Company Application I.A. No. 11860/08 in S.B.Company Appeal No.3/08 Smt. Yogeshwari Kumari & ors. vs. The Lake Shore Palace Hotels (P) Ltd. 1 IN THE HIGH COURT OF JUDICATUARE FOR RAJASTHAN AT JODHPUR. ORDER Smt. Yogeshwari Kumari vs. The Lake Shore Palace & ors. Hotels Pvt. Ltd. & ors. Company Application I.A.No.11860/08 in S.B. Company Appeal No.3/08 Date of Order: October 21st, 2008. PRESENT HON'BLE MR. PRAKASH TATIA, J. Servashri Vibhu Bakhru, Mrinal Kanti Mandal, Snechasish Mukherjee, Anjay Kothari, Niraj Kumar Jain & Tarun Joshi for the applicants. Servarshri M.S. Singhvi, Arun Bhansali, Vikas Balia and Mr. Ramit Mehta for the respondents. BY THE COURT: The applicant-appellants Smt. Yogeshwari Kumar & others preferred appeal under Section 10-F of the Companies Act, 1956 Company Application I.A. No. 11860/08 in S.B.Company Appeal No.3/08 Smt. Yogeshwari Kumari & ors. vs. The Lake Shore Palace Hotels (P) Ltd. 2 against the order dated 4.12.2007 passed by the Company Law Board,Principal Bench, New Delhi in Company Petition No.32/2005 by preferring S.B. Company Appeal No.3/2008. The part of the same judgment/order has been challenged by the Lake Shore Palace Hotels Private Limited by preferring S.B.Civil Appeal No.1/2008. In Company Appeal No.2/2008, the appellants-applicants submitted present application Company Application IA No.11860/08 under rules 6 and 9 of the Companies (Court) Rules, 1959 read with Section 151 CPC and sought interim relief that the operation of resolution dated 31.3.2008 passed at Board's meeting appointing Shri Manmohan Singh Kapur as Additional Director of respondent no.1-Company be restrained from acting as Additional Director of respondent no.1-Company. This application has been submitted on 4.9.2008. The facts in brief are that the appellant-applicants Smt. Yogeshwari Kumari and others holding 25.1% of shares in M/s Lake Shore Palace Hotels Pvt. Ltd., submitted petition in the main Company Application I.A. No. 11860/08 in S.B.Company Appeal No.3/08 Smt. Yogeshwari Kumari & ors. vs. The Lake Shore Palace Hotels (P) Ltd. 3 petition submitted before the Company Law Board, Principal Bench,New Delhi, alleging that by increasing the share capital of the company, the respondent no.2 Arvind Singh Mewar is attempting to oust the appellants from the affairs of the Company and also to reduce them to a hapless minority . In the petition, there are allegations of financial mismanagement in the affairs of the Company. The petitioner-appellants referred above sought for supersession of the Board and prayed for appointment of an administrator with a relief of permanently restraining the respondents in said petition from increasing either the authorised or paid up share capital. The said prayers were opposed by the respondent and ultimately, following order was passed by the Company Law Board on 2.3.2007 which is quoted herein below in detail:- “30. On an overall appreciation of the facts and with a view to put an end to the acts complained of, I give the following options to the petitioners to choose one of them: 1. I had passed an interim order allowing the company to go ahead with the right issue keeping the Company Application I.A. No. 11860/08 in S.B.Company Appeal No.3/08 Smt. Yogeshwari Kumari & ors. vs. The Lake Shore Palace Hotels (P) Ltd. 4 shares offered to the petitioner and the Estate intact. It was pointed out by Shri Mookerjee that in terms of the said order, while the 2nd respondent has subscribed to his entitled shares, the Estate has also subscribed to 20000 shares and the entitlement of the petitioner and those unsubscribed by the Estate are kept intact. He further mentioned that because of increase in the capital base, the company could avail additional loan facilities from the banks of about Rs.2.5 crorers and with these funds renovation work has been completed. The money spent on the renovation from 2005 till date can be quantified and deducting Rs.2.5 crorers funded by the Banks, the petitioner can fund 25.5% of the balance amount by way of long term loans carrying an interest at the rate of 10% (which is more or less the bank rate for long term fixed deposits). Since they would share the actual expenses, this would also allay the apprehension of the petitioner that the project estimate is overstated. The investments of the 2nd respondent and the Estate in the shares shall be treated as loans carrying the same rate of interest. The right shares already issued shall stand cancelled. If the petitioners choose this option, the same will not affect the company in any manner as the loans shall Company Application I.A. No. 11860/08 in S.B.Company Appeal No.3/08 Smt. Yogeshwari Kumari & ors. vs. The Lake Shore Palace Hotels (P) Ltd. 5 form part of long term funds. 