IN THE HIGH COURT OF GUJARAT AT AHMEDABAD O.J.APPEAL No. 6 of 1995 with O.J. APPEAL Nos. 7 of 1995 & 8 of 1995 in COMPANY PETITION No 51 of 1991 For Approval and Signature: Hon'ble MR.JUSTICE R.K.ABICHANDANI and Hon'ble MR.JUSTICE A.R.DAVE ============================================================ 1. Whether Reporters of Local Papers may be allowed : YES to see the judgements? 2. To be referred to the Reporter or not? : YES 3. Whether Their Lordships wish to see the fair copy : NO of the judgement? 4. Whether this case involves a substantial question : NO of law as to the interpretation of the Constitution of India, 1950 of any Order made thereunder? 5. Whether it is to be circulated to the Civil Judge? : NO --------------------------------------------------------- SHANTADEVI PRATAPSINH GAEKWAD & ORS. Versus SANGRAMSINH P. GAEKWAD & ORS. -------------------------------------------------------- DR.(MRS) MRUNALINI DEVI PUAR OF DHAR Versus SANGRAMSINH P GAEKWAD ------------------------------------------------------- MRS SHUBHANGINI DEVI GAEKWAD Versus SANGRAMSINH P. GAEKWAD & ORS. -------------------------------------------------------- Appearance: O.J.APPEAL Nos. 6, 7 & 8 of 1995 MR PV KAPOOR, Senior Counsel with MR KRISHNA KUMAR & MR VM TRIVEDI, Advocates for Petitioners MR ROHIT KAPADIA, Senior Counsel with MR. K.S. JHAVERI & MR KAILASH JETHMALANI Advocates for Respondents. -------------------------------------------------------------- CORAM : MR.JUSTICE R.K.ABICHANDANI and MR.JUSTICE A.R.DAVE Date of decision: 09/08/2000 ORAL JUDGEMENT (Per R.K.Abichandani,J.) These three appeals are directed against the judgement and order passed by the learned Single Judge on 17th April, 1995, in Company Petition No. 51 of 1991, dismissing the petition which was filed under the provisions of Sections 397 and 398 of the Companies Act, 1956. O.J. Appeal No. 6/95 has been preferred by the petitioners of the Company Petition No. 51/91 and the other two O.J. Appeals No.s 7 and 8 of 1995 have been preferred by the supporting original respondents Nos. 11 and 12. Since common points were involved, all these three appeals have been argued together by referring to the record of the O.J. Appeal No.6/95, by both the sides. 2. The case of the appellants in O.J. Appeal No. 6 of 1995 (hereinafter referred to as the petitioners) was that the respondent No.6 company Gaekwad Investments Corporation Pvt.Ltd. (hereinafter referred to as "the company") which was initially incorporated as a Public Ltd. company in the year 1958 was converted into a Private Limited company around the year 1971 and its registered office is situate at "`Indumati Mahal', Jawaharlal Nehru Marg, Baroda 390 001". The company was established with the objective of carrying on business of an investment trust company and to transact the activities which are referred to in the Memorandum of Association of the company and its Articles of Association at Annexure "A" to the petition. 2.1 According to the petitioners, the said company was closely held by family members and family friends who were its share-holders. Since its incorporation and until his demise on 1st September, 1988, Shrimant Fatehsinh Gaekwad was the Chairman of the company and in his absence, his mother the petitioner No.1 Smt. Shantadevi Pratapsinh Gaekwad used to function as the Chairman. Shrimant Fatehsinhrao Gaekwad was holding about 75% of the equity shares of the company. According to the petitioners, the equity share capital in the company consisted of 425 shares of Rs. 100 each, out of which Shrimant Fatehsinhrao Gaekwad owned 301 shares, the petitioner No.1 owned 7 shares, the supporting respondent Smt.Shubanginidevi owned 5 shares, the supporting respondent Smt. Mrunalinidevi Puar owned 10 shares, the respondent No.1 Shri Sangramsinh P. Gaekwad, brother of Shrimant Fatehsinhrao Gaekwad owned one share and his wife Smt. Asharaje Gaekwad, respondent No.2 herein owned 5 shares. The remaining shares were held by the members of the family of Shrimant Fatehsinhrao Gaekwad and his friends. The statement showing share-holding pattern of the 425 shares is at Annexure "A-1" to the petition. According to the petitioners, on the demise of Shrimant Fatehsinhrao Gaekwad on 1st Sept. 1988, his mother, the petitioner No.1 was his sole heir. 2.2 On or about 23rd March, 1988, according to the petitioners, in a family meeting, it was decided to broaden the capital base of the company by further issue of 15,000 equity shares of Rs. 100 each and it was agreed at that meeting and also in a subsequent meeting of the Board of Directors that out of 15,000 equity shares, 8,000 would be allotted to Shrimant Fatehsinhrao Gaekwad, 500 equity shares to Smt. Mrunalinidevi Puar who was also his sister