Case: Banoo J. Coyajee Vs. Shanta Genevieve Prommeret Parulekar

and his group over the 1st respondent company. If any other remedy at law is available to the petitioners in this connection they are free to avail of it. But we fail to see how the register of members can be rectified under section 155 of the Companies Act in respect of these shares when respondents were within their right in issuing these shares at par. Subsequent events :(48) WE would also like to refer to some subsequent events which also make difficult to set the clock back, so to speak. In the first place, by selling 3417 shares the executors received a sum of about Rs.80 lakhs. After discharging the liabilities under the will of the deceased Dr. Parulekar, net sale proceeds amounting to about Rs.60 Lakhs have been used to create a public charitable trust for the purposes set out by the settler in his will. The fund is now impressed with a public charitable trust. Secondly, the fund which were brought into the Company by respondent No. 5 and his controlling group of companies by purchasing the fresh issue of 17,666 shares, has also been utilised by the Company for its expansion, for investments and for the purchase of machinery. This fund also in not now available for being released to the original buyers.(49) In these circumstances the learned Single Judge, while allowing the petition, had directed the petitioners to bring in a sum of Rs. 80,73,000/- within the time stipulated by him under his order. The petitioners however, failed to deposit this amount or any part thereof in Court within the stipulated period. Their application for extension of time was also rejected by the learned Single Judge for reasons which are set out by him in his order of 31st March, 1988. In these circumstances and looking to the fact that the petitioners have not been able to raise the funds within the period given to them by the learned Single Judge for acquiring a controlling interest in the 1st respondent Company, we do not see how any reliefs can be granted to the petitioners. The direction of the learned Single Judge relating to the retention of 17,666 shares with the company until they are reallotted by the directors also, in our view, is a relief which is not within the ambit of section 155 of the Companies Act. Be that as it may, looking to these circumstances, it is difficult to grant any relief to the petitioners under section 155. They have been unable to avail of their rights under Article 57-A to acquire controlling interest in the 1st respondent Company. For various reasons with which we are not concerned, either they do not have the requisite funds, or for reasons best known to them, they have not availed of their rights as required by law. We may also mention in this connection the fact that even initially, the suit which they filed in a Poona Court was not a suit for specific performance of their right under Article 57-A, but only a suit to restrain the executors from selling the shares to anyone other than the petitioners. Only in August 1986 they filed the present company petition which again is for a limited relief under section 155 of the Companies Act and not a petition under section 397 or 398 of the Companies Act. It was only after the judgment was delivered by the learned Single Judge in this company petition that they have now filed two suits in March 1988 for specific performance. Section 155 is a discretionary remedy which is not normally resorted to when there are allegations of fraud. We need not however, go into this aspect of the matter because, in any event, for reasons which are set out by us in our order, the petitioners are not entitled to any relief as prayed for by them in the petition. The Judgment of 31st March 1988 :(50) THE appeals before us from the judgment of the learned Judge dated 31st March, 1988, declining to grant any extension of time, are all filed by either the trustees, the purchasers from the trustees or by the Company in respect of certain observations made in that judgment and order. The petitioners have not filed any appeal before us challenging the order refusing to extend time for the deposit of Rs. 80,73,000/ -. The impugned observations are in respect of the readiness and willingness of the petitioners to purchase the shares in question. The learned Judge has observed that on account of the failure of the petitioners to deposit Rs. 80,73,000/- within the stipulated period the petition stands dismissed. But the observations made in his judgment would continue to bind the parties. In view of the fact that the appeals from the main judgment are now allowed, the appellants from this part of the order can have no grievance now.(51) IN his judgment of 31st March, 1988 the learned Single Judge has also observed that in the suit for specific performance it would be open for the petitioners to show their capacity and to convince the Court that they are in a position to really purchase these shares and to enforce specific performance of the contract. These observations should not be interpreted to mean that the readiness and willingness of the petitioners will have to be judged only at the point of time when the suits for specific performance are decided. The learned Judge has merely referred to the fact that the question of readiness and willingness of the petitioners throughout the material period, to purchase these charges will have to be decided by the Court which tries those suits on the basis of the evidence which is available before the Court. These observations cannot be read to mean that if the law requires the petitioners to prove their readiness and willingness throughout the material period, the requirements of law have, in any manner, been modified by the learned Single Judge or by us.

