfer 9415 equity shares with  distinctive numbers mentioned in para 18(a) to the  plaintiff and other remaining members of the first  defendant company in pursuance of the Articles of  Association."

       In  Suit  No.867 of 1990, concededly an order of injunction was  passed on 28.11.1990, as prayed for by the plaintiffs, restraining Indreni  from exercising or enjoying any voting or other rights in respect of the said  9415 equity shares in GIC.   

       A similar order of injunction was passed by Civil Judge, S.D.  Vadodara in Suit No. 867 of 1990 in the suit filed by Mrs. Shubhanginidevi  Gaekwad on 12.12.1990.

       In their replies filed in the suits, the Appellants herein inter alia  contended that a Board Meeting was convened on 13.7.1990 for  reconsidering the transfer of shares to Indreni.  They also sought for legal  opinion in view of the fact that the notice dated 15.11.1989 was not  circulated to the members.  The purported resolution passed in the said  meeting reads as under:

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"Resolved that the transfer of 9415 equity shares in  favour of Indreni Holdings Pvt. Ltd. approved by  the Board on 30.3.90 be reconsidered and that the  matter be referred to Transferors and Transferees.

Resolved further that the legal opinion be sought in  the matter of captioned transfer of 9415 equity  shares of the company in favour of Indreni  Holdings Pvt. Ltd."

       The Respondents herein, however, contend that the said resolution  was a fabricated one as no Board Meeting was held on the said date.  On or  about 20th July, 1990, the Appellant No. 1 issued a letter to the Board of  Directors that if the transfer of shares was found to be irregular, he should be  permitted to remove transfer notice as per articles.  On 9.8.1990, allegedly, a  Board meeting was held and the shares transferred to Indreni were  rescinded.  The Respondents contend that the said plea is by way of an  afterthought inasmuch as dividend had been paid to Indreni and TDS on the   amount of dividend was deposited in State Bank of India after 9.8.1990.

         The said suits are still pending.

       Indisputably, Respondent Nos. 1 and 12 herein took inspection of the  Registers of Members and other documents on 10.12.1996 and the relevant  extracts  were taken and notarised.   

       An Annual General Meeting was allegedly held on 20.12.1990  wherein except for appointment of auditors all other resolutions e.g. seeking  appointment of Directors  in favour of Appellant No. 1, his wife (Appellant  No. 2) and his group were rejected.  In the said meeting the share holdings  said to have been acquired by Indreni i.e. 9415 shares was not taken into  account and the  voting rights of the Appellants were kept confined to 66  shares.  It is also not in dispute that prior to the said meeting, Appellant No.  1 lodged a First Information Report apprehending trouble in the said  meeting.

Respondent No. 1 filed an application under Sections 397 and 398  before the Gujarat High Court on or about 4th March 1991  wherein she  initially prayed for the following reliefs:

(A-i)   Declaration that she is allottee of 8000 equity shares of respondent  No. 6 company. (A-ii) Direction to issue share certificates immediately to her of these 8000  shares. (B)     Declaration that issue and allotment of 3000 shares in excess of 6475  shares to respondent No. 1 (present Appellant No. 1) or nominees of  respondent No. 1 to 5 (present Appellant No. 1 to 5) is null and void  ab-initio. (C)     Declare that she is sole heir of Late F.P.G. and as such she is entitled  to be in majority and control of respondent No. 6 company. (D)     Declare respondent No. 1,2 (present Appellant No. 1&2) 9, 10 and 11  (present Respondent No. 9,10,11) have ceased to be directors in  respondent No. 6 company. (E)     Restrain by injunction respondent No. 1,2 (present Appellant No.  1&2) 9, 10 & 11 (present Respondent No. 9,10,11) from acting as  director, officer of respondent No. 6 company. (F)     Declare any act deed or thing done after A.G.M. of 20-12-1990 by  respondent No. 1,2 (present Appellant No. 1&2)9,10&11(present  Respondent No. 9,10,11) as null and void. (G)     Declarations in regard to resolutions passed at the E.G.M. dated 14-1- 1991.

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(H)     Appointment of receiver. (I)     Pending Admission respondent No. 1 & 2 (present Appellant No. 1 &  2) be directed to produce before this Hon’ble Court or receiver all  documents, papers, etc. (J)     Pending admissions interim injunction against respondent No. 1,2  (present Appellant No. 1&2) 9, 10 & 11 (present Respondent No.  9,10,11) from acting as directors or officers of the company. (K)     Ad-interim relief’s in terms of para H, I & J above.

       However, the said reliefs were subsequently amended and the  following additional reliefs were also prayed for :

"A-1 That this Hon’ble Court be pleased to declare  that all allotments of shares in Respondent No. 6  company made beyond the original paid up capital  consisting of 425 equity shares as existing on 23rd  March 1988 are null and void and illegal and of no  legal effect whatsoever and be pleased to set them  aside;

A-2. In the alternative to prayer \026 A-1 and in any  event, this Hon’ble Court be pleased to declare that  the allotments of 6475 equity shares to Respondent  Nos. 1 to 5 and/or to their nominees or to the  members of their nominee or to the members of  their family is subject to the simultaneous  allotment of 8000 equity shares to petitioner no. 1.   500 equity shares to Smt. Mrunalinidevi Puar, 25  equity shares to Smt. Shubhangini Devi Gaekwad  and that the allotment of any further shares  including the said 3000 shares to Respondent No.  4 and 5 is null and void and illegal and be pleased  to set them aside.

A-3. In the event that this Hon’ble Court holds that  the allotment of 6475 shares to Respondent Nos. 1  to 5 and of 3000 shares to Respondent Nos. 4 and  5 is valid, this Hon’ble Court be pleased to declare  that the said 9475 shares were transferred to M/s.  Indrani Holdings Pvt. Ltd. and shall be offered and  transferred by Respondent No. 6 to the  shareholders holding pro rata on the basis of the  original shareholding of 425 equity shares.

A-4. That this Hon’ble Court be pleased to direct  Respondent No. 6 by an order of mandatory  injunction to forthwith transmit 300 equity share  registered in the name of late Fatehsinhrao  Gaekwad as the then trustee of the Jaysinhrao  Ghorpada Trust in favour of the present trustees.   Petitioner No. 1 and Smt. Mrunalidevi Puar;

A-5. That this Hon’ble Court be pleased to transfer  (1) Special Civil Suit No. 675 of 1990 pending  before the Court of the Civil Judge (Senior  Division) at Baroda, (ii) Special Civil Suit No. 305  of 1990 pending before the Court of the Civil  Judge, Senior Division, at Rajkot (iii) Special Civil  Suit No. 867 of 1990 pending \026 before the Court of  the Civil Judge (Senior Division) Baroda, at  Baroda (iv) Special Civil Suit No. 872 of 1990  pending before the Court of the Civil Judge  (Senior Division) at Baroda and (v) Special Civil  Suit No. 63 of 1991 pending before the Court of  the Civil Judge Senior Division (Surat) at Surat, to

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the file of this Hon’ble Court for hearing and  disposal along with the present company petition;

A-6. In the alternative to prayer A-5, this Hon’ble  Court be pleased to stay all interim or ad interim  orders passed in the suits mentioned in prayer A-5  above;"

       Sections 397-398 of the Companies Act were amended in 1990 in  terms whereof the jurisdiction of the High Court in that behalf vested in the  Company Law Board pursuant whereto the Respondent No. 12 herein filed a  purported application under the said provisions before the Company Law  Board, Special Bench, New Delhi which was marked as Company Petition  No. 7 of 1992 on the ground of alleged continued mis-management of the  Company and oppression. Allegedly, with a view to avoid simultaneous  proceeding before two forums Respondent No. 1 herein sought permission  before the Gujarat High Court to withdraw the proceedings being C.P. No.  50 of 1991 but the said request was opposed by the Appellants herein and   was ultimately rejected by the High Court by an order dated 21.4.1992.  An  appeal thereagainst was preferred before the Division Bench which was  marked as 22 of 1992.  The Appellants, on the other hand, sought stay of the  proceedings before the Company Law Board whereupon an order was  passed appointing Mr. Justice C.T. Dighe as an independent Chairman.  Mr.  Ranjitsinh Gaekwad, Respondent No. 4 herein was also appointed as a  Director of GIC and the proceedings were stayed.  Against the said order an  appeal was preferred by Respondent No. 12 herein before a Division Bench  of the Gujarat High Court which was marked as Appeal No. 20 of 1992  wherein the following interim order was passed:

"Rule Returnable on 19.1.1993. Ad-interim  injunction restraining the company from raising its  share capital, confirmed or undertake sale or  purchase and/ or mortgage fixed assets/  investments of the Company by way of its shares  in its holding or subsidiary company, start new  businesses and decide the matters relating to policy  decisions of material bearing, without placing the  agenda to that effect before the Board of Directors  and without holding a meeting presided over by an  independent Chairman appointed by the Company  Law Board by its order dated 28th September,  1992."

       A question as regard the efficacy of simultaneous proceedings, one   before the High Court and another before the Company Law Board arose for  consideration and by an order 9.3.1993 the Division Bench directed that in  view of the nature of controversy  it would be in the interest of the parties if  the matter was finally heard and disposed of.  The Appellants herein  allegedly took a stand that if the said petition under Section 397 was heard  on merits and disposed of expeditiously they would have no objection to the  matter being heard either before the Company Law Board or before the  learned Company Judge.  Upon obtaining liberty from the Division Bench,  the matter was mentioned before the learned Company Judge enquiring as to  whether it can be disposed of expeditiously whereupon a schedule of hearing  was worked out.  Respondent Nos. 12 and 13 herein were also added as   parties in the said proceedings.  The affidavits filed by the parties in all the  proceedings were permitted to be brought on records and they  were further  permitted to file replies and/ or rejoinders thereto.   

       The learned Company Judge disposed of the matters on the basis of  said affidavits.

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JUDGMENT OF THE SINGLE JUDGE:         N.J. Pandya, J. by reason of his judgment dated 17.12.1994 dismissed  the said Company Petition opining:

(i)     Allotment of 6475 shares having been admitted, no dispute could be  raised as regard thereto.  Further allotment of 3000 shares was in terms of  the resolution adopted by the Board Meeting which was preceded by the  offer of shares to others.  Such allotment was made in terms of the decision  of the Managing Committee which was authorized therefor by the Board of  Directors.  No time was specified for the Managing Committee to take  appropriate decision in that regard.  FRG renounced his shares  and 3000  shares out of 8000 shares which were to be allotted to the appellants was  also valid.   

(ii)    As regard the transfer of 9415 shares by the Appellants in favour of  Indreni lifting the corporate veil thereof, the learned Judge held that the  shareholders of Indreni being  the Appellants only; any transfer made in its  favour did not affect the company.  Assuming such transfer was bad in law,  the voting rights in relation thereto continued to remain vested with the  transferors.

(iii)   In a petition under Sections 397 and 398 of the Companies Act, the  Court is concerned with the question as to whether the control of the  company slipped from one party to the other and as the Appellants, in any  event, continued to form majority and, thus, any transfer made in favour of  Indreni did not amount to oppression.   

(iv)    Shifting of registered office from Baroda to Bombay although was  questionable, no relief was granted on the ground that the same would  amount to putting the clock back and would invalidate the entire AGM and  subsequent events which would not be in public interest and furthermore   would result in unnecessary expenditure to the parties.

(v)     Shantadevi did not have a right to 8000 shares by inheritance.  An  adhoc allotment of shares was merely an invitation which did not culminate  in a right and, thus, no case could have been built thereupon.  

(vi)     On the question of mismanagement, it was opined "there was hardly  any mismanagement and only an apprehension that the change in control  may amount to mismanagement" would not be acts of mismanagement.   

       Three appeals were filed against the said judgment before the Division  Bench of the said High Court which came to be allowed by reason of the  impugned judgment.

JUDGMENT OF THE DIVISION BENCH         The Division Bench, on the other hand, held that the allotment of   both 6475 and 3000 shares was invalid.  As far as 6475 shares are  concerned, it was held that the allotment was solely motivated by self- interest and the minutes confirming such allotment were not acceptable.  As  far as 3000 shares are concerned, the Division Bench did not accept the  authenticity of the  letter by the Company Secretary of FRG renouncing the  shares.  Transfer of 9415 shares to Indreni was held to be invalid as no  transfer notice was given to the company as required in terms of Article 8 of  the Articles of Association.  As the transfer was duly recorded, to undo any  such transfer, a resolution by the Board of Directors of Indreni would be  required.  In the absence of any such resolution  the transfer being complete,  only Indreni could have transferred the shares back to the Appellants.     

       The Division Bench further held that there was a breach of fiduciary  duty on the part of the Appellant No.1.  It opined that the  relief that may be  granted by the Courts is equitable though originating from a statutory  provision. Since the actions of the respondents were designed to wrest

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control of the company by improper means, the minority shareholders could  approach the courts for relief which may be granted by the courts.

RELIEFS :   The reliefs granted to the Respondents by the Division Bench are as  under :  

"1. It is hereby declared and ordered that all the  allotments of shares from the additional share  capital increased pursuant to the resolution of the  Extra-ordinary General Meeting held on  17.12.1987 and the resolution of the Board of  Directors dated 8.1.1988 and the decisions for such  allotments, of the Managing Committee be treated  as invalid and ineffective for all purposes and the  shareholdings of all the members of the respondent  No. 6 company hereby stand restored to the  original 425 shares held by the members ignoring  such subsequent allotments.  The Register of  members and other records of the company will  stand rectified accordingly.

2. The Registered Office of the respondent No. 6  company is hereby declared to be continuing at the  same place i.e. "Indumati Mahal" at Baroda,  irrespective of the resolution to shift it to Surat and  the respondent Nos. 1 and 2 are directed to  forthwith restore the entire record of the company  to its Registered Office at Baroda.

3. All the Directors or purported Directors of the  respondent No. 6 company stand removed  forthwith.  They will from today, not deal with the  affairs of the company in any manner.

4. An Extra-ordinary General Meeting of the  shareholders of the company will be convened on  14th October, 2000 at 11.00 A.M. at the Registered  Office of the Company at Baroda, for appointing  Directors of the Company on the basis of the  existing share-holding of 425 shares of the  members of the company, in accordance with the  Article of Association.

5. The aforesaid meeting scheduled to be held on  14th October, 2000 will be conducted under the  Chairmanship of the Additional Registrar of the  High Court Shri V.B. Gandhi.  All the share- holders of 425 shares including the petitioner No.  1 as the sole hair of the deceased Shrimant  Fathesinhrao P. Gaekwad in respect of the shares  which stood in his name in the register of the  members of the company at the time of his demise  out of the said 425 shares in respect of which he  had voting rights, will be entitled to vote by  themselves or through their proxies at the said  meeting for appointing the Directors of the  Company.  No outsider will be allowed to remain  present at the meeting except the Additional  Registrar who will Chair and conduct the meeting  with his official assistants.  The Additional  Registrar will be assisted by a Section Officer of  the High Court of his choice in the said work.

6. All the share-holders who are parties to the

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present proceedings are hereby put to notice about  the date of the said Extra-ordinary General  Meeting to be held on 14.10.2000 at 11.00 AM at  the Registered Office of the respondent No. 6  company at "Indumati Mahal", Baroda.  The  Additional Registrar will, however, get published  the notice of the meeting in one English daily and  one Gujarati daily having circulation in the area.   The Additional Registrar will also immediately  issue individual notices of the said meeting to the  share-holders.  The Additional Registrar is  authorized to seek assistance for conducting the  meeting from all or any of the parties to these  proceedings and/ or the officials of the company  who shall be bound to assist him in that regard.   No adjournment motion will be entertained at the  said meeting.