and 6475 shares to respondent No.1 Shri Sangramsinh P. Gaekwad. No date was fixed for payment to be made in respect of those shares and the share certificates were to be issued as and when the payments were made. These averments seem to have been made in the petition on the basis of copies of a requsition note containing endorsements in the hand-writing of Shri N.K.K Mohammed, who was the Personal Secretary of the respondent No.1 and the draft minutes prepared on that basis . At Annexure "B" to the petition is annexed the said note which is described as a note dated 23.3.1988 in the petition, but on perusal it appears that that the said date is written below the endorsement made by Shri N.K.K. Mohammed, which reads "Minutes of Committing meeting on this basis". This note is a type-written note, containing particulars of "requisitions so far" and in the margin it bears an endorsement "Chairman has okayed this". Annexure "C" to the petition is a note dated 29th March, 1988 signed by the Company Secretary Mr. M.N. Khade forwarding draft minutes of the Committee meeting held on 21st March, 1988 to Mr. N.K.K. Mohammed with a request to approve the same. Both the said note bearing endorsement of Mr. N.K.K. Mohammed and the draft minute forwarded under the note dated 29th March, 1988 of the Company Secretary Mr. M.N. Khade, reflected the agreed basis for allotment of 15,000 shares as stated in the petition. According to the petitioners, on the death of Shrimant Fatehsinhrao Gaekwad the right in respect of the 8,000 equity shares which were decided to be allotted as per the draft minutes to Shrimant Fatehsinhrao Gaekwad vested in his mother the petitioner No.1, who was his sole heir. The respondent No.1 as a member of Shrimant Fatehsinhrao Gaekwad family had been managing the affairs of the company for some time and after the death of Shrimant Fatehsinhrao Gaekwad, he continued to manage the same. According to them, they had reposed trust and faith in him believing that he would be managing the affairs fairly and honestly and will discharge his obligations to his mother, sisters and other members of the family and close friends. Therefore, no accounts were checked nor any questions asked by the petitioners to the respondent No.1. 2.3 It is alleged that in or about October/November, 1990, the petitioners came to know that the respondent No.1 had transferred some of his share-holdings and that of his immediate family to a non-member with an ulterior motive. The petitioner No.1 therefore, took inspection of the register of members and the register of transfers and learnt that apart from issuing 6475 equity shares to himself and the members of his family, (as per the requisition note and the draft minutes at Annexures "B" and "C" to the petition), the respondent No.1 had fraudulently issued further 3,000 equity shares to his son and daughter, who are respondents Nos. 4 and 5 in the petition, increasing in the process his total share-holding in the company together with the share-holding of his wife, son and daughter and his HUF i.e. the respondents Nos. 2, 3, 4 and 5, to 9481 equity shares. The respondent No.1 had thus, changed behind the back of the petitioners, the basic idea of the company being the company of Shrimant Fatehsinhrao Gaekwad and after his death, his mother as the sole heir of Shrimant Fatehsinhrao Gaekwad. It is further alleged in the petition that the petitioners also came to know that the respondent No.1 and his wife, the respondent No.2, purportedly transferred 9415 equity shares out of the 9481 to a company named Indreni Holdings Pvt.Ltd. (hereinafter referred to as "Indreni") on or about 30th March, 1990. According to the petitioners, the said conduct of the respondents Nos. 1 and 2 was motivated to grab the control of the company and the transfer of shares in favour of Indreni was illegal, null and void. After the transfer of their shares to Indreni, the balance number of shares that remained with the respondent No.1 was 26 and that the respondents Nos. 2, 3, 4 and 5, ten each i.e. in all 66. Some of the share-holders filed Suits at Baroda and Rajkot, being Suit Nos. 867/90 and 305/90 respectively, in which ad-interim injunction was granted restraining Indreni from exercising any voting rights in respect of the 9415 equity shares transferred to it. The injunctions were served on Indreni on or about 15.12.1990. On 20.12.1990, the respondent No.2, as the Executive Director of the Company, had called an Annual General Meeting of the company, by a notice dated 10.12.1990. It is alleged that the said notice, at Annexure "D" to the petition, was not valid since it was not a notice of fourteen clear days as required. The Board meeting at which annual accounts were approved, was held at Bombay on 10.12.1990 and therefore, according to the petitioners, it was physically impossible for the annual accounts to be sent thereafter on that day itself i.e. 10.12.1990 to the auditors of the company at Baroda for their examination and report and for the auditors to have examined and made the report on that very day at Baroda, and to send it back to Bombay. The fact that all this could not have been done in a single day shows the malafide conduct of the respondents Nos. 1, 2, 9, 10 and 11. It is further alleged that several share-holders including the petitioners had objected to the validity of the Annual General Meeting at its very commencement on 20.12.1990. At that meeting which was held in the registered office of the company at Baroda, the respondent No.1 had taken the Chair and 15 share-holders who are named in paragraph 10 of the petition attended in person or through their proxies. Besides these persons, Shri H.A. Shinde, Shri V.K. Raichand and Shri P.U. Rana also attended the meeting as the Directors of the company. The objecting members agreed to participate at the meeting under protest without prejudice to their objections against the validity of the notice. The agenda for the said meeting contained in the notice dated 10th December, 1990, referred to the fact that the respondent No.1 and Dr. G.M. Oza, who were Directors, were eligible for re-election and had so offered themselves for that purpose. The agenda also referred to the fact that four additional Directors, namely - the respondent No.2 Smt. Asha Raje Gaekwad, the respondent No.9 Shri Dilip Thaker, the respondent No.10 Shri Bhupatsnh Jadeja and the respondent No.11 Shri V.K. Raichand held office until the date of the said meeting and the resolutions would be considered for their appointments as Directors. The other matters on the agenda related to appointment of auditors and payment of a sum of Rs. 3,500 per month as remuneration to the respondent No.2 who was the Executive Director. At the Annual General Meeting, it was pointed out by the other Directors who were present that Dr. G.M. Oza had already written a letter to the company, a copy of which was endorsed to all the Directors that he had not offered himself for re-election. A copy of that letter dated 17th December, 1990 (Annexure "E" to the petition), was shown in the meeting by the Director Shri P.U. Rana. It was thereupon unanimously decided to drop the agenda regarding appointment of Dr. G.M. Oza. It is further alleged that after all the items on the agenda were discussed, the respondent No.1 directed that poll be taken by ballot on all the items except item No. 4 relating to the re-appointment of Dr G.M. Oza, separately but simultaneously. Shri Ajitsinh Gaekwad, a share-holder and Shri P.U.Rana, were appointed as scrutinisers. Ballot papers were distributed to all the members and proxy-holders and after each of them had cast his/her votes, they were collected. It is then alleged that when the question of counting the number of votes arose, the Register of Members was taken out and the number of equity shares mentioned against each member's name was considered to be the number of votes to which that member was entitled. In the register of members, the number of shares shown against the respective member's names were indicated as described in para 14 of the petition, as per which 26 shares were shown against the name of the respondent No.1 and 10 each against the names of respondents Nos. 2, 3, 4 and 5. It is then alleged that when the votes were counted, the resolution for the appointment of auditors was unanimously passed. However, the resolutions on all other items on the agenda, including the resolution regarding re-appointment or appointment of the respondents Nos. 1, 2, 9, 10 and 11 as Directors of the company were, defeated by a majority of 1122 votes against and 66 for the resolutions. The respondents Nos. 1 to 5 had voted in favour of the resolutions while all others had voted against them. When the respondent found that these resolutions were lost, it is alleged, he took physical possession of the ballot papers, the registers of members, the proxy register, the attendance register and other records and in a fit of rage threatened in presence of the petitioner No.1 and other lady members that he would be taking them away to Bombay. It is stated that many members attempted to persuade the respondent No.1 to prevent him from taking away the registers, ballot papers and other documents, but he threatened them by saying that a Police complaint had already been lodged on his behalf and those obstructing him from leaving the meeting with the record of the company would face dire consequences. The members of the company were