2. The company will go ahead with the right issue and the 2nd respondent is at liberty to acquire the shares unsubscribed. Since it would reduce the shareholding of the petitioner substantially, the company shall pay a sum of Rs.20 lakhs per year (including Rs.6 lakhs now being paid ) with an increase of Rs.1 lakh every three years thereafter. This amount will include dividends, if any, declared by the company in future. The petitioners will continue to hold the shares that they currently hold and the 1st petitioner will continue as a director as long as the said shares are held by the petitioners. This would be more or less in line with the agreement between the parties before the High Court when company agreed to pay Rs.6 lacs for the 2nd respondent to acquire majority shares in the company. Since in the present case, the petitioners will lose their special right in respect of 25.1% shares, they should be entitled for adequate compensation which I have fixed at Rs.20 lacs. 3.During the hearing, it appeared that the petitioners were mainly concerned with the shares held by the company in Lake Palace Hotel which is one of the main assets of the company. As this Board did in Company Application I.A. No. 11860/08 in S.B.Company Appeal No.3/08 Smt. Yogeshwari Kumari & ors. vs. The Lake Shore Palace Hotels (P) Ltd. 6 James Fedrick's case, the company will transfer 25.1% of the shares held by it in Lake Palace Hotel at face value to the petitioners and the petitioners will surrender all their shares to the company at face value and cease to be members of the company and the company shall reduce its paid up capital to this extent. Difference, if any, in the value of shares surrendered/transferred, the same shall be adjusted by payment in cash. The 1st petitioner shall cease to be a director of the company and there shall be no payment of Rs.6 lacs as hereto before. 4. The forth option is parting of ways. The petitioners demanded that their shares should be valued on real estate price taking into consideration the assets of the company as also that of Lake Palace Hotel. The 2nd respondent not only objected to the inclusion of the assets of the Lake Palace Hotel in the valuation, he also expressed his inability to mobiles funds to purchase the shares of the petitioners on a real estate price basis. Considering the fact that the company is a family company and that after a full round of litigation, the second round is going on and that further litigation can also not be ruled out, I am of the view that the petitioner should go out of the Company Application I.A. No. 11860/08 in S.B.Company Appeal No.3/08 Smt. Yogeshwari Kumari & ors. vs. The Lake Shore Palace Hotels (P) Ltd. 7 company for a reasonable consideration for their shares. Purely on an equitable grounds, I am fixing the price for their shares at Rs.5 crorers (Rupees five crorers). Either the company or the 2nd respondent, at his option, shall purchase the shares at this price. The 1st petitioner shall cease to be a director of the company effective from the date of surrender/transfer and on receipt of consideration and the petitioner shall not be entitled to Rs.6 lacs as hereto before. I make it abundantly clear that this amount of Rs.5 crorers is not based on any valuation but has been fixed on equitable consideration taking into consideration, the interests of both the sides. 31. Any of the options chosen by the petitioners shall be binding on the company and the 2nd respondent. The petitioners shall intimate to the company/2nd respondent, in writing by 10th January 2008, the option that they have chosen. In case the petitioners elect the 4th option, the parties are liberty to apply to this Board for deciding on the terms of payment. In case, the petitioners do not choose any of the options, the petition shall be deemed to have been dismissed and all interim orders shall also be deemed to have been vacated. Company Application I.A. No. 11860/08 in S.B.Company Appeal No.3/08 Smt. Yogeshwari Kumari & ors. vs. The Lake Shore Palace Hotels (P) Ltd. 8 32.The petition is disposed of in the above terms.” In S.B. Company Application IA No.11860/08 it has been reiterated that the continuation of respondent