7. The Additional Registrar will on completion of  the said meeting, prepare and sign the minutes of  the meeting recording its outcome and declare in  writing the names of persons who are appointed by  the share-holders as the Directors of the  respondent No. 6 company at the said meeting, and  thereupon such directors shall assume the  management of the company on such declaration  being made.

8. The remuneration of the Additional Registrar is  fixed at Rs. 10,000/- and the remuneration of the  Section Officer will be Rs. 3,000/- for the said  purpose.  The respondent No. 6 is permitted to  withdraw the said amount and also a further  amount towards the expenses for publishing notice  etc. totaling Rs. 30,000/- from its Banks for the  purpose of depositing it in the registry.  The  learned Counsel for the respondent No. 6 company  states that the respondent No. 6 will deposit the  amount of Rs. 30,000/- in the Registry of this  Court within 15 days.

9. The learned Counsel for the respondent No. 6  Company has agreed to supply the names and  present addresses of all the share-holders of the  425 shares of the Company, to the Additional  Registrar on or before 19th August, 2000."

SUBMISSIONS ON BEHALF OF THE APPELLANTS:         Submissions were made on behalf of the Appellants by Mr. Harish  Salve, learned senior counsel and Mr. Kailash Jethmalani.  In assailing the  judgment of the Division Bench, the learned counsel  at the outset would  draw our attention to the fact that the concerned companies were family  companies, having been floated by FRG and the affairs of several of them  were being managed by his brothers and sisters.  Appellant No. 1 had been  put incharge of the BRC and GIC for a long time.  It was urged that no  dispute was ever raised as regard the decision of the Board of Directors to  broad-base the company by floating 25000 shares out of which 15000 shares  were to be allotted at the first instance.  The pattern of share allotment  pursuant to or in furtherance of the decision of the Board of Directors i.e.  8000 shares were allotted to FRG and 6475 shares were allotted to the  Appellants stood admitted.  It was urged that the Division Bench of the High  Court committed a manifest error insofar as it failed to take into  consideration the admission of Respondent No. 1 and Respondent No. 12  herein that 6475 shares were allotted pursuant to the Resolution of the Board

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during the life time of FRG.  Such allotment was in fact admitted in the  company petition filed by the Respondent No. 1.  The learned counsel would  contend that only at a later stage when the Respondent No. 12 herein filed a  company petition before the Company Law Board, Delhi a challenge as  regards  allotment of 6475 shares was also made.  In the Company Petition  although the reliefs were later on amended, pleadings were not.  On a fair  and reasonable reading of the pleadings, it was submitted that only inference  that can be drawn was that the subject matter of challenge centered round the  allotment  of 3000 shares only and transfer of their shares by the Appellants  to Indreni on the premise that it being an outsider it was impermissible in  terms of the relevant provisions of the Articles of Association.

       Mr. Salve would argue that as the Appellants had acquired 6475  additional shares, there was indisputably no question of their abusing any  position to take over the company as they had all along been incharge  thereof.   

       Respondent Nos. 1 and 12, Mr. Salve would contend, having taken  inspection of the documents on 10.12.1990 and company petition having  been filed on 4.3.1991 as well as the relevant documents having been  annexed thereto would clearly demonstrate that reliance thereupon had been  placed by the Respondent No. 1 herein and, thus, on the admitted fact, the  Division Bench committed a manifest error in issuing the impugned  directions insofar as it failed to take into consideration that the company was  a family concern in respect whereof a completely different standard should  be applied.  In this case, it has not been found that the Respondents had been  thrown out of the Management or they were deprived of  the shares of BRC.   It was contended that the company was not in active business and had held  only some shares in Alaukik and BRC.  Furthermore, there was no lack of  probity or acts of misfeasance of company property on the part of the  Appellants. The composition of the parties would not change even if  allotment of 3000 shares as also the transfer of Indreni are held to be invalid  inasmuch as by reason of the shareholding pattern the Appellants would  continue to be in the majority.  The learned counsel would contend that the  dispute arose only after Mrs. Puar transferred 1500 shares of Alaukik to  herself  and by reason thereof the mother and daughter intended to take over  Alaukik and consequently BRC.  Only as a face saving measure, Respondent  No. 1 claimed 8000 shares which were allotted to FRG on 29.11.1990 and  not prior thereto.  It was pointed out that Respondent No. 1 applied for  succession certificate on 28.11.1989 wherein she disclosed the assets of  FRG but except 22 shares in GIC she did not lay claim on any other share of  GIC,  far less 8000 shares.  Before filing their respective company petitions  both Respondent Nos. 1 and 12 were aware about the entire state of affairs  and their purported ignorance about the internal affairs of the company is not  borne out of records.  In this connection, our attention has been drawn to  paragraphs 7 and 8 of the statements made in the company petition by the  Respondent No. 1.  It was pointed out that identical statements were made   by the Respondent no.12 in her Company Petition before the Company Law  Board., Delhi.

         Even therein no allegation as regard fabrication of document or any  aggrandizement on the part of the Appellant was raised.  Respondent Nos. 1  and 12, it was urged, prevaricated their stand from time to time and as such  their plea should not have been accepted by the Division Bench.

SUBMISSIONS ON BEHALF OF THE RESPONDENTS                  Mr. Ashok Desai and Mr. P.V. Kapoor, learned senior counsel  appearing on behalf of Respondent Nos. 1 and 12  respectively, on the other  hand, would submit:

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(i)     Appellant No. 1 being in fiduciary position  as the Director of GIC as  also a family member was required to act in utmost good faith, make full and  honest disclosure to other shareholders and thus he could not have made any  profit by allotting shares to himself and his family members directly or  indirectly and was furthermore required to inform the shareholders as regard   the benefits arising therefrom so that they could participate therein.  Such a  fiduciary position remains,  despite non-applicability of Section 81 of the  Company Act.

(ii)    Appellant No. 1 in breach of said fiduciary duty aggrandized himself  by transforming himself from a miniscule minority of 1.86% to 86% and  failed to explain as to how he got such advantages to the detriment of other  shareholders.  The explanations offered by him as regard allotment of shares  are wholly inconsistent and contradictory as conflicting versions had been  set out which do not clearly and cogently explain as to how the different  shares were (a) decided to be issued, (b)offered for subscription, (c) allotted  to Appellant No. 1 and (d) allotted to non-members.  Transfer to Indreni was  a device to put the shares beyond the reach of the original shareholders and  the said company actually received the benefits thereof by getting dividends.

(iii)   It is true that Respondents came out with a different case but that was  because of the fact that they had no knowledge about the complete affairs of  the company to start with having regard to the fact that the Appellants were  in control of the relevant documents.  The total constellation of the  circumstances would show that the Appellant No. 1 had aggrandized himself  and his conduct had led to oppression of other members.

(iv)    The power of the company court under Sections 397 and 398 being of  widest amplitude the reliefs granted by the Division Bench were permissible  in law.   

(v)    Each share of GIC was a valuable one keeping in view of the share  price of BRC, Alaukik and other properties possessed by it.  The value of  each share of GIC which was floated at the rate of Rs. 100 would have been  worth more  than Rs. 900 and furthermore by investing nine lakhs, the  Appellants received more than 30 lakhs of rupees  by way of dividend.   

(vi)    As BRC had declared dividend and was a profit making company;   there was no need to broad-base company.    The burden to prove bonafide  was on the Appellants.  

REPLY:         Mr. Salve in reply would inter alia contend that the question of  aggrandizement had neither been pleaded nor proved.  The learned counsel  furthermore urge that there was no factual foundation as regard the  allegation of fraud or self-aggrandizement.  He would contend that a  distinction has to be borne in mind as regard fiduciary relationship with the  company and with the shareholder.   

POINTS  FOR CONSIDERATION: (i)     Whether the Appellant No. 1 in his capacity as Director of the  Company had a fiduciary duty towards the shareholders. (ii)    Whether there has been a valid decision to broad-base the company by  issuing additional shares. (iii)   Whether the allotment of 6475 shares and 3000 shares in favour of the  Appellants herein was valid in law. (iv)    Whether the Respondent No. 1 herein could claim title in respect of  8000 shares in the petition filed under Sections 397 and 398 of the  Companies Act. (v)     Whether transfer of 9415 shares in favour of Indreni by the Appellants  was valid and if not the effect thereof. (vi)    Whether the issue of oppression and/ or mis-management on the part  of the Appellant No. 1 herein in running the affairs of the Company towards  the Respondent Nos. 1 and 12 have been proved.

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FIDUCIARY DUTY:  Chapter IX of the Indian Trusts Act provides for certain obligations  in the nature of trusts.  The Trust Act recognizes various kinds of trusts  including resulting trust.  An express trust, however, may be created by  reason of an agreement between the parties.  [See Barclays Bank Vs.  Quistclose Investments [1970] AC 567]

By reason of Section 88 of the Indian Trusts Act, a person  bound in  fiduciary character is required to protect the interests of other persons but the  heart and soul thereof is that  as between two persons one is bound to protect  the interests of the other and if the former availing of that relationship makes  a pecuniary gain for himself; Section 88 would be attracted.   What is sought  to be prevented by a person holding such fiduciary benefit is unjust  enrichment or unjust benefit derived from another which is against  conscience that he should keep.  When a person makes a pecuniary gain by  reason of a transaction, the cestui qui trust created thereunder must be  restored back.

        The purported breach of trust on the part of Appellant No. 1 herein  relate to :

(i)     Issuance of additional 15000 shares; (ii)    Allotment of 6475 shares to himself and his family members as also  an HUF; and (iii)   Allotment of 3000 shares out of 8000 shares which had been  allotted  to FRG in favour of his minor children. (iv)    Transfer of 9415 shares in favour of Indreni.

       Issuance of equity based capital shares under the Companies Act in  relation to a private company would be governed by its Memorandum of  Association and Articles of Association.  It has not been pointed out that in  terms of Memorandum of Association the Board of Directors acted ultra  vires in adopting a resolution as regard issuance of 25000 capital shares; out  of which 15000 shares were to be issued at the first instance.  Section 81 of  the Companies Act indisputably has no application in relation to a private  company, the pre-requisite thereof is, thus, not attracted in the instant case.   Appellant No. 1, therefore, apart from Section 88 of the Indian Trusts Act in  the event of its applicability did not have any statutory obligation to  discharge as a trustee in this behalf.

       A Director of a Company indisputably stands in a fiduciary capacity  vis-‘-vis the Company.  He must act for the paramount interest of the  company.  He does not have any statutory duty to perform so far as  individual shareholders are concerned subject of course to any special  arrangement which may be entered into or a special circumstance that may  arise in a particular case.  Each case, thus, is required to be considered  having regard to the fact situation obtaining therein and having regard to the  existence of any special arrangement or special circumstance.   

       The question came up for consideration as far back in 1901 in Percival  Vs. Wright [1902 (2) Ch. 421].  In that case, the shares of the company were  in few hands which were transferable only with the approval of the Board of  Directors.  The shares did not carry any market price and were not to be  quoted at the stock exchange.  The plaintiffs therein intended to dispose of  certain shares wherefor they offered 12 l.5s. per share purported to be based  on a valuation which they had obtained from independent valuers a few  months prior thereto.  The said offer was accepted.  The transaction  pertaining to the said agreement was entered into but it was later on  discovered by the plaintiffs that prior to and during their own negotiations

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for sale the Chairman and the Board were approached by one Holden with a  view to the purchase the entire undertaking of the company with a view to  resell the same at a profit to a new company.  The question of fiduciary  obligation on the part of the Directors arose therein when the plaintiff  brought an action against the Chairman and the two other purchasing  Directors asking for setting aside the sale  on the ground that the defendants  as Directors ought to have disclosed the feature of negotiations with Holden  when negotiating purchase of their  shares.     The question therein posed  was: Assuming that directors are, in a sense, trustees for the company, are  they trustees for individual shareholders?      The Chancery Division despite  holding that the Directors must act bonafide and for the best interest of the  company did not accept the argument that the relationship between the  shareholders inter se are the same as that of partners in an unincorporated  company holding  :  

"\005The contrary view would place directors in a  most invidious position, as they could not buy or  sell shares without disclosing negotiations, a  premature disclosure of which might well be  against the best interests of the company.  I am of  the opinion that directors are not in that position.

       There is no question of unfair dealing in this  case.  The directors did not approach the  shareholders with the view of obtaining their  shares.  The shareholders approached the directors,  and named the price at which they were desirous  of selling."

       Percival (supra) was noticed by a 4-Judge Bench of this Court in  Nanalal Zaver and Another Vs. Bombay Life Assurance Co. Ltd. and Others  [1950 SCR 391] in the following terms:

"\005It is clear that until the Singhania group get  their names entered in the register of the members  they are not shareholders but are complete  strangers to the company. It has been held in  Percival v. Wright [L.R. (1902) 2 Ch. 421] that  ordinarily the directors are not trustees for the  individual shareholders. Even if the directors owe  some duty to the existing shareholders on the  footing of there being some fiduciary relationship  between them as stated in some cases [see for  example In re Gresham Life Assurance Society]  [L.R. 8 Ch. App. 446 at p. 449] I see no cogent  reason for extending this principle and imputing  any kind of fiduciary relationship between the  directors and persons who are complete strangers  to the company. In my judgment, therefore, the  conduct of the respondents 2 to 9 cannot be judged  on the basis of any assumed fiduciary relationship  existing between them and the Singhania group. In  my opinion, the respondents 2 to 9 owed no duty  to the Singhania group and, therefore, the motive  to exclude them cannot be said to be mala fide per  se."

       The Court further held that having regard to Regulation 42 read with  Section 105-C of 1936 Companies Act vis-‘-vis Regulation 27 of 1882 Act,  the directors exercise a larger power to issue additional capital shares.

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       It is true that while referring to ’Percival’, the court used the  expression ’ordinarily’, but if a special situation arises, it would be for the  person complaining to plead and demonstrate the same.   

       We, however, do not intend to put our seal of approval on Percival  (supra) in its entirety.  The situation may be different when a special  contract, special relationship or special circumstances arise.  Percival (supra)  may not also be applicable in a case of take over bid (Gelting vs. Kilner,  1972 (1) All ER 1166) or when the general body of shareholders is only two  of them (Glavanies vs. Brurning hausen (1996) 19 ACSR 204)        

       In Palmer’s Company Law, 23rd edition, page 848, it is stated:

"64-02. Relationship is with company: The  fiduciary relationship of a director exists with the  company: the director is not usually a trustee for  individual shareholders.  Thus, a director may  accept a shareholder’s offer to sell shares in the  company although he may have information which  is not available to that other, and the contract  cannot be upset even if the director knew of some  fact which made the offer an attractive proposition.   So in Percival v. Wright a person who had  approached a director and sold him shares in the  company, afterwards, upon discovering that the  director had known at the time of the contract that  negotiations were on foot for the purchage by an  outsider of all the shares in the company at a  higher figure, could not impeach the contract.  In  his judgment Swinfen-Eady J. said "there is no  question of unfair dealing in this case.  The  directors did not approach the shareholders with  the view of obtaining their shares.  The  shareholders approached the directors and named  the price at which they were desirous of selling."

        In Pennington’s Company Law 6th Edn. at page 608-09, it is stated :

"Directors owe no fiduciary or other duties to  individual members of their company in directing  and managing the company’s affairs, acquiring or  disposing of assets on the company’s behalf,  entering into transactions on its behalf, or in  recommending the adoption by members of  proposals made to them collectively.  If directors  mis-manage the company’s affairs, they incur  liability to pay damages or compensation to the  company or to make restitution to it, but individual  members cannot recover compensation for the loss  they have respectively suffered by the  consequential fall in value of their shares, and they  cannot achieve this indirectly by suing the  directors for conspiracy to breach the duties which  they owed the company.  However, there may be  certain situations where directors do owe a  fiduciary duty and a duty to exercise reasonable  skill and care in advising members in connection  with a transaction or situation which involves the  company or its business undertaking and also the  individual holdings of its members."

