Percy Rutton Kavasmaneck (DR.) v. Gharda Chemicals LTD., 2008 SCC OnLine Bom 1245

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2008 SCC OnLine Bom 1245 : (2011) 166 Comp Cas 292
In the Bombay High Court

(BEFORE A.M. KHANWILKAR, J.)
Dr. Percy Rutton Kavasmaneck and another

Versus
Gharda Chemicals Ltd. and others
Page: 298
Company Petition No. 77 of 1990

Decided on November 14, 2008
Page: 299
The Judgment of the Court was delivered by

A.M. KHANWILKAR, J.:— This petition is filed under sections 397, 398, 402, 403 and
433(1)(f) of the Companies Act, 1956 (hereinafter referred to as “the Act”). It was
originally presented by seven petitioners (hereinafter referred to as “the petitioners
group”) claiming to be minority group having 27.21 per cent. share in respondent No.
1 company. However, after the admission of the company petition and before the
same could proceed for final hearing, petitioners Nos. 1, 2, 3, 6 and 7 have withdrawn
from the proceedings unconditionally. Thus, it is only the original petitioners Nos. 4
and 5 (hereinafter referred to as “the present petitioners”) have decided to pursue this
action. Notably, the shares held by petitioners Nos. 4 and 5 together would constitute
only about 6.66 per cent. of the share capital of respondent No. 1 company.
2. Briefly stated, sometime in or around April 28, 1962, a partnership firm
consisting of four partners came into being which operated in the name and style as
Gharda Chemicals Industries. The four partners were none other than the predecessor
of the present petitioners Mr. Rutton Kavasmaneck who held 30 per cent. in profits.
The mother of respondent No. 2, Mrs. Ratanbai Gharda having 15 per cent. share in
profits. Respondent No. 2, Dr. Keki Hormusji Gharda having 40 per cent. share in
profits. The fourth partner Mrs. Coomi Warden had 15 per cent. share in profits. The
partnership firm was running business of selling chemical process know-how and of
manufacturing dyes, chemicals and textile auxiliaries. On November 30, 1965, one of
the partners, namely, mother of respondent No. 2 Ratanbai Gharda expired. After her
demise, a new partnership firm in the same name Gharda Chemical Industries was
constituted consisting of three partners. The predecessor of the present petitioners
(Rutton Kavasmaneck) was assigned 35 per cent. share in profits; whereas,
respondent No. 2 (Dr. Keki Hormusji Gharda) was assigned 45 per cent. share in
profits and the third partner (Mrs. Coomi Warden) was assigned 20 per cent. share in
profits. Thereafter, on March 7, 1967, respondent No. 1 was incorporated and
registered as private limited company to take over the
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Page: 300
running business of the firm Gharda Chemical Industries. Respondent No. 1 had a paid
-up capital of 2,000 shares of Rs. 100 each (total Rs. 2,00,000). The holding of the
erstwhile three partners, predecessor of the present petitioners (Rutton
Kavasmaneck), respondent No. 2 (Dr. Keki Hormusji Gharda) and the third partner
(Mrs. Coomi Warden) was 600 shares, 1,100 shares and 300 shares respectively. In
terms of percentage, they respectively held 30:55:15 shares of the company. When
respondent No. 1 company was incorporated, the predecessor of the present
petitioners had credit balance in Rutton Kavasmaneck's capital account with the
partnership firm in the sum of Rs. 2,90,000 (rupees two lakhs ninety thousand).
However, he chose to invest only Rs. 60,000 (rupees sixty thousand) for purchasing
600 shares towards his capital contribution in respondent No. 1 company. He
deposited Rs. 1,80,000 (rupees one lakh eighty thousand) with respondent No. 1
company on interest basis. That deposit was later on returned by respondent No. 1
company on June 30, 1968. The predecessor of the present petitioners (Rutton
Kavasmaneck) withdrew the balance amount of Rs. 50,000 (rupees fifty thousand)
lying in his capital account of the firm. These facts are relevant in the context of the
stand taken by the present petitioners that respondent No. 1 company was a glorified
partnership company incorporated and registered in furtherance of confidence reposed
by the three erstwhile partners inter se.
3. This petition, which was originally presented by seven petitioners claiming to

