1 IN THE HIGH COURT OF JUDICATURE OF BOMBAY IN THE HIGH COURT OF JUDICATURE OF BOMBAY IN THE HIGH COURT OF JUDICATURE OF BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION ORDINARY ORIGINAL CIVIL JURISDICTION ORDINARY ORIGINAL CIVIL JURISDICTION COMPANY APPLICATION NO.47 OF 2008 IN COMPANY APPEAL NO.6 OF 2006 IN COMPANY PETITION NO.91 OF 2005 Jyoti C. Raheja & Ors. ..Applicants. V/s. Aasia Properties Development Ltd. & Ors. ..Respondents. WITH COMPANY APPLICATION NO.105 OF 2008 IN APPEAL NO.11 OF 2006 IN COMPANY PETITION NO.91 OF 2005 Asia Properties Development Ltd. ..Petitioner. V/s. Juhu Beach Resorts Ltd. & Ors. ..Respondents. Mr.Aspi Chinoy a/w Mr.V.R.Dhond a/w Ashish Kamath i/b. Crawford Bayley & Co. for applicant in CA 105/08 & Respondent No.1 in CA 47/08. Dr.Veerendra Tulzapurkar a/w Hemlata Jain & Ms.Bhargavi Zaveri i/b. Wadia Ghandy & Co. for Respondent Nos. 2,3,6,7 & 17 to 20. Mr.Janak Dwarkadas i/b. Wadia Gandhy & Co. for Respondent Nos.4,5,8,9 & 14 to 16. Mr.Iqbal Chagla a/w D.Khambata & Rahul Dwarkadas i/b. Wadia Gandhy & Co. for Respodent Nos. 10,13 & 21-28. CORAM: A.M.KHANWILKAR,J CORAM: A.M.KHANWILKAR,J CORAM: A.M.KHANWILKAR,J DATE : NOVEMBER 20, 2008. DATE : NOVEMBER 20, 2008. DATE : NOVEMBER 20, 2008. P.C. : P.C. : P.C. : 2 1. Heard Counsel for the parties. This common order will dispose of both the Applications. 2. Company Application No.105 of 2008 is taken out by the Original Petitioner for interim relief during pendency of the appeal in the following terms: "(a) that pending the hearing and final disposal of the above Appeal, this Hon’ble Court be pleased to direct the appointment of the nominee of the Applicant on the Board of the Respondent No.1 Company with substantive power of management including cheque signing power: (b) that pending the hearing and final disposal of the above Appeal, this Hon’ble Court be pleased to direct that the affairs of the Respondent No.1 Company be investigated by an inspector/inspectors and a Report thereof be submitted to this Hon’ble Court for appropriate orders and directions as the nature and circumstances of the case may require; (c) that pending the hearing and final disposal of the above Appeals, this Hon’ble Court be pleased to direct the Respondents to provide to the Applicant inspection of the following records and/or documents:- (i) Share Transfer Forms, Minutes of Board Meetings, Members Register and/or all other records in relation to the transfer of shares in favour of the Applicant and/or B. Reheja Group; (ii) Share Transfer Forms, Minutes of Board Meetings, Member Register and/or records maintained by the Company in relation to purported transfers in favour of Reheja entities, post(incl.30th August, 1982) Applicant/Appellant becoming a 3 member of the Company. (d) that pending the hearing and final disposal of the above Appeal, this Hon’ble Court be pleased to restrain the Respondents from in any manner alienating or disposing of or encumbering or creating any third party rights whatsoever in the property, assets and investments of the Respondent NO.1 Company; (e) that pending the hearing and final disposal of the above Appeal, this Hon’ble Court be pleased to restrain the Respondents, particularly Respondent Nos.9 to 28 from in any manner exercising any rights including voting rights or receiving dividends in respect of the shares held by them and further restrain them from dealing including creating third party rights and interest in respect of the shares held by them; (f) that pending the hearing and final disposal of the above Appeal, this Hon’ble Court be pleased to restrain Respondent No.13 from acting as the Managing Director or Joint Managing Director or as Director of or from holding any office or interfering or participating in the affairs of the Respondent No.1 Company; (g) that pending the hearing and final disposal of the above Appeal, this Hon’ble Court be pleased to appoint and direct any person on behalf of this Hon’ble Court to authenticate and take custody of all statutory records maintained by the Respondent Company including the documents and records maintained by the Respondent Company relating to share transfers, minutes of the Board meetings and transactions entered into by the Respondent No.1 with Respondent No.29; (h) that pending the hearing and final disposal of the above Appeal, this Hon’ble Court be pleased to restrain the Respondent from issuing and/or allotting any further shares or granting any rights or options to any shares/shareholders without the leave of this Hon’ble Court; 4 (i) ad-interim reliefs in terms of prayer Clause (a) to (j) hereinabove; (j) costs; and (k) such further and other reliefs as this Hon’ble Court may deem fit in the facts and circumstances of the present case." . Whereas Company Application No.47 of 2008 is taken out by the Original Respondent in the cross-appeal praying for following interim reliefs: (a) that pending the hearing and final disposal of the captioned Appeal, the operation and implementation of the impugned order dated 19th September, 2006 to the extent it is held and declared that as long as Respondent No.1 held 1/3rd share of the Company, Respondent No.1 would have right to nominate one non-functional director on the Board of Respondent No.2-Company, be stayed; (b) For ad-interim reliefs in terms of prayer (a); (d) For costs of this Company Application; (e) For such other and further reliefs that this Hon’ble Court may deem fit and necessary. 