       In Dawson International plc vs. Coats Patons plc [1988 SLT 854]

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Percival (supra) was relied upon holding that the Directors are, in general,  under no fiduciary duty to shareholders and in particular current  shareholders with respect to the disposal of their shares in the most  advantageous way as directors are not their agents and as such are not  normally entrusted with the management of their shares.  It was, however,  observed that if the directors take it upon themselves to give advice to  current shareholders they have a duty to act in good faith and not  fraudulently nor can mislead the shareholders whether deliberately or  carelessly, in which event, they may have a remedy.                  A distinction, thus, has been carved out as regards the fiduciary duty  of the directors with regard to the property and funds of the company as  contra-distinguished from the duty of directors to current shareholders as  sellers of their shares.  In case of conflict between two interests, the  company’s interest must be protected.  The directors, however, will have a  fiduciary relation if they have taken unto themselves the burden of giving  advice to current shareholders.   

       The aforementioned principles of law found favour with the Court in  Needle Industries (India) Ltd. and Others Vs. Needle Industries Newey  (India) Holding Ltd. and Others [(1981) 3 SCC 333] wherein it was held:

"Where directors of a company seek, by entering  into an agreement to issue new shares, to prevent a  majority shareholder from exercising control of the  company, they will not be held to have failed in fiduciary  duty to the company if they act in good faith in what they  believe, on reasonable grounds, to be the interests of the  company.  If the directors’ primary purpose is to act in  the interests of the company, they are acting in good faith  even though they also benefit as  a result."  

       In Needle (supra), this Court furthermore noticed Punt vs. Symons  [(1903) 2 CH 506] and opined in the following terms :

"105. In Punt v. Symons ((1903) 2 Ch 506 : 72 LJ  Ch 768 : 89 LT 525 : 52 WR 41), which applied  the principle of Fraser v. Whalley (71 ER 361 : 11  LT 175), it was held that :  Where shares had been issued by the Directors, not  for the general benefit of the company, but for the  purpose of controlling the holders of the greater  number of shares by obtaining a majority of voting  power, they ought to be restrained from holding  the meeting at which the votes of the new  shareholders were to have been used.  But Byrne, J. stated :  There may be occasions when Directors may fairly  and properly issue shares in the case of a company  constituted like the present for other reasons. For  instance it would not be at all an unreasonable  thing to create a sufficient number of shareholders  to enable statutory powers to be exercised.  106. Peterson, J. applied the principle enunciated  in Fraser (71 ER 361 : 11 LT 175) and in Punt  (((1903) 2 Ch 506 : 72 LJ Ch 768 : 89 LT 525 : 52  WR 41) in the case of Piercy v. S. Mills &  Company Ltd. ((1920) 1 Chancery 77 : (1918-19)  All ER Rep 313 (Ch D) : 122 LT 20 : 35 TLR  703). The learned Judge observed at page 84 :  "The basis of both cases is, as I understand, that  Directors are not entitled to use their powers of  issuing shares merely for the purpose of

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maintaining their control or the control of  themselves and their friends over the affairs of the  company, or merely for the purpose of defeating  the wishes of the existing majority of  shareholders\005 \005What is considered objectionable is the use of  such powers merely for an extraneous purpose like  maintenance or acquisition of control over the  affairs of the Company. .."        

       In Needle Industries (supra), Nanalal Zaver (supra) was affirmed  stating the sole test is whether the issue of shares is simply or solely for the  benefit of the Directors holding:

"If the shares are issued in the larger interest of the  company, the decision to issue shares cannot be  struck down on the ground that it has incidentally  benefited the Directors in their capacity as  shareholders."

       Fiduciary duty of the Directors to the company should not be equated  with the duty to the shareholders.

       In Peskin and Another Vs. Anderson and Others [2001] 1 BCLC 372,  Percival (supra) as also other decisions taking similar or contrary view were  noticed by the Court of Appeal including the judgment of the Court of  Appeal in New Zealand in Coleman vs. Myers as also Court of Appeal of  New South Wales in Brunninghausen vs. Glavnics (1999) 46 NSWLR  and  held that the directors had no fiduciary duty to the shareholders in the facts  and circumstances obtaining therein.    However, observations were made  therein that such duties may arise in special circumstances demonostrating  the salient features and well-established categories of fiduciary relationship  such as agency which involves duties of trust, confidence and loyalty.              Absence of special circumstances or special reasons as pointed out  hereinbefore normally would not bring in the concept of fiduciary  relationship in a director vis-‘-vis the current shareholders.  However, in  Coleman (supra) and Brunninghausen (supra) it was held that the fiduciary  duties of directors to the shareholders exist in the specially strong context of  the familial relationships having regard to their personal position of  influence in the company concerned.

       We may at this stage consider the case laws replied upon by Mr.  Desai.

M/s. Dale & Carrington Invt. P. Ltd. & Anr. Vs. P.K. Prathapan &  Ors. [2004 (7) SCALE 586] requires a closer scrutiny.  

       In that case one P.K. Prathapan (Prathapan), an NRI through his  mother induced Ramanujam to promote a company by making initial  investment of Rs. 5 lakhs in shares.  Prathapan, the principal shareholder of  the Company came to know that the Board of Directors in its meeting held  on 24th October, 1994 and chaired by Ramanujam, adopted a resolution on  the premise that a sum of Rs. 6,86,500/- stood to the credit of said  Ramanujam and in lieu thereof equity shares of Rs. 100/- each would be  allotted in his favour.  Prathapan was not intimated about the said meeting.   By reason of the said act, Prathapan who was a majority shareholder in the  Company was reduced to a minority.  The case of Prathapan was that  Ramanujam did not contribute any money from his own resources for the  purpose of starting the company and he all along drew a handsome salary for  working as  Managing Director thereof.  The charge of oppression and

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mismanagement against Ramanujam by Prathapan before the Company Law  Board succeeded.  However, the only relief which Prathapan obtained was a  direction upon him to sell his shares to Ramanujam which was questioned  by him.  This Court held that the directors act on behalf of a company in a  fiduciary capacity and their acts and duties are to be exercised for the benefit  of the company.  It, however, while analyzing the acts of a director as an  agent of the company observed that in a limited sense they are also trustees  for the shareholders of the company.  However, without discussing the  limitations of such fiduciary relationship, it was observed:

"15\005 The fiduciary capacity within which the  Directors have to act enjoins upon them a duty to  act on behalf of a company with utmost good faith,  utmost care and skill and due diligence and in the  interest of the company they represent. They have  a duty to make full and honest disclosure to the  shareholders regarding all important matters  relating to the company. It follows that in the  matter of issue of additional shares, the directors  owe a fiduciary duty to issue shares for a proper  purpose. This duty is owed by them to the  shareholders of the company. Therefore, even  though Section 81 of the Companies Act which  contains 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. This  requirement flows from their duty to act in good  faith and make full disclosure to the shareholders  regarding affairs of a company. The acts of  directors in a private limited company are required  to be tested on a much finer scale in order to rule  out any misuse of power for personal gains or  ulterior motives."                                                           Evidently, therefore, the ratio which emerges  from the decision is that  the duty to disclose as regard issue of additional shares is relatable to proper  purpose thereof.  If the purpose is proper and the action of the director is  bonafide, the ratio should  not be extended so as to hold that such a duty of  the director towards the shareholder is absolute despite the fact that there is  no legal requirement therefor.  Duty of disclosure to shareholders in that  case had a strong nexus with the affairs of the company.  Dale & Carrington  (supra) is not an authority for the proposition that the purported fiduciary  duty of a director towards the shareholder is absolute although the  transaction in question may not have a direct co-relationship with the affairs  of the company.     

         Moreover, the Bench did not have the advantage of considering the 4- Judge Bench decision of this Court in Nanalal Zaver (supra).  It furthermore  did not have the advantage of noticing the decisions of other jurisdictions  which had been noticed hereinbefore.   

       The Court, it is interesting to note, noticed Needle Industries (supra)  as regards the power of the company to issue new shares but the legal effect  thereof was not considered in details.  The directors have a power to issue  additional capital shares and in the process may obtain some pecuniary gain  but only when such pecuniary gain is obtained through ulterior motive, they  would be answerable to the shareholders.

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       It is also interesting to note that while applying the ’extraneous  purpose test’ or ’ulterior motive test’, the Court noticed Piercy Vs. S. Mills  & Co. Ltd. (1920) 1 Ch. 77 wherein it was held: "The basis of both cases is, as I understand, that  Directors are not entitled to use their powers of  issuing shares merely for the purpose of  maintaining their control or the control of  themselves and their friends over the affairs of the  company, or merely for the purpose of defeating  the wishes of the existing majority of  shareholders."

       The expression ’merely’ assumes significance.  

       Significantly, in Needle Industries (supra) it was categorically held  that the Directors have power to issue shares at par even if their market price  is higher being primarily a matter of policy. (See para 120)

       ’Proper purpose’ doctrine and the doctrine of ’fairness’ vis-‘-vis the  doctrine of ’bona fide’ was considered in view of its findings that the  allotment of all additional shares was gained by Ramanujam through  manipulations and commission of acts of frauds upon becoming the  Managing Director of the Company with a view to gain sole control of the  management thereof and to the exclusion of Prathapan.

       The ratio in Dale and Carrington (supra), thus, must be understood to  have been rendered in the fact situation obtaining in that case.  It does not  lay down a law that fiduciary duty of a director to the company  extends to a  shareholder so as to entitle him to be informed of  all the important decisions  taken by the Board of Directors.   Such a broad proposition of law, if  understood to have been laid down in Dale and Carrington, would be  inconsistent with the duty of a director vis-‘-vis the Company and the settled  law that the statutory duty of a direction is primarily to look after the interest  of the company.   

       In Bajaj Auto Ltd. Vs. N.K. Firodia and Another etc. [(1970) 2 SCC  550], the Court was concerned with the discretionary exercise of power by  the Directors in terms of Section 111(3) of the Companies Act.  In the light  of refusal by director to register a transfer, the Court held that it is necessary  for the directors to act bonafide and not arbitrarily in the following terms:

"12. Article 52 of the appellant company provided  that the Directors might at their absolute and  uncontrolled discretion decline to register any  transfer of shares. Discretion does not mean a bare  affirmation or negation of a proposal. Discretion  implies just and proper consideration of the  proposal in the facts and circumstances of the case.  In the exercise of that discretion the Directors will  Act for the paramount interest of the company and  for the general interest of the shareholders because  the Directors are in a fiduciary position both  towards the company and towards every  shareholder. The Directors are therefore required  to act bona fide and not arbitrarily and not for any  collateral motive."                                                 (emphasis supplied)

       This Court therein also applied the bona fide test of the Director and  for the benefit of the company as a whole.  In that case, the directors  assigned reasons which were tested from three angles view, viz., (i) whether  the directors acted in the interest of the company; (ii), whether they acted on

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a wrong principle; and, (iii) whether they acted with an oblique motive or for  a collateral purpose.  It was observed in M/s. Harinagar Sugar Mills Ltd. Vs.  Shyam Sunder Jhunjhunwala & Others [(1962) 2 SCR 339] that the action of  the directors must be set aside if the same was done oppressively,  capriciously, corruptly or in some other way malafide.  In this case, this  Court is not faced with such a situation.   

       In Coleman and Others Vs. Myers and Others [(1977) 2 NZLR 225]  the gist of the complaint made by the appellants against the first respondent  was that he planned to acquire total control of the company at virtually no  cost to himself by means of selling the Strand-Coburg and other properties  of the company and making use of its liquid capital reserves; that his inside  knowledge of the company’s affairs and the advice he obtained showed him  that there were good prospects of accomplishing this, leaving him sole  owner of an unencumbered asset worth some millions; and that he not only  refrained from disclosing to the shareholders generally his plan and the  magnitude of his potential gain, but also made misrepresentations tending to  conceal the plan.

        In the aforementioned factual backdrop while holding that mere status  of a company director would not create any responsibility towards a  shareholder but it was observed that the standard of conduct required from a  Director in relation to dealings with them will depend upon all the  surrounding circumstances and the nature of responsibility which in a real  and practical sense he has assumed.

       In Pennington’s Company Law, at page 609, on Coleman (supra), it is  commented:

"It is uncertain whether this reasoning can be  extended to other situations where directors owe  duties to the company but the relevant decision has  to be made by its members individually or  collectively, and the directors advise them as to the  decision they should make.  Such situations would  include a proposed sale or disposal of the  company’s assets and undertaking, a proposed  merger or division of the company, a proposed  reorganization of the company’s share capital  affecting existing members and a proposal for the  voluntary liquidation of the company."

       No law in absolute terms, thus, had been laid down therein.  In the  instant case, there had been no transaction of sale and purchase of shares  between the director and the shareholder.

The said decisions, therefore, have no application in the instant case.   In a way it instead of supporting the contention of Mr. Desai,  counters his  views.           It is interesting to note that in Needle Industries (supra), this Court  said even in certain cases the Directors attempt to maintain their control over  the company or in newly acquiring may not amount to abuse of their  fiduciary power stating:

"Applying this principle, it seems to us difficult to  hold that by the issue of rights shares the Directors  of NIIL interfered in any manner with the legal  rights of the majority. The majority had to  disinvest or else to submit to the issue of rights  shares in order to comply with the statutory  requirements of FERA and the Reserve Bank’s  directives. Having chosen not to disinvest, an

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option which was open to them, they did not any  longer possess the legal rights to insist that the  Directors shall not issue the rights shares. What the  Directors did was clearly in the larger interests of  the Company and in obedience to their duty to  comply with the law of the land. The fact that  while discharging that duty they incidentally  trenched upon the interests of the majority cannot  invalidate their action. The conversion of the  existing majority into a minority was a  consequence of what the Directors were obliged  lawfully to do. Such conversion was not the  motive force of their action."

       No argument in this case was advanced as regard the purported breach  of fiduciary duty on the part of the Appellant No. 1 in the matter of increase  of shares during the life time of FRG before the learned Single Judge; on the  other hand it was admitted that FRG during his life time was controlling the  company, and, thus, the Appellants herein in no way can be held to have any  fiduciary liability towards other shareholders in respect of issuance of 6475  shares in their favour.

       Directors may have a fiduciary duty where a take over bid is made for  a company and its directors advise its shareholders whether to accept or  reject the bid as they owe a duty to advice honestly.  The standard of  conduct expected of a director in relation to transaction with the  shareholders will differ and would necessarily depend upon the  circumstances and the nature of the responsibility.

       It is, thus, not possible to lay down a law which will have universal  application.  No authority has been brought to our notice which states that  there exists a duty in a director to advise the shareholder as to whether they  should purchase the share of the company or avail the benefit of an offer.  In  an appropriate case, a fiduciary relationship may come into being having  regard to the responsibility undertaken by the directors towards the  shareholders by way of a special contract.

       The law which emerges from the discussions made hereinbefore is  that the directors do not have any fiduciary duty to advice shareholders as to  when and in what manner they should enter with the transactions with the  company including acceptance of offer of additional shares.  Such a  fiduciary duty would arise inter alia in exceptional situations when the  directors take upon themselves the task of advising the shareholders who  may be his family members or when a transaction of purchase or sale is  entered into by and between the director and the shareholders wherein the  former taking undue benefit or having ill or improper or ulterior motive or  malafide act solely to make pecuniary benefit and gain for himself and to the  detriment of such shareholders.  If a general fiduciary duty of a director vis- ‘-vis shareholders is laid down the same would lead the directors to the risk  of multiple legal actions by dissenting minority shareholders.