have held between themselves to the extent of 27.21 per cent. of the subscribed and
paid-up capital of the company. The allegation in the petition in substance was that
the petitioners' group was being sidelined by the majority group and respondent No. 2
by his continuous acts of commission and omission, was bent upon to take the
complete control of respondent No. 1. The petitioners relied on instances which
according to them constituted oppression on the minority group and claimed that the
mischief committed by respondent No. 2 should be remedied. The grievance is that
the second respondent has taken over complete control of the company after the
demise of the predecessor of the present petitioners (Rutton Kavasmaneck). During
the life time of the said Rutton Kavasmaneck, he was admittedly the chairman of the
board of directors of respondent No. 1 company. It is alleged that even during his life
time, respondent No. 2 attempted to rest complete control of the company with
himself. With that end in mind, respondent No. 2 delayed the transmission of shares
of the deceased Rutton Kavasmaneck in favour of the present petitioners and other
heirs of the deceased and at the same time allowed transfer of substantial other
shares in complete violation of article 57 of the articles of
Page: 301
association. It is asserted that there was consistent campaign on the part of the
second respondent to oust the petitioners and for that repeated attempts were made,
inter alia, to prevent them any access to even the basic information, which the
petitioners as members and shareholders of the company were entitled to. Thus, not
only causing harassment but also oppression on the minority shareholders. In
paragraph 14 of the original petition, the petitioners have then referred to illustrative
instances such as extraordinary general meeting was purportedly held on October 15,
1988 and resolution was passed purporting to authorise the board of directors of the
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company to borrow moneys (pursuant to section 293 of the Act) to the extent of Rs.
20 crores. However, no notice of the purported meeting was given to the petitioners or
any of them. Besides, it is stated that the company had huge free reserves and had no
expansion plan or proposal which would warrant any borrowing by the company as
purportedly authorised. In other words, the purported resolution was not in the
interests of the company, for which reason, the resolution was void and of no effect. It
is then stated that the company issued a notice dated December 4, 1989, informing
the shareholders that the annual general meeting of the company would be convened
on December 29, 1989, to consider the accounts as on June 30, 1989, to declare the
dividend and to reappoint the third respondent director who had retired by rotation
and eligible for reappointment, to appoint auditors. According to the petitioners, the
original second petitioner and one Dr. Rebello (the father of petitioners Nos. 6 and 7)
who held shares in the company jointly with petitioners Nos. 6 and 7, had attended
the registered office of the company on December 29, 1989, where the meeting was to
be held. But found that neither respondent No. 2 nor respondent No. 3 were present
nor any shareholder was present. It is their case that in fact no meeting was held on
December 29, 1989. It is then stated that the original second petitioner had requested
the company to forward the list of shareholders as on June 30, 1989 and by his
subsequent letter dated January 10, 1990 to forward the up-dated list of shareholders,
i.e., as on January 10, 1990. It is then stated that it has come to light after
verification of the list of shareholders supplied by the company that the second
respondent in violation of article 57 of the articles of association purported to transfer
to himself 3,000 equity shares of the company hitherto held by one N.K. Warden.
According to the petitioners, as per article 57 of the articles of association, those
shares should have been offered to them on pro rata basis. It is then stated that the
third respondent was not a member of the company, for which reason, he was not
qualified for being appointed and to continue as director, having failed to acquire
qualifying shares within
Page: 302
two months from his appointment as director. In spite of having ceased to be a

director on December 29, 1988, in terms of article 123 of articles of association, the
third respondent purports to hold office as director with full knowledge and connivance
of the second respondent. It is then stated that the second respondent decided to
institutionalise and perpetuate the research culture of the company by starting the
Gharda Research Foundation, for which he issued Circular on August 24, 1989,
addressed to all shareholders of the company. According to the petitioners, the sole
purpose thereof was to usurp complete control over the company. The petitioners
further allege that the company was not declaring fair dividends in spite of high
earnings. The main cause for the petitioners' group to rush to file the present petition
was issuance of notice by the company dated January 16, 1990, purportedly
convening an extraordinary general meeting on February 15, 1990, to transact the
business mentioned in the notice. The agenda of items to be considered at the
meeting were to increase the borrowing powers, delete “Pvt.” from the name, as
company had become a deemed public limited company, increase the authorised
capital of the company, substitute articles 8, 18 and 19 of the articles of association,
to amend article 57 of the articles of association of Gharda Chemicals, to delete article
123 which pertains to requirement for qualification shares.
4. According to the petitioners group, the design of the second respondent to

introduce the above said items to be considered in the extraordinary general meeting
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convened on February 15, 1990, was to achieve indirectly which he could not do
directly in 1989. This conduct of the second respondent was by reason of his brute
majority in mala fide and fraudulent exercise of majority powers. It is then stated that
the company is in effect a glorified partnership promoted by the second respondent
and deceased Rutton Kavasmaneck predecessor of the present petitioners. Such acts
of respondent No. 2 destroyed the fundamental basis of the company on which the
company was incorporated and registered. The petitioners assert that there was loss of
mutual confidence and trust between the petitioners' group (minority group) and the
second respondent and his management of the first respondent-company. The second
respondent was bent upon to rest complete control of the company by systematically
excluding the petitioners' group from the management of the company and even from
the membership thereof and by diluting/nullifying the value of the shares already held
by the petitioners' group. On these assertions, the petitioners prayed that it would be
just and equitable to dissolve and wind up respondent No. 1 company.
Page: 303
5. During the pendency of this company petition, the petitioners' group amended
the, company petition on two occasions. By way of first amendment, the petitioners
highlighted the issue regarding the transfer of shares being in contravention of article
57 of the articles of association and were intended to prejudice and oppress the
minority group. The first amendment was carried out on April 9, 1992. The petitioners'
group once again carried out further amendment to the company petition on February
17, 2000. By this, amendment, in substance, the petitioners' group have made
grievance regarding the conduct of extraordinary general meeting convened on
February 15, 1990; such as creating situation so as to discard the valid proxy of the
petitioners and further to discard the valid votes of the petitioners' group which would
defeat the resolution required to be carried out as special resolution by majority of not
less than 75 per cent. It is further asserted that the respondents allowed invalid
proxies of the respondent group to vote on the said resolutions. By way of
amendment, new parties have been impleaded as respondents essentially those who
were to be affected by the challenge to the transfer of shares in breach of article 57 of
the articles of association. The contesting respondents have countered each of the
allegation. I shall deal with the relevant facts and the stand of the respective parties
while considering the relevant grounds.
6. As aforesaid, the original petitioners Nos. 1, 2, 3, 6 and 7 have withdrawn from
the present proceedings unconditionally. As per their request, they have been deleted
from the array of petitioners. The effect of unconditional withdrawal from the
proceedings by the said petitioners is that they have given up their challenge with
regard to the alleged acts of oppression and mismanagement. In that, those
petitioners have consciously acquiesced in the acts complained of. It is further
significant to note that during the arguments, counsel appearing for the present
petitioners, in all fairness, stated that although earlier the ground regarding
mismanagement was given up, but has been once again introduced by way of
amendment; nevertheless, the present petitioners shall confine to the ground of
oppression of minority. Indeed, learned counsel had stated that the facts which are
pressed into service in the context of ground of oppression of minority would, by itself,
indicate mismanagement and be viewed accordingly.
7. The present petitioners have filed elaborate written submissions besides making
oral arguments through counsel. During the submissions, the thrust of reliefs pressed
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on behalf of the present petitioners was that to meet the ends of justice, this court
should pass appropriate order under section 402 directing the majority shareholders to
buy out the shares held by them at such value as the court may deem fit. In the
alternative, the
Page: 304
court may consider granting relief in terms of prayer clauses (c) to (f), (h) to (hhh)
(v); (hhh)(xix);.(xx); (xxii) and (xxiii) and prayers (i)-(i) to (5). This position is
restated even in the concluding part of the written submissions filed on behalf of the
present petitioners. I would, therefore, think it apposite to consider the entire matter
only in the context of reliefs pressed on behalf of the present petitioners and in
particular the grounds referred to in the written submissions, while dealing with
individual instances referred to in the petition as amended.
8. Ordinarily, as the allegation is one of oppression of minority, the court is bound

to decide that aspect one way or the other on its own merits. Dependent on the
finding reached on the said issue, the court can proceed to pass appropriate order in
equity or otherwise. Significantly, in the present case, the present petitioners have
made it more than clear that the principal relief pressed by them is to issue direction
to the majority shareholders to buy out the shares held by the petitioners at such
valuation as the court may determine. Even if this relief is to be granted to the
petitioners, in the first place, the same will have to be confined only to the present
petitioners (original petitioners Nos. 4 and 5). For, the other petitioners (original
petitioners Nos. 1, 2, 3, 6 and 7) have consciously withdrawn from the proceedings
unconditionally. In so far as the present petitioners are concerned, as a matter of fact
they are free to deal with the shares held by them. In that, the shares are now freely
transferable. Indeed, when the petition was presented at the relevant time,
respondent No. 1 company was a private limited company. As a result, there was
restriction in the transfer of shares. However, it is common ground that now
respondent No. 1 company has become a public limited company—as a result of
special resolution moved in the extraordinary general meeting dated May 5, 2001,
having been defeated. Having acquired the status of a public limited company, the
restriction on the right to transfer the shares which was applicable to private limited
company, would naturally get diluted. That however, does not mean that there would
be no right in the board of directors to consider the transfer request on case to case
basis on its own merit, keeping in mind the best interests of the company so as to
prevent any undesirable person becoming its member and if enrolment of such person
as a member, is likely to be prejudicial to the company. In other words, the board of
directors would be justified in declining to register a given request for transfer of
shares keeping in mind the paramount interests of the company, if so required. The
only other apprehension of the present petitioners is that as has been cited in the past
in respect of some of the transfer request that the maximum number of members
provided in the
Page: 305
articles of association (as 50 members) has already been exhausted. As a matter of

fact, this restriction will have no relevance after respondent No. 1 company has
admittedly become a public limited company. For, restriction of maximum number of
50 members which may apply to a private limited company, will be of no relevance
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any more. Notably, even in respect of a private company which limits the number of
its members to 50, as provided in the definition of “private company” in section 3(1)
(iii) of the Act, it would not include persons who are in the employment of the
company and persons who, having been formerly in the employment of the company
were members of the company while in that employment and have continued to be
member after the employment ceased. Indubitably, the company will be bound to
process the share transfer request of the present petitioners keeping in mind the
regulations on the subject applicable at the relevant time as and when occasion arises.
9. Suffice it to observe that even if the present petitioners were to succeed in

establishing that it is a case of oppression and mismanagement, direction that could
be issued against the majority of the members, is to buy out the shares held by the
present petitioners at a fair value, keeping in mind the parameters provided in article
57(g) itself. At best, it could be further ordered that in the event, the majority
shareholders were disinclined to buy out the shares held by the present petitioners
within a reasonable time after the offer is made by the present petitioners in that
behalf, it would be open to the present petitioners to sell the said shares to any
outsider as per the price finalised with them inter se. Indeed, enrolment of the
outsider transferee as member of respondent No. 1 company would be subject to
scrutiny to be done by the board of directors in the best interests of the company for
preventing any undesirable person becoming a member of the company. The board of
directors will have to assign tangible and legally sustainable reason to reject the
request to register the transfer of any share. In my opinion, the principal relief claimed
by the present petitioners would stand addressed with the above arrangement.
10. I shall now proceed to consider the alternative reliefs pressed during the course
of arguments by counsel for the present petitioners. Indeed, although the present
petitioners have submitted that the reliefs to be presently reproduced are alternative
reliefs, the same in fact, are the substantive reliefs. I would straightaway refer to the
said reliefs pressed by the present petitioners, which read thus:
“(c) that the second respondent be restrained by an order of permanent
injunction from exercising any rights or receiving any dividends or any rights or
bonus shares or any accretions in respect of the
Page: 306
said 3,000 sharers purportedly registered in the name of the second respondent and
the first respondent;
(d) for orders and directions directing respondents Nos. 1 and 2 to offer the said
3,000 equity shares of the face value of Rs. 100 each (together with all accretions
thereto) to the petitioners in accordance with article 57 of the articles of association
at the value determined in accordance therewith and directing the first respondent
to register the same in the name of the petitioners and make consequential notings
on the first respondent's records;
(e) for a declaration that the purported extraordinary general meeting
purportedly held on October 15, 1988, is null and void and of no effect;
(f) for a declaration that the purported annual general meeting purportedly held
on December 29, 1989, is null and void and of no effect;
(h) holding the extraordinary general meeting on February 15, 1990 and/or
transacting any business thereat whether as set forth in the said notice dated
January 16, 1990 (exhibit ‘S’ hereto) or otherwise;
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(hh)(i) that it may be ordered and declared that the purported transfer of the
said 4 shares described in exhibit Q42 hereto from the name of respondents Nos.
11 and 12 to the name of respondent No. 13 is contrary to the articles of
association of the first respondent-company and therefore, illegal, null and void and
is liable to be set aside;
(hh)(ii) that the register of the members of the first respondent-company be
rectified by deleting the name of respondent No. 13 from the register of members
in respect of the said 4 shares described in exhibit Q42 hereto and by restoring the
names of respondents Nos. 11 and 12 in respect of the said 4 shares;
(hh) (iii) that respondent No. 1 and respondents Nos. 11 and 12 be ordered and
directed to take all such steps as may be necessary, including the execution of
transfer forms, etc., in order to transfer the said four shares from the names of
respondents Nos. 11 and 12 to the name of the petitioners or any of them;
(hhh)(i) this hon'ble court be pleased to declare that petitioner No. 2 was and in
a willing member/shareholder of the company as per the articles of association of
the company in respect of the 22 shares offered by respondents Nos. 5 and 6
referred to in paragraph 14(a)(vii) above;
Page: 307
(hhh)(ii) that respondents Nos. 1, 5 and 6 be ordered and directed to take all
such steps as may be necessary including the execution of transfer forms, etc., in
order to transfer the said 22 shares from the names of respondents Nos. 5 and 6 to
the name of original petitioner No. 2 and the register of members of the company
be ordered to be rectified accordingly forthwith;
(hhh)(iii) that pending the hearing and final disposal of the petition, respondent
No. 1 be ordered and directed not to register the transfer of the said 22 shares from
the name of respondents Nos. 5 and 7 to any outsider non-member of the
company;
(hhh)(iv) that this hon'ble court be pleased to declare that the purported sale or
transfer of shares from respondents Nos. 33 to 36 in favour of respondents Nos. 27
to 32 and respondent No. 1 company's registration of such transfers as per
particulars set out in exhibit QQ20 hereto is void, invalid and illegal;
(hhh)(v) that this hon'ble court be pleased to order and declare that the
purported sale or transfer of the said shares in favour of respondents Nos. 27 to 32
by respondents Nos. 33 to 36 and the registration of the transfer of the said shares
in the register of members of respondent No. 1 company be cancelled and set aside
and the register of members of respondent No. 1 company be rectified accordingly;
(hhh)(xix) that it may be ordered and declared that the purported transfer of the
said 5 shares referred to in paragraph 16(S)(1)(xiii) hereto from the names of
respondents Nos. 2 and 4 to the name of respondent No. 44 is contrary to the
articles of association of the first respondent-company and therefore illegal null and
void and is liable to be set aside;
(hhh)(xx) that the register of members of the first respondent-company be
rectified by deleting the name of respondent No. 44 from the register of members
in respect of the said 5 shares and by restoring the names of respondents Nos. 2
and 4 in respect of the said 5 shares;
(hhh)(xxii) that it may be ordered and declared that the purported transfer of
the said 5,492 shares in favour of respondent No. 39 (Gharda Consultants P. Ltd.) is
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contrary to the articles of association of the first respondent-company and contrary