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

Explanation:
1[ds]It is therefore not necessary for all the trustees to sign the transferthe resolution of the trustees executors any one of the executors was entitled to sign the transfer forms. Hence the three executors who have signed transfer forms have done so as transferrers in valid exercise of power under the said resolution. At the highest the only defect is that they have not stated that they have signed the transfer forms on behalf of all the executors or in exercise of their authority under the said resolution. This, in our view, is, at the highest, only an irregularity which can be easily corrected by the transferrers. In these circumstances it would be futile to invalidate the registration of transfer of these shares when the transferrers can immediately submit fresh transfer forms signed by them on behalf of all the transferrers. As set out in the case of (Killick Nixon Ltd. v. Dhanrai Mills P. Ltd.) reported in 54 Company Cases 532 at pages 465, (A judgment to which one of us was a party), the Court should not accept any invitation to indulge in a futile exercise under section 155. The provisions of this section are not meant for correcting proceduralis therefore no question of the 1st petitioner contending that the majority decision of the trustees is not binding on her. In fact she has acted on the decision by accepting the shares offered to her at a valuation to be fixed by the auditors. Offer to othercontention also can not be accepted. The Company did inform all itsthat the trustees were proposing to sell the shares in question and that in the event of the petitioners not exercising their right under Articlethe shares would be available for purchase by the other shareholders. None of the other shareholders showed any interest in purchasing these shares. It was submitted before us that the 2nd petitioner, being acould have purchased these shares in her own right even if she had declined to purchase these shares as a nominee of the 1st petitioner, under ArticleThere is however, no material before us which would indicate that she had, at any time, informed the company that she proposed to exercise her rights as a shareholder to purchase these shares. Throughout, even in various litigations which are pending, her claim has been to enforce her rights under Articleas a nominee of the 1st petitioner. There is therefore no basis for the submission that the 2nd petitioner had exercised her rights as an ordinary shareholder to purchase these shares. Valuation by the AuditorsArticle 61 of the Articles of Association the auditors are required to certify in writing what, in their opinion, is the fair value of the shares in case there is any difference between the transferrer and the purchaser as to the fair value of a share. The article further provides that in fixing this fair value the auditors shall be considered as acting as anIN the first place, there is no material before us which would indicate that the valuation made by the auditors was not fair. On the contrary, while the auditors valued the shares at Rs.2160/each, at the actual sale to the 5th respondent and the companies controlled by him, the shares fetched a higher price of Rs. 2300/per share. We have also to bear in mind that the 3417 shares held by the trustees as also 93 shares held personally by some of the trustees, were sold as a controlling block of shares in the 1st respondent Company. They would therefore fetch a higher price. The trustees were also duty bound to obtain the best possible price for the shares because the sale proceeds were impressed with the public trust created by the settler. They were therefore entitled to sell these shares as a controlling block of shares in the 1st respondent, Company. As a consequence they seem to have fetched a good price of Rs.. The valuation made by the auditors, therefore, in this context cannot be considered as unfair.(34) THE petitioners have not relied upon the balance sheets of the Company or any other financial data of the company to establish that the valuation made by the auditors was unfair. The petitioners however contend that at a subsequent date, after having obtained control of the 1st respondent company, the Board of Directors issued an additional 17,666 shares at par. This according to the petitioners, would indicate that the valuation made by the auditors of the company was unfair. We do not see how a fresh issue of shares at a subsequent date at per can, in any manner affect the valuation earlier made by the auditors of the company of shares which were then available for sale. The Board of Directors are within their right in issuing fresh shares at par. They could have even issued bonus shares. This does not mean that the earlier share valuation which was made by the auditors in respect of the shares which were sold by one group of shareholders to another was unfair. In fact we have not been shown even the balance sheets of the company for the relevant dates in order to establish the petitioners claim upon the fact that they have made