BURDEN OF PROOF:

       According to Mr. Desai, however, the burden to prove his bona fide  was upon the Respondent No.1.  The learned counsel  in support of the said  contention has referred to Section 111 of the Evidence Act and also relied  upon a decision of this Court in Krishna Mohan Kul Alias Nani Charan Kul  and Another Vs. Pratima Maity and Others [(2004) 9 SCC 468].  In Krishna  Mohan (supra), this Court was considering a transaction resulting in  execution of a deed of settlement by one Dasu Charan Kul.  The said deed  was executed in presence of the witnesses although they were not in  existence.  The executant in that case was more than 100 years of age.  He

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was paralytic and his mental and physical conditions were found to be not in  order.  Though his left-thumb impression was stated to have been affixed on  the document, there was no witness who could substantiate that he had in  fact put his thumb impression.

       In the aforementioned fact situation, provisions of Section 111 of the  Indian Evidence Act was invoked holding that the burden of establishing  perfect fairness, adequacy and equity is cast upon the person in whom the  confidence has been reposed and the rule applies to all persons standing in  confidential relations such as agents, trustees, executors, administrators,  auctioneers, etc.  It was, however, clarified that in term of Section 111 of the  Evidence Act, the person concerned should have been in a position of active  confidence where fraud is alleged.  

       In this case no transaction took place between the parties and, thus,  the ratio of Krishna Mohan (supra) is not applicable to the fact of the present  case.  In view of our findings that having regard to the nature of transactions  as the Appellant No. 1 did not have any fiduciary duty towards the  contesting Respondents, the question of invoking the provisions of Section  111 of the Evidence Act does not arise in the instant case.

       In Regal (Hastings) Ltd. Vs. Gulliver and Others [(1967) 2 AC 134],  an action was brought by the Appellants therein against the Respondents  who were defendants to recover the amount specified therein towards profits  made by them upon the acquisition and sale by them of shares in the  subsidiary company formed by the Appellant.  The said action was also  brought against the company’s solicitor for recovery of the amount specified  therein being profits made by him in similar dealings in the shares.  The  action was based on claim for damages and misfeasance and for negligence  on their part.  It is in that situation, the doctrine of trust was applied.  In the  fact of the present matter neither a case of trust nor negligence nor  misfeasance has been made out.

       The ratio which can be carved out from this case is that the Directors  must not derive personal profit from information acquired by them as  Directors.  Such is not the case here.         In Needle Industries (supra), this Court observed that Section 397  "warrants the court in looking at the business realities of the situation and  does not confine them to a narrow legalistic view".  For the said purpose, the  test required to be adopted is the true character of the company.  The initial  burden was upon the Respondent No. 1 but nothing had been shown so as to  hold that the burden shifted to the Appellants herein.   

ISSUE OF ADDITIONAL 15000 SHARES AND 6475 SHARES TO THE  APPELLANTS :

An Extraordinary General Meeting of the GIC was to be convened  pursuant to the Board meeting dated 10.11.1987 wherein a resolution was  adopted in the following terms:

"Resolved that an Extra-Ordinary General Meeting  of Gaekwad Investment Corporation Private  Limited be convened to consider increase/ issue  the capital of the company on Thursday the 17th  December 1987 at 11.00 A.M. in the registered  office of the company."

       Pursuant to or in furtherance of the said resolution an Extraordinary

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General Meeting of the GIC was held wherein a resolution was passed to  increase the equity shares by 25000 shares at the rate of Rs.100/- to the  members of the company in the following terms :

"Resolved that Clause \026 V of the Memorandum of  Association of Gaekwad Investment Corporation  Private Limited be changed as under:-

That the authorised capital of the company shall  consist of Rs. 1,00,00,000/- (Ruepes One Crore)  divided into 25,000 equity shares of Rs. 100/- each  and 75,000 four percent Non-cumulative  Irredeemable Preference Shares of Rs. 100/-

Resolved that capital clause of the Articles of  Association of Gaekwad Investment Corporation  Private Limited be changed as under:-

That the Authorised Capital of the Company shall  consist of Rs. 1,00,00,000/- (Rupees one crore)  divided into 25,000 equity shares of Rs. 100/- each  and 75,000 four per cent Non-cumulative  Irredeemable Preference Shares of Rs. 100/- each.

Further Resolved that the Board of Directors of the  Company be and is hereby authorized to issue  25,000 equity shares to any members they deem  fit.

Further Resolved that in the event of the company  being wound up on reduction of capital or  otherwise the holders of the said Irredeemable  Preference Shares shall be entitled to the surplus  assets of the company applied in the first place in  repaying to them the amount paid up on the  irredeemable preference shares held by them  respectively but shall not be entitled to any further  participation in such surplus assets.  In case of  reduction of capital of the equity share capital, the  holders of equity capital shall not be entitled for  repayment unless consent of the irredeemable  preference share holders is obtained.

Further Resolved that the holders of the said  preference shares shall not have any right to vote  on any resolution placed before the company  unless if directly affects the rights attached to their  preference shares even if the dividend is not paid  for any number of years, however, will have a  right to vote only on those resolutions which will  affect their interests."

       However, on 8.1.1988, the Board decided to issue 15000 shares out of  25000 shares to its members at that time.  On or about 12.2.1988, a notice  was issued asking the members for acceptance and remit  cheque covering  the full amount as regard shares allotted to them in three weeks, i.e., by 10th  March, 1988.

       Issuance of the aforementioned notice is not disputed.  The Appellant  No. 1 herein in the company petition filed by Respondent No. 1 alleged that  prior to the Managing Committee meeting a Board meeting was also held.   Similar assertion was made in his affidavit dated 11.4.1992 in C.P. No. 7 of

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1992.  Reference to the Managing Committee meeting, however, was not  made by the Appellant No. 1 in his affidavit dated 10.12.1992 in C.P. No. 13  of 1992, but it is of not much consequence as would appear from the  discussions made hereinafter.  However, it appears that with a view to give  effect to aforementioned letter dated 12.2.1988, a meeting of the Board of  Directors was held on 13.2.1988 wherein FRG was present.  In the said  meeting, the following resolution was adopted:

"(2) The Board confirmed the minutes of the  Directors Meeting held on 8th January, 1988.

(3) It was reported to the Board that necessary  action has been taken on the Agenda of the Board  Meeting held on 8th January, 1988.

(4) The Financial Position of the Company was  discussed at length.  The Board was informed that  letters have been addressed on 12th February 1988  to the shareholders informing them that the  company has issued 15000 equity shares of Rs.  100/- each to the members and to convey their  acceptance on or before 10th March 1988.  The  company would know the amount, the company  would receive from them."

       The said meeting bears the signature of the Secretary to the Chairman.   However, although in her original pleadings the factum of issuance of such  circular letter dated 12.2.1988 had not been denied or disputed but in her  rejoinder to the reply, she said so.  The said stand apparently was taken by   way of afterthought and, thus,  cannot be accepted.  

       We, moreover, do not see any reason to come to the conclusion as has  been done by the Division Bench of the High Court that the said meeting  was not held at all.  The Company being a family company,  the minutes of  the said meeting, which bear the signature of the Appellant No. 1 herein,  should not be discarded.   

       In the pleadings, it was accepted, as would appear from the  discussions made hereinafter, that a decision had been taken to broad-base  the company by the Board of Directors during the life time of FRG himself  who participated in the meetings.  His Secretary had furthermore endorsed  the draft minutes of one of the meetings  which was in the handwriting of  N.K.K. Mohammed and the Chairman (FRG) had okayed the same.  The  said draft minutes are annexed to the company petition of the Respondent  No.1 herself.  Further Mr. M.N. Khade, Company Secretary had confirmed  the facts relating to the issue of allotment of 15000 shares.   

       The 31st Annual General Meeting of GIC held on 30th September,  1989 in this situation assumes importance.  In the said meeting the annual  accounts together with Directors Report and Auditors Report for the year  ended 31st March, 1989 were discussed at length and the following  resolution was passed:

"Resolved that the Directors Report and the  Audited accounts of the Company for the year  ended 31st March 1989 placed before the meeting  be and the same are hereby received and adopted."

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       The minutes of this meeting were signed by Mr. P.U. Rana, Director  of the Company.   

       It appears that Balance Sheet as on 31.3.1989 clearly indicated the  issue of additional equity share capital being 10,5000 equity shares of Rs.  100 each.  The amount of loan of Rs. 15 lakhs from Shantadevi is clearly  shown under unsecured loans, remaining amounts have also been advanced  to the company by way of loan.   No dispute was raised in the said meeting  as regard the aforementioned transactions.   

       Furthermore, Annual Return of this meeting held on 30th September,  1989 was filed before the Registrar of Companies, Gujarat at Ahmedabad on  30.11.1989.  Mr. H.A. Shinde wrote a letter to Registrar of Companies.  The  Annual Return was signed by Mr. P.U. Rana and Mr. H.A. Shinde.  The  details of equity shareholding reflected in the Annual Return was as follows:

Sr.  No. Name Equity Shares 1. Smt. Shantadevi Gaekwad 7 2. Shri F.P. Gaekwad 323 3. Late Smt. Padmavatidevi Gaekwad 20 4. Shri R.P. Gaekwad & Shri S.R.G. 10 5. Capt. V.S. Hazare 10 6. Shri Shivrajkuar Khacchar 1 7. Smt. Pramilabai Hazare 10 8. Shri Vimalaraje Gaekwad 1 9. Smt. Shubhangini R. Gaekwad 30 10. Smt. Lalitadevi Kirdatt 5 11. Smt. Mrunalinidevi Puar 1010 12. Smt. Pramilaraje of Jasdan 4 13. Smt. Asharaje Gaekwad 1505 14. Smt. Devyanidevi Gaekwad 1 15.

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Shri Ajitsinh Gaekwad 1 16. Smt. Mrunalinidevi Puar & Shri R.P.  Gaekwad 5 17. Smt. M. Puar & Smt. Shantadevi G. 4 18. Shri Ajaysinh Ghorpade 1 19. Smt. Vasundraraje Gorpade 1 20. Shri Sangramsingh Gaekwad 2001 21. Shri S.P. Gaekwad H.U.F 1475 22. Shri S.P. Gaekwad \026 F&NG of Shri  Pratapsinh Gaekwad 2750 23. Shri S.P. Gaekwad \026 F&NG of  Priyadarshini Gaekwad 1750

Total Shares 10,925

       Thus, the above allotment of 10500 equity shares was confirmed and  accepted in the 31st Annual General Meeting of GIC.  All disputes which are  now being raised about the issue of additional capital of 10,500 equity shares  cannot be raised since the allotment is confirmed/ ratified in the said Annual  General Meeting. We would, however, deal with the question as regard  validity of allotment of 3000 shares in favour of the appellants and 500  shares allotted in favour of the Respondent No.12 separately.   

Furthermore, taking a view of the admitted unequivocal stand taken  by Respondent No.1 as also by Respondent No. 12 in Company Petition No.  7 of 1992, the High Court was not correct in holding that the party should be  relegated back to the same position as if no additional shares other than 425  shares were issued and in that view of the matter the reliefs granted by the  Division Bench appear to be self-contradictory and inconsistent with each  other.  If the only relief to which the Respondent Nos. 1,12 and 13 became  entitled to that all additional shares over and above 425 original shares  should be directed to be cancelled, the question of Respondent No. 1’s  entitlement to further 8000 shares from the additional 15000 shares would  not arise.  Her claim in this behalf is not only wholly inconsistent but also  self-destructive.   

       It is difficult to believe that the contesting respondents herein were not  aware of the decision of the Board of Directors to broad-base the company  and allotment of 8000 shares in favour of FRG out of the same.

       Mr. Desai assails the findings of learned Single Judge contending that  if FRG was not inclined to subscribe to 8000 shares kept apart for him, there  was absolutely no reason as to why he should acquire 22 shares belonging to  the following:

"Shri Ashokraje Gaekwad         1       

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Shri R.V. Dhaibar                       10 Smt. Kusum Desai & Shri Dilip Desai                        5 Shri Dilip Desai & Smt. Kusum Desai                        5 Shri M.N. Khade                 1"

                All the aforementioned shares are held by the outsiders.

       The very fact that the Board had approved the transfer of  aforementioned 22 shares is also indicative of the fact that had FRG been   interested in subscribing 8000 shares, he would have applied and paid the  requisite amount therefor and as he did not take any such step, it is difficult  to hold that the offer became a firm one.

       Furthermore, the very fact that some outsiders have transferred shares  in favour of FRG also belies the argument of Mr. Desai to the effect that the  intrinsic value thereof was Rs. 1 lakh or 2 lakh per share.  Had this been so,  there was no reason for the outsiders to transfer their shares in the name of  FRG.

       It was, therefore, not a case where FRG would try to consolidate his  position by purchasing 22 shares.  Some other considerations therefor  must  have weighed with him.  One of them may be that he intended to oust the  outsiders.  FRG admittedly was Chairman of the company till his death.  No  dispute was raised by any member as regard  allotment of shares during his  life time.  The findings of the Division Bench that he had full interest in the  company shares may not be correct inasmuch as had that been the position,  he would have definitely opted for allotment of 8000 shares in his name.  In  any event, he would have opposed allotment of 7500 shares in the name of  Appellant and Respondent Nos. 12 and 13 if he intended to consolidate his  position as had been opined  by Division Bench of the High Court.

       It is not necessary for us to dwell at length the question as to whether  there had been an express renunciation by FRG in relation to 8000 shares  allotted to him as the letter dated 11.6.1988 purported to have been written  by Shri Khade to the Appellant No. 1 is disputed.  Even if we proceed on the  basis that there had been no express renunciation by FRG as regards 8000  shares allotted in his favour, there may not be any doubt whatsoever that in  law, having regard to the fact that he acquired only a personal interest  therein, the same came to an end with his death.   

       In absence of any documentary evidence, it is also difficult for us to  accede to the contention raised on behalf of the Respondents herein that the  Respondent Nos. 1 and 12 advanced a sum of Rs. 15 lakhs each without any  interest and, thus, they were in a position to purchase 8000 shares.  The fact  remains that the same had not been done.  The fact remains that  advancement of loan by both Respondent Nos. 1 and 12 whether with or  without interest stands accepted, which was done in November, 1988.   However, the question as to whether an interest of 14% per annum was  payable thereon or not is in dispute.  According to the Appellants, however,  TDS had been deducted on the interest amount and the certificates had been  issued by GIC.  There is also no gainsaying that at least Mrs. Puar was  having full knowledge as regards floating of additional shares.  She even in  her affidavit did not explain as to under what circumstances she had applied  for allotment of only 1000 shares and not more.  It is inconceivable having  regard the tenor of her letter of May 1988 that she was asked the Appellant  No. 1 to send a sum of Rs. 1,00,000/- towards purchase of share by

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Appellant No. 1 and she complied with the said request without knowing the  implication thereof.   

       There is no allegation (much less proof) that she even made inquiries  as regard the status of allotments.  She being the managing director of a  subsidiary of GIC, it is difficult to believe that she was entirely oblivious to  the share issue of GIC having a very small capital base of 425 shares.          

