Source: https://de.scribd.com/document/141843000/Case-6
Timestamp: 2019-06-26 21:11:11
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Matched Legal Cases: ['art 100', 'Art. 133', 'Art. 226', 'Art, 226', 'Art. 129', 'Art, 1956']

Case 6 | Pleading | Board Of Directors
MANU/CL/0012/2011: In The Company Law Board Principal Bench, New Delhi
Original Title: Case 6
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De La Rama v. Court of Appeals
MANU/CL/0012/2011 IN THE COMPANY LAW BOARD PRINCIPAL BENCH, NEW DELHI C.P. No. 90/2005-CLB Decided On: 28.11.
2011 Appellants: In Re: M/s. Moonshine Films Pvt. Ltd. AND Appellants: Shri Rajesh Patil Vs. Respondent: M/s. Moonshine Films Pvt. Ltd. and Ors. Hon'ble Smt. Vimla Yadav, Member Subject: Company Catch Words Mentioned IN Judges:
ORDER Smt. Vimla Yadav, Member 1. The Company Law Board's final order dt. 09-06-2006 in C.P. No. 90 of 2005 was set aside qua 45 shareholders by Hon'ble High Court of Gujarat vide its order dt. 2604-2010 who were petitioners in three SCAs 19635, 20839 and 20840 all of 2006 filed by 45 shareholders and the matter was to be heard afresh qua 45 shareholders, this was also clarified by Hon'ble High Court of Gujarat vide its order dt. 25-11-2006 wherein it was reiterated that order dt. 09-06-2006 was set aside qua 45 shareholders and CLB shall be at liberty to hear both the sides on all the points qua 45 shareholders. In C.P. No. 90 of 2005 the petitioner had not made these 45 shareholders (who were allotted 10 shares each by R-2 allegedly to marginalise the petitioner who held 50% shares in a private limited company in the nature of quasipartnership) as they were not considered either necessary or proper parties. The direction regarding cancellation of allotment of 290000 shares on 8.1.2003 in the CLB's order dated 9.6.2006 included these 450 shares allotted to these 45 shareholders who were allowed opportunity of being heard by the Hon'ble High Court of Gujarat. Hence this order qua 45 shareholders. 2. Heard 45 shareholders and all other parties on all the points qua 45 shareholders. 3. The 45 shareholders led by Mr. Sameer Manubhai Patel, who were granted permission by the Hon'ble High Court of Gujarat by its order dated 26.04.2010 to agitate their grievances before the Company Law Board were required to file their reply affidavits which were filed on 27.05.2010, and an additional affidavit was filed on 29th December 2010 only by 43 shareholders. The counsel for the 45 shareholders (in fact only 43 shareholders availed of the opportunity of being heard- two shareholders out of these 45 shareholders chose not to avail of the opportunity of being heard) contended that Petition is not maintainable as the Petitioner had earlier filed a petition for winding up of the company before the Gujarat High Court being Company Petition No. 149 of 2004 and during the pendency of the winding up Petition filed the present petition before the Company Law Board which is alternative to winding up petition, the Petitioner cannot allege both the reliefs. Having withdrawn the winding up petition filed on just and equitable grounds it is understood that the Petitioner has not been able to prove that there are sufficient grounds or equitable reasons to wind up the company. No specific reason has been given by the Petitioner
that the Respondent Company has to be wound up under just and equitable grounds. The Petition is, therefore, liable to be dismissed as not maintainable as per the law laid down by the Hon'ble Supreme Court in the case of Hanuman Prasad Bagri versus Bagree Cereals Pvt. Ltd. MANU/SC/0204/2001 : (2001) 4 SCC 420. 4. Further, it was contended that the Petitioner has come to the Company Law Board with unclean hands as he has suppressed the fact that the said 500 shares were allotted jointly to the Petitioner and Nalin Kumar Patel. The Petitioner claimed that apart from 100 shares 500 shares were further allotted to him, while the perusal of the annual returns signed by the Petitioner himself in the years 1998-1999 and 19992000 shows Nalin Kumar Patel holding 500 shares jointly with the petitioner. As no consent was given by Sh. Nalin Kumar Patel to file the present petition, the petition is not maintainable. The Petitioner has not approached the Company Law Board with clean hands. The Hon'ble Supreme Court in a series of Judgments has held that Petitioner should come to the court with clean hands. 5. It was pointed out that the Petitioner has falsely alleged that the Respondent Company is in the nature of a quasi partnership of himself and Mr. Himanshu Gosai when, in fact, there were four shareholders. When there were more than two members, the Company cannot be termed as a partnership. Even otherwise the other characteristics of partnership like closeknit family concern, equal profit sharing etc are missing. There is no clause in the Articles of Association that the Company would be treated as partnership concern. The principle of quasi partnership cannot be readily inferred. The Hon'ble Supreme Court in the case of Kilpest Pvt. Ltd. and ors. vs. Shekhar MehtaMANU/SC/1673/1996 : (1996) 10 SCC 696 and Hind Overseas Pvt. Ltd. vs. Raghunath Prasad Jhunjunwala and Anr. MANU/SC/0050/1975 : (1976) 3 SCC 259 held that when more than one family or several friends and relations together form a company and there is no right as such agreed upon for active participation of members who are excluded from management, the principles of dissolution of partnership cannot be liberally invoked. Reliance was also placed on Maharashtra Power Development Corporation Ltd. Vs. Dabhol Power Co And Others 2003 (117) comp Cas 506. 6. With respect to the allotment of 480 shares to 45 shareholders, it was contended that the Respondent Company has followed proper procedure as prescribed under the Companies Act, 1956 to issue and allot shares to the 45 shareholders. In this respect the Respondent No. 1 Company passed a Board Resolution on 08.01.2003 and filed Form 2 in the Registrar of Companies. It was contended that 289520 shares have been allotted to Respondent No. 2 shareholders in the interest of the Respondent Company. 7. It was pointed out that the Petitioner had abandoned the company from 2002 onwards and when the Respondent Company was in need of funds Mr. Himanshu Gosai approached the 45 shareholders to fund the company. As the Company is a private Limited Company, it cannot borrow funds from non members, and therefore it was understood that the 45 shareholders will first apply for nominal shares and then bring the rest of the amount in loans. Accordingly, the forty five shareholders applied on 10th December 2002 by enclosing Rs. 100 each and were allotted 10 shares each in the board meeting held on 08.01.2003 along with the shares allotted to Himanshu Gosai and his family who were allotted 289520 shares. This was a management decision as held in the case of Needle Industries MANU/SC/0050/1981 : (1981) 3 SCC 333, shares in a company could be issued for any purposes. 8. Further, it was contended that if the intention of Himanshu Gosai was only to create a majority to himself then he would have allotted shares to himself alone and not the 45 shareholders. It was only to obtain finances from the other 45 shareholders and that is why the shares were allotted to the 45 shareholders. This cannot be considered to be an act so oppressive which is sufficient to justify passing of a winding up order on the ground that it was just and equitable that the Company should be wound up but to wind up the company would prejudice such member or
members. It should not be confined to an isolated event but that acts would have to be continuous as to be part of a concerted action to cause prejudice to the minority shareholders. To support this contention reliance was placed on the decision of the Hon'ble Supreme Court in Shanti Prasad Jain Versus Kalinga Tubes Ltd. 1965 920 SCR 720. 9. The counsel for the shareholders contended that the argument raised by the petitioner that the allotment of marginal share to such other persons who are near and dear to one group automatically amounts to unlawful allotment without appreciating the complete facts, is baseless and hence is devoid of any logical stand. It was pointed out that in the private limited company there cannot be any invitation of offer from public at large and only friends and relatives become the member and that too upto 50 in aggregate. 10. It was contended that the Petitioner has intentionally caused prejudice to the 45 Shareholders and this Petition is intended to bring pressure to bear to achieve a collateral purpose and is an abuse of the process of the court. Such petitions ought to be dismissed as held by the Chancery Division in the case of REBELLADOR SILK LIMITED(1965) II CLJ 30. Further, it was contended that no case has been made out by the Petitioner to have the shares allotted to the 45 shareholders cancelled and in turn get the same allotted to him. The Respondents submit that the allotment of shares in their favour is legal and valid and the same may be upheld by the CLB. 11. The counsels for the Respondents 1, 2, 4, 5 and 6 contended that the petition in its present form is not maintainable as the petitioner has not annexed the requisite documents/evidence qua shareholding, the petitioner has not filed a single share certificate to show his shareholding in the company. Only a bald averment is made to the effect that they had subscribed equal number of shares as subscribed by the Respondent No. 2. No consent letter from the joint shareholder has been annexed. 12. It was contended that the petition under section 397 & 398 of the Companies Act is not maintainable as the same is barred by delay & laches. It was pointed out that by the year 2002 the Petitioner lost interest in the Respondent Company and ran away to UK with his family and settled in Scotland. He even took school leaving certificate and got his children admitted in a school in Scotland. Thereafter, there was no news from the Petitioner for more than two years. The present petition filed in 2005 is barred by delay & laches. Further, it was contended that when the present petition was filed on 02.09.2005, the very same petitioner's winding up petition, being company petition No. 149 of 2004 was still pending in the Gujarat High Court, wherein the present petitioner had prayed for winding up of the Company, whereas in the present petition he has not prayed for winding up because winding up would adversely affect his interest. These two petitions cannot coexist. When a petition for winding up is pending, a petition by the very same petitioner under Section 397/398 of the Act is not maintainable, the present petition, therefore, when filed was not maintainable and the said defect cannot be cured by subsequent withdrawal of the winding up petition which was pending in the Gujarat High Court for almost eighteen months. Furthermore, the dispute is private in nature considering the pleadings and considering the value of the property in question which has started rising, on the date of filing the petition, it could be resolved before the Civil Court, therefore, this petition is a total facade as the petitioner just wants to settle his personal scores with the Respondent No. 2 and is using this forum and litigation as ladder to accomplish his desired aspirations. 13. The counsel for the Respondents also re-agitated the issue of the R-1 Company not being in the nature of quasi-partnership. The counsels for the Respondents contended that a company to be in the nature of quasi-partnership there has to be a prior partnership between the members who later on form the company, it has been
held by the Courts and the CLB in a number of cases that the principle of partnership applies to family owned companies only. In the present case although the Company was initially formed by the Petitioner and respondent No. 2 but later on two more friends who are NRIs joined the company and thus the company became the company of four friends. It was pointed out that on 1.3.1997 initially Himanshu Gosai and Mr. Rajesh Patil subscribed 100 equity shares of this Pvt. Ltd. company. After one month of incorporation i.e. on 01/03/1997 the company allotted further 500 equity shares jointly in the names of Himanshu Gosai along with one Mr. Jayvant Shah residing at U.K. and 500 equity shares jointly to Rajesh Patil with one of Mr. Nalin Patel residing at U.K. Mr. Jayvant Shah and Mr. Nalin Patel came to be inducted as the directors as on 01/03/1997. Thereafter, on 15/05/1997 two NRI Directors resigned from the Board and on 20/10/1997 one NRI Director Jayvant Shah and 6 Directors more were appointed. It was contended that it clearly shows that there was no characteristic of a partnership in the Company. 14. Further, it was pointed out that the Articles of Association of the Company do not provide that the Company would be held as quasi-partnership and the shares would be allotted in equal proportion only. The theory of quasi-partnership is contradictory to the Articles of Association of the Respondent No. 1 Company. As it is Board of Directors who has power to allot shares and as per Article 30 there must not be more than 11 directors in private limited company. As per the Articles of Association there was no profit sharing in equal proportion between the parties to make the Company a quasi partnership. Apart from the investment in the capital of the Company, the two groups also gave unsecured loans to the Company. Said loans were not in equal proportion. Uptil 1998 the Petitioner had made an investment of Rs. 6,39,000/- and Rs. 32,00,000/- while the respondent No. 2 had put in Rs. 8,35,000/- Rs. 10,00,000/and Rs. 50,00,000/- On the basis of investment the two parties cannot be equated. 15. Further, it was pointed out that the share capital of the Company had to be increased pursuant to amendment in the Companies Act in the year 2000. The decision to allot further shares of 8800 was taken in the Board meeting held on 25.09.2002 when the Petitioner was also present. It was resolved in the said meeting of 25.09.2011 that 8800 equity shares of Rs. 10/- be issued and allotted to such members, who may apply for the same on or before 01.12.2002, but the Petitioner showed no inclination for allotment of further shares. Thus, the Company had no alternative but to allot 8800 equity shares of Rs. 10 each to Respondent No. 2. No objection was raised by the petitioner to such allotment. It was contended that even if it is assumed for the sake of arguments that the Company was a 'quasi partnership', however, after the allotment of additional shares the characteristics of partnership ceased to exist. 16. The counsel for the Respondents pointed out that Board meetings of the Company were held on 15.10.2002, 11.12.2002, 8.01.2003 and 30.01.2003. Notices of these meetings were sent to Shri Rajesh Patil and his family member directors and other directors by UPC. Neither Rajesh Patil nor any of his family member directors attended the meetings. Consequently under provisions of Section 283(1)(g) of the Companies Act, 1956 (non attending of three consecutive Board meetings or all meetings of Board for a continuous period of three months, whichever is longer, without leave of absence) Rajesh Patil and his family member directors ceased to be directors of the Company with effect from 30.01.2003. None of his family member directors (namely his wife, mother and brother) has ever complained that they did not receive notices of these meeting and none of these three persons have ever complained or objected to their ceasing to be directors of the Company by reason of operation of Section 283(1)(g) of the Companies Act. 1956. The Copies of Certificate of Posting dated 9-10-2002, 2-12-2002, 11-12-2002 and 8-1-2003 under cover of which the notices convening meetings of Board of Directors respectively on 15.10.2002, 11.12.2002, 8.1.2003 and 30.01.2003 were filed by the Respondent. It
was contended that the services of notice by "under postal certificate" is accepted norm of services as has been held in the cases of Westfort Hi Tech Hospital Ltd. Vs. V.S. Krishanan [2007] 137 Comp Cas 151 (Ker) and V.S. Krishanan vs. Westfort Hi Tech Hospital Ltd MANU/SC/7193/2008 : [2008] 142 CompCas 235 (S.C.). 17. It was pointed out that the Petitioner is not the sole allottee of the disputed 500 shares but is a joint shareholder with Shri Nalin Patel. In fact only 100 shares each were initially issued to the Petitioner and the Respondent No. 2, thereafter 500 shares were jointly issued to Petitioner and Shri Nalin Patel. The Petitioner is one of the signatories to both the certified copies of the Annual Returns of the Company for the accounting years 1998-99 dated 24.09.1999 and 1999-2000 dated 11.08.2000, which clearly shows that 500 shares were not issued and allotted in the sole name of the Petitioner as is being falsely portrayed by the Petitioner. However, neither Mr. Nalin Patel was made party nor his consent was obtained by the Petitioner before filing the petition. The Petitioner has misled the Ld. Board by actively concealing this material fact that he is not the sole allottee of the said 500 shares and is only a joint allottee or owner of the said 500 shares alongwith Shri Nalin Patel. Further, it was contended that the Petitioner has with ulterior motive not produced copy of any share certificate of his holding of 600 shares. It was contended that the Petitioner has made allegations that the certified annual returns are tempered, these false allegations without any proof cannot be denied as the true fact. My attention was drawn to item No. 4 in the form showing the particulars of the directors, at item No. 5 showing the particulars of the shares held by persons, on page No. 4 of the form the particulars of the directors is not mentioned but on that page it is handwritten as "per statement attached" a separate sheet is attached on the corresponding side of the form and the particulars of the directors are given. Similarly at item No. 5 the details of the shares held by members is to be shown but it is not shown on page No. 6 of the form and it is handwritten as 'as per statement attached' on the corresponding side on the form a separate sheet is attached showing the details of the shares and the name of shareholders; here the joint name of the petitioner and Mr. Nalin Patel is shown as holding joint shares of 500. Further, it was pointed out that similarly 500 shares are shown in the joint name of Shri-Himanshu Gosai and Shri Jaivant Shah. The allegations of the petitioner that each page of the form is not signed and therefore it can not accepted, it was contended, is a false argument as the directors have to sign the last page giving certification that the matter shown in the form is correct and the forms are signed by the petitioner and the Respondent No. 2. 18. It was contended by the counsel for the Respondents that in the allotment of 480 shares to 48 shareholders, the Respondent Company has followed proper procedure as prescribed under the Act to issue and allot shares. The Respondent No. 1 Company passed a Board Resolution on 08.01.2003 and filed From 2 in the Registrar of Companies. 480 shares have been allotted to the 48 shareholders in the interest of the Respondent Company. It was contended that the argument raised by the petitioner that the allotment of marginal share to such other persons who are near and dear to one group automatically amounts to unlawful allotment without appreciating the complete facts, is baseless and hence is devoid of any logical stand. It was argued that in the private limited company there cannot be any invitation of offer from public at large and only friends and relatives become the member and that too upto 50 in aggregate. 19. The Respondents' case is that petitioner is also guilty of concealing vital facts, he has approached the CLB with unclean hands because he concealed numerous vital facts from the CLB: the petitioner lost interest in the Respondent No. 1 Company and thus, he had started withdrawing his funds which were given by him by way of unsecured loans, he, in fact, withdrew a total of Rs. 10,00,000/- in April, 2002. He had no interest left in the well being of the Company and had no inclination or desire to contribute towards equity capital of the Company, the decision to allot further shares of 8800 was taken in the Board meeting held on 25.09.2002 when the
Petitioner was also present wherein it was resolved that 8800 equity shares of Rs. 10/- be issued and allotted to such members, who may apply for the same on or before 01.12.2002. He left the country in December 2002 to settle in England. To support their contentions the Respondents placed reliance on the case law in K. R. S. Mani Vs. Anugraha Ltd. [2005] 126 CompCas 878 (Mad); Arun Kumar Mohta Vs. Ganesh Commercial Co. Ltd. [2006] 134 CompCas 500 (CLB) 20. The counsel for R-3 drew my attention to his Affidavit and pointed out that the Petitioner has with ulterior motives tried to create an impression that the Respondent Company is a Company of the Petitioner and the Respondent No. 2 and their respective families. In about December 1996 - January 1997, R-3, the Petitioner, the Respondent No. 2 and one Shri Nalin Patel decided to start a joint venture for setting up a Drive- in-Cinema in Surat. Accordingly a Private Company (the Respondent No. 1) was incorporated on 29-01-1997. Since signing of the Memorandum of Association and Articles of Association requires personal presence of subscribers to the Memorandum Articles of Association in India and since it may be inconvenient for R-3 and Shri Nalin Patel to come to India to sign the Memorandum and Articles of Association of the Company as subscribers and since to incorporate a Private Company required only two persons as subscribers, it was decided that the Petitioner and the Respondent No. 2 would subscribe to the Memorandum and Articles of Association. The Company was incorporated on 29.01.1997. As per mutual understanding, soon upon the incorporation of the Company, R-3 and Shri Nalin Patel (who is also a non-resident Indian residing in U.K.), were appointed as additional Directors on 01.03.1997. The Petitioner has intentionally concealed this material fact of R-3 and Shri Nalin Patel being appointed as new Directors on 1.3.1997. On 01.03.1997 the Company had four Directors, namely, R-3, Shri Nalin Patel, Shri Himanshu Gosai (the Respondent No. 2) and Shri Rajesh Patil (the Petitioner). In England R-3 was having business of wholesale purchase and sale of wines and liquors he had some pressing business commitments in England and therefore he thought that he might not be able to visit India and attend the Company's affairs he, therefore, resigned as Director of the Company with effect from 15.05.1997. Shri Nalin Patel also resigned as a Director on 15.05.1997 on account of his pressing commitments in UK. However, the Petitioner and the R-2 requested R-3 to continue to be a Director of the Company. R-3 was again appointed as a Director of the Company on 20-10-1997 and ever since then R-3 has continued as a Director of the Company. It was denied that on or about 24-09-2001. It was pointed out that except for a short period from 29-01-1997 to 01-03-1997 (about 30 days) and from 15-05-1997 to 2010-1997 (about five months) R-3 has been a Director of the Company all throughout and is still a Director of the Company. R-3 contended that the Company was not short of quasi-partnership between the Petitioner and the R-2. During the initial period the Company was in its initial stages and it required funds which R-3 and Shri Nalin Patel (along with the Petitioner and the R-2) provided. The issue and allotment of the shares was only a technical formality and the Petitioner and the R-2 were issued and allotted a total of 600 shares each of Rs. 10/- each which numbers is quite negligible compared to the total authorized equity capital of Rs. 30,00,000/- of the Company. As against these shares, R-3 and Shri Nalin Patel had invested and given to the Company huge funds. The total of funds provided by R-3 and Shri Nalin Patel to the Company amounted to about Rs. 50,00,000/-. The said funds were without interest just as investment in equity capital of the Company would be without interest. R-3 and Shri Nalin Patel would have been issued and allotted any number shares that they would have asked for. However, at that time they did not ask for" issue and allotment of shares to them; it was mutually decided amongst R-3, Shri Nalin Patle, Shri Himanshu Gosai (the Respondent No. 2) and Shri Rajesh Patil (the Petitioner) that they would be issued and allotted such number of shares as they would like as and when they might ask for or at the time when the Company's project was implemented. It was stated that it is not true that the Company was managed by the Petitioner and the 2nd Respondent with their family members or that there was any understanding that the
affairs of the Company would be managed in the nature of quasi-partnership between the so called the Petitioner's Group and the 2nd Respondent's Group. The Company was and is being managed as a body corporate by the Board of Directors and it is not in the nature of quasi-partnership as alleged or otherwise. R-3 stated the he had attended several meetings of Board of Directors and several times would specially visit India to attend Board meetings. 21. It was stated that R-3 was informed that there were lot of uncertainties about the Company's project of Drive-in-Cinema taking off some third parties are claiming rights on immovable properties of the Company and were threatening the Directors with dire consequences including of physical harm. It was also informed that in order to comply with the requirements of amended definition of a "Private Company" the paid-up capital of the Company would be required to be increased form mere Rs. 12,000/- to at least Rs. 1,00,000/- by 12-12-2002. It was pointed out that R-3 and the Petitioner were of the opinion that it was not likely that the Company would be able to implement its project within a reasonable foreseeable future and that the Company had no prospects to survive. Under the circumstances, R-3 and the Petitioner were of the opinion that they should close down the Company and need not invest anything further in the project. 22. R-3 stated that it is not true and it is denied that the acquisition of properties from private parties and GIDC was financed through unsecured loan of Rs. 42.39 lac from the Petitioner and Rs. 18.85 lac from the 2nd Respondent. In fact, when the said properties were purchased from private parties and GIDC, the Petitioner had not given a loan of Rs. 42.39 lac but had lent only about Rs. 6.35 lac to the Company. The properties were purchased by the Company from private parties and GIDC mainly from out of the funds provided by R-3 and Shri Nalin Patel. 23. The counsel for the petitioner pointed out that the final order dt. 9.6.2006 in C.P. No. 90 of 2005 was set aside qua 45 shareholders by Hon'ble High Court of Gujarat vide its order dt. 26.4.2010 who were petitioners in three SCAs 19635, 20839 and 20840 all of 2006 filed by 45 shareholders and the matter was to be heard afresh qua 45 shareholders, this was also clarified by Hon'ble High Court of Gujarat vide its order dt. 25.11.2010 wherein it was reiterated that order dt. 9.6.2006 was set aside qua 45 shareholders and CLB shall be at liberty to hear both the sides on all the points qua 45 shareholders. As enormous stress was laid by 45 shareholders on their allegation of (1) joint shareholding by Petitioner with Shri Nalin Patel, and the (2) company not being a quasi- partnership, therefore, these allegations were first dealt with by the Petitioner, though on facts and law, it was contended that the 45 shareholders have no locus standi to raise such pleas in terms of the orders of Hon'ble Gujarat High Court in April 2010 and clarificatory order dated 25-11-2010 in the three SCAs 19635/2006, 20839/2006 and 20840/2006 filed by the said 45 shareholders in the Hon'ble High Court of Gujarat. Without prejudice to Petitioner's contention regarding non-maintainability of arguments canvassed by 45 shareholders as well as respondents 1 to 3 on grounds of res judicata, contradictory stands taken by them since 2004 to date before the CLB and Hon'ble High Court of Gujarat, raising of new pleas in the remand hearing restricted only qua 45 shareholders and without prejudice to his contention that the 45 shareholders are not necessary parties to C.P. 90 of 2005, Petitioner highlighted the following facts and law in respect of his (a) 50% shareholders in the Company and the (b) company being a quasi- Partnership. 24. Regarding Allegation of 500 shares each allotted on 1st March 1997 being joint shareholding by Petitioner with Shri Nalin Patel and Respondent No. 2 with Shri Jaiwant Shah as contended by 45 shareholders, Respondent 1 to 3, it was pointed out by the counsel for the Petitioner that the unsigned annexures to annual returns for 1999 and 2000 showing joint shareholding of the 500 shares each allotted to Petitioner and respondent no 2 on 1st March 1997 is the only basis for this allegation by the 45 shareholders and repeated by respondents no 2 and 3. Respondents also
allege misrepresentation and concealment by the Petitioner before the CLB in C.P. No. 90 of 2005. It was contended that this allegation is false on facts and as per law because: one of the annual returns taken in search from ROC office was enclosed by Petitioner in his petition CP No 90 of 2005 and, therefore, there cannot be any allegation of misrepresentation and concealment by the Petitioner while filing C.P. No. 90 of 2005. Respondent No. 1 to 3 and number of opportunities to go through the enclosures filed by the Petitioner in C.P. No. 90 of 2005. Respondent No. 1 to 3 filed reply affidavits to the Petitioner and, therefore, they cannot allege concealment of the unsigned annexure which is filed at page 101 of the C.P. No. 90 of 2005 by the Petitioner in the year 2010. The allegation of suppression against the petitioner is a self serving alibi by the Respondents. The unsigned annexures showing joint holdings have no evidentiary value whatsoever as the said two annual returns for 1999 and 2000, though signed by Petitioner were filed with ROC office by Respondent No. 2. The fact that expect for Annual Returns of 1999 and 2000, no annual returns before or subsequent to the said 2 years had any such annexures, is itself proof of manipulation by Respondent No. 2 by inserting the said unsigned typed sheets for some oblique motive while filing the said 2 returns. It was also highlighted during hearing that both the annual returns were filed within a gap of few days. To be precise Annual Returns for 1998-1999 and 1999-2000 were filed on 31-08-2000 and 04-09-2000 respectively, which clearly support the inference of manipulation of said unsigned pages by Respondent No. 2. Further, though the AGM for 1998-99 was supposed to have been held on 24-09-1999, the annual return came to be filed only on 31-08-2000 i.e. almost after eleven months, while the AGM for 1999-2000 is supposed to have been held on 11-08-2000 and the annual return has been filed on 04-09-2000. 25. Without prejudice to the contention that Petitioner never concealed any fact/document, nor did any suppression or misrepresentation, it was contended that Petitioner and Respondent No. 2 alone were solely allotted 500 shares each on 1st March 1997 is evidenced by the: (a) Return of allotment filed on 10-03-1997 evidencing Petitioner Shri Rajesh Patil and Shri Himanshu Gosai were allotted 500 shares each individually; (b) Register of Members showing Petitioner and Respondent No. 2 as sole/allotees holders of 500 shares each allotted individually and not jointly; (c) Register of Director's shareholdings wherein also the shares are in the individual names of the Petitioner and Respondent No. 2 Shri Himanshu Gosai in respect of shares allotted on 1st March 1997. The allotment made on 1st March 1997 is in individual names only in the register of Directors shareholdings. It was pointed out that both S/Shri Jaivant Shah and Nalin Patel were appointed as Additional Directors on 1st March 1997. My attention was drawn to the Register of shareholdings of directors (which forms part of Register of members which is under the custody of. Bench officer, CLB vide order dated 1/10/2010); (d) All annual returns (which are completely under the control of Respondent No. 2), expect annual returns for 1999 and 2000, show the shareholdings as per actual allotment in single names. All these Annual Returns show Petitioner and Respondent no 2 as having been allotted/holding the 500 shares each exclusively by the Petitioner and Respondent No 2 in their individual capacity; (e) Income tax returns and Balance Sheet filed with Income Tax department of Petitioner and Respondent No. 2 for previous year 2006-2007 produced by Petitioner. As per said returns, Petitioner and Respondent No. 2 have shown the payment of Rs. 5,000/- each for the 500 shares each allotted to them as their respective investments in Respondent No. 1 Company; (f) In all the affidavits filed before the Hon'ble High Court in winding up petition No. 149 of 2004 filed by the Petitioner, Respondent No. 1 Company has admitted that the Petitioner and Respondent No. 2 Shri Himanshu Gosai had been allotted 500 shares each on 1st March 1997 in their sole names, the winding up petition was withdrawn by the Petitioner in 2005 to pursue the remedies under section 397/398; (g) Affidavits by Respondent No. 1 Company, all the directors of Respondent No. 2's group and Respondent No. 3 Jaivant Shah before the CLB and Hon'ble Gujarat High Court from
the stage of winding up petition filed by Petitioner in 2004 to 2010 unequivocally admitted that Petitioner and Respondent No. 2 were allotted 500 Shares each in their sole name. For the first time in additional affidavit dated 1st March 2011, Respondent No. 1 Company and Respondent No. 2 claimed joint holding of 500 shares allotted on 1st March 1997. My attention was drawn to relevant portions from respective affidavits made earlier in 2005 and 2006 during the course of proceedings in CP 90 of 2005: as reproduced below: Vide Averments in Affidavit in Reply dt. 11-11-2005 filed by R-1 Company (and adopted by other R-2, 4, 5 and 6 in present CP 90 of 2005) in continuous page 305 para 4, 5th line onwards, it was stated as below: .... The Petitioner holds only 600 equity shares of the Company which has an issued, subscribed and paid up capital of Rs. 30,00,000/-. ........ Further again in this Affidavit in Reply dt. 11-11-2005 filed by Respondent No. 1 Company (and adopted by other Respondent Nos. 2, 4, 5 and 6 in present CP 90 of 2005) in continuous page 307 para 8, it was stated as below:As regards what is stated in paragraph 6A1 of the Petition, it is submitted that it is true that apart 100 shares agreed to be subscribed by each of the two subscribers to the Memorandum and Articles of Association futher 500 shares were allotted to each of the said two subscribers on 01-03-1997 and the issued and allotted shares of the Company totaled to. 1200 equity shares. It is true that the said two Directors held 600 shares each after the said further issue....... Again in para 10, 10th line onwards it was categorically admitted that: ..... Shri Jaiwant Shah at that time did not ask for any shares of the Company and consequently he was not allotted any shares at that time.... In his only Affidavit- in -reply dated 15-02-2006 filed by Respondent No. 3 Jaiwant Shah in CP 90 of 2005 till date, he affirmed on oath that shares were never issued and allotted to him or Shri Nalin Patel. In paragraph 6 (in page 5 -line 11 & 12, 19 to 21 and 35) Respondent No. 3 affirmed on oath as below: ................the Petitioner and the Respondent No. 2 were issued and allotted a total of 600 shares each of Rs. 10/- each..................................... ....................However at that time we did not ask for issue and allotment of shares to us....................................... .........................We did not ask for issue and allotment of shares till date... It was pointed out that Respondent No. 3 has not filed any other affidavit. However, Respondent No. 3 adopted the same plea of joint holding put forward by other Respondents and 45 shareholders in his oral arguments. It was contended that any arguments outside the Pleadings are not permitted; (h) Shri Nalin Patel, who is alleged to have been allotted 500 shares with the Petitioner, had served a statutory notice under section 433(e) on Respondent No. 1 Company for return of his unsecured loans as late as 2008 and the same had been filed by the Petitioner before the CLB. In his statutory notice, Shri Nalin Patel never made any claim of any joint holding with the Petitioner, it was contended that this shows that there was never any question of any share allotment of Respondent No. 3 and said Shri Nalin Patel as joint holders or otherwise; (i) Without prejudice to the contention that the 45 shareholders holding 10 shares each of total value of Rs. 100/- each have no locus standi nor they are necessary parties, it was contended that in paragraph 1 of affidavit in reply dated 29th June 2008 filed by him in reply to the three SCAs filed by the 45 shareholders
before the High Court of Gujarat, it was stated by him that the 500 shares each in question were subscribed for and allotted to him and Respondent No. 2 Shri Himanshu Gosai, Respondent(s) (i.e. 45 shareholders) have not denied that said averments before the Hon'ble High Court and those SCAs have been disposed of by consent orders. 26. It was contended by the Petitioner that all the documentary evidences on records earlier admitted by Respondents 1 to 6 as also the averments made by Respondents 1 to 6 on oath in their respective affidavits made earlier in the proceedings of CP 90 of 2005 which are also part of the OJ Appeal No. 8 and 52 both of 2007 filed before Hon'ble High Court of Gujarat by the Respondents, go to show that 500 shares each were allotted solely to Petitioner and Respondent No. 2 in their individual capacity and not in joint capacity. 27. As regards the law relating to admissions in affidavits, the petitioner placed reliance on MANU/SC/0052/2005 : AIR 2005 SC 809 "Sangramsinh P. Goekwad v. Shantadevi P. Gaekwad", wherein the Hon'ble Supreme Court dicussed and summarized the law relating to admissions in affidavits as below. 223. Section 58 of the Indian Evidence Act reads as under: 58 Facts admitted need not be proved. No fact need to be proved in any proceedings which the parties thereto or their agents agree to admit at the hearing, or which, before the hearing, they agree to admit by any writing under their hands, or which by any rule of pleading in force at time they are deemed to have admitted by their pleadings: Provided that the court may, in his discretion, require the facts admitted to be proved otherwise than by such admission. 224. In terms of the aforementioned provision, things admitted need not be proved. In view of the admission of Respondent No. 1 alone, the issue as regards allotment of 6475 shares should have been answered in favour of the Appellants. The Company Petitioner at a much later stage could not be permitted to take a stand which was contrary to or inconsistent with the original pleadings nor could she be permitted to resile from her admissions contained therein. 225. Admissions made by the Respondent No. 1 was admissible against her proprio vigore. 226. In Nagindas Ramdas v. Dalpatram Iccharam alias Brijram and others (MANU/SC/0417/1973 : AIR 1974 SC 471), this Court held: 26. ... Admissions if true and clear are by far the best proof of the facts admitted. Admissions in pleadings or judicial admissions admissible under Section 58 of the Evidence Act, made by the parties or their agents at or before the hearing of the case, stand on a higher footing than evidentiary admission. The former class of admissions are fully binding on the party that makes them and constitute a waiver of proof. They by themselves can be made the foundation of the rights of the parties. On the other hand evidentiary admissions which are receivable at the rival as evidence are by themselves not conclusive. They can be shown to be wrong. 227. (See also Biswanath Prasad and others v. Dwarka Prasad and others (MANU/SC/0006/1973 : AIR 1974 SC 117). 228. In Viswalakshmi Sasidharan (Mrs.) and others v. Branch Manager, Syndicate Bank, Belgaum MANU/SC/1451/1997 : (1997) 10 SCC173), this Court held: On the other hand, it is admitted that due to slump in the market they could not sell the goods, realize the price of the finished product and pay back the loan to the Bank. That admission stands in their way to plead at the later stage that they suffered loss on account of the deficiency in service... 229. Judicial Admissions by themselves can be made the foundations of the right of
the parties. 230. In M/s. Modi Spinning and Weaving Mills Co. Ltd. and another v. M/s. Ladha Ram and Co. (AIR 1997 SC 680), the law is stated in the following terms: 10. It is true that inconsistent pleas can be made in pleadings but the effect of substitution of paragraphs 25 and 26 is not making inconsistent and alternative pleadings but it is seeking to displace the plaintiff completely from the admissions made by the defendants in the written statement. If such amendments are allowed the plaintiff will be irretrievably prejudiced by being denied the opportunity of extracting the admission from the defendants. The High Court rightly rejected the application for amendment and agreed with the trial Court. 231. In the instant case, the Respondent No. 1 even did not amend the company petition by withdrawing the admissions or resiling therefrom. 28. Further, reliance was placed on the following case laws in support of the falsity of unsigned annexures of only two annual returns for 1999 and 2000: Smt Abha Puri Vs Amethi Hume Pipes P Ltd and others-(2010) 94 CLA 227 (CLB) wherein it was held that".................in a family company, in view of the closeness of the parties, it is not uncommon that documents are signed without going through line by line. Therefore, the signature of the first petitioner in the balance sheet and signature in annual report (which the petitioners claim to be forged) cannot disentitle the petitioners to challenge the allotment and the appointment. 29. It was pointed out that in the case of petitioner, only Petitioner and Respondent No. 2 were the signatories to all document and Respondent No. 2 filed the annual returns with ROC. In addition to the full faith of Petitioner on Respondent No. 2 in those days, the fact that the alleged joint holdings were shown by a separate unsigned sheet annexed to annual return shows that the said unsigned annexures were subsequently attached to the annual returns by Respondent No. 2 behind the back of Petitioner. Since the alleged annexure showing joint holdings was not even signed by anybody, the Petitioner's allegation of manipulation and fraud only in two annual returns filed by Respondent No. 2 stands on a much stronger footing vis--vis facts in Smt Abha Puri Vs. Amethi Hume Pepes P Ltd and others- (2010) 94 CLA 227 (CLB). Further, relying on Ashish Das Gupta Vs Parwanoo Enterprises P Ltd and ors- (2000) 37 CLA 104 (CLB) wherein it was held that reliance placed on annual return as on 30.09.1997 cannot be accepted due to contradictory stand taken by Petitioner. The entries made in the register of members have precedence over annual returns of 2007 for determining the shareholdings in a company. The entries made in annual returns made up to 30"' September 1996 reflected the register of members is the correct position of the company's shareholding. It was contended that the facts and ratio in Ashish Dasgupta cited above is in all fours with the Petitioner's case. The register of members reflects the position as per annual return made up to 30th September 1998. The annual returns as on 30th September 2000 and subsequent years also reflect the register of members by reflecting 500 shares each issued and allotted on 1st March 1997 exclusively to Petitioner and Respondent No. 2. 30. The counsel for the petitioner refuting the respondents' allegations made to dispute the claim of quasi-partnership by the Petitioner as argued by the 45 shareholders and Respondent No. 1 company due to no such flavor at the time of incorporations; there being no conversion of pre-existing partnership into a company or a shareholders' agreement that the Respondent No. 1 Company will be a joint venture forever between Petitioner and Respondent No. 2; shares being under control of directors without any fetters regarding their issue and allotment for cash and even for consideration other than cash, provisions in articles enabling any body's appointment as a director; borrowing powers and supremacy of the Board of Directors as per Articles of Association; Shri Jaiwant Shah being Director from 20-10-2007;