2. I shall first deal with the Application preferred by the original Petitioner. On considering the Judgment under Appeal, I have no hesitation in taking the view that the Board has negatived the principal argument of the Petitioner regarding 5 fraudulent manipulation in the share transfer records and as a ground of oppression against the minority shareholders-Original Petitioner. That can be discerned from paragraph-24 on wards of the impugned Judgment. Counsel for the Original Petitioner however, submits that in paragraph-22 clear finding has been recorded that multiple corrections are noticed in the Register of members, share transfer register and Minutes of the Board meeting which may justify claim of fraud as alleged by the Petitioner. That in my opinion, is not a finding of fact but only a passing observation made in the course of discussion on the issue under consideration. The finding of fact however, can be discerned from paragraph-24 onwards where the Board proceeds to hold that the discrepancies in the record maintained by the company would only indicate that the records maintenance in the company is not up to the mark. 3. The relief claimed in the present application preferred by the Original Petitioner such as prayer clause (a) if granted would result in issuing mandatory direction against the company at the interlocutory stage. The fact situation of the present case however, does not justify that course to be adopted. The Original Petitioner as of now is 6 only a shareholder, at best having 1/3rd share-holding. No provision in the Companies Act or Articles of Association has been pressed into service to justify that relief in terms of prayer clause (a) is available to a shareholder, albeit having 1/3rd share-holding. In view of the opinion recorded in the earlier part of this Order that negative finding has been recorded by the Board against the Original Petitioner in relation to their argument of fraudulent manipulation of company records, there is no reason to accede to the drastic relief claimed by the Original Petitioner in the present Application. 4. At best, the Original Petitioner may be entitled for relief of inspection of share transfer forms and Minutes of the relevant Board Meetings only in relation to the respective share transfers in favour of Raheja entities effected on and from 30th August, 1982. This observation does not mean acceptance of the principal argument of the original Petitioner, but is only in the context of right of a shareholder to inspect such record. 5. The argument of the Original Petitioner that if interim relief as prayed for is refused, the existing shareholders may transfer shares to "third 7 party", in my opinion, is without any basis. If there is preemption right in favour of the existing members then for any future transfer of share to "third party"(not being member to member transfer), the Company will be obliged to offer those shares to the existing members in the first place, which in turn will have to exercise option of purchase before the same is offered for sale to "third party". This arrangement secures the interest of the Petitioners-minority shareholders. In cases where the shares have been transferred between member to member in the past or to be done in the future, there can be no difficulty as appropriate direction can always be issued to the existing members at the time of disposing of the appeals, if so required. In that sense, all the transfers between the existing member to member in the past on and from 30th August, 1982 till the final decision is rendered on the present appeals will be subject to the outcome of the present appeals. 6. Besides the above arrangement, the interest of the Petitioners(minority shareholders) can be secured by calling upon the Company to refrain from selling or creating third party rights in the immovable assets of the company during the pendency 8 of the present appeals, unless prior permission of this Court is obtained in that behalf. In this regard, Counsel appearing for the Company states on instruction that the Company shall not create third party interest or sell the immovable assets of the Company without taking prior permission of this Court. However, it is submitted that this assurance should not come in the way of the Company from conducting its day to day business including to avail of loans from financial institutions by offering assets of the Company in mortgage arrangement. This stand of the Company canvassed before this Court through Counsel is accepted. In view of this assurance, the apprehension of the original Petitioners(minority shareholders) stands fully addressed. In fact it is not in dispute that during the pendency of the Petition before the Board, no interim relief operated in favour of the original Petitioner. In such a case, in an appeal against