       She had moreover sent two cheques of Rs. 80,000 and Rs. 20,000  respectively being dated 23rd March, 1988 and 10th May, 1988 and thereby  categorically opted to purchase 1000 shares.  There is no mention in the said  letter that such offer was made at the instance of the Appellant No. 1 herein.   It is not uncommon to advance  loan on interest in preference to purchase of  shares as a person may be  certain about the return of money vis-‘-vis the  uncertainty  as regard purchase of shares  as in the case of latter,  the person  investing in the shares may lose if not entirely, to some extent.  Similarly,  the question as to why the Appellants herein did not advance any loan to the  Company is again a matter of not much consequence, particularly, when the  parties have not been examined on oath.  It is furthermore not necessary for  us to dwell  at length the submissions of Mr. Desai as regard effect of  absence of any notice of closure.  

       It is futile to go into the question as to whether 14% interest was to be  paid on the amount of loan as admittedly Respondent Nos. 1 and 12  advanced the said amount by way of loan only.  Only at a later stage, a claim  was laid to utilize the amount towards the purchase of 8000 shares.

       Significantly, although the Respondent No. 1 participated in the  family meeting dated 23.3.1988 and had received the letter of offer dated  12.2.1988,  did not opt for any share.  As indicated hereinbefore, she had not  claimed for allotment of any share even after the death of FRG which took  place on 1st September, 1988.  Even in November, 1988, she even did not  subscribe for rights issue of BRC and in fact renounced such offer as had  been admitted in her rejoinder affidavit filed in Company Petition No. 51 of  1991 to the reply filed by the Appellant No. 1 herein.  In the said rejoinder, a  story was made out for the first time that such renounciation was made so  that BRC equity shares can be purchased by the family in the name of such  persons as was decided.          In view of our findings that the Respondent No. 1 is estopped and  precluded from questioning the allotment of 6475 shares to the Appellant  herein.  It may not be necessary for us to go into the details of alleged  inconsistencies and contradictions in the three minutes of the meetings as  also alleged three different versions of the Appellant No. 1 herein.    Suffice it to point out that the Appellant No. 1 alone is not guilty, if at all, of  taking inconsistent plea.  The contesting Respondents are also guilty to that  effect in equal measures.  The Respondents herein, as discussed  hereinbefore, have taken not only contradictory stand and inconsistent pleas  but also prevaricated the same from stage to stage.  Even before us different  contentions have been raised which were not raised before the learned Single  Judge nor were pleaded in the company petition.

        It must also be placed on records that in the written submissions,  several contentions have been raised which were not raised in oral  submissions.

        Moreover, the Respondent No. 12 was given power of attorney by the  Respondent No. 1.

A transaction by a lady who is illiterate or a purdah-nashin and a

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transaction by a lady who looks after the family business/family property  would be differently viewed.  She, being the Managing Director of Alaukik,  a subsidiary company of GIC would be presumed to know the affairs of the  Company as Alaukik on her own showing would be vitally affected by the  rights issue.

She also chaired a meeting of the Company on  12-10-89  

       It is, therefore, clear that the dispute was raised despite full knowledge  about allotment of shares by different persons only after the Respondent No.  12 got 1500 shares of Alaukik allotted in her name as a result whereof the  suit No. 675 of 1990 was instituted.   

       Even in the prayer portion, no relief has been prayed for to set aside  the transfer, recession as regard allotment of 6475 shares.   

       In Paragraph (2) while dealing with the contentions of the  Respondents purporting to be as regard alleged false statement relating to the  issue of 15000 shares and related aspects, the Appellants herein had given in  great details the manner in which:

(i)     the company  was being managed; (ii)    holding of Board meeting on 10th November, 1997 which was  attended by FRG, Appellant No. 1 and Mr. P.H. Chinoy wherein it was  resolved that an Extra-Ordinary General Meeting be convened on 17th  December, 1987 to consider the increase/ issue of capital of the company . (iii)   holding of Extra-Ordinary Genreal Meetng of the Company on 17th  December, 1987 chaired by Mr. P.U. Rana and attended by Mr. Shinde and  Mr. M.N. Khade wherein the financial position of the company in the  absence of dividend income was discussed and resolution was adopted that  company would issue 25000 equity shares to any members as the Board of  Directors deem fit and subsequent thereto and as consequence of the  authority given by the shareholders to raise capital, a Board Meeting of the  Company was held on 8th January, 1988 wherein Appellant No. 1, Mr. P.H.  Chinoy, Mr. P.U. Rana were present and after discussion, it was resolved  that 15000 equity shares of Rs. 100 each be issued at par to the members of  the company. (iv)    The issuance of a circular letter dated 12.2.1988 pursuant to or in  furtherance of the said resolution to all members of the company.

       But in para 10 of her reply to the said affidavit, Respondent No. 12  stated:

"What is stated in Paras II 2(ii)(iii)(iv) & (v) of the  affidavit in reply is broadly true except that Shri  Khade was not only then the Company Secretary  of Respondent No. 6 Company but still continues  to be the Company Secretary."

       The Respondent No. 1, therefore, accepted and admitted the  allegations made by the Appellant No. 1 herein by reason of non-traversal of  the said pleadings.           It is interesting to note that the Respondent No. 1 in her rejoinder  categorically stated that everybody received the circular letter and even  Appellant No. 1 did not apply for the shares pursuant thereto but the same  had not been replied to.

       In the aforementioned situation, in our considered opinion, she cannot  now be permitted to turn around and contend that there was no requirement  to raise any fund or there was no valid reason to increase the capital of GIC  by issues of shares.

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       Once it is held that the decision to issue 15000 additional shares was  validly taken, out of which 6475 shares were allotted to the Appellants, the  Appellants were in majority.  Furthermore, there does not appear to be any  reason as to why the Respondents herein despite knowledge did not object  thereto.

No sufficient material has been brought on records to satisfy us that  the minutes of the said Board meeting dated 13.2.1988 was a forged and  fabricated one.  However, it is not disputed that no offer was received upto  10th March, 1988.  The stand of the Appellants herein is that the said date  was later on extended.  However, on 21.3.1988 6475 shares were allotted in  terms of the said Resolution to Appellant No. 1 herein, 8000 shares were  allotted to FRG, 500 shares to Mrs. Mrunalini Devi Puar and 25 shares to  Mrs. Shubhangini Raje.  Furthermore, it was an adhoc allotment and not a  confirmed one.

       Let us now consider the effect of three draft minutes of meetings  which are placed on records by the parties.

Admittedly, on 21.3.1988, a meeting was held.  Draft minute No. 1,  although was unsigned and sent with a covering letter of Mr. Khade on or  about 29.3.1988 in the following manner:

"The Committee considered the allotment of 15000 Equity Shares of Rs.  100/- each of the Company recently offered to the members.  After  discussion the allotment was decided as under:

S.No. Name No. of Shares Value of Shares 1. Shrimant  Fatesinh  Gaekwad 8000 8,00,000/- 2. Shrimant  Sangramsingh  Gaekwad 6475 647500 3. Shrimant  Mrunalinidevi  Puar 500 50,000 4. Shrimant  Shubhanginiraje  Gaekwad 25 2500

Total 15000 15,00,000/-

The Shares would be allotted as and when the amounts are received. As  there was no other business the meeting terminated."

       The second draft minutes of the meeting are as under:

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"Total number of shares to be allotted worth Rs. 15 lakhs, i.e., 15000 at Rs.  100/-

Requisitions so far

1. Chairman 8000 shares Rs. 8,00,000/- 2. Maharani of Dhar 500 shares Rs. 50,000/- 3. Princess Subhangini Raje  Gaekwad 25 shares Rs. 2,500/- 4. Sangramsinh P. Gaekwad  and others 6475 shares  Rs. 6,47,500

Total 15000 shares 15,00,000/-

The Shares will be allotted in the names asked for by the above parties."

       This is the purported first version.

       The third draft is said to be in the following terms:

"A Committee Meeting of Gaekwad Investment  Corporation Pvt. Ltd. was held on 21st March,  1988 at 3.00 PM at Hoechst House, Nariman  Point, Bombay \026 400021

Present: 1.     Shrimant Sangramsingh    Gaekwad            2.   Shri P.H. Chinoy

Shri Sangramsingh Gaekwad was in the Chair.  In  terms of the Resolution passed at the Board of  Directors meeting held on 8.1.1988 for issue of  15000 Equity Shares of Rs. 100/- each of the  Company offer letter dated 12th February, 1988  have been sent to the Shareholders of the Company  requesting them to convey their acceptance for the  number of shares they would like to subscribe  alongwith their cheques for the full amount of  Share.  Subscription accepted by them.  Out of  these additional Equity Shares it is decided to issue  51% additional Equity Share Capital to Lt. Col.  Dr. Fatehsinghrao Gaekwad and the balance 49%  to be issued to the existing members depending on  the offer accepted by them.  In case the existing  members do not subscribe to the additional Share  Capital offered to them in terms of the letter of  offer dated 12th February, 1988 sent to all the  members of the Company, it was decided to offer  these Equity Share Capital remaining unsubscribed  to the persons as the Committee deems fit.  As

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there was no other business, the meeting  terminated.

Sd/- Chairman"

       The apparent difference between the first and second versions of the  meeting is that whereas the words "and others" appear after the words  "Chairman, Sangramsingh Gaekwad", in the second one the same is missing.   However, having regard to the endorsement made therein; the genuineness  whereof has not been doubted or disputed; and, moreover, as in  sum and  substance the contents of both the meetings are same, the fact that 6475  shares were allotted to Sangramsingh Gaekwad, the Appellant No. 1 herein  is beyond any doubt particularly when such a fact stands admitted by the  Respondent No1. in the company petition itself.   

       The purported third minute, however, had been filed by Mrs. Puar in  her company petition, the correctness whereof is in question.  Even in the  second draft of the minutes of  meeting, however, it was mentioned that the  shares will be allotted in the name asked for by the above parties and, thus,  there may not be in variance of substance in the two drafts.

       According to Mrs. Shandadevi Gaekwad, Respondent No. 1 herein  and others, it was a family meeting (para 6.5 of the company petition).  She  has also annexed the draft minutes of the meeting with the said petition and  further annexed allotment ratio discussed at the meeting.  The draft minutes  forwarded by Mr. M.N. Khade had also been annexed in the company  petition.  It may, therefore, be safe to opine that the purported family  meeting was in fact a Board meeting of which the parties were fully aware  of.  The minutes of the said meeting clearly suggest that the shares were to  be allotted if an offer to that effect was made together with the tender of  value thereof  whereupon the shares would be allotted in the names of the  persons as asked by the above parties.  Liberty, thus, was given to all the  parties named in the said minutes of the meeting to either apply for shares in  their own names or in the names of any other person of their choice.  In that  view of the matter, the words written by hand "and others" as contained in  the first draft of the meeting may not be of much significance.   

       Furthermore, as noticed hereinbefore, the said draft minute was sent  by Mr. M.N. Khade with a covering letter.  In the company petition, the  issuance of the said letter and the ratio of allotment having not been denied  or disputed, we have to proceed on the basis that the contents of the said  minutes of meetings are correct.  Even in law, shares can be allotted as and  when the amounts were received.  Admittedly, all the family members had  participated in the issue even if the last date of offer dated 10.3.1988 had  expired.  The restriction as regard time of allotment, thus, may not be of  much significance.

         Another aspect of the matter also cannot also be lost sight of.  6475  shares were allotted in the name of the Appellants as also in the names of  SPG, HUF were allotted between April and June, 1988.  Mrs.  Shubhanginidevi Gaekwad was allotted 25 shares and Mrs. Puar was allotted  1000 shares on or about 30.5.1988.  All the share certificates had been  issued which bear the signatures of Appellant No. 1 and Mr. H.A. Shinde,  Directors of Company and countersigned by Mr. M.N. Khade.  It is apparent  from the records that Shri Shinde and Shri Khade are now siding with the  Respondents and have filed affidavits in support of their case.  It is also of  some significance to  note that out of two cheques of Rs. 80,000 and Rs.  20,000 issued by Respondent No. 12 for purchase of 1000 shares, one is  dated 23rd March, 1988 and the other is dated 10th May, 1988.  It is,  therefore, difficult to accept having regard to the aforementioned fact

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situation that the Respondent No. 12 was not aware of the affairs of the  company.  If she had no knowledge about the issue of the shares, we wonder  how she could draw a cheque in March, 1988.  We, therefore, are of the  opinion that in relation to allotment of 7500 shares, Mrs. Puar and Mrs.  Shubhanginidevi Gaekwad are estopped and precluded from  questioning the   allotment having received the benefit thereof and having full knowledge  thereabout all along.

       An attempt has been made by Mr. Desai to show that some  contradictory and inconsistent statements have been made by the Appellant  No. 1 herein in his affidavits dated 21st March, 1991, 10th April, 1992 and  10th December, 1992.

       For the views we have taken, it is not necessary to go into the said  question as also the question as to whether in fact time for actual payment  towards allotment of shares had been extended or not.

Shantadevi in her company petition categorically stated that prior to  filing of petition under Sections 397 and 398 of the Companies Act, she  made inspection of the records of the company and obtained notorised copy  thereof on 10th December, 1990.  At the time of filing the said company  petition concededly she had complete knowledge of the affairs of the  company as reflected from the documents maintained at the Registered  Office of the Company.  On her own showing, Mr. P.U. Rana who was a  director of the company had at her request gave her inspection of the  registers including company registers, minute book, share registers, etc.   Relying on or on the basis of the said documents, Respondent No. 1 herein  categorically stated:

"(6.5)  It was decided and agreed in the said family  meeting and also subsequently in a meeting of the  Company’s Board of Directors, that out of the  15,000 equity shares, 8000 equity shares would be  allotted to Shri Fatehsinhrao Gaekwad, 500 equity  shares to Shrimati Mrunalini Devi Puar, the sister  of Shri Fatehsinhrao Gaekwad, 25 shares to  Princess Shubhangini Raje and 6475 shares for  Shri Sangramsinh Gaekwad, the First Respondent  herein."

       Despite such categorical admissions in the pleadings, a statement was  made across the bar that at the time of filing of the Company Petition the  Respondent No. 1 herein did not have all informations which came to light  at a much later stage.  It was urged that only with a view to obtain complete  reliefs, prayers made in the company petition were amended and reliefs had  been granted by the High Court keeping in view the pleadings and affidavits  filed by the parties in all the three matters.  We have our own doubts how far  the procedure adopted were correct when in a case of oppression the court  must strictly go by the pleadings made in the application.  The provisions of  the Civil Procedure Code do not envisage that pleadings in any other case  should be the basis for grant of relief, particularly, when the plea taken in  both the petitions are contradictory and inconsistent with each other.  Before  us affidavits from different proceedings made by the same person or by the  other supporting or opposing the application have been placed.  They have  not been cross-examined.  Their attention had not been drawn to their earlier  statements which could be done only in terms of Section 145 of the  Evidence Act.  With the view to elicit the truth the court must have before it  a clear picture.  In this case, unfortunately, the parties herein have not made  any efforts to examine themselves in court so as to enable the other side to  cross-examine them.  Had the parties to the proceedings been examined and  cross-examined, the could have been confronted with the earlier statements  made by them in another affidavit.  

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       In Needle Industries (supra), this Court has frowned upon such  practices.

       Similarly, Mrs. Puar in her rejoinder to the counter-affidavit filed by  the Appellants herein in Company Petition No. 7 of 1992  accepted that  during the life time of FRG and to his knowledge, a decision to broad-base  company by issuing 25000 shares out of which 15000  at the first instance  was taken.  It also stands admitted from one or the other minutes of meetings  referred to in her petition that out of the 15000 shares 6475 shares were to be  allotted to the Appellants herein.   