no.3 as a Director of the respondent no.1-Company is illegal and the appellants have already by way of abundant caution filed a separate application withdrawing her consent to appointment of respondent no.1 T.N. Unni as Director of respondent no.1-Company because of the reason that as per the order of the Company Law Board, respondent no.3 T.N. Unni was appointed as Director of respondent-Company on account of the consent given by the appellants and that consent has become part of the order of the High Court and the Company Law Board has no jurisdiction to remove respondent no.3 as Director. The petitioners also contended that Manmohan Singh has been illegally inducted in the Board of respondent-Company. According to the appellants, the agenda items were deliberately kept vague and ambiguous so that any subject/issue can be taken up at the last moment and may have forced through at the meetings by respondent nos.2 and 3 Company Application I.A. No. 11860/08 in S.B.Company Appeal No.3/08 Smt. Yogeshwari Kumari & ors. vs. The Lake Shore Palace Hotels (P) Ltd. 9 overriding the appellant no.1 It is also alleged that minutes of the previous Board meeting were never circulated along with notice/agenda. It is also alleged that respondent nos.2 and 3 taking advantage of their illegal majority of the Board of respondent no.1-Company, have appointed Manmohan Singh Kapur as an Additional Director on 31.3.2008 without their being any discussion on his appointment or approval of the Board. It is alleged that respondent no.3-T.N. Unni help another respondent in taking decision at the meeting of the Board of Directors whereas his own appointment is under challenge. The appellant no.1 repeatedly expressed her objection to the manner in which the Board meetings are being conducted in respondent no.1-Company and important decisions being taken in respect of the Company. The appellants placed on record the copies of the letters dated 10.4.2008 and 15.6.2008 as Annexure A-1 which were replied by respondent no.2 vide letter dated 11.5.2008. On these grounds and substantially on the ground that respondent no.3's own appointment is under challenge, is helping respondent no.2 in Company Application I.A. No. 11860/08 in S.B.Company Appeal No.3/08 Smt. Yogeshwari Kumari & ors. vs. The Lake Shore Palace Hotels (P) Ltd. 10 taking decision for respondent no.1-Company, the directions as mentioned above, have been sought by the appellants. The respondents submitted reply to the application and stated that the issue with regard to the resolution dated 31.3.2008 passed by the Company and the appointment or removal of Director in a Company cannot be straightway made subject to scrutiny either by Company Law Board or by this Court. It is submitted that the finding recorded by the Company Law Board to the effect that action of answering respondent or Shri T.N. Unni are oppressive are already under challenge in Company Petition No.2/2008 preferred by the respondents. It is also submitted that previously also a Company Petition No.1/1991 was filed by appellant no.1 on the same grounds alleging oppressive of minority share holders etc. The said Company Petition was decided by this Court vide order dated 23.11.1994. Special Appeals were filed before this Court and during pendency of those appeals, settlement was arrived at in between Arvind Singh Mewar and Smt. Yogeshwari Kumari on 25.8.1999 and ultimately, in view of the Company Application I.A. No. 11860/08 in S.B.Company Appeal No.3/08 Smt. Yogeshwari Kumari & ors. vs. The Lake Shore Palace Hotels (P) Ltd. 11 settlement, the Company Petition No.1/1991 was withdrawn and the appeals were dismissed by the Division Bench of this Court on 22.10.1999 as withdrawn. Shri T.N. Unni, CA was appointed as Director of the Company on the terms of the settlement which has attained finality. Appellant no.1 then proposed the name of T.N. Unni as Director of the Company in the Board of Directors' meeting on 4.9.1999 and she herself informed that she obtained consent of T.N. Unni for this purpose. In view of the above, the Company Law Board rightly held that the Company Law Board has no jurisdiction to remove respondent no.3 T.N. Unni as Director. In view of the above, the appellants cannot be permitted to challenge the appointment of T.N. Unni as Director of the Company. It is also submitted that Shri Manmohan Singh Kapur is not party to the present proceedings, therefore, his appointment cannot be challenged by way of