a complaint to the Institution of Auditors in respect of the conduct of the auditors of this company. That by itself cannot establish that the valuation wasdo not have any necessary material to indicate what were the funds available with the petitioners, what according to the petitioners was the fair value of the shares and whether the funds with the petitioners were adequate for the purchase of these shares at the "fair value" as claimed by the petitioners. The entire argument is therefore purely hypothetical. In fact, in this situation, there appears to be a clear conflict of interests and duties as far as the petitioners are concerned. The 1st petitioner, as an executor/trustee under the will of her husband was duty bound to realise the maximum possible price for the shares held by her along with other executors so that the maximum possible amount can be made available for the purposes of the trust created by her deceased husband. On the other hand, as a person who was entitled to purchase these shares in exercise of her right ofpreemption under Articleof the Article of association, she was interested in obtaining these shares at as low a price as possible. The second petitioner was only her nominee for the purpose of purchase of these shares. Both were therefore, equally interested in purchasing these shares at as low a price as possible. The entire challenge to the valuation made by the auditors of the company indicates the interest of the petitioners in obtaining these shares at as low a price as possible. Looking to this clear conflict of interests and duties, it is doubtful, whether the petitioners, so long as the 1st petitioner remained an executor/trustee, could have at all purchased these shares in exercise of their rights under ArticleIn any case we have no material to arrive at any finding of fraud or collusion on the part of the auditors, or even any deliberate overearlier stated, there is no material which would indicate that the executors asked the auditors to overvalue the shares. In fact, the shares when sold fetched a higher price that fixed by the auditors. Moreover in the case of respondents Nos. 3 and 4, their personal interest does not conflict with their interest as trustees and executors. Both were equally interested in getting as good a price as possible for the shares. They are therefore not in the same position as the petitioners. NaturalTHE entire argument is misconceived. The auditors were acting as experts and relying on their own skill and judgment in giving their valuation of shares. The question of applying principles of natural justice in such a case does not arise. In any case they were not bound to follow the procedure as suggested by the petitioners. Moreover, before giving their valuation certificate, the auditors did ask the petitioners whether they would like to make any submission or produce any material regarding the valuation of shares. They extended time for this purpose at the request of the petitioners. The petitioners however did not avail of this opportunity and on the last day of the extended time, claimed that natural justice was denied to them because the draft valuation etc. were not meant to them for comment : Hence this contention of the petitioners has no merit. Readiness and willingness of the petitioners tothese circumstances the executors were free to offer the shares for sale elsewhere in accordance with the articles of the company. There is no breach of any contract on the part of theDelhi High Court also said that the law does not require an agenda for a meeting of the Board of Directors and any business whatsoever can be transacted at the Board Meeting. In any case this is, at the highest, only an irregularity and it would not vitiate the transfer ofare not very impressed with this so called financialclearly indicates that respondent No. 5 and his group of shareholders, who were in control of the respondent Company, had decided to make a fresh issue of share capital of themselves at par so as to strengthen their control over the Company. For this purpose they brought in certain additional funds, being the price of these shares which they purchased atthis irregularity does not, in our view, vitiate the decision which was taken. As set out earlier, the Court will not interfere in the case of irregularities which can be cured. In the present case, even without these additional shares which were issued, respondent No. 5 and his group of shareholders had a majority control over the Company. This is clear from the votes which were cast at the Annual General Meeting in favour of and against this fresh issue of shares. 