In view of the fact that the presence of FRG in the decision making  process to broad-base the company, the authority of FRG as regards control  of the company had never been disputed and his presence in one of the  Board meetings, the plea of issuance of additional shares has sufficiently  been established.  A decision to which FRG  is a party can only give rise to a  question of oppression on his part and no one else.  In any event, such a case  has never been made out that FRG was guilty of commission of any acts of  oppression or mismanagement had been committed while he was the  chairman of the company.

       We are, therefore, of the opinion that the Respondent No.1 failed to  substantiate the charge of oppression on the ground of issuance of 6475  shares in favour the Appellants.   

CLAIM  OF  THE FIRST RESPONDENT IN RESPECT OF 8000  SHARES :

       The First Respondent herein claimed 8000 shares evidently relying on  or on the basis of such allotment on the sole ground that on the death of  FRG, the same was inherited by her as a Class-I heir.  She raised a grievance  only as regards allotment of 3000 shares to the Respondents Nos. 3 and 4  herein, as would appear from a perusal of the allegations made in the  company petition and on a reasonable construction thereof.   

       The allotments made to the parties including 8000 shares were  provisional in nature and as such shares were to be allotted on payment, as is  evident from the minutes of the meetings.  No other person except the  Appellants herein, Mrs. Puar and Mrs. Shubhangini Devi opted for allotment  of shares to the extent of 6475, 1000 and 25 shares respectively.   

         It is not in dispute that upon demise of FRG, Respondent No. 1  applied for grant of succession certificate on 28.11.1989 wherein she  disclosed the assets of FRG but except for his 22 shares in GIC, no claim for  any other share was made far less her right as regard 8000 shares.

       It is also not in dispute that the matter relating to her claim to succeed  FRG as his Class I heir is pending adjudication in Civil Suit No. 725/1991 in  Baroda Civil Court.  She claimed title in respect of 8000 shares by  inheritance in terms of Hindu Succession Act.  Indisputably, in terms of  Section 15 of the said Act  she is a Class I heir but the Appellants herein  contend that the said provision has no application having regard to Section  5(2) thereof as inheritance in the family is governed by the rule of  primogeniture.  A pure question of title is alien to an application under  Section 397 of the Companies Act wherefor the lack of probity is the only  test. Furthermore, it is now well-settled that the jurisdiction of the Civil  Court is not completely ousted by the provisions of the Companies Act,  1956.  (See Dwarka Prasad Agarwal Vs. Ramesh Chander Agarwal [(2003)  6 SCC 220])

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        A dispute as regard right of inheritance between the parties is  eminently a civil dispute and cannot be said to be a dispute as regards  oppression of minority shareholders by the majority shareholders and/ or  mismanagement.

       Furthermore, in the said suit when an application for interim  injunction was filed only, a prima facie observation was made to the effect  that the succession was not to be governed by Hindu Succession Act.  Such  observations do not constitute a binding decision as no finality is attached  thereto.  The matter came upto this Court in S.L.Ps. (C) No. 17018/95 and  17020/95 which were disposed of observing:

"We may also allay the fears of the petitioner  regarding the observations made by the learned  Single Judge of the High Court in his order now  impugned while accepting the appeals against him.   It is made clear that those observations are not  meant to be final, but have obviously been made to  dispose of the claim to temporary injunction which  shall keep confined to that limited exercise without  affecting the merits of the case.

       This disposes of the Special Leave  Petitions."

       Our attention has been drawn to an interlocutory proceedings in the  suit relating to title, wherein allegedly a prima facie case was not found in  favour of the Appellants herein but this Court is not concerned therewith as  it has been accepted at the Bar that keeping in view of the fact that the  question is subjudice, this Court would not go into the said issue.  In fact,  Mr. Desai, learned counsel appearing on behalf of the Respondent No. 1, has  given up the same.

       The finding of the Division Bench of the High Court to the effect that  the Respondent No. 1 is entitled to get 8000 shares which was firm allotment  made to FRG is, thus, not sustainable in law.

       Moreover, the allotment in favour of the members of the Company  was provisional in nature which would amount to invitation to offer and not  an offer.  A right to a share would fructify only when an offer made by the  company is accepted.  Only upon acceptance of such offer, a binding  contract  comes into being.  A right, as is well known, fructifies only upon  conclusion of a contract and not prior thereto.  When a share is allotted in  favour of a person as a member of the company, it becomes his personal  right.  Such a personal right is not heritable.  By reason of a mere provisional  allotment without making any payment therefor no legal right in the shares  was created.  It would also be of some interest to note that even initial  allotment of shares cannot be transferred.

       In Canbank Financial Services Ltd. Vs. The Custodian and Ors [JT  2004 (7) SC 266], it has been held:

"The allotment of CANCIGOS is not a transfer as  thereby Canbank Mutual Fund had allowed the  shares not as owner thereof.  The Benami  Transactions Act applies when there is a  transaction in which the property is transferred.  If  allotment of CANCIGOS is not a transfer of

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property, the Act would not apply.   [See Sri Raj  Sachdeva Vs. Board of Revenue [AIR 1959 All  595] and The Swadeshi Cotton Mills, Co., Ltd. , In  re. [1932 Comp. Cas 411].

       In Madura Mills Co. Ltd., In re. [1937  Comp. Cas 71], Varadachariar, J. stated the law  thus:

"As we have already observed, it is no doubt true  that in the hands of a shareholder, a share is  property and when a shareholder exchanges his  shares with another it may be possible to regard  the transaction as amounting to a transfer whether  by way of exchange or conveyance: Cf. Coats v.  Inland Revenue Commissioners (1897) 2 Q.B.  423.  But when the company is for the first time  issuing shares, it seems to us that there is no  question of property already possessed by the  company being thereby transferred to the allottee."

       In Needle Industries (supra), this Court opined : "137. We see no substance in Shri Nariman’s  contention that the letter of offer could not have  been sent to the Holding Company without first  obtaining the RBI’s approval under Section 19 of  FERA. Counsel contends that under Section  19(1)(b), notwithstanding anything contained in  Section 81 of the Companies Act, no person can,  except with the general or special permission of  the Reserve Bank, create ’any interest in a security’  in favour of a person resident outside India. The  word "security" is defined by Section 2(u) to mean  shares, stocks, bonds, etc. We are unable to  appreciate how an offer of shares by itself creates  any interest in the shares in favour of the person to  whom the offer is made. An offer of shares  undoubtedly creates "fresh rights" as said by this  Court in Mathalone v. Bombay Life Assurance Co.  Ltd. (1954 SCR 117 : AIR 1953 SC 385 : (1954)  24 Com Cas 1) but, the right which it creates is  either to accept the offer or to renounce it; it does  not create any interest in the shares in respect of  which the offer is made."

       The Division Bench of the High Court treated the allotment to be a  confirmed one purported to be relating to Regulation 28 of Table A of the  Companies Act.  The said provision has no application in the facts and  circumstances of this case.  

ISSUE OF 3000 SHARES:

       The allotment of 3000 shares, however, stand on a different footing.   The conduct of the Appellants in this regard would call for a closer scrutiny.  

       There is no proof of express renunciation of his 8000 shares by FRG  in favour of the Appellant.

It is true that the Respondent No. 1 herein although questioned the  allotment of 3000 shares given to the son and daughter of the Appellant Nos.  1 and 2 herein, no such challenge was made as regards 500 shares allotted to  Respondent No. 12.  It is also true that the dividend had been paid for the  year ending 31.3.1991 at the rate of 10% and 300% respectively to both

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Respondent Nos. 12 and 13 in respect of 1000 shares and 25 shares held by  them respectively.  But this action on the part of the contesting respondents  would not validate the transaction as regard issuance of 3000 shares in  favour of the Appellants.  

Even assuming that the children of the Appellant Nos. 1 and 2 became  members, in relation to the shares originally allotted to Fatehsingh Gaekwad,  as was submitted by Mr. Jethmalani, no further circular or notice to the  shareholders about the availability thereof had been issued.  Even the  Appellant No. 1 in his affidavit has contradicted himself by making  inconsistent statements.   

       Furthermore, in absence of any resolution by the Board of Directors,  no offer could be made to the Respondent No. 12 as regard 500 shares out of  8000 shares which were allotted to FRG.   

       The Appellants herein have utterly failed to prove that there has been  any renunciation of 8000 shares by Fatehsinh Gaekwad or any resolution  was taken in this behalf by the Board.  We have grave doubt about the  authenticity of the letter of the Company Secretary of FRG renouncing his  shares.  Even allotment of 500 shares in favour of Respondent No. 12 out of  said 8000 shares is invalid.  In that view of the matter, the contentions of the  Appellant No. 1 to the effect that his children, Pratapsinh S. Gaekwad and  Priyadarshiniraje S. Gaekwad applied for further 3000 shares through him  and in view of the availability of shares, the Board of the Company decided  to issue and allotted the said 3000 shares to them cannot be accepted.  It also  does not appear that the Board of Directors or the Management Committee  took any resolution to allot shares to the other members out of the said 8000  shares.

         It is also difficult to accept that efforts had been made by the  Appellant No. 1 to find out if any other member would like to offer  subscription of shares of the company as alleged by him and that efforts had  also been made to find out subscribers for those shares.

       We, therefore, are of the opinion that the transactions relating to issue  of 3000 additional shares in the names of the Appellant Nos. 3 to 5 and 500  shares to the Respondent No. 12 out of the 8000 shares originally allotted to  FRG are bad in law.

TRANSFER IGNORING RIGHT OF PRE-EMPTION:         Article 3 of the Company states that the Company is a private  company and the right of transfer is restricted in the manner provided for  therein.  Article 4 provides for capital of the Company.  Article 5 provides  that the share in the capital of the Company for the time being would be  under the control of the Directors who may allot or otherwise dispose of the  same to such persons in such proportion and on such terms and conditions  and either at a premium or at par or at a discount.  Article 6 provides that the  transfer of shares shall be restricted in the manner to the extent provided in  Articles 7 to 15 thereof.

       Article 7 of the Articles of Association of the company provides for  embargo in favour of a person who is not a member of a company and thus  postulates the policy of transfer first to a member only.

       Article 8 provides for a notice to transfer for a fair value.  A transfer

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notice is not revocable except with the sanction of the Directors.  Upon  receipt of such notice, if the company finds out a person who intends to  purchase the same, a notice of the Proposing Transferor shall be issued.   Article 10 provides for valuation of shares by the auditors in case of any  difference between the Proposing Transferor and Purchasing Member.   Article 12, however, provides that if the company does not find a Purchasing  Member and give notice in the matter stated in Article 9 with a period of 28  days after being served with a transfer notice, the Proposing Transferor shall  at any time within three months afterwards be at liberty subject to Article 16  thereof to sell the share to any person and at any price.

       Article 14 envisages transfer to a member of the family in respect  whereof the embargo  contained in Articles 7 to 13 would not apply.  Only  when a share is to be transferred by a member to an outsider being a person  of his choice other than those specified in Article 14, the requirements  contained in the aforementioned Articles are required to be complied with.

                Article 15 provides for registration of transfer whereas Article 16  empowers the Directors to register any transfer or transmission of a share  without assigning any reason except in a case where the transferee is a  member of the company or in whose favour the transferee has been effected  in terms of Article 14.

       Indreni is a wholly owned company of the Appellants.  Such a family  company may be considered to be a quasi-partnership.  The learned Single  Judge lifted its corporate veil and held that having regard to the nature of the  investment made by the family, the transfer may not be held to be illegal.   However, in law no transfer could be made in favour of a body corporate  having regard to the Articles of Association of the Company.

       In any event, when a notice to the company by a member is vitiated,  the same can be withdrawn in law.  Furthermore, a transfer in violation of  Article is void [See Palmer’s Company Law, 23rd Edition 22-14].   

       In the instant case, the actual notice of transfer has not been produced.   However, a letter has been brought on record to show that Mr. Khade was  asked to serve the notice to the members of the company which he did not.

       Mr. Desai submitted that as notice of transfer had already been issued,  the same become irrevocable which entitled the Appellants to opt for  purchasing the shares on a pro-rata basis.  The said submission of Mr. Desai  cannot be accepted as it is not the case of the Respondents that the said  notice was acted upon and the provisions of Articles 9 to 11 had been  complied with.   

       It may be noticed that in the suits filed by the shareholders against the  Appellant relating to transfer of shares in favour of Indreni, except in suit  No. 872 of 1990, no prayer for pro-rata allotment thereof in favour of other  members had been made.

       The contents of the said circular letter appear to be vague inasmuch as  how many shares are proposed to be transferred had not been stated therein.   Furthermore, no action having been taken within a period of 28 days from  the date of issuance of such notice, the proposed transferee is entitled to  transfer the shares to any person of his choice.

       It is now well-settled that only one pre-emptive offer is to be made  which is otherwise to be accepted or not at all.  The existing shareholders are  not entitled to be given further pre-emptive rights in respect of those

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unaccepted shares.  Even such a right can be waived or modified.

       In any event, the transfer has been rescinded in terms of the resolution  passed in a meeting dated 9.8.1990.  At this stage, it is not necessary to  consider the validity or otherwise of the said meeting as no sufficient  materials except the factum of the payment to Indreni had been brought on  records to show that the said resolution dated 13.7.1990/9.8.1990 adopted by  the Board are forged and fabricated.  In any event, it is not necessary to go  into the details of the matter as the three suits filed by the Respondents are  pending in different courts of law.

       It has further to be borne in mind that a pre-emptive right is granted in  favour of a member of a private company so that his right of control is not  taken away.  Exercise of such pre-emptive rights is particularly needed in  relation to those private companies which are essentially incorporated  partnerships.  (See Gower and Davies’ Principles of Modern Company Law,  Seventh Edition, page 635)

       As the notice of transfer itself was rescinded, we are of the view that  ’Indreni’ was not required to transfer the said shares back to the Appellants.   In any event, the title in relation to the aforementioned shares is a matter  between the Appellants and the Indreni and the Respondents herein cannot  have any say therein.   

       For the foregoing reasons, we are of the opinion that the Division  Bench of the High Court committed a serious error in holding that the  transfer by the Appellants in favour of the said Indreni being bad in law,  the  members of the company were entitled to allotment thereof on pro-rata  basis.

OPPRESSION AND MISMANAGEMENT:         Sections 397 of  the Companies Act reads as under: 397. (1) Any members 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  Company Law Board is of the 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 or 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.  

       Section 398 provides for relief in cases of mismanagement in the  following terms :

"398. Application to Company Law Board for relief in  cases of mismanagement.

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(1).- Any members of a company who complain \026

(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  any 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 it."                

       Section 402 of the Companies Act provides for the reliefs which may  be granted without prejudice to the generality of the powers of the court  under the aforementioned provisions  

       The expression ’oppressive’, it is now well-settled, would mean  burdensome, harsh and wrongful.   

       ’Oppression’ complained of, thus, must relate to the manner in which  the affairs of the company  are being conducted and the conduct complained  of must be such as to oppress the minority members.  By reason of such acts  of oppression, it must be shown that the majority members obtained a  predominant voting power in the conduct of the company’s affairs.

       The jurisdiction of the Court to grant appropriate relief under Section  397 of the Companies Act indisputably is of wide amplitude.  It is also  beyond any controversy that the court while exercising its discretion is not  bound by the terms contained in Section 402 of the Companies Act if in a  particular fact situation a further relief or reliefs, as the court may seem fit  and proper, is warranted.  (See Bennet Coleman & Co. Vs. Union of India  and Others [(1977) 47 Comp. Cases 92] and Syed Mahomed Ali Vs. R.  Sundaramurthy and others [AIR 1958 Madras 587]

       But the same would not mean that Section 397 provides for a remedy  for every act of omission or commission on the part of the Board of

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Directors.  Reliefs must be granted having regard to the exigencies of the  situation and the court must arrive at a conclusion upon analyzing the  materials brought on records that the affairs of the company were such that it  would be just and equitable to order winding up thereof and that the majority  acting through the Board of Directors by reason of abusing their dominant  position had oppressed the minority shareholders.  The conduct, thus,  complained of must be such so as to oppress a minority of the members  including the petitioners vis-‘-vis the shareholders which a fortiorari must be  an act of the majority.  Furthermore, the fact situation obtaining in the case  must enable the court to invoke just and equitable rules even if a case has  been made out for winding up for passing an order of winding of the  company but such winding up order would be unfair to the minority  members.   