application in the appeal and the issue of appointment of Manmohan Singh Kapur is totally beyond the scope of present appeal. Further more, the resolution dated 31.3.2008 has neither been challenged in the appeal nor it can be subject Company Application I.A. No. 11860/08 in S.B.Company Appeal No.3/08 Smt. Yogeshwari Kumari & ors. vs. The Lake Shore Palace Hotels (P) Ltd. 12 matter of challenge in the present proceedings. The respondents also gave reply to the facts stated about the various letters exchanged between the parties referred above. It is submitted that the decisions of the Company were taken by the duly constituted Board of the Company and that cannot be questioned on the ground of absolutely vague allegations nor the decisions can be said to be prejudicial to the interest of any body. The respondents, therefore, prayed that the Company Application IA No.11860/08 may be dismissed. Reply to the application has also been filed by respondent no.3 separately and rejoinder to the reply filed by respondent no.3 has been filed by the appellants reiterating the facts stated earlier as well as by taking new grounds. The learned counsel for the appellants tried to draw attention of this Court the facts in which the share of the Company has been reduced of the appellants and have been increased of respondent no.2 by pointing out that the ancestor of appellant no.1 and respondent no.2 executed Will, created a trust and how Company Application I.A. No. 11860/08 in S.B.Company Appeal No.3/08 Smt. Yogeshwari Kumari & ors. vs. The Lake Shore Palace Hotels (P) Ltd. 13 the trust has not been given its due share and then prayed for relief referred above. The learned counsel for respondent Shri M.S. Singhvi vehemently submitted that the appointment of a person who is not party in the appeal, has been challenged as well as the resolution dated 31.3.2008 is not subject matter in the appeal nor it can be challenged in appeal. It is also submitted that the appellant is seeking further relief which she can obtain only when she succeeded in challenging the appointment of respondent T.N. Unni who was appointed as per her own consent. In view of the above, by way of interim order, working of respondent no.3 in the Board, cannot be stayed. Shri M.S. Kapur cannot be impleaded as party nor is party in the appeal nor his appointment can be challenged and, therefore, its operation cannot be stayed. I considered the submissions of the learned counsel for the parties and perused the detail facts given in the impugned order dated 4.12.2007 passed by the Company Law Board, Principal Bench, New Delhi and the directions given therein referred above. Company Application I.A. No. 11860/08 in S.B.Company Appeal No.3/08 Smt. Yogeshwari Kumari & ors. vs. The Lake Shore Palace Hotels (P) Ltd. 14 There is force in the submission of the learned counsel for the respondents that Manmohan Singh Kapur was appointed as Additional Director in the respondent-Company on 31.3.2008 and its order is not subject matter in the Appeal No.3/2008 nor it can be challenged straight way in the Appeal No.3/2008. Manmohan Singh Kapur is also not party in Appeal No.3/2008 nor he was party before the Company Law Board in the original proceeding, where from the matter has been brought to this Court. There is also inordinate delay in submitting application as Manmohan Singh Kapur was appointed as Additional Director in respondent no.1- Company vide resolution dated 31.3.2008 and it has been challenged by filing present application after more than 5-1/2 months, that is, by moving application on 4.9.2008. There is no reason for this Court to comment in detail upon all other facts because of the reason that at the request of the learned counsel for the parties, the hearing of the main Appeal No.3/2008 has been fixed to 11.11.2008. The allegations made in the application appears to be quite vague and insufficient for grant of interim Company Application I.A. No. 11860/08 in S.B.Company Appeal No.3/08 Smt. Yogeshwari Kumari & ors. vs. The Lake Shore Palace Hotels (P) Ltd. 15 relief and there is no reason for restraining respondent no.3 from acting a Director of the respondent-Company who was, admittedly appointed as Director of the Company with the consent of appellant no.1 in a matter decided by this Court on the basis of the said consent. In view of the above reason, I do not find any merit in the Company Application IA No.11860/08 and the same is hereby dismissed. (PAKASH TATIA),J. mlt