4260 votes were cast in favour of this resolution while 3049 votes were cast against the resolution. Hence they were and are in a position to get the fresh issue sanctioned at the meeting of the Company after notice. Moreover, at the same Annual General Meeting, it was decided that an extra ordinary general meeting of the Company would be called after proper notice to ratify this fresh issue of 17,666 shares at par. Such an extra ordinary general meeting was held after notice on 31st January, 1986 when the issue of these shares at par was ratified. According to the petitioners this ratification is invalid as the shareholders of the newly issued 17,666 shares also voted at this extra ordinary general meeting in favour of the resolution. But quite early, even if we ignore the 17,666 additional votes which were cast in favour of the resolution that remaining votes in favour, which are 4260, far exceed 3049 votes case against the resolution. The ratification is valid. We do not see any reason to invalidate thisdo not see how this issue of 17,666 shares at par can be invalidated, although undoubtedly, it has caused prejudice to the petitioners by strengthening the control of respondent No. 5 and his group over the 1st respondent company. If any other remedy at law is available to the petitioners in this connection they are free to avail of it. But we fail to see how the register of members can be rectified under section 155 of the Companies Act in respect of these shares when respondents were within their right in issuing these shares at par. Subsequent events:(50) THE appeals before us from the judgment of the learned Judge dated 31st March, 1988, declining to grant any extension of time, are all filed by either the trustees, the purchasers from the trustees or by the Company in respect of certain observations made in that judgment and order. The petitioners have not filed any appeal before us challenging the order refusing to extend time for the deposit of Rs.. The impugned observations are in respect of the readiness and willingness of the petitioners to purchase the shares in question. The learned Judge has observed that on account of the failure of the petitioners to deposit Rs. 80,73,000/within the stipulated period the petition stands dismissed. But the observations made in his judgment would continue to bind the parties. In view of the fact that the appeals from the main judgment are now allowed, the appellants from this part of the order can have no grievance now.(51) IN his judgment of 31st March, 1988 the learned Single Judge has also observed that in the suit for specific performance it would be open for the petitioners to show their capacity and to convince the Court that they are in a position to really purchase these shares and to enforce specific performance of the contract. These observations should not be interpreted to mean that the readiness and willingness of the petitioners will have to be judged only at the point of time when the suits for specific performance are decided. The learned Judge has merely referred to the fact that the question of readiness and willingness of the petitioners throughout the material period, to purchase these charges will have to be decided by the Court which tries those suits on the basis of the evidence which is available before the Court. These observations cannot be read to mean that if the law requires the petitioners to prove their readiness and willingness throughout the material period, the requirements of law have, in any manner, been modified by the learned Single Judge or bythese circumstances and looking to the fact that the petitioners have not been able to raise the funds within the period given to them by the learned Single Judge for acquiring a controlling interest in the 1st respondent Company, we do not see how any reliefs can be granted to the petitioners. The direction of the learned Single Judge relating to the retention of 17,666 shares with the company until they are reallotted by the directors also, in our view, is a relief which is not within the ambit of section 155 of the Companies Act. Be that as it may, looking to these circumstances, it is difficult to grant any relief to the petitioners under section 155. They have been unable to avail of their rights under Articleto acquire controlling interest in the 1st respondent Company. For various reasons with which we are not concerned, either they do not have the requisite funds, or for reasons best known to them, they have not availed of their rights as required by law. We may also mention in this connection the fact that even initially, the suit which they filed in a Poona Court was not a suit for specific performance of their right under Articlebut only a suit to restrain the executors from selling the shares to anyone other than the petitioners. Only in August 1986 they filed the present company petition which again is for a limited relief under section 155 of the Companies Act and not a petition under section 397 or 398 of the Companies Act. It was only after the judgment was delivered by the learned Single Judge in this company petition that they have now filed two suits in March 1988 for specific performance. Section 155 is a discretionary remedy which is not normally resorted to when there are allegations of fraud. We need not however, go into this aspect of the matter because, in any event, for reasons which are set out by us in our order, the petitioners are not entitled to any relief as prayed for by them in the petition. The Judgment of 31st March 1988: