Case: Sangramsinh P. Gaekwad  Vs. Shantadevi P.Gaekwad(Dead)Thr.Lrs.

is well-known ordinarily would not grant any relief which has not been pleaded. Quasi-Partnership - Family Company - Corporate Veil: 228. 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 ) 229. The Court, however, has made a clear distinction between a family company, a private company and 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). 230. 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). 231. 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. 232. 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 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) 233. 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. 234. 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: 235. 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 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:

Decision (1 = appeal accepted, 0 = rejected): 1

Explanation:
1[ds]41. 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 interest 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 back51. 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 companys 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 shareholders51. 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 companys 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 shareholders80. 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-a-vis shareholders is laid down the same would lead the directors to the risk of multiple legal actions by dissenting minority shareholders83. 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 case99. 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. 1s 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-destructive100. 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 same117. 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 Alukik allotted in her name as a result whereof the suit No. 675 of 1990 was instituted125. 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 one139. 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 company140. 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 Appellants152. The Division Bench of the High Court treated the allotment to be a confirmed one purported to be relating to Regulation 28 of the Table A of the Companies Act. The said provision has no application in the facts and circumstances of this case158. 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 of 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 aid 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 allot shares to the other members out of the said 8000 shares159. It is also difficult to accept the 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 shares160. 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 law172. 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 unaccepted shares. Even such a right can be waived or modified174. 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 Grower and Daviss Principles of Modern Company Law Seventh Edition page 635)175. As the notice of transfer itself was rescinded, we are of the view that Indrani 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 therein176. 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 member of the company were entitled to allotment thereof on pro-rata basis181. 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 companys affairs182. 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. Sundramurthy and others (AIR 1958 Madras 587)183. 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 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 minority of the members including the petitioners vis-a-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 members184. The interest of the company vis-a-vis the shareholders must be uppermost in the mind of the court while granting a relief under the aforementioned provisions of the Companies Act, 1956185. 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 relief186. 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 authority188. 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 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 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 rejected198. 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 se199. 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. (See200. 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. (See201. 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 parties202. 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)206. 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.)226. In view of the 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 directions227. 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 pleaded229. The Court, however, has made a clear distinction between a family company, a private company and 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)230. 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. (SeeLoch and another vs. John Blackwood Ltd., 1924 AC235. 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 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