the adverse decision against the original Petitioner, ordinarily, the question of granting interim relief would not arise; moreso, of such widest amplitude sought in the present application. It would have been a different matter if the Board was to accept the plea of the original Petitioner regarding fraud and manipulation of shares records. As observed 9 earlier, prima facie, the finding recorded by the Board appears to be a probable view. It is not as if, the conclusion reached by the Board appears to be manifestly wrong or perverse, in which case, the considerations could have been slightly different. The fact that the appeal has been admitted does not necessarily mean that the opinion of the Board is perverse. While admitting the Appeal one of the consideration which weighs with the Court is whether an arguable point is made out by the appellant and in proceedings such as the present one whether any question of law arises for consideration. 7. Reverting to the prayer clause (b) of the Application under consideration, so long as the finding recorded by the Board is not overturned; and a clear finding recorded in favour of the original Petitioner on the issue of entries found in the share records to be fraudulent or manipulated, question of acceding to the relief in terms of prayer clause (b) does not arise. As aforesaid, the finding recorded on the said issue pressed into service by the Petitioners is unambiguously in the negative, which is clear from the discussion in paragraphs-24 and 25 of the impugned Judgment. As a result, the question of granting relief in terms of prayer clause (b) by 10 way of interim order in the appeal of the original Petitioners does not arise. Indeed, this would not preclude the Court from passing appropriate directions while considering the appeals for final hearing, if the situation so warrants. 8. So far as prayer clause (c) of the Application, I have already opined that the original Petitioner is entitled for inspection only in respect of share transfer forms and relevant Minutes of Board meeting only in relation to the respective share transfers in favour of Raheja’s effected on and from 30th August, 1982 and nothing more. The said inspection can be granted to the original Petitioners only in its capacity as shareholder, consistent with the statutory right of a shareholder regarding inspection of records. 9. Insofar as prayer clause (d) is concerned, in view of the assurance given by the Company through the Counsel which has been accepted, no further direction needs to be passed against the Company much less of the widest amplitude as in prayer clause (d). Besides, as of now one Court has already considered the grievance of the original Petitioner and answered the issue raised by them in the negative. As a 11 matter of fact, no such relief operated in favour of the Original Petitioner during the pendency of proceedings before the Board. In that sense, the Original Petitioners inspite of having lost before the Board are shown indulgence in the proceedings in appeal for the first time. In fact the Original Respondents should be aggrieved by such arrangement but they have shown readiness to abide by such arrangement in deference to the observation made by the Court. 10. Insofar as prayer clause (e) is concerned, even the same will have to be stated to be rejected at this stage keeping in mind the observations made hitherto. However, at the final disposal of the appeal, appropriate direction can always be given by this Court. As of now, the Respondent Nos. 9 to 28 cannot be prevented from exercising their rights as the Board has reckoned them as valid shareholders of the Company. 11. Insofar as the prayer clauses (f) and (g) are concerned, for the reasons already recorded by the Board on issues raised by the original Petitioners with which, prima facie, I am in agreement at this stage, the question of granting reliefs as prayed in 12 the said prayer clauses does not arise. 12. Insofar as prayer clause (h) is concerned, once again the same pertains to future transfer of shares. For the opinion already recorded in the earlier part, even this relief stands answered. At the cost of repetition it is clarified that transfer of concerned shares between members to member will be subject to the outcome of the appeals. Whereas, future transfer of shares to "third party"(not being a member) will abide by the regime of preemption right of the existing members. 13. On scrutiny of the Judgment under appeal, it is noticed that the Board has examined all relevant aspects of the matter and answered the points in issue pressed into service on behalf of the original Petitioner in the negative. Prima facie, I am in agreement with the said opinion recorded by the Board, in particular, from paragraph-24 onwards till paragraph-28 on merits. For that reason, the question of granting any interim relief to the original Petitioner, much less in the widest possible terms prayed by the Petitioner in the Application under consideration cannot be countenanced. Indeed, it is made clear that the original Petitioner would 13 be entitled to inspection of books and records of the company as referred to earlier and that the transfer of shares of the Company on and from 30th August, 1982 will abide by the outcome of the main appeals. At the cost of repetition, it is placed on record that the Company shall observe the assurance given through Counsel to this Court in its letter and spirit relating to the immovable assets of the company during the pendency of the present appeals. No further relief can be granted to the original Petitioners. 