proportion of contribution by way of loans by Respondent No. 2 allegedly being more than Petitioner during 1997-98; disparity in contributions by Petitioner and Respondent No. 2; residual amount for purchase of lands having come from Shri Nalin Patel and Shri Jaiwant Shah and they being inducted as Directors on 15th March 1997; inspire of their resignation Shri Jaiwant Shah being inducted again on 20-111997 in the Board of Directors, etc. and the Respondents' reliance upon Kilpest (P) Ltd. Vs. Shekhar Mehra: MANU/SC/1673/1996 : (1996) 10 SCC 696 andMANU/SC/0368/1965 : AIR 1965 SC 1535 "Shanti Prasad Jain v. Kalinga Tubes Ltd." to claim that Respondent No. 1 cannot be held as a quasi-partnership at all, it was contended by the counsel for the Petitioner's that all the aforesaid submissions regarding Respondent No. 1 Company not being a quasi-Partnership are false and unsustainable because: a) The three pre-requisites of private limited company as incorporated in clause 3 Articles of Association of Respondent No. 1 Company came to be interpreted in AIR 2004 SCW 5143 "Dale and Carrington Invt. (P) Ltd. v. P.K. Prathapan" = AIR 2004 SC 1624 and the apex court held as below: 12. In the present case Article 4 (iii) of the Articles of Association prohibits any invitation to the public for subscription of shares or debentures of the company. The intention from this appears to be that the share capital of the company remains within a close knit group. Therefore, if the directors fail to act in the manner prescribed above they can in the sense indicated by us earlier be held liable for breach of trust for misapplying funds of the company and for misappropriating its assets. Hence it was argued that the propositions regarding absolute power of directors, absence of a joint venture or shareholders' agreement or a pre-existing partnership being converted into a company, etc are false on facts and law. It was contended that Articles 13 to 18 of the Articles of Association contain a scheme wherein transfer of shares will be to the existing members Respondent No. 1 Company. Article 20 of the Articles of Association states that shares transferred to spouse or lineal descendants will be outside the restrictions placed on shares in the preceding Articles of Association of Respondent No. 1 Company. In other words, the aforesaid articles provide for keeping the shares of Respondent No. 1 Company within the existing members and their spouse/lineal descendants only. This shows that the founders had clearly made provisions for retaining the membership/shareholdings within the two families of Respondents No. 2 and the Petitioner only right at the time of formation of the Company. Article 31 provides for Respondent No. 2 and Petitioner being permanent directors of Respondent No. 1 Company for life and are also not liable for retirement by rotation vide Article 40 of the Articles of Association. It was contended that the Articles show that the Respondent No. 1 Company was formed as quasi partnership between two families only. It was contended that the reliance on Kilpest (cited supra) by Respondents is completely misplaced, misleading as well as illegal in the light of the interpretation of said Kilpest case in Sangramsinh Gaekwad (cited supra) by the Hon'ble Supreme Court as below: 241. In Kilpest Pvt. Ltd. and others v. Shekhar Mehra MANU/SC/1673/1996 : (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 petition filed under Sections 397 and 398. 12. The present was 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 winding up the company and must dismiss the appeal filed by Mehra. (See also Dabhol Power Co. (Supra), para 43) 242. Kilpest Pvt. Ltd. and others v. Shekhar Mehra [MANU/SC/1673/1996 : (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 quasipartnership 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. 243. 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. 31. Further, it was contended by the counsel for the Petitioner that the reliance on MANU/SC/0368/1965 : AIR 1965 SC 1535 "Shanti Prasad Jain v. Kalinga Tubes Ltd." by 45 shareholders is misplaced inasmuch as in the said case, the Company was a public limited company from inception, therefore, it was contended that in the light of the facts in the said case as well as the law laid down by the Supreme Court in respect of private limited companies in Dale Corrington (cited supra), reliance cannot be placed on Shanty Prasad Jain at all to consider the character of Respondent No. 1 Company being a quasi-partnership or otherwise. 32. Further and without prejudice to the preceding contention, it was contended by the counsel for the Petitioner that the 45 shareholders and Respondent No. 3 Shri Jaiwant Shah are stooges and benamidars of Respondent No. 2 Shri Himanshu Gosai and are in collusion with him for which reason also the ratio in Shantiprasad Jain case is inapplicable ab initio. It was contended that on facts and conduct of parties until 11/12/2002 (on which date Petitioner was marginalized by Respondent No. 2 by issue of 8,800 shares exclusively to himself with his wife), Respondent No. 1 Company was and is quasi-partnership since its inception; the Company was incorporated by Petitioner and Respondent No. 2 with 100 shares each on 17.1.2007 vide page 15 of Memorandum of Association and page 15 of Articles of Assocaition, Petitioner and Respondent No. 2 are to be permanent directors vide article 31 of the Articles of association. Both Petitioner and Respondent No. 2 have equal representation on the Board. Three family members each of Petitioner had Respondent No. 2 were appointed as Directors on the same day; Article 3 incorporates the three basic requisites of family companies as interpreted by the Supreme Court in Dale Carrington Vs. P K Prathapan (cited supra); Shri Jaiwant Shah and Shri Nalin Patel were appointed as additional directors only on 01/03/1997 due to their promise of bringing in funds for the drive-in-cinema project of Respondent No. 1 Company. Both resigned on 15/05/1997; Respondent no 3 Shri Jaiwant Shah was reappointed as additional director on 20-10-1997 but he resigned on 24/09/2001 (The reappointment of Shri Jaiwant Shah as a director is a mystery till date and this averment made by the Petitioner in his affidavit in winding up petition no 149/2004 in the Hon'ble High Court of Gujarat has not been contradicted with any evidence whatsoever by
Respondent No 2 or 3 till date; Until the final order dated 9th June 2006 in C.P. No. 90 of 2005 by CLB, Shri Jaiwant Shah did not attend a single board meeting or participated in any activity of the Company save and except the Rs. 4.64 lakhs unsecured loans given to the Company in 1997. Till date, Respondent No. 1 Company has not produced originals of any attendance register, board meeting minutes book, board meeting notices or dispatch register for the period prior to 9th June 2006 inspite of repeated averments in the affidavits seeking production of said register, etc. by Petitioner. This shows that Shri Jaiwant shah was never appointed validly after his resignation on 24/09/2001 and that he never participated in any of the affairs/activities of the Company till January 2006. Only in January 2006 he rushed to the CLB to file his affidavit in C.P. No. 90 of 2005 in support of and as a stooge of Respondent No. 2, therefore, the contention of any director on the Board of Respondent No. 1 Company being other than the family members (4 each) of Petitioner and Respondent No. 2 during 1997 to 2006 are absolutely false and are made with a fraudulent motive only; the non-production of originals of attendance register, board meeting minutes book, board meeting notices or dispatch register for the period prior to 9th June 2006 by Respondent No. 2 before the CLB till date also requires drawing of adverse inference against Respondent No. 2 and his benamis vide the ratio in paragraph 5 of the case law reported as Ashok Kumar Puri & another vs. Kaizen Institute (India) P Ltd and ors- (2009) 93 CLA 151 (CLB); the statutory auditor and the 1st auditor Shri B.T. Shah understood the Respondent No 1 Company as company formed and run by 2 families vide his letter of resignation dated 22-02-2003 in page 140 of C.P. No. 90 of 2005, the said resignation letter has been addressed by the 1st auditor to the Respondent No. 1 Company with copies to the 4 directors each of the families of Petitioner and Respondent No. 2, this itself shows that the Respondent No. 1 was not only a quasi-partnership of two families, but Shri Jaiwant Shah was never a director of Respondent No. 1 as he resigned on 24-09-2001 and he was being shown as director only by the manipulations and fabrication of records by Respondent No. 2 until 9th June 2006; the land records in Gujarati (Form no 7/12) of private lands purchased in the name of Respondent No. 1 Company always had the names of Petitioner and Respondent No. 2 in addition to the name of Respondent No. 1 Company in the said records. Names of directors could not be entered in the lands allotted by GIDC under 99 years lease to the Company originally. But now that lacunae also stands resolved and in all land records of the Respondent No. 1 Company, in addition to Company's name, names of Petitioner and Respondent No. 2 stand entered as directors. The sequence of events and documents relating to the only property (land) of Respondent No. 1 Company will show that from day one, Petitioner and Respondent No. 2 understood themselves and acted as partners in the venture formed as a private limited company to enjoy the benefits of limited liability and corporate personality; the details regarding investments as stated by 45 shareholders and adopted by Respondent nos. 2 and 3 are false, as they have omitted to mention the correct full details and bank statement placed by Petitioner as early as 2005 in C.P. No. 90 of 2005. Para 21 Pages 15 to 18 in affidavit in rejoinder dated 1612-2005 by Petitioner and bank statement of Respondent No. 1 Company attached thereto show that Petitioner always brought in more funds Respondent No. 2 as and when required for purchase of lands for Respondent No. 1 Company. Withdrawals were made as and when fresh funds came in from Respondent No. 2, and that too, without any ratio between the two partners, so much so that even after withdrawal of Rs. 10 lakhs by Petitioner in April 2002, his investment was more than Respondent No. 2's in Respondent No. 1 Company. Therefore, only by taking one day figures as on 31st March 1997 or 1998, Respondents cannot allege that Respondent No. 2 had made more investment in Respondent No. 1 Company. Such representations by Respondents contrary to uncontroverted records before the CLB is one more instance of attempted fraud and abuse of judicial process by Respondent No. 2 and his benamis. It is pertinent to note that even otherwise company's ownership is recognized from its shareholding and even the contribution by the Petitioner is undisputedly more than that of Respondent
No. 2 as is evident from Audited Annual accounts for the year ended on 30-06-2003. It was further pointed out that Respondent No. 2 cannot club unsecured loans from Respondent No. 3 Shri Jaiwant Shah and Shri Nalin Patel with his contribution to claim that his contribution his higher that of the Petitioner, as these two are separate entities and are only unsecured creditors of the Respondent No. 1 Company. Therefore, it was contended that the question of Respondent No. 1 Company not being a quasi- partnership at the time of its formation or any time thereafter does not arise. 33. Further, to support his contentions, the petitioner relied upon the case law in Dale Carrington (cited supra) and Sangramsinh Gaekwad (cited supra) by the apex court. Further, in Trackparts of India Limited and Ors. and Smt. Radkhika Bhargava and Ors Vs. K. N. Bhargava and Ors. MANU/UP/0683/2000 : 2000 CriLJ 310. Further, reliance was placed on the case of Jagjit Singh Chawla and Ors. Vs. Tirath Ram Ahuja Ltd. and Ors. MANU/CL/0116/2001 : [2004]119 Comp Cas 385 (CLB). Furthermore, reliance was placed on the case of Shri Badri Nath Galhotra and Shri Kapil Galhotra Vs. Aanaam Private Limited and Ors. MANU/CL/0055/2006 : [2007] 135 Comp Cas 534 (CLB)= [2007]76SCL241(CL). 34. Thus, the counsel for the petitioner contended that in view of the facts of the Respondent No. 1 Company related hereinabove and as well as the interpretation of law by the CLB, High Courts and apex court as cited the Respondent No. 1 was and is quasi partnership only. This contention was made without prejudice to the contention that the CLB's orders holding that Respondent No. 1 is a quasi -partnership in its order dated 9th June 2006 in C.P. No. 90 of 2005 has become final and, therefore, covered by the principle of Res Judicata. 35. The Petitioner's case is that allotment of 10 shares each to 45 persons in the alleged Board Meeting dt. 08-01-2003 is illegal and fraudulent because: Shares were allotted in alleged Board meeting dt. 08-01-2003 under pretext that company needs funds for its project, the company could not have commenced its projects in view of the fact that an injunction order/order of status-quo was in force from 30.04.2002. The argument that the Respondent No. 1 Company approached the 45 persons during the period December 2002-January 2003 stating that the Respondent No. 1 Company wanted to construct a Drive-in Cinema in the city of Surat (upon lands which were subject matter of the suit/injunction order/staus-quo order) and that the Respondent No. 1 Company needed funds for project, is wholly untrue and at any rate demonstrative of the collusion between the 45 shareholders and the Respondents. If the 45 shareholders were looking for a "good investment" opportunity, they would certainly not invest a paltry sum of Rs. 100/- only, that too in lands which were subject matter of an injunction order of a Civil Court and a subject matter of litigation. It was contended that it is undoubtedly clear that this fraudulent allotment was not for proper purpose and was only made with oblique motive to marginalize the Petitioner even in the event of voting by show of hands; these 45 shareholders never bought any huge funds, it was pointed out that it was also argued during hearing that these 45 persons wanted to invest huge funds but was restricted due to winding up petition filed by the Petitioner. Winding up petition was filed by the Petitioner in July' 04 i.e. after 19 months of these fraudulent allotments. So the arguments that winding up petition prevented them to invest is hollow and a sham. 36. The counsel for the Petitioner pointed out that the 45 shareholders had stated that applications were provided by Respondent Company, it is unheard of that a company provides applications with names, address and dates, no company provides dated applications with names and addresses of applicants, on a mere perusal of the application it is clear that the same is simply a letter and not a form which the Respondent No. 1 Company could have provided. It was argued that the Respondent No. 1 Company had provided the stereo-type letters, all dated 10.12.2002 with the sole object of increasing the number of shareholders and thereby reduce Petitioner
Shri Rajesh Patil to a hopeless minority even in case of voting by show of hands and thereby exhausting the maximum limit of 50 members permitted in case of private limited companies. Further, it was argued that it is surprising that all the 45 shareholders located in different parts of the country (Gandhinagar to Mumbai) happen to apply to the Respondent No. 1 Company for shares on the same day, i.e. 10.12.2002. Furthermore, there is no acknowledgement of the so called applications, nor there is any receipt given acknowledging receipt of application money. The alleged share application money of the 45 shareholders was also deposited by the Company only on 10.01.2003. it was contended that in fact these 45 persons, majority of who are undisputedly close relatives of Respondent No. 2. These 45 shareholders did not give any application money as they are nothing but stooges and benamis of Respondent No. 2. Admittedly the 45 shareholders did not pay the application/allotment money for the shares as neither they, nor the Respondent No. 1 Company could produce any receipt to show that the cash of Rs. 100/- each from 45 persons were received on or before 08-01-2003 inspite of the CLB asking the 45 shareholders about it. 37. Further it was contended that shares allotted in an alleged Board meeting which is not properly convened as notices are supposed to have been sent by UPC, cannot be valid. It is settled law that notices sent under postal certificate are invalid as proof of service as UPC can be procured at any point of time as held by the Apex Court in Shiv Kumar Vs. State of Haryana reported in SCC 445 & 1994 4 JT 162 and followed by it in Madhusoodan Vs. Kerala Kaumudi Petition Ltd. (para 23.17) (2003) 9 ILD 95 (SC) M.S. 38. The counsel for the Petitioner argued that the entire issue of 290000 shares on 8th January 2003 including the shares of 45 shareholders made through creation of paper was a total fraud and the reasons for setting aside the same have not changed till date even in any one aspect, out of the various aspects considered by the CLB in its order dated 09-06-2006. 289550 shares in all allotted to Respondent No. 2, 4, 5 and 6 are cancelled vide final orders dt. 09.06.2006 in C.P. 90 of 2005 which has become final since OJ Appeals filed against the same before Hon'ble Gujarat High Court has since been withdrawn. 39. It was contended that 45 shareholders have not come with clean hands as they have made false affidavits and have taken contrary stand to their earlier stand before Hon'ble Gujarat High Court at the time of their filing three Special Civil Applications (SCAs) bearing Nos. 19635, 20839, and 20840 all of 2006 filed against the final order dt. 09-06-2006 by the CLB, Principal Bench in C.P. 90 of 2005. My attention was drawn to the contrary averments on oath as follows: In SCAs referred to above filed by these 45 shareholders before Hon'ble Gujarat High Court they have stated in Para 2 (Copy of SCAs are annexed to Rejoinder dt. 19-062010 by Petitioner in response to Affidavit dt. 27-05-2010 by 45 shareholders) Vide averments in para 2, first three lines of the above referred SCAs it was stated as below: The Petitioners were approached by the Company in about the month of December 2002 - January 2003 stating that the Company is to construct a Drive-in-cinema in Surat and that for that purpose they needed funds... Vide averments in para 9 first line of affidavit - in reply dt. 27-05-2010 filed before the CLB in remand proceedings by Sameer Patel on his behalf and on behalf of other 44 shareholders, it was stated as below: The deponent of this affidavit and others of the 45 shareholders had heard about the project of the Company and wanted to invest in the Company. They approached the
Company....... Vide averments in para 9, lines 4 to 7 of the above referred SCAs it was stated as below: ..........................However, the Petitioners were shocked when they received from the Company a circular dated 3-7-2006 stating that a Company petition being Company Petition No. 90 of 2005 was filed by the Respondent No. 2 against the Company and other Respondents before the Company Law Board, Principal bench, New Delhi............................. Vide averments in para 11 line 3 to 6 and 10 to 14 of the additional affidavit dt. 2912-2010 filed before the CLB in remand proceedings by Sameer Patel on his behalf and on behalf of other 44 shareholders, it was stated as below: .......................It is submitted that the management upon the said issue getting resolved informed once again to 45 shareholders that, Mr. Rajesh Patil has already filed the winding up petition against the company.......................................................................................... Thereafter the management informed that, the very same petitioner had filed application to the Company Law Board. Further after sometime it was informed that, now winding up petition is withdrawn after filing of the petition oppression and mismanagement. 40. It was argued that the contrary statements made show the utter falsity of their pleadings aimed only for prolonging the litigation at the instance of Respondent No. 2. Further, it was pointed out that in the three SCAs they stated that they were approached by the Company in about the month of December 2002-January 2003 stating that the Company is to construct a Drive-in-cinema in Surat and that for that purpose they needed funds, however, in an affidavit dt. 27-05-2010 in remand proceedings diametrically opposite stand has been taken namely that they had heard about the project of the Company and wanted to invest in the Company and therefore they approached the Company, this shows that these 45 shareholders go on changing their stands before different judicial forum to suit their design which clearly shows that these 45 shareholders have not come with clean hands at all. 41. Responding to the argument that Petitioner have not come with clean hand and he had lost interest in the Company, it was argued that the allegation of losing interest and unclean hands have been extensively dealt in the order dt. 09-06-2007 in para 6 page 13 of the order in last three lines wherein it was held that "the instances of unclean hands have to be with respect to the affairs of the company. In the instant case the instances pointed out are not in the affairs of the company. Even otherwise the instances of unclean hands are unfounded." It was argued that only for this utter falsity and fraud, Petitioner deserves costs and prays for cancellation of the fraudulent allotment of 10 shares each to these 45 persons as they have not come with clean hands, remand orders of the Hon'ble High Court is being used for abuse of the judicial process by the 45 shareholders in collusion with other Respondents and therefore, Petitioner prays for their punishment for contempt of court and perjury.42. It was pointed out that the 45 shareholders did not pay the application/allotment money for the shares as neither they, nor the Respondent No. 1 Company could produce any receipt to show that the cash of Rs. 100/- each from 45 persons were received on or before 08-01-2003 inspite of the CLB asking the 45 shareholders about it. The alleged share money of the 45 shareholders was also deposited by the Company only on 10-01-2003 as also elaborately analysed and held so in the order dated 09-06-2006, the issue of shares to 45 shareholders was ab initio illegal, fraud and non-est. The entire issue of shares on 8th January 2003 made through creation of paper, which includes the shares of 45 shareholders, was a total fraud and the reasons for setting aside the same have not changed till date even in any one aspect,
out of the various aspects considered by the CLB in its order dated 09-06-2006. 43. Further, it was contended that the 45 shareholders did not have any share certificate until September 2010, this is evident from their letter dated 13-09-2010 to the Respondent No. 1 Company seeking various proofs of their shareholding including counterfoils of share certificates and the alacrity with which Respondent No. 2 gave all documents to them for production through an affidavit dated 29-12-2010. It was pointed out that a shareholder will neither seek proof for their shareholding nor seek copies of counter foils of share certificates and a company cannot give documents sought without any board meeting, particularly when the issue is sub-judice, being remanded by the Hon'ble Gujarat High Court to CLB to consider the claims qua 45 shareholders. The fact is until orders dated 09-06-2009, share issues were only recorded in Company's records and formality of issuing share certificates was not done by the Respondent No. 1 Company. Only after 09-06-2006, the Respondent No. 1 Company had to issue share certificates, and that too, for 8800 shares issued in December 2002 as CLB vide its final order dt. 09-06-2006 had ordered to transfer 50% to the Petitioner out of this issue as the Respondent Company is a quasi Partnership and Petitioner is 50% stakeholder along with Respondent No. 2. The fact that the 45 shareholders did not produce any evidence of their shareholders did not produce any evidence of their shareholdings of 10 shares each until September 2010 before the Hon'ble High Court as well as before the CLB evidences this. Petitioner had raised doubt about issue of share certificates vide his Affidavit dt. 29-07-2008 filed in response to the above referred three SCAs by 45 shareholders against the final order dt. 09-06-2006 by CLB in C.P. 90 of 2005. Petitioner had further in this affidavit called upon these 45 shareholders to produce copy of share certificates and Income Tax returns. The whole exercise of production of share certificates in September 2010 by the 45 benamis of Respondent No. 2 had been made only with the ulterior motive of creating an issue out of the non-availability of Physical certificates with the Petitioner, as Respondent No. 2 knows fully well that no share certificates were issued until 2006 by the Company to Respondent No. 2 and to the Petitioner. It was contended that the documentary evidences in the form of the return of allotment, Members Register, Register of directors shareholdings, Income tax returns filed by Petitioner and Respondent Nos. 2 and 3, admissions in their respective affidavits filed by Respondent in winding up petition no 149 of 2004; C.P No. 90 of 2006 and the O.J. Appeals before the Hon'ble High Court cannot be nullified by the 45 shareholders and Respondent No. 2 by such fraudulent and false averments. 44. The counsel for the petitioner reiterated the contention that 45 Shareholders have no locus standi to raise issues impinging on Petitioner's shareholdings or status of Respondent No. 1 Company as quasi-partnership or joint holdings or other pleas against Petitioner because they do not have any right against the Petitioner who has brought derivative action u/s 397/398 against Respondents 1 to 6. Their entry as alleged shareholders in R-1 Company is on 8th January 2003 by the alleged issue of 10 shares worth Rs 100 each and therefore, they cannot have any grievance about the Petitioner's petition regarding oppression and mismanagement or about the Petitioner's rights. It was pointed out that the 45 shareholders pleadings in the three SCAs 19835/2006, 20839/2006 and 20840/2006 were on the ground that their shares were nullified vide orders dated 09th June 2006 without they being heard. Now they cannot agitate issues unrelated to their three SCAs as both on facts and on law, they have locus standi. It was contended that the locus standi of 45 parties to raise issues other than their 4500 shares has to be decided as a preliminary issue by the CLB, as otherwise their agitating issues unconnected to their shares and without being aggrieved parties against the petitioner will be a serious miscarriage of justice. Reliance was placed onMANU/SC/0532/1992 : 1993 CRI.L.J. 600 SC : AIR 1993 SC 892 : 1993 AIR SCW 248-The Janata Dal v. H.S. Chowdhary and others. 45. It was contended that since 45 shareholders cannot have any cause of action about the rights of petitioner agitated in C.P. No. 90 of 2005, nor can they seek any
relief against the Petitioner, they have no locus standi at all to raise the various issues other than the sustainability of the alleged shares issued to them on 8th January 2003. Since on this point of law, it was contended that the 45 shareholders have committed an abuse of the process of law, Petitioner sought award of exemplary costs against the 45 shareholders. 46. Further, it was contended that the 45 shareholders are neither necessary, nor proper parties. It was pointed out that the Hon'ble High Court's remand orders passed with consent, the Hon'ble High Court has specifically held that it has not gone into the merits of issues agitated in 3 SCAs and both sides can agitate all the points before CLB qua 45 shareholders as orders were set aside qua 45 shareholders only, therefore, it is the right of the Petitioner, being dominant litus, to content that he cannot be forced to add parties who are neither necessary parties, nor proper parties to C.P No 90 of 2005. It was further contended that the issue of 45 shareholders not being necessary or proper parties is also to be considered from the perspective of the said 45 shareholders raising irrelevant and false issues of "petitioner abandoning the company in 2002 and running away to UK; Petitioner settling down there with his children; their school admissions; alleged borrowal from Respondent No. 3 while in UK; not going to UK for raising funds for Company's project; Petitioner coming back after alleged de-reservation of lands of Respondent No. 1 in 2004 to enjoy the share in increased land prices through illegal means; petitioner never being interested in investing in the Respondent company, etc. It was pointed out that these false averments were repeated by Respondent Nos. 2 and 3 during the hearing though the said false averments have already been considered and rejected in the final orders of the CLB dated 09-06-2006. Though the Hon'ble High Court remanded the matter only in respect of the 45 shareholders' holding of 10 shares each, they agitated issues not germane to their case with the collusion and support of Respondent Nos. 2 and 3 again during the hearings held in September 2011. It was reiterated that the 45 shareholders are neither necessary nor proper parties in C.P. No. 90 of 2005. Reliance was placed on the case law at MANU/SC/0427/2010 : AIR 2010 SC 3109 "Mumbai International Airport Pvt. Ltd. v. R.C. Centre and Hotels Pvt. Ltd." to contend that: A 'necessary party' is a person who ought to have been joined as a party and in whose absence no effective decree could be passed at all by the Court. If a 'necessary party' is not impleaded, the suit itself is liable to be dismissed. A 'proper party' is a party who, though not a necessary party, is a person whose presence would enable the Court to completely, effectively and adequately adjudicate upon all matters in disputes in the suit, though he need not be a person in favour of or against whom the decree is to be made. If a person is not found to be a proper or necessary party, the Court has no jurisdiction to implead him, against the wishes of the plaintiff. Para(8) Further, my attention was drawn to Civil P.C. (5 of 1908), 0.1 R. 10(2)- CIVIL PROCEDURE to contend that : Addition/deletion of parties - Provision gives discretion to Court - Does not give right to non-party to get impleaded - Discretion given to Court is judicial discretion - Has to be exercised according to reason and fair play and not according to whims and caprice. (para 12) It was contended that in view of the fact that the 45 shareholders holding 10 shares each illegally since 08-01-2003, they cannot be considered as necessary parties or proper parties for adjudication of C.P. No. 90 of 2005 inasmuch as neither the Petitioner is seeking any relief from the 45 shareholders, nor is their presence required for adjudication of the reliefs claimed by Petitioner in C.P. No. 90 of 2005. Hence it was prayed that the 45 shareholders be held as neither necessary nor proper parties for C.P. No. 90 of 2005. 47. The counsel for the Petitioner contended that there is collusion of 45 with Respondent No. 2 because: (a) The 45 shareholders majority of who are very close relatives of Respondent No. 2, spread over from Gandhinagar to Mumbai are said to
have applied in pre-typed application forms having the same date; the same sentences and words and typed in the same computer as was read out/explained during the hearing; (b) There are no cash receipts of application moneys and no accounting of cash in company's books during 08th January 2003 to 10th January 2003 on which date the total consideration of Rs. 4,500/-came to be allegedly deposited into Company's bank account; (c) My attention was drawn to the list of relatives of Respondent No. 2 as given in the petitioner's affidavit dated 14/12/2010 which has not been denied by Respondent No. 2; (d) Shri Mahendragiri K Goswami and Smt. Vedkumari Patel two of the shareholders gave proxies to Respondent No. 5 (father of Respondent No. 2) and R-4 (Wife of R-2) respectively. Smt. Vedkumari Patel and her husband being appointed as alternate directors to Respondent 6 and 5 respectively; (e) 45 shareholders acted in concert with Respondent No. 2 before the CLB after their case having been remanded to the CLB in April 2010; (f) The jurisdiction issue raised repeatedly by the 45 shareholders before the CLB, but appeal against the CLB's orders first to Gujarat High Court and thereafter to Supreme Court being filed by R-1 Company under the exclusive control of R-2. It was pointed out that Hon'ble Gujarat High Court awarded cost of Rs. 25,000/- in CO Appeal No. 51 of 2011 filed by Respondent Company in the matter challenging Jurisdiction. This cost was to be deposited within one month with CLB from the date of judgment. Hon'ble Apex Court dismissed SLP filed against this order thereby upholding the issue of jurisdiction; (g) 45 shareholders vide their letter dated 13-09-2010 to the Respondent No. 1 Company seeking various documents including proofs of their shareholding including counterfoils of share certificates and the alacrity with which R-2 gives all documents to them. It was pointed out that there are innumerable instances of collusion between the 45 shareholders and Respondent No. 2 since 8th January 2003, and due to paucity of time, only a few samples have been given above to show the total abuse of judicial process by the 45 shareholders and Respondent No. 2 mainly to enable Respondent No. 2 prolonging the litigation endlessly with the Petitioner for the illegal benefit of R-2. 48. The counsel for the petitioner argued that the various affidavits of Respondents since April 2010 before the CLB show that Respondents 1 and 2 and the 45 shareholders have taken a totally new plea of "joint holdings of 500 shares allotted on 1st March 1997 exclusively to Petitioner and Respondent No. 2". This plea was never canvassed by Respondent Nos. 1 and 2 in the winding up petition 149/2004, in C.P. No. 90 of 2005 until 2010 and in the O.J. appeals and nor by the 45 shareholders in the three SCAs before the Hon'ble High Court of Gujarat. The 45 shareholders have started this very same plea though they never canvassed this before Hon'ble High Court of Gujarat during 2006 to April 2010 when their SCAs 19835, 20839 and 20840 of 2006 were pending, in any case they have no locus standi under law to raise such pleas. It was pointed out that R-3 Shri Jaiwant Shah, though never filed any affidavit after remand of the 45 shareholders before the CLB, has adopted the same plea of joint holdings in his oral arguments before the CLB. Relying on the case at MANU/SC/0927/2004 : AIR 2005 SC 83" J.P. Srivastava and Sons Pvt. Ltd. v. M/s Gwalior Sugar Co. Ltd." = AIR 2004 SCW 6298, it was contended that: "it would not be proper to permit the respondents to raise an issue not argued by them either before the Company Law Board or the High Court and to make out a new case at appellate stage. To allow a party to take grounds not urged earlier would not only result in taking the other party by surprise but it would deprive such party of any adjudication on the issue by the different Courts-a right to which each party is otherwise entitled. It would also place such party at a great disadvantage as no opportunity would have been granted to it to meet the new plea." (Para 22). Further, reliance was placed on MANU/SC/0032/1978 : AIR 1978 SC 798-"Haji Mohammad Ishaq Wd. S.K. Mohammed v. Mohamed Iqbal and Mohamed Ali and Co." to contend that: (A) Civil P.C. (5 of 1908), 0.6, R.17, 0.41, R.27- Amendment- Applications in appeal for amendment of written statement introducing new case and adducing additional
evidence-Not allowed. The amendment of the written statement sought in appeal was on such facts which, if permitted to be introduced by way of amendment, would have completely changed the nature of their original defence. It would have brought about an entirely new plea which was never taken in the original pleadings. The additional evidence sought to be adduced was in respect of the facts stated in the amendment petition; it was held by the Supreme Court that the High Court in appeal rightly rejected all the petitions for amending their written statement and adducing additional evidence. Further, reliance was placed on MANU/SC/0508/1979 : AIR 1979 SC 1203 " Gujarat State Co-operative Land Development Bank Ltd. v. P.R. Mankad"= 1979 LAB.I.C. 592 to contend that: The Gujarat State Co-operative Land Development Bank Ltd.. Appellant v. P.R. Mankad and another, Respondents. (A) Constitution of India, Art. 133- APPEAL -Appeal before Supreme Court-New plea that co-operative bank is not doing banking businessPlea contrary to stand taken in writ petition before High Court - Leave to raise it refused. Where a new plea to the effect that a Co-operative Society was not doing banking business which was in direct contradiction to the stand taken by the appellant in the writ petition was sought to be raised before the Supreme Court, leave to, raise it was refused as the same was much too belated and also because it involved a mixed question of law and fact. (Para 12) 49. Further, it was contended that the counsel for the petitioner that principle of Res judicata bars any relief to 45 shareholders. It is settled law that provisions of Civil Procedure code apply for proceedings before the CLB. Since the Hon'ble High Court of Gujarat allowed the remand qua only the 45 shareholders in the three SCAs, the entire order dated 09-06-2006 cannot be reopened for arguments. The three SCAs confined to only the lis of 45 shareholders, namely, their plea that their shares should not be cancelled due to allowing the plea of petitioner for setting aside the share issue/allotments made on 8th January 2003. It was contended that the grounds and facts considered for cancelling the 2,89,550 shares allotted on 8th January 2003 in order dated 9th June 2006 for various illegalities/irregularities like marginalizing/oppressing the petitioner, shares not issued for a proper purpose, no meeting convened or held on 8th January 2003 for considering the share issue, shares issued through paper meeting without application money, UPC notices, etc. equally apply for the 45 shareholders. Therefore, evidence and issues earlier appreciated and decided for shares issued on 8th January 2003 for 2,89.550 shares will equally apply for the 450 shares issued to the 45 shareholders. 50. It is the Petitioner's case that 45 shareholders were introduced only to exhaust the maximum limit of 50 shareholders so as to marginalize the Petitioner's group completely in case of a voting by show of hands, and the 45 shareholders are only name lenders/benamis/close relatives or friends of R-2 and his family has been proved in affidavit by the Petitioner and accepted by the R-2 and 45 shareholders. In other words, on facts as well as on principles of res judicata, the shares allotted to 45 shareholders on 8th January 2003 cannot be held to be valid or legal. They have to be held as illegal only as they were not issued for a proper purpose and without issue of any notice of board meeting or holding of board meeting and behind the back of 50% partner i.e. the Petitioner, it was pointed out that UPC notices have already been held invalid and non-existent in order dated 09th June 2006; without holding any meeting; and to benamis of R-2. It was vehemently argued that the decision in respect of 2,89,550 shares in the order dated 9th June 2006 can only be applied to the 450 shares held at 10 each by the 45 shareholders due to principles of res judicata for
which the Petitioner relied upon the following precedents. MANU/SC/7674/2008 : AIR 2008 SC 2187 "Dadu Dayalu Mahasabha, Jaipur (Trust) v. Mahant Ram Niwas (A) Civil P.C (5 of 1908), S11;O.2, R.2 -RES JUDICATA-CIVIL PROCEDURE POSSESSION -INJUNCTION- Res Judicata- Applicability -Impact of observations made by S.C.-Suit for Permanent injuction based on legal entitlement to 'Gaddi' of MathDismissal upheld by S.C.- Observations that plaintiff may file suit for possession Would not prevent Court from dismissing suit for possession as barred by res judicata. The judgement of a Court, it is trite, should not be interpreted as a statute. The meaning of the words used in judgement must be found out on the backdrop of the act of each case. The Court while passing a judgment cannot take away the right of the successful party indirectly which it cannot do directly. An observation made by a superior Court is not binding. What would be binding is the ratio of the decision. Such a decision must be arrived at upon entering into the merit of the issues involved in the case, (para 19) In the instant case a dispute arose about succession and management of 'Gaddi' of Math. The plaintiff filed a suit for permanent injunction on basis of his legal entitlement to succeed to Gaddi. The suit was dismissed by the Trial Court and First Appellate Court on finding that plaintiff was not in possession on date of suit. The concurrent finding was reversed by the High Court on basis of writing made in register by Bhaik showing that the plaintiff was appointed as Mahant by Bhaik in accordance with prevailing custom. On appeal the Supreme Court reversed the judgment of High Court upholding the findings given by Trial and First Appellate Courts. The relief of permanent injunction was refused. Observation was, however, made that the plaintiff may file a suit for possession if he is so advised. The plaintiff filed a suit for possession. The question was whether res judicata would apply to such suit in view of the S.C. observations in earlier suit. Held, the ratio of a decision is binding and not an observation. The plaintiff's claim on basis of his legal entitlement was rejected by S.C. in earlier suit. The issue indisputably was the claim of entitlement to Gaddi by the plaintiff and a plea contra thereto raised by the appellants/defendant. Once the issue of entitlement stood determined, the same would operate as res judicata. The suit for possession was barred by res judicata as also provisions of O.2, R.2. (Paras 16, 17, 20, 28, 35) at page- SC 2188 Furthermore in terms of Section 5 of the Specific Relief Act, 1963 a suit for possession must be filed having regard to the provisions of the Code of Civil Procedure. If the statute provides for the applicability of the Code of Civil Procedure, there cannot be any doubt whatsoever, that all the relevant provisions thereof shall apply, 2007 (3) Pun LR 215, Reversed. (Para 34) 51. It was argued that because the Hon'ble High Court of Gujarat ordered an opportunity of agitating all issues, qua 45 shareholders, the CLB cannot appreciate evidence differently for the 45 shareholders as against its appreciation of evidence and findings in respect of 2,89,550 shares issued on same day, namely, 8th January 2003. For this submission, reliance was placed on the preceding apex court decision. MANU/SC/0047/1994 : AIR 1994 SC 152 "Sulochana Amma v. Narayanan Nair" = AIR 1993 SCW 3792 (A) Civil P.C. (5 of 1908), S.11, Expln. VIII-RES JUDICATA-Res Judicata-Doctrine of Applicable to decree of Court of limited pecuniary jurisdiction. The expression "the Court of limited jurisdiction" in Explanation VIII is wide enough to include a Court whose jurisdiction is subject to pecuniary limitation and other cognate
expressions analogous thereto. Therefore, Section 11 is to be read in combination and harmony with Explanation VIII. The result that would flow is that an order or an issue which had arisen directly and substantially between the parties or their privies and decided Finally by a competent Court or tribunal, though of limited or special jurisdiction, which includes pecuniary jurisdiction, will operate as res judicata in a subsequent suit or proceeding, notwithstanding the fact that such Court of limited or special jurisdiction was not a competent Court to try the subsequent suit. The issue must directly and substantially arise in a later suit between the same or their privies. It was contended that this decision of apex court is relief upon for the principle of res judicata being applicable to all courts and tribunals, including the CLB. Further, reliance was placed on the case at MANU/CL/0022/1996 : [1996] 87 CompCas 146 (CLB) -Appellants: Rajinder Kumar Malhotra and Ors. Vs. Respondent: Harbanslal Malhotra and Sons Ltd. and Ors. wherein in Paragraph 11 of the order, Respondents pleaded applicability of res judicata in the same proceedings and the CLB has accepted the same. Further, reliance was placed on the case at MANU/SC/0300/1964 : AIR 1965 SC 1153 "Gulabchand Chhotalal Parikh v. State of Gujarat" it was contended that: Res Judiciata-Decision in earlier writ petition on merits-Subsequent suit involving same questions and for same reliefs is barred upon general principles of res judicata. The provisions of S. 11, C.P. C. are not exhaustive with respect to an earlier decision operating as res judicata between the same parties on the same matter in controversy in subsequent regular suit and on the general principle of res judicata, any previous decision on a matter in controversy, decided after full contest or after affording fair opportunity to the parties to prove their case by a court competent to decide, it will operate as res judicata in a subsequent regular suit. It is not necessary that the Court deciding the matter formerly be competent to decide the subsequent suit or that the former proceeding and the subsequent suit have the same subjectmatter. The nature of the former proceeding is immaterial. There is no good reason to preclude such decisions on matters in controversy in writ proceedings under Art. 226 or 32 of the Constitution from operating as res judicata in subsequent regular suits on the same matters in controversy between the same parties and thus to give limited effect to the principle of the finality of decisions after full contest. Consequently on the general principle of res judicata the decision of the High Court on a writ petition under Art, 226 on the merits on a matter after contest will operate as res judicata. 52. Further, it was contended by the counsel for the petitioner that the principles of res judicata also apply due to withdrawal of appeal. On 09-08-2011, Hon'ble High Court of Gujarat passed orders in O.J. Appeal No 8/2007 and 52/2007 allowing Respondents 1 to 6 to withdraw their OJ appeals u/s 10F against orders dated 9th June 2006 of the CLB holding that the legal consequences upon withdrawal has to follow when the CLB sought clarifications on the effect of the said withdrawals of the appeal on the order dated 9th June 2006 from advocate for Respondent 1 and 2 but it was not answered at all. Though the Respondents (Appellants before the Hon'ble High Court) has relied upon the orders dated 25-11-2010 passed by the Hon'ble High Court in the 3 SCAs, it was pointed out that the orders dated 25-11-2010 is only for clarifying the earlier order disposing of the three SCAs filed by 45 shareholders and not in respect of the OJ appeals filed u/s 10F by the Respondents 1 to 5. Therefore, it was argued that the withdrawal of OJ appeals can have no connection whatsoever with the clarificatory orders dated 25-11-2010 in the 3 SCAs either on facts or on law. Even in the said clarificatory orders Hon'ble High Court has reiterated that the order dt. 09-06-2006 is set aside qua the petitioners of three SCAs (i.e. 45 shareholders). It was further pointed out that on 27th September 2011, Petitioner explained the effect of withdrawal of OJ appeals by respondents, namely, that the order dated 9th June 2006 have attained finally between Petitioner and Respondents 1 to 5 due to said withdrawal of OJ appeals by Respondents. Reliance was placed on the following
precedents. MANU/UP/0010/1971 : AIR 1971 ALL 41 (V. 58 C 10)" V. Dube v. Har Charan" Civil P.C. (5 of 1908), O.23, R.1(1) - WITHDRAWAL OF SUIT- APPEAL -DECREEWithdrawal of suit- Rule does not in terms apply to appeals- Right of plaintiff to withdraw suit at appellate stage is not an absolute right but is subject to rights acquired by defendant under decree- Court may permit withdrawal if no vested or substantive right of defendant is to be adversely affected - plaintiff appellant has right to withdraw appeal but not suit except with leave of Court. MANU/DE/1918/2010-Raj Singh Vs. Respondent: Bhup Singh through LR Surat Singh Property - Withdrawal of appeal - Res Judicata - Whether in facts and circumstances of present case, withdrawal of appeal by Brother of appellant would operate as res judicata against appellant? -Held, First and second suit were both suits for mandatory and permanent injunction seeking same reliefs - Prayer in first suit was that defendant be directed to demolish Karries laid down by him for construction of this over bridge - Chhajja' was old construction and already in existence - Prayer in second suit was that Chajja which stood completed be demolished by way of mandatory injunction - plea that cause of action in two suits is distinct is clearly contrary to earlier plea raised by appellant wherein he has stated that Brother of appellant had withdrawn his appeal only for reasons that case of appellant could be adjudicated upon inevitable conclusion is that second suit was based on same cause of action these contrary stands taken by appellant take him nowhere - To decide plea of res judicata, identity in suit proceedings has to be established needless to state that this can be founded by looking into pleadings, issues and judgment in previous suit - In given case where only copy of judgment of previous suit is filed in proof of plea of res judicata and where said judgment contains exhaustive or requisite details, this statement of pleadings and issues may be taken as enough proof from said judgment - Appeal as also pending application is dismissed. 53. It was contended that in view of the binding precedents the CLB has to reiterate the orders dated 9th June 2006 for the 45 shareholders also on principles of res judicata as Respondents 1 to 6 have withdrawn their OJ appeals from Gujarat High Court resulting in the said order attaining finality. 54. The counsel for the Petitioner responding to the contention of R-2 and R-3 and by 45 shareholders that the lands of R-1 Company were de-reserved in 2004 and the Petitioner started taking interest only thereafter, contended that the land survey nos. 66, 67, 69, 70, 80, 81 and 85 situated in Moje Village Gaviar, Taluka Choryasi acquired from GIDC by the Company was originally reserved for GIDC housing (under H-44). The same came to be de-reserved on 17-05-2001 vide Notification No. GH/V/of 2001/DVP/1497/2400/L dated 17-05-2001 cited in Surat Urban Devt Authority (SUDA) SUDA Zoning Certificate No SUDA/TEC/ZO. CERT/530 DATED 02/07/2001 (Gujarat version and English translation at annexure--) para 2 of the zoning certificate clearly states that vide the said notification dated 17-05-2001, the aforementioned survey nos. have been dereserved from GIDC Housing (H-44). As per Gujarat Town Planning Act, an Urban Devt Authority (SUDA in this case) is legally bound to submit Draft Devt Plans and modifications thereto periodically to Govt. and take its approvals. Accordingly, the draft revised plan was submitted to Govt. on 2608-1997 and Govt. issued modifications to the said plan vide notification dated 17-052001 and dereserved the lands of the Company from GIDC housing as early as 17-052001. Only the act of publishing the finalized modifications to the draft plan of entire area under the jurisdiction of SUDA was notified on 02-09-2004. It was contended that the Respondents' claim that the lands were dereserved only vide SUDA notification dated 02-09-2004 is false and calculated to mislead the CLB. The notification dated 02-09-2004 is composite notification publishing the Draft Revised Development Plan of the SUDA and incorporates all the notifications issued from the
year 1997 dereserving various revenue survey numbers within its jurisdiction. The said notification also mentions the notification dt. 17-05-2001. In other words, the user of these properties by the Company became clear after the said de-reservation vide notification dated 17-05-2001 leading to a steep value in the price of these lands. Thus the claim of Respondent No. 2 and 45 shareholders that land prices going up only after the notification dated 02-09-2004 and petitioner taking interest in the Company's property after the said notification dated 02-09-2004 is false. Further, it was pointed out that this point is already considered by the CLB in its order dt. 09-062006 in C.P. No. 90 of 2006 at page 8 of the said order. 55. It was contended by the counsel for the Petitioner that the affidavit affirmed by R2 on 1.3.2011 is fabricated and false, it suffers from serious defects in that only the stamp paper and verification page is sealed and signed by the notary and the content portion running into number of pages does not have notary seal even in a single page. This shows that the affidavit is false and inadmissible in evidence as the notary has not certified /sealed each page as per law. Therefore, in addition to rejection of the said affidavit, following prayers were made in respect of the said affidavit. a) Since filing such affidavits without affirmation before notary on all pages amounts to interference in judicial proceedings, it amounts to committing contempt of the CLB by R-2. Since the said illegal affidavit has been filed in a matter being adjudicated due to orders of Hon'ble High Court of Gujarat in the 3 SCAs, it is prayed that the CLB may refer the matter to Hon'ble High Court of Gujarat for initiating contempt proceedings against R-2. Reliance is placed on MANU/SC/0807/1999 : AIR 1999 SC 452 " Income Tax Appellate Tribunal v. Triunal v. V.K. Agarwal"= AIR 1998 SCW 3692 (A) Constitution of India, Art. 129 - SUPREME COURT- CONTEMPT OF COURT -Powers of Supreme Court - Contempt of Income Tax Appellate Tribunal - Can be punished by Supreme Court. b) The CLB may kindly forward a reference to the Bar Council against the notary for a verification of the facts of affidavit not being in accordance with law and for enquiry thereon. Reliance is placed on MANU/SC/0237/1984 : AIR 1985 SC 28 'M. Veerabhadra Rao v. Tek Chand" (A) Advocates Act (25 of 1961), S.38, S.35 - ADVOCATE - Appeal by concerned advocate against punishment of reprimand - Cross- objection by respondent Advocate attested forged affidavit causing wrongful loss to respondents -Reprimand was no punishment stricto sensu - Notice to appellant for enhancement of punishment issued. (Para 11) (B) Advocates Act (25 of 1961), S.25 - ADVOCATE - PROFESSIONAL MISCONDUCT Misconduct - Punishment - Advocate concerned attesting forged affidavit - On basis of this false document, income tax clearance certificate obtained - This facilitated registration of sale deed for which consideration not paid - His action, unbecoming of member of noble profession - Held, the advocate was guilty of gross professional misconduct and he must be suspended from practice for five years. 56. I have considered the rival submissions and the case law cited. There is no dispute with the principles laid down in the case law cited. But each case turns on its own facts. On facts and considering the case law applicable the contentions of 45 Shareholders (only 43 shareholders were represented) and other respondents (R-1 to R-6 of C.P. 90 of 2005) are not found tenable for the reasons enumerated as under: (i) It is noted that no legal meeting was convened or held on 8th January, 2003 for
considering the issue of shares, the Petitioner being 50% shareholder had no notice of the meeting. (ii) There was no application money in the books of the R-1 Company when shares were said to have been allotted to the so-called 45 shareholders. (iii) The R-1 Company has failed to show any proper purpose for issue of shares. (iv) The 45 shareholders did not pay the application money for allotment of 10 shares of Rs. 10/- each to each of them. Neither the shareholders nor the R-1 Company has produced any receipt on or before 08.01.2003. It was deposited by the Company only on 10.01.2003. (v) Even when specifically asked to produce the evidence of payment, none was produced. The shares have been allotted without following proper procedure. (vi) The share certificates were not issued in the normal course. It was only on 13.09.2010 (after the CLB's order dated 09.06.2006 was set aside qua 45 shareholders on 26.04.2010) that the 45 shareholders sought the proof of their shareholding (which should have been with the 45 shareholders) from the Company. It is not understood as to how the counterfoils of their shareholding be asked from the Company. (vii) It is noted that no share certificates were issued even to the Petitioner and the R-2 till 2006. (viii) Till September, 2010 the 45 shareholders could not produce any evidence of their shareholding before the Hon'ble Gujarat High Court and the CLB. (ix) It is noted that the 45 shareholders had not applied for 10 shares each in any prescribed Application Form for allotment of shares. What has been produced in evidence are letters from 45 shareholders. The contents of the letters from 45 shareholders from different stations are the same, date is the same, typing font is the same leaving no doubt that these letters have been prepared by the R-1 Company itself instead of the applications having been given by the different applicants. (x) These letters do not mention enclosing or payment of money for allotment. (xi) No acknowledgements of these letters (which are not Application Forms) have been produced. (xii) These so-called 45 shareholders have made different statements regarding their becoming holder of 10 share each, before the Hon'ble High Court it was stated that the Company needed funds for Drive-in-Cinema whereas before the CLB it was stated that they wanted to invest money so they approached the Company. It is not believable that any person who wants to invest will invest only Rs. 100/-, they never brought any huge funds in the Company. If they were looking for a "good investment" opportunity, they would not have made investment of Rs. 100/- only. (xiii) There is no response to the Petitioner's specific asking of producing of their Income-tax Returns which could reflect their shareholding. (xiv) in view of the foregoing, in the facts and circumstances of this case, I have no hesitation in holding that these so-called 45 shareholders, in the absence of cogent evidence, are nobody but stooges and benamis of R-2 who fraudulently showed them as holding 10 shares each with an oblique motive to marginalise the Petitioner even in the event of voting by show of hands, R-2 made an attempt to show a maximum
number of such persons, mostly friends and relatives, only to gain control of the management of R-1 Company in a time when there was no proper purpose for any allotment and that too for a paltry total sum of Rs. 4,500/- from 45 persons, allotment was shown without following proper procedure. (xv) There is no answer by the 45 shareholders and other Respondents to the case law on resjudicata on account of already cancelled allotment of 2,89,550 shares allotted to R-2, 4, 5 and 6 on 08.01.2003 as held in the CLB's order dated 09.06.2006, which order as a consequence of withdrawal of 10F appeal has attained finality. (xvi) In the same meeting which has already been held to be invalid for the detailed reasons as contained in the CLB's earlier order, which are not being repeated for the sake of brevity, no valid allotment of any shares to these so-called 45 shareholders could have been made, which allotment, even otherwise, in the absence of cogent evidence is invalid and non-est and calls for further cancellation of 450 shares to these so-called 45 shareholders. Allotment of 450 shares to these 45 shareholders is hereby cancelled, Register of Members to be rectified accordingly after the R-1 applies for release of the Register of Members which is in the custody of the CLB. The Petitioner is permitted to have a certified copy of the Register before it is released to the R-1 Company. 57. Further, it is noted that the presence of these 45 shareholders was not required as necessary or proper parties in the earlier proceedings for adjudicating on the illegality of the Meeting on 08.01.2003 and allotment of shares in that Meeting. 58. Further, it is noted that in these proceedings qua these 45 shareholders, these socalled shareholders, who have failed to make their case, have attempted to indirectly raise the issue of the R-1 Company not being a quasi-partnership and attempting to show that the Petitioner's as well as the Respondent's shareholding was in joint names with R-3 and Nalin Patel. Such an attempt of these so-called 45 shareholders does not strengthen the reagitated case of R-2 on these issues, instead it reinforces the contention of the Petitioner that these so-called 45 shareholders are the stooges of the R-2 who has been using them for his ulterior motive. It further proves the petitioner's allegation of collusion between R-2 and these so-called 45 shareholders. 59. The Respondents' contentions regarding the R-1 Company not being a quasipartnership is not tenable because the respondents' understanding of the concept of quasi-partnership is erroneous and contrary to what is borne out from the facts of this case and in law, the contentions of the counsel for the petitioner in this regard remain uncontroverted. It is noted that the counsel for the petitioner has rightly pointed out that the general principles and logic of quasi-partnership was enunciated by the House of Lords in the original and classic case of Ebrahimi & Westbourne Galleries Ltd. & Ors. (1972)2 ALL. E.R. 492. And the principle as laid down in Kilpest case (supra) is that a limited company should not be easily accepted to be treated as a quasi-partnership. There is no dispute with these principles. Further, there is no dispute with the tests as laid down by the CLB in the case of Manikchand Promoters (supra) to ascertain whether a particular company is in the nature of quasi-partnership- the test being that of equal shareholding, existence of family arrangement, conversion of existing partnership into a private limited company, participation in management, etc. But the general principles and logic of partnership have evolved further. It has been rightly pointed out that reliance on Kilpest by Respondents is completely misplaced as Kilpest's case is interpreted by the Apex Court in Sangramsing Gaekwad's case as under: 242. Kilpest Pvt. Ltd. and other v. Shekhar Mehra [MANU/SC/1673/1996 : (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 quasipartnership can be applied to an incorporated company. The real charater of the Company, as noticed hereinbefore, for the purpose of judging the dealing 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. 243. 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 Judgements 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. Further, the law of quasi-partnership has evolved as under: In Trackpads of India Limited and Ors. And Smt. Radkhika Bhargava and Ors Vs. K. N. Bhargava and Ors. MANU/UP/0683/2000 : 2000 CriLJ 310 it was held that: 40. Learned counsel for the appellants has relied on yet another case of Hind Overseas Pvt. Ltd. v. Raghunath Prasad JhunJhunwala MANU/SC/0050/1975), to articulate the point that the interest of the applicant alone is not of predominant consideration. The interest of the shareholders of the company as a whole apart from those of other interests has to be kept in mind. It was held in the said case that the relief under Section 433(f) of the Companies Art, 1956, based on the just and equitable clause is in the nature of a last resort when other remedies are not efficacious enough to protect the general interest of the company. It has been stressed that as held in the said case, it is only when shareholding is more or less equal and there is complete deadlock in the company on account of lack of probity in the management of the company and there is no hope or possibility of smooth and efficient continuance of the on the just and ground. I do not think that this decision of the Supreme Court is helpful to advance the argument of learned counsel for the appellants that the principle of dissolution of partnership could not be invoked under the facts and circumstances of the present case. In the present case, virtually the company is family company and both groups have equal rights of management as per the articles of association. The Supreme Court has ruled in the cited case that the principle of dissolution of partnership may apply squarely if the apparent structure of the company is not the real structure and on piercing the veil, it is found that in reality it is a partnership. In the case of Jagjit singh Chawla and Ors. Vs. Tirath Ram Ahuja Ltd. and Ors. MANU/CL/0116/2001 : [2004] 119 Comp Cas 385 (CLB) it was held that: 20. The respondent have pointed out that besides the members of the three families, there are outside shareholders and therefore, the principles of partnership cannot be applied. We have seen the shareholding pattern. From 500 shares in 1950, the total paid up capital increased to 14,800 shares in 1970 by issue of shares on a number of occasions. All the shares had been issued during the lifetime of the three promoters. The manner of issue of shares indicates that the idea seemed to maintain the majority of the Ahujas' group at more than 50 percent and to keep aggregate holdings of Chwawlas' and Bagais' at 25 percent leaving the balance with outsiders. There has been no change in the shareholdings from 1970 onwards and now it stands at 51 percent, 12 percent, 13 percent and 24 percent with Ahujas', Chawlas', Bagais' and outsiders respectively. The collective holding of three groups of 76 per cent shares also signifies the understanding among the three promoters that they should have absolute control of the entire affairs of the company notwithstanding the outside shareholding. However, we also note without dispute by the respondents, the submissions of the petitioners that most of the outside shareholders are relatives of Ahujas'. Further, this Board has held in K.N. Bhargava v. Trackparts of India Ltd. [2000] 36 CLA 291 (CLB); [2001] 104 Comp Cas 611 that if the facts and
circumstances of a case reveal that a company is in the nature of partnership, holding of shares by outsiders would not affect the application of partnership principles. As a matter of fact, in that case the company was a listed company, but his Board held that company was a family company attracting the principles of partnership and this decision was upheld by the Allahabad High Court. 21. Thus, on an overall assessment of the facts of the case, we are-convinced that the company is in the nature of partnership with the understanding of Joint management by all the three families of the promoters............. In the case of Shri Badri Nath Galhotra and Shri Kapil Galhotra Vs. Aanaam Private Limited and Ors. MANU/CL/0055/2006= [2007] (CLB)=[2007] 76 SCL 241 (CL) it was held that: 7. I have considered the pleadings and arguments. It is unfortunate that parties who had worked together and nurtured the company for over 20 years should have fallen out on flimsy grounds. The petitioners have invoked the principles of quasi partnership to claim the right to participate in the management. The learned Counsel for the respondents, relying the decision in Kilpest case has contended that in a company, the question of applying the principles of quasi partnership dies not arise. It is to noted that in that case it has only been held that the said principle cannot be easily applied and it has been held that the principle can never be applied. In Sangram Sinh P. Gaekwad v. Shanta Devi P. Gaekwad MANU/SC/0052/2005, the Supreme Court has held that the decision in Kilpest cannot be said to be an authority for the proposition that for no purpose whatsoever can the principles of quasi partnership be applied to an incorporated company. The real character of company, 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 the quasi partnership in a given case may be invoked. Thus, it is evident whether the quasi partnership principles can be applied or not would depend on the facts of each case. It is an admitted position that in the present case, there are only three groups in the company holding equal percentage of shares. Whether the petitioners' group transferred a part of its shares to the other two groups voluntarily so as to maintain equality in the shareholding or as contended by the respondents, the shares were transferred against the financial assistance given by them to the 1st petitioner to acquire the shares from his other family members is, difficult to decide in the absence of more particulars, but the admitted fact is that the transfer resulted in all the three groups having equal percentage of shares in the company. It is also an admitted fact that after the three groups became equal shareholders in 2001, all the three groups were associated in' the management either as MD or Joint MD. If 3 company has equal shareholders and if all of them participate in the management, the concept of quasi partnership can always be presumed. It is not necessary that to treat a company as a quasi partnership, there should be a deadlock, prior partnership etc as contended by the learned Counsel for the respondent and the existence of these facts would only strengthen the claim of quasi partnership. Such a partnership need not be restricted only to promoters and even if somebody joint the company with the clear understanding of equal shareholding and equal participation in the management, the said principles can be applied. Therefore, the petitioners have rightly invoked the principles of quasi partnership in the present petition. Even if the said principle is not applicable, yet in given circumstances, allegations relating to denial of participation in the management/removal from directorship can be enquired into in a petition under Section 397/398. The learned Counsel for the respondents also submitted relying on Bagree Cereals case that directorial complaints cannot be agitated in a petition under Section 397/398 and can be agitated only in a suit. In a recent judgment of the Supreme Court in Kamal Kumar Datta v. Ruby General Hospital 2006 7 SCALE 35 the Court has held the removal of a director could be both oppressive in terms of Section 397 and since it would also result in material change in the management, it could attract the provisions of Section 398 also. In the facts and circumstances of this case, on facts and conduct of parties, it is noted
that until the respondents issued further shares to their group to usurp control, there has been a clear cut understanding of maintaining parity in equity even when 500 shares each were issued to the Petitioner and the R-2. Regarding Allegation of 500 shares each allotted on 1st March 1997 being joint shareholding by Petitioner with Nalin Patel and Respondent no 2 with Jaiwant sha, it is noted that Petitioner never concealed any fact/document, nor did any suppression or misrepresentation. The Petitioner's contention that Petitioner and Respondent no 2 alone were solely allotted 500 shares each on 1st March 1997 remains uncontroverted. All the documentary evidences on records earlier admitted by Respondents 1 to 6 as also the averments made by Respondents 1 to 6 on oath in their respective affidavits made earlier in the proceedings of CP 90 of 2005 which are also part of the OJ Appeal No. 8 and 52 both of 2007 filed before Hon'ble High Court of Gujarat by the Respondents, go to show 500 shares each were allotted solely to Petitioner and Respondent No. 2 in their individual capacity and not in joint capacity. There has been equal representation on the Board. The Petitioners and the Respondents understood themselves and acted as partners in the venture formed as a private limited company to implement two projects separately without interference of the one in another's. To be a company in the nature of quasi-partnership it is not necessary that it must have been converted into a private limited company from an existing partnership. It is also not necessary that there must be a written agreement to that effect. For a quasi-partnership company such understanding need not be in writing, such understanding has to be inferred from the facts and circumstances of each case. The R-2 has accepted the principle of partnership wherein he has suggested the buy out of one partner by the other partner and this concept of equality of partnership has not been objected to even by the R-2 and other shareholders from his group. In view of the facts of the R1 Company as well as the interpretation of law by the CLB, by the High Courts and the Apex Court, the R-1 Company was and is a quasi-partnership only. 60. In the light of the facts and documentary evidences on record in the form of return of allotment, register of members, register of directors' shareholdings, income tax returns filed by petitioner and Respondent No. 2, as well as the admissions vide affidavits by Respondents 1 to 6 in C.P. No. 90 of 2005 until 2010 as well as in the three SCAs before the Hon'ble High Court of Gujarat, and the law relating to admissions in affidavits before commencement of trial, the allegation of joint shareholdings made by Respondents in 2011 is not only false and illegal but also fraudulent due to its being made only with a view to mislead the CLB with ulterior motives and malefide purpose. 61. The Respondents' contentions regarding non-maintainability of the C.P. on the grounds that the joint holder of the shares have not given consent to file this C.P. and that the Petitioner has filed a winding up petition before filing the C.P. and further no case for winding up has been made out on just and equitable grounds and that the R1 Company is not a quasi-partnership are untenable because these issues have been reagitated and certain new pleas are sought to be agitated directly and indirectly (through the so-called 45 shareholders as well). In any case, it is settled law that the ingredients of Sections 397 and 398 can be discerned from the facts of the case and need not be stated as a "mantra", the allegations made in the C.P. clearly come within the four corners of these Sections as already held in the order dated 09.06.2006 which has attained finality. It is noted that R-3 has filed his affidavit only in these proceedings, earlier he chose not to deny what the Petitioner stated in the C.P. which was disposed of on 09.06.2006. And Nalin Patel the so-called joint holder of the shares has till date, even in these proceedings qua 45 shareholders, has chosen not to file any reply, there is no pleading denying the Petitioner's averment regarding shareholding. 62. In view of the foregoing, there is no doubt that R-1 Company is nothing but in the nature of quasi-partnership. No case has been made out to appreciate the evidence in
this C.P. differently than what was considered, appreciated and found as held in C.P. No. 90 of 2005 in the CLB's earlier order dated 09.06.2006. Even otherwise, there is no way that new pleas now taken by R-2, 3 and other Respondents can be permitted to enable them to re-agitate these issues in an oblique manner. The findings in C.P. No. 90 of 2005 as contained in the order dated 09.06.2006 remain unchanged. 63. Hearing qua 45 shareholders has failed in changing the order dated 09.06.2006 in any manner. 64. Hearing qua the so-called 45 shareholders is disposed of in the above manner. Noting the conduct of the Respondents and these so-called 45 shareholders, conduct in these equitable proceedings before this quasi-judicial body is very relevant, total cost of Rs. 1 lakh is imposed on R-2, which he shall pay to the Petitioner within one week of the receipt of this order. Further, the so-called 45 shareholders are also hereby directed to pay total cost of Rs. 45,000/- (Rs. 1,000/- each) for having colluded with R-2 to give support to R-2's ulterior motive. Manupatra Information Solutions Pvt. Ltd.
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