witness to the conduct of the respondents Nos. 1 and 2 taking away the said record. On ascertaining from the Navapura Police Station, Baroda, it was learnt that the respondent No.1 had lodged in advance what he described as a Police complaint, a copy of which is at Annexure "F" to the petition. On perusal of that document, it appears that it was written on 20th December, 1990 by the Advocate Mr. Kailash P. Jethmalani to the Police Inspector on behalf of his client Shri R.M. Desai, authorised attorney of the respondent No.6 company, stating that the Annual General Meeting of the company was fixed at 11 A.M at the venue stated therein and that his client anticipated that some problem would be caused and some person might break the law and distrub and therefore, Police Inspector was requested to give Police protection at the said meeting. The petitioners allege that the attempts of the petitioners and other share-holders to persuade the respondent No.1 to return the papers, failed. 2.4 It is then stated that in the Civil Suits instituted against the respondents Nos. 1, 2 and 5 at Baroda and Rajkot, they had filed affidavits stating that the share transfer in favour of Indreni on 30.3.1990 was rescinded in a meeting of the Board of Directors, which was claimed to have been held on 9.8.1990. It is stated that in the said affidavits it was mentioned that at the meeting of the Board of Directors held on 13.7.1990, it had been stated that the notices of transfers of shares of the company by the respondent No.1 and his family members were not sent to all the members and that since the transfer might not be valid, a legal opinion should be obtained. It was further stated by these respondents that in the Board meeting held on 9.8.1990, the transfers in favour of Indreni were rescinded and the offers for the sale of shares were permitted to be withdrawn. According to the petitioners, the purported transfer in favour of Indreni had in fact not been rescinded at any stage. However, with a view to circumvent the ad-interim injunctions granted by the Civil Courts at Baroda and Rajkot in the Civil Suits, injuncting Indreni from voting on the 9415 shares already transferred to it, the respondent No.1, as an after-thought, had belatedly offered this explanation that the transfers were rescinded on 9.8.1990. It is alleged that the said affidavits were filed by the respondents only after the respondents Nos. 1 and 2 took away the register of members and other documents and records of the company with them on 20.12.1990. It is contended that if the transfer of shares in favour of Indreni had already been rescinded in the Board meeting of 9.8.1990, the respondents would not have waited till 20.12.1990 to file a reply in the Suits at Baroda and Rajkot, for stating that the said transfers were rescinded on 9.8.1990. It is also stated that the plaintiffs in the Baroda suit had on 21.12.1990 asked for copies of the minutes of the Board meeting allegedly held on 13.7.1990 and 9.8.1990, but these respondents have not supplied the same till the filing of this petition. The petitioners had made enquiries from the Company Secretary Mr. M.N.Khade, who was present at the meeting of 13.7.1990 and were informed that in the said meeting there were no discussion at all on the fact that the transfer notices were not sent to the share-holders and there was also no discussion about any legal opinion concerning the validity of such transfers to Indreni. Mr. M.N. Khade had informed the petitioners that the alleged meeting of 9.8.1990 had not at all been held and that the transfers to Indreni had not been rescinded at all. The petitioners had stated that they would file an affidavit of the Company Secretary Mr. M.N. Khade to that effect and this they have done later on by annexing his affidavit with the affidavit-in-rejoinder filed by the petitioner No.1. According to the petitioners, the contention of these respondents that the transfer purportedly made in favour of Indreni was discussed at the meeting of 13th July, 1990 and was rescinded on 9th August, 1990 was false to their knowledge. It is alleged that this story is belied by the fact that an interim dividend was paid by the respondent No.6 company to Indreni and that the tax deducted at source was deposited in the State Bank of India after 9th August, 1990. It is also stated that the petitioners and several other share-holders had inspected the register of members on 20.12.1990 at the Annual General Meeting of the company and had found that the name of Indreni was shown therein as the holder of 9415 equity shares and that the respondents Nos. 1 to 5 were holding a total of only 66 equity shares as per the said register. It was stated that the petitioners had obtained