14. It was suggested on behalf of the original Petitioner that having regard to the serious issues raised on behalf of the Petitioners, it would be appropriate to hear the appeals expeditiously. I am afraid, that is not possible. In that, as of now appeals pending for final hearing before this Court pertain to year 2003. Needless to observe that in every such appeal which arises from the proceedings under section 397, 398 of the Act may involve similar grievance. There is no tangible reason as to why precedence should be given to the present appeals, merely because interim relief is being refused. The question whether the Petitioner deserves grant of interim relief during the pendency of the appeal has 14 already been taken into account while considering this application. For that reason, in my opinion, there is no reason to give precedence to the present appeals and to take the same out of turn merely because the Petitioner insists in that behalf. 15. That takes me to the Application preferred by the original respondent. The principal grievance of the original Respondent is that the Board having recorded finding on material issues against the original Petitioner, the question of granting any relief to the original Petitioner did not arise. In any case, the relief as granted by the Board is unstatable. In that, the Board has ordered that to secure interest of the original Petitioners, as long as the Petitioners hold 1/3rd share in the company, it will have the right to nominate one nonfunctional director on the Board who does not have to hold any qualification share. Significantly, this direction is issued by the Board notwithstanding a clear finding of fact recorded by it in paragraph-29 that there was no substance in the claim of the Petitioner that it had a right of representation on the Board of the Company on the basis of understanding arrived at between the groups and legitimate expectation of being in joint management. The Board has plainly 15 found that no substantive material to establish the same other than the alleged oral understanding was produced by the Petitioner. Notably, the Board has positively found that the original Petitioner abandoned its right and legitimate expectations from 1982 till 2005 until the main Petition came to be filed. On this finding, the question of passing any equitable order does not arise. It is well established position that equitable relief should be passed in favour of such party who is vigilant and has taken due diligence to espouse his cause. Moreover, it is well established position that a person cannot insist for being made director. For, a director is and ought to be appointed or nominated consistent with the provisions of law, in particular, the Articles of Association. No articles of Association has been brought to my notice which would legitimise the direction issued by the Board that so long as the Petitioner holds 1/3rd share in the company, would be entitled to nominate one nonfunctional director on the Board. This ruling presupposes that member having 1/3rd shares would necessarily have a right to be a director, albeit a nonfunctional director on the board. It is unfathomable to accept the position as a legal proposition that a person who has substantial 16 holding, has a right in equity to be a director on the Board of Director. Moreso, in the present case, the role of the original Petitioner althroughout since inception has been only of a financer. There is nothing to show that the Petitioner was associated with the Management of the company, except as a financer. I find force in the argument of the original Respondent that as financer, the Petitioner would be justified in securing its interests consistent with the contractual obligations between the financer and the company. But that does not give him any right to nominate a director on the Board, in absence of such a contract. Indisputably, the matter as to who should be the director and who has right to become a director is governed by the provisions of the Act, in particular the Articles of Association of the Company. No reference is made to any of such provision. For the above said reasons, I have no hesitation in staying the operation of that part of the order of the Board, which declares that as long as original Petitioner holds 1/3rd share of the company, it would have right to nominate one nonfunctional director on the board of the company. Accordingly, the original Respondents are entitled for relief in terms of prayer clause (a) of the Application. 17 16. For the aforesaid reasons, both the Applications are disposed of on the above terms. Ordered accordingly. (A.M.KHANWILKAR,J) (A.M.KHANWILKAR,J) (A.M.KHANWILKAR,J)