       The interest of the company vis-‘-vis the shareholders must be  uppermost in the mind of the court while granting a relief under the  aforementioned provisions of the Companies Act, 1956. .

       Mala fide, improper motive and similar other allegations, it is trite,   must be pleaded and proved as  envisaged in the Code of Civil Procedure.   Acts of mala fide are required to be pleaded with full particulars so as to  obtain an appropriate relief.   

       The remedy under Section 397 of the Companies Act is not an  ordinary one.  The acts of oppression must be harsh and wrongful.  An  isolated incident may not be enough for grant of relief and continuous course  of oppressive conduct on the part of the majority shareholders is, thus,  necessary to be proved.  The acts complained of may either be designed to  secure pecuniary advantage to the detriment of the oppressors or wrongful  usurpation of authority.  

       In Halsbury’s Laws of England, 4th Edition, Volume 7, para 1011, it is  stated:

"1011. Conduct amounting to oppression. In this  context, "oppressive" means burdensome, harsh  and wrongful.  It does not include conduct which is  merely inefficient or careless.  Nor does it include  an isolated incident: there must be a continuing  course of oppressive conduct, which must be  continuing at the date of the hearing of the petition.   Further, the conduct must be such as to be  oppressive to the petitioner in his capacity as a  member: whatever remedies he may have in  respect of exclusion from the company’s business  by being dismissed as an employee or a director,  he will have none under the provisions relating to  oppression.

       On the other hand, these provisions are not  confined merely to conduct designed to secure  pecuniary advantage to the oppressors; they cover  the case of wrongful usurpation of authority, even  though the affairs of the company prosper in  consequence."

       It has to be borne in mind that when a complaint is made as regard  violation of statutory or contractual right, the shareholder may initiate a  proceeding in a civil court but a proceeding under Section 397 of the Act  would be maintainable only when an extraordinary situation is brought to the  notice of the court keeping in view of the wide and far-reaching power of the

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court in relation to the affairs of the company.  In this situation, it is  necessary that the alleged illegality in the conduct of the majority  shareholders is pleaded and proved with sufficient clarity and precision.  If  the pleadings and/ or the evidence adduced in the proceedings remains  unsatisfactory to arrive at a definite conclusion of oppression or mis- management, the petition must be rejected.   

       It may be true that the parties had agreed before the High Court that  pleadings in all connected cases be treated as part of the records of the High  Court but by reason thereof it cannot be inferred that although the High  Court had no jurisdiction to adjudicate upon the company petition filed by  the Respondent No. 12 herein filed before the Company Law Board, Delhi  and the Company Petition filed by the Respondent No. 1 before the  Company Law Board, Bombay, they would be the basis for grant of relief  particularly in view of the fact that the reliefs claimed therein are  different.   After the amendment in the Companies Act, the Company Law Board alone  had the jurisdiction to entertain an application under Sections 397 and 398 of  the Companies Act, as the jurisdiction of the High Court was ousted thereby  and, thus, the allegations made in the Company Petition filed by the  Respondent No. 12 being company petition No. 7 of 1992 could not have  been the subject matter of adjudication by the High Court.  It is trite that  what cannot be done directly cannot be done indirectly.  The conduct and the  status of the parties vis-‘-vis the company also assume significance.   Whereas the Respondent No. 1 herein claimed relief inter alia as a sole class  1 heir of the FRG, the Respondent No. 12 claimed her relief on the basis of  being a person involved in protecting the affairs of the Gaekwad family as  also in her own right as a shareholder.  It is significant, however, that in Suit  No. 675 of 1990 pending in the court of Baroda, Gujarat in her written  statement the Respondent No. 12 claimed that if her mother had been issued  the 8000 shares, her holding together with that of her mother’s would exceed  60%.

       The Respondent Nos. 1 and 12 had initiated different proceedings in  different forums to suit their own purposes.  From the materials brought on  records, it can safely be inferred that proceeding before the Company Law  Board, Delhi  was initiated by the Respondent Nos. 12 herein when it was  discovered that the Respondent No. 1 may not obtain any relief in the  Company Petition filed by her before the Gujarat High Court.

       The Respondent No. 1 in her application did not disclose the grounds  for challenging the issue of 6475 shares to the Appellants.  In that view of  the matter the relief granted by the High Court to the effect that issue of all  shares beyond 425 shares is bad in law cannot be sustained having regard to  the fact that a bald prayer was made in the petition without laying any  foundation therefor in the company petition.  Such reliefs evidently had been  granted keeping in view the allegations made by the Respondent No. 12 in  her company petition filed before the Company Law Board, Delhi which is  impermissible in law.

       We may at this juncture have a look to the case laws operating in the  field with a view to find out as to what relief, if at all, could be granted to the  Respondent No. 1 by the Gujarat High Court in the facts and circumstances  of the present case.

       In Shanti Prasad Jain Vs. Kalinga Tubes Ltd. etc. [AIR 1965 SC  1535], this Court quoted with the approval the following passage from the  decision in Elder’s Case, AIR 1952 SC 49, as summarized at page 394 in  Meyer’s case, AIR 1965 SC 381:

"(4) Although the word ’oppressive is not defined,

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it is possible, by way of illustration, to figure a  situation in which majority shareholders, by an  abuse of their predominant voting power, are’  treating the company and its affairs as if they were  their own property’ to the prejudice of the minority  share-holders-and in which just and equitable  grounds would exist for the making of a winding- up order....... but in which the ’alternative remedy’  provided by Section 210 by way of an appropriate  order might well be open to the minority  shareholders with a view to bringing to an end the  oppressive conduct of the majority."

       In Shanti Prasad Jain (supra) referring to Elder Case, it was  categorically held that the conduct complained of must relate to the manner  of management of the affairs of the company and must be such so as to  oppress a minority of the members including the petitioners qua  shareholders.  The court, however, pointed out that that law, however, has  not defined what oppression is for the purpose of the said Section and it is  left to court to decide on the facts of each case whether there is such  oppression.

       In Scottish Cooperative Wholesale Society Ltd. Vs. Meyer and  Another [(1958) 3 WLR 404] it was categorically held that the conditions  precedents contained in Section 210 of the Act of 1948 must be satisfied  before any relief can be granted.

       Yet again in H.R. Harmer Ltd., In re [(1958) 3 All ER 689 (CA)], the  Court of Appeal held that ’the section does not purport to apply to every  case in which the facts would justify the making of a winding up order under  the ’just and equitable’ rule, but only to those cases of that character which  have in them the requisite element of oppression’.

       It was observed:

"\005. It is not lack of confidence between share- holders per se that brings S. 210 into play, but lack  of confidence springing from oppression of a  minority by a majority in the management of the  company’s affairs, and oppression involved at least  an element of lack of probity or fair dealing to a  member in the matter of his proprietary rights as a  shareholder."

       In Needle Industries (supra), this Court observed:

"44. Coming to the law as to the concept of  ’oppression’, Section 397 of our Companies Act  follows closely the language of Section 210 of the  English Companies Act of 1948. Since the  decisions on Section 210 have been followed by  our Court, the English decisions may be  considered first. The leading case on ’oppression’  under Section 210 is the decision of the House of  Lords in Scottish Co-op. Wholesale Society Ltd. v.  Meyer (1959 AC 324 : (1958) 3 All ER 66 (HL)).  Taking the dictionary meaning of the word  ’oppression’, Viscount Simonds said at page 342  that the appellant-society could justly be described  as having behaved towards the minority  shareholders in an ’oppressive’ manner, that is to

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say, in a manner "burdensome, harsh and  wrongful". The learned Law Lord adopted, as  difficult of being bettered, the words of Lord  President Cooper at the first hearing of the case to  the effect that Section 210 "warrants the court in  looking at the business realities of the situation and  does not confine them to a narrow legalistic view".  Dealing with the true character of the company,  Lord Keith said at page 361 that the company was  in substance, though not in law, a partnership,  consisting of the society, Dr. Meyer and Mr. Lucas  and whatever may be the other different legal  consequences following on one or other of these  forms of combination, one result followed from the  method adopted, "which is common to partnership,  that there should be the utmost good faith between  the constituent members". Finally, it was held that  the court ought not to allow technical pleas to  defeat the beneficent provisions of Section 210  (page 344, per Lord Keith; pages 368-69, per Lord  Denning).

       In Re Five Minute Car Wash Service Ltd. [1966] 1 All ER 242, the  Court upon considering the nature of relief which can be granted under  Section 210 of the Companies Act, 1948 observed that in a case falling  under Section 210 of the Companies Act, 1948, relief will be granted if the  petitioner establishes that at the time when the petition was presented the  affairs of the company were being conducted in a manner oppressive of  himself and if he fails to allege facts capable of establishing that the  company’s affairs are being conducted in such a manner the petition will  disclose no ground for granting any relief and must be dismissed in limine.

       It was observed:

"Those who are alleged to have acted oppressively  must be shown to have acted at least unfairly  towards those who claim to have been oppressed.   In Scottish Co-operative Wholesale Society, Ltd.  v. Meyer (a case under s. 210) Viscount Simonds  adopted a dictionary definition of the meaning of  "oppressive" by, it is said, "burdensome, harsh and  wrongful".   

       In Elder v. Elder & Watson, Ltd., also a case  under s. 210, the Lord President (Lord Cooper)  said:

"\005the essence of the matter seems to be that the  conduct complained of should at the lowest  involve a visible departure from the standards of  fair dealing, and a violation of the conditions of  fair play on which every shareholder who entrusts  his money to a company is entitled to rely."

Lord Keith said:

"\005oppression involves, I think, at least an element  of lack of probity or fair dealing to a member in  the matter of his proprietary rights as a  shareholder."

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       The Court in an application under Sections 397 and 398 may also look  to the conduct of the parties.  While enunciating the doctrine of prejudice  and unfairness borne in Section 459 of the English Companies Act, the  Court stressed the existence of prejudice to the minority which is unfair and  not just prejudice per se.   

       The Court may also refuse to grant relief where the petitioner does not  come to court with clean hands which may lead to a conclusion that the  harm inflicted upon him was not unfair and that the relief granted should be  restricted.  (See Re London School of Electronics, [1986] Ch. 211)

       Furthermore, when the petitioners have consented to and even  benefited from the company being run in a way which would normally be  regarded as unfairly prejudicial to their interests or they might have shown  no interest in pursuing their legitimate interest in being involved in the  company. (See  Re RA Noble & Sons (Clothing) Ltd. [1983] BCLC 273].   

       In a given case the Court despite holding that no case of oppression  has been made out may grant such relief so as to do substantial justice  between the parties.

                It is now well-settled that a case for grant of relief under Sections 397  and 398 of the Company Act must be made out in the petition itself and the  defects contained therein cannot be cured nor the lacuna filled up by other  evidence oral or documentary.  (See In re Bengal Luxmi Cotton Mills Ltd.  1965 (35) CC 187).

       In Shanti Prasad Jain Vs. Union of India [75 Bom. LR 778] it was  held that the power of the company court is very wide and not restricted by  any limitation contained in Section 402 thereof or otherwise  

In Shoe Specialities Ltd.  vs. Standard Distilleries and Breweries (P)  and Others [1997 (1) Comp. LJ 243], it is stated :

"While exercising the powers under sections 397  and 402 of the Companies Act, the Court is  considering not only the relief that is sought for  but also considers as to what is the nature of the  complaint and how the same has to be rectified.  It  is the interest of the company that is being  considered and not the individual dispute between  the petitioner and the respondent.  If that be so, the  interest of the company requires that the majority  shareholders must have their say in the  management "         

         In Jesner Vs. Jarrad Properties [(1993) BCLC 1032], a question arose  as to whether the conduct and the background of the two companies (their  informed way of doing business disregarding the Companies Act, etc.) could  be taken into account to decide whether there had been unfair prejudice to  one party in an application under Section 459 of the English Companies Act  was answered in the affirmative.

       When a decision is taken on a business consideration, it is trite, the  court should not ordinarily interfere.  [See Maharashtra Power Development  Corporation Ltd. Vs. Dabhol Power Co. and Others, (2004) 3 Comp LJ 58  (Bom)]

The burden to prove oppression or mismanagement is upon the

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petitioner.  The Court, however, will have to consider the entire materials on  records and may not insist upon the petitioner to prove the acts of  oppression.  An action in contravention of law may not  per se be  oppressive.  Bhagwati, J. (as His Lordship then was) in Mohanlal Ganpatram  and another Vs. Shri Sayaji Jubilee Cotton and Jute Mills Co. Ltd. and  others [AIR 1965 Guj. 96 at 103] stated the law, thus:

"\005It may be that a resolution may be passed by  the Directors which is perfectly legal in the sense  that it does not contravene any provision of law,  and yet it may be oppressive to the minority  shareholders or prejudicial to the interests of the  Company.  Such a resolution can certainly be  struck down by the Court under Section 397 or  398.  Equally a converse case can happen.  A  resolution may be passed by the Board of Directors  which may in the passing contravene a provision  of law, but it may be very much in the interests of  the Company and of the shareholders..."

       The said decision  has been referred to with approval in Needle  Industries (supra). (Para 49).  The conduct which is technically legal and  correct, thus, may justify grant of relief on the application of the just and  equitable jurisdiction and conversely that conduct involving illegality and  contravention of the Act may not suffice to warrant grant of any remedy.   Isolated act of oppression may not be sufficient to grant any relief but there  should be a continued oppression therefor.  The test of lack of bonafide  should be applied in both for the winding up petition while determining an  application under Section 397 of the Companies Act.  [See Re Guidezone  Ltd. (2000) 2 BCLC 321]  We may at this juncture notice that the  Respondent No. 1 in her application under Section 397 of the Companies  Act did not complain of any act of mis-management.  Complaints of mis- management were made by the Respondent No. 12 only.

       For the purpose of grant of relief, the High Court could only consider  the pleadings filed in Company Petition No. 5 of 1991.  If no relief could be  granted having regard to the pleadings contained therein, it is inconceivable  in law that such relief would be granted on the basis of the pleadings made  in other proceedings and totally ignoring the admissions made by the  Respondent No. 1 herein in the proceedings initiated by her.

PLEADINGS AND  PROOF \026 LEGAL REQUIREMENTS  :  

       We may now consider the submissions of Mr. Desai that the  Appellant No. 1 herein is guilty of commission of fraud.  Application filed  by the Respondent No. 1 before the Gujarat High Court does not contain the  requisite pleadings in this behalf, the requirements wherefor can neither be  denied nor disputed.

It is not in dispute that having regard to Rule 6 of the Company Courts  Rule, the provisions of the Code of Civil Procedure will be applicable in a  proceeding under the Companies Act.  In terms of Order 6, Rule 4 of the  Code of Civil Procedure, the plaintiff is bound to give particulars of the  cases where he relies on misrepresentation, fraud, breach of trust, etc.  

       In Chief Engineer, M.S.E.B. & Anr. Vs. Suresh Raghunath Bhokare  [2004 (8) Supreme 845], this Court held:

"\005Thus, applying the basic principle of rule of  evidence which requires a party alleging fraud to  give particulars of the fraud and having found no

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such particulars the Industrial Court came to the  conclusion that the respondent could not be held  guilty of fraud\005"   

       It was observed:

"\005In the absence of any such particulars being  mentioned in the show cause notice or at the trial,  attributing some overt act to the respondent, we do  not think the Board can infer that the respondent  had a role to play in sending a fraudulent list solely  on the basis of the presumption that since  respondent got a job by the said proposal, said list  is a fraudulent one. .. "

       In A.C. Ananthaswamy and Others Vs. Boraiah (Dead) By LRS.  [(2004) 8 SCC 588], this Court held that the level of proof required for  proving fraud is extremely high.  [See also Maharashtra Power Development  Corporation Ltd. Vs. Dabhol Power Co. and Others, (2004) 3 Comp LJ 58  (Bom)]

       Order 6, Rule 17 provides for amendment of the pleading whereas  Order 8, Rule 9 provides for subsequent pleadings by a defendant.  The  company petitioners did not raise a plea as regard the value of the company  share or commission of fraud by the Appellant No.1 herein and/or his  fiduciary duty towards them  either as a director or as a person looking after  the interest of the family in the discharge of  his duty under as a director.

       Respondent No. 12 in her petition, alleged mismanagement of the  Company on the part of the Respondent No.1.  The Appellants in their reply  while denying and disputing that the company was mismanaged  alleged that  it had earned profit.  In Rejoinder to the said reply, Mrs. Puar questioned the  correctness or veracity of the balance sheet of GIC contending that the so- called profit disclosed in the accounts is merely a book entry.  A contrary  stand, however, has been taken before us suggesting that the shares had been  issued by the Appellants unto themselves at a gross undervalue.  The  question which arises is as to whether the Respondent Nos. 1 and 12 are  bound by their own pleadings.  It is neither in doubt nor in dispute that the  Code of Civil Procedure being applicable to a proceeding of this nature, not  only the plea of fraud is required to be specifically pleaded and proved.   Even an amendment of pleadings could not have been permitted if thereby  the Company Petitioner made an attempt to get rid of her admission.   

       Section 58 of the Indian Evidence Act reads as under:

"58. Facts admitted need not be proved.-No fact  need to be proved in any proceeding which the  parties thereto or their agents agree to admit at the  hearing, or which, before the hearing, they agree to  admit by any writing under their hands, or which  by any rule of pleading in force at the time they are  deemed to have admitted by their pleadings:

       Provided that the court may, in its  discretion, require the facts admitted to be proved  otherwise than by such admission."  

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       In terms of the aforementioned provision, things admitted need not be   proved.  In view of the admission of Respondent No. 1 alone, the issue as  regards allotment of 6475 shares should have been answered in favour of the  Appellants.  The  Company Petitioner at a much later stage could not be  permitted to take a stand which was contrary to or inconsistent with the  original pleadings nor could she be permitted to resile from her admissions  contained therein.

       Admissions made by the Respondent No. 1 was admissible against her  proprio vigore.   

       In Nagindas Ramdas Vs. Dalpatram Iccharam alias Brijram and others  [AIR 1974 SC 471], this Court held:

"26\005Admissions if true and clear are by far the  best proof of the facts admitted. Admissions in  pleadings or judicial admissions admissible under  Section 58 of the Evidence Act, made by the  parties or their agents at or before the hearing of  the case, stand on a higher footing than evidentiary  admission. The former class of admissions are  fully binding on the party that makes them and  constitute a waiver of proof. They by themselves  can be made the foundation of the rights of the  parties. On the other hand evidentiary admissions  which are receivable at the rival as evidence are by  themselves not conclusive. They can be shown to  be wrong."

       (See also Biswanath Prasad and Others Vs. Dwarka Prasad and  Others, AIR 1974 SC 117)

       In Viswalakshmi Sasidharan (Mrs.) and Others Vs. Branch Manager,  Syndicate Bank, Belgaum [(1997) 10 SCC 173], this Court held:

"\005On the other hand, it is admitted that due to  slump in the market they could not sell the goods,  realize the price of the finished product and pay  back the loan to the Bank.  That admission stands  in their way to plead at the later stage that they  suffered loss on account of the deficiency in  service..."

       Judicial Admissions by themselves can be made the foundations of the  right of the parties.                  In M/s. Modi Spinning & Weaving Mills Co. Ltd. and another Vs.  M/s. Ladha Ram & Co. [AIR 1977 SC 680], the law is stated in the  following terms: "10. It is true that inconsistent pleas can be made  in pleadings but the effect of substitution of  paragraphs 25 and 26 is not making inconsistent  and alternative pleadings but it is seeking to  displace the plaintiff completely from the  admissions made by the defendants in the written  statement. If such amendments are allowed the  plaintiff will be irretrievably prejudiced by being  denied the opportunity of extracting the admission  from the defendants. The High Court rightly  rejected the application for amendment and agreed  with the trial Court."

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       In the instance case, the Respondent No.1 even did not amend the  company  petition by withdrawing the admissions or resiling thereform.   

       In Kaveripatnam Subbaraya Setty Annaiah Setty Charities Trust Vs.  S.K. Viswanatha Setty [(2004) 8 SCC 717], this Court deprecated raising a  plea for the first time before the appellate court without amendment of plaint  holding that when materials to substantiate such plea had not been brought  on record and, thus, it is impermissible to consider the same, stating:

"13\005However, there is no material placed on  record by way of pleadings to show whether the  appellant is a religious or charitable institution.   The plaint was never amended.  The appellant  seeks exemption.  Exemption needs to be alleged  and proved.  Opportunity is required to be given to  the respondent to meet the plea of exemption.  In  the circumstances, we are in agreement with the  view expressed by the High Court that the said  plea was not open to the appellant at the stage of  second appeal, particularly, in the absence of any  material available to substantiate such plea."

       In Heeralal Vs. Kalyan Mal and Others [(1998) 1 SCC 278] following  Modi Spinning (supra), it was observed:

"9\005The facts of the present case are entirely  different and consequently the said decision also  cannot be of any help for the learned counsel for  the respondents. Even that apart the said decision  of two learned Judges of this Court runs counter to  a decision of a Bench of three learned Judges of  this Court in the case of Modi Spinning and  Weaving Mills Co. Ltd. v. Ladha Ram and Co.,  (1977) 1 SCR 728 : (AIR 1977 SC 680). In that  case Ray, C.J., speaking for the Bench had to  consider the question whether the defendant can be  allowed to amend his written statement by taking  an inconsistent plea as compared to the earlier plea  which contained an admission in favour of the  plaintiff. It was held that such an inconsistent plea  which would displace the plaintiff completely from  the admissions made by the defendants in the  written statement cannot be allowed. If such  amendments are allowed in the written statement  plaintiff will be irretrievably prejudiced by being  denied the opportunity of extracting the admissions  from the defendants\005."

It was also observed :

"12. In our view, therefore, on the facts of this case  and as discussed earlier, no case was made out by  the respondents, contesting defendants, for  amending the written statement and thus  attempting to go behind their admission regarding  5 out of 7 remaining items out of 10 listed  properties in Schedule-A of the plaint\005"

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(See also M/s. ABL Ltd., Durgapur, Burdwan Vs. Radha Gobinda Ghatak &  Ors., 1999 (1) CHN 645) and Krishna Gupta & Ors. Vs. Madan Lal & Ors ,                                                      2002 (96) DLT 829).

       In view of our findings aforementioned, it must be held that having  regard to the admission made by the Respondent No. 1 in her pleadings as  regard broad-basing of the company and issuance of 6475 shares in favour  of the Appellants herein and further in absence of any pleading of  commission of fraud on the part of the Appellant No. 1 herein, the High  Court committed a manifest error in issuing the impugned directions.

       Once the aforementioned facts are not in question, the company  petitioner cannot take a stand different from that raised in her petition simply  on the ground that other and further reliefs were claimed by amending the  reliefs portion.   Reliefs could be granted by the court  had the material facts  necessary to prove her case been pleaded and proved.  In absence of any  pleading, no evidence would  be admissible and the court as is well-known  ordinarily would not grant any relief which has not been pleaded.

QUASI-PARTNERSHIP \026 FAMILY COMPANY \026 CORPORATE VEIL:         A company incorporated under Indian Companies Act is a body  corporate.  However, in certain situations, its corporate veil can be lifted.  (See Kapila Hingorani vs. State of Bihar [(2003) 6 SCC 1])

       The Court, however, has made a clear distinction between a family  company, a private company and a public limited company.  The true  character of the company, the business realities of the situation should not be  confined to a narrow legalistic view. [See Needle Industries (supra)]

       It is now well-known that principles of quasi-partnership is not  foreign to the concept of Companies Act.  For the purpose of grant of relief  the principles of partnership had been applied even in a public limited  company. (See Loch and another Vs. John Blackwood Ltd., 1924 AC 783,  Ebrahimi Vs. Westbourne Galleries Ltd. and others, 1972 (2) All ER 492).

       The principles applicable to the winding up of a company contained in  Section 44(g) of the Indian Partnership Act was applied in a winding up  petition under Section 433 (f) of the Companies Act by a 3-Judge Bench of  this Court in Hind Overseas Private Ltd. Vs. Raghunath Prasad  Jhunjhunwalla and another [AIR 1976 SC 565] following Ebrahimi (supra).   However, it was observed that when more than one family or several friends  and relatives together form a company and there is no right as such agreed  upon for active participation of members were sought to be excluded from  management, the principles of dissolution of partnership cannot be liberally  invoked.

       In Kilpest Pvt. Ltd. and Others Vs. Shekhar Mehra [(1996) 10 SCC  696], it was stated: "11. The promoters of a company. whether or not  they were hitherto partners, elect to avail of the  advantages of forming a limited company. They  voluntarily and knowingly bind themselves by the  provisions of the Companies Act. The submission  that a limited company should be treated as a  quasi-partnership should, therefore, not be easily  accepted. Having regard to the wide powers under  Section 402, very rarely would it be necessary to

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wind up any company in a petition filed under  Sections 397 and 398.  12. The present was a petition under Sections 397  and 398. The Division Bench exercised power  under Section 402 to appoint Mehra as a Director  to protect his interest and guard against  mismanagement. It required Dubey to return to the  company the sum of Rs 52,875 which he had  wrongly appropriated to himself. It directed the  Registrar of Companies to enquire into other  allegations of misconduct in which it found, prima  facie, substance; and we may say immediately that  we have perused the report filed by the Registrar  of Companies which shows that no substance was,  ultimately, found therein. We agree with the  Division Bench that this was no case for winding  up the company and must dismiss the appeal filed  by Mehra."                  (See also Dabhol Power Co. (supra), para 43)

       Kilpest Pvt. Ltd. and Others Vs. Shekhar Mehra [(1996) 10 SCC 696],  whereupon Mr. Desai placed strong reliance, thus, cannot be said to be an  authority for the proposition that for no purpose whatsoever the principles of  quasi-partnership can be applied to an incorporated company.  The real  character of the company, as noticed hereinbefore, for the purpose of  judging the dealings between the parties and the transactions which are  impugned may assume significance and in such an event, the principles of  quasi-partnership in a given case may be invoked.   

       The ratio of the said decision, with respect, cannot be held to be  correct as a bare proposition of law, as was urged by Mr. Desai, being  contrary to a larger Bench judgments of this Court and in particular Needle  Industries (supra).  It is, however, one thing to say that for the purpose of  dealing with an application under Section 397 of the Companies Act, the  court would not easily accept the plea of quasi-partnership but as has been  held in Needle Industries (supra), the true character of the company and  other relevant factors shall be considered for the purpose of grant of relief  having regard to the concept of quasi partnership.

FINDINGS:         The upshot of our aforementioned discussions is:

(i)     The Appellant No. 1 had no fiduciary duty to inform the  Respondent Nos. 1, 12 and 13 herein as regard the benefit or  otherwise of opting for allotment of shares.

(ii)    The Respondent No. 1 herein in her company petition having  admitted the factum of broad-basing of the company by issuance of  15000 additional equity shares and allotment of 6475 shares in  favour of the Appellants herein cannot now be permitted to turn  around and raise the correctness or validity thereof.  However,  allotment of 3000 shares in favour of the Appellants and 500  shares in favour of the Respondent No. 12 purported to be out of  8000 shares allotted to FRG are bad in law.   

(iii)   The Respondent No. 1 herein had not been able to prove any act of  oppression as against the Appellant No. 1.

(iv)    The claim of the Respondent No. 1 as regards declaration of her  title and/ or allotment of 8000 shares is not tenable in law.  The  alleged right of the Respondent No. 1 to claim title over the said  shares as a class 1 heir of Fatehsinh Gaekwad cannot be

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determined in an application filed under Sections 397 and 398 of  the Companies Act and in particular having regard to the fact that  the said question is pending adjudication in a duly instituted civil  suit.   

(v)     Transfer of 9415 shares by the Appellants in favour of Indreni by  itself was not an act of oppression keeping in view of the fact that  the entire shares of the said company were held by the Appellants  alone and in any event the notice of transfer having been rescinded,  the Appellants continue to be the owner in respect thereof.

CONCLUSION:         For the reasons aforementioned, the impugned judgments of the  Division Bench cannot be sustained which is set aside accordingly.  The  appeals are allowed in part and to the extent mentioned hereinbefore with  the following directions:

(A)     It is hereby declared that the allotment of shares from the additional  share capital had been increased pursuant to the resolution of the  Extraordinary General Meeting held on 17th December,1987 and the  resolution of the Board of Directors dated 8.1.1988 shall be treated as  valid and effective except the allotment of 3000 shares in favour of  Pratapsinh S. Gaekwad and Priyadarshiniraje S. Gaekwad and 500  shares in favour of Respondent No. 12 herein.  The register of the  members and other records of the company will stand rectified  accordingly.

(B)     The Board of Directors shall consider the question as regard shifting  of the office of the Company to Surat from Baroda.  The records of  the company, if any, in possession of any of the members or any other  director shall be restored to the Registered Office of the Company  failing which it would be open to the company to initiate appropriate  proceedings before appropriate forum.  An Extraordinary General  Meeting of the Shareholders of the Company will be convened on 26th  February, 2005 at 11.00 a.m. at Baroda for appointment of the  directors of the company on the basis of the shares respectively held  by them as also the Articles of Association and in accordance with  this order of this Court.   

(C)     The aforesaid meeting will be conducted under the Chairmanship of a  nominee of the Registrar of the Companies.   

(D)     All the shareholders will be entitled to vote by themselves or through  their proxies at the said meeting for appointment of the directors of  the company.   

(E)     The Registrar of the Companies shall for the purpose of holding the  said meeting shall issue notices thereof to the shareholders and may  get the said notice published in newspapers one in English and one in  Gujarati for circulation in the area.   

(F)     Costs of publication and issuance of such notice shall be borne by the  company.  Appellant No. 1, however,  shall   deposit a sum of            Rs. 30,000/- before the Registrar of the Companies within two weeks  from date for meeting the requisite expenditure thereof.  The said sum  of Rs. 30000/- shall be reimbursed to Appellant No. 1 by the company  within four weeks from the date of the meting.   

(G)     The Appellant No. 1 shall further supply the names and addresses of  the shareholders of the company to the Registrar of company within  two weeks from date.  

(H)     The Registrar of the Companies or his nominee shall be entitled to  seek assistance for peaceful conducting of the meeting from such  authority or authorities as may be considered  necessary.  

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(I)     No adjournment motion may be entertained.   

(J)     Let a copy of this order be forwarded to the Registrar of Companies  by the Registry of this Court forthwith for appropriate action.