certified true copies of the register of members and register of transfers on 10.12.1990, which are produced at Annexures "G" & "H" to the petition. The petitioners apprehended that the respondents Nos. 1 and 2 had tampered with the said registers, which were taken away by them and retained in their custody since 20.12.1990. It was submitted that the respondents Nos. 1 and 2 should be directed to produce before the Court the minutes of the Board of Directors as well as those of Committees of Board of Directors of the company and the register of members, register of transfers, attendance register of Annual General Meetings, proxies lodged with the company, ballot papers of the Annual General Meeting of 20.12.1990 and other records and papers which were taken away by them. 2.5 It was further contended that since the respondents Nos. 1, 2, 7, 8 and 9 had ceased to be Directors of the company in any event with effect from 20.12.1990, if not earlier, they had no right to represent themselves to be the Directors of the company. The petitioners however, received a notice dated 5.1.1991 as per Annexure "I" to the petition, under the signature of the respondent No.2, claiming to be the Executive Director of the company, stating that an extra-ordinary General Meeting was called on 14.1.1991 at Bombay. By that notice, an intimation was given for removing Shri P.U. Rana and Shri H.A. Shinde, who had been Directors of the company for last several years. The notice for their removal was moved by the respondent No.4 Shri P.S. Gaekwad, who is the son of respondents Nos. 1 and 2. Furthermore, the registered office the company which had ever since its inception been situated at "Indumati Mahal" at Baroda was sought to be shifted to Surat and the respondent No.1 was sought to be made a permanent Director and Chairman of the company. The restrictions on the transfer of shares were sought to be diluted to facilitate the transfer of shares of the company in favour of concerns in which these respondents had an interest. According to the petitioners, all these changes were sought to be effected in haste to defeat the legitimate claims and rights of the petitioners and to perpetrate the power and authority of these respondents to use the company to their own personal benefit. The power to call such meeting was questioned by several share-holders including Shri P.U. Rana and Shri H.A. Shinde and telegrams dated 13.1.1991 were addressed stating that since the respondents Nos. 1 and 2 ceased to be the Directors, and had no authority to call such a meeting. These are produced at Annexures "I-A" collectively to the petition. Shri P.U. Rana sent a detailed letter dated 10.1.1991 to the respondent Nos. 1 and 2 in this regard, which was according to the petitioners, evasively and falsely replied. These are at Annexures "J" to "M" of the petition. It is also alleged that the notice dated 5th January, 1991 was not valid as it was not a 14 clear days notice. The respondents Nos. 1 and 2 published an advertisements (at annexures "O" and "P" to the petition), alleging that the extra-ordinary general meeting of the company was held on 14.1.1991 and at the said meeting, the respondent No.1 was appointed as a permanent Director and Chairman of the company; (2) that Shri P.U. Rana and Shri H.A. Shinde had been Directors of the company; (3) that the registered office of the company had been shifted from Indumati Mahal, Baroda to Surat and (4) the Article of Association of the company had been altered. According to the petitioners, the respondents Nos. 1, 2, 9, 10 and 11 ceased to be Directors of the company and therefore, had no authority or power to call such meeting. The company through its Director Shri P.U. Rana, published an advertisement in various newspapers as per Annexure "Q" to the petition, in which according to the petitioners, true and correct facts were stated. 2.6 It is also contended that despite the petitioner No.1 having called upon the respondent No.1 orally on several occasions and later by a letter dated 29th November, 1990 to give share certificates of the said 8,000 equity shares which were to be allotted to Shrimant Fatehsinhrao Gaekwad, respondents had neglected to do so. A copy of the letter dated 29th November, 1990 is at Annexure "R" to the petition. The petitioners alleged that the respondents Nos. 1 and 2 had further colluded and purported to allot 3,000 equity shares to their children Pratapsinh S. Gaekwad and Miss Priyadarshini S. Gaekwad i.e. the respondents Nos. 4 and 5, who were minors and thereby had acted contrary to the decision which was arrived at in March, 1988, by appropriating in the names of their children, additional 3,000 equity shares over and above 6475 equity shares, to