to the Companies Act, 1956 and is illegal null and void and is liable to be set aside;
Page: 308
(hhh)(xxiii) that the register of members of the first respondent-company be

rectified by deleting the name of respondent No. 39 (Gharda Consultants P. Ltd.)
from the register of members in respect of the said 5,492 shares and by restoring
the names of the respective transferors in respect of the said 5,492 shares;
(the aforesaid numbering is given on the basis that the prayers proposed in
Company Application No. 130 and as communicated vide letter dated July 26,
1993, will be sanctioned.)
(i) in the alternative to prayers (a) and (b) above.
(i) for appropriate orders and directions under sections 397, 398 and 402 of the
Companies Act, 1956 including appointment of an administrator or special
officer of the first respondent with all powers of the board of directors for a
period of 5 years or for such other period as this hon'ble court may deem fit
and proper for managing the affairs of the first respondent and the board of
directors of the first respondent be displaced during such period;
(ii) the first respondent be ordered to issue and allot to the petitioners such
number of equity shares of the nominal value of Rs. 100 each in the capital of
the first respondent as is requisite to give to the petitioners a majority on the
issued and paid-up equity shares in the capital of the first respondent as per
value or at such premium as may be fixed by the Controller of Capital Issues,
Government of India, or any other competent person as this hon'ble court
deem fit and proper and to that intent the share capital of the company be
increased;
(iii) for orders and directions directing respondents Nos. 1 and 2 to offer the said
3,000 equity shares of the face value of Rs. 100 each (together with all
accretions thereto) to the petitioners in accordance with article 57 of the
articles of association at the value determined in accordance therewith and
directing the first respondent to register the same in the name of the
petitioners and make consequential notings on the first respondent's records.
(ii)(1) that it may be ordered and declared by this hon'ble court that the
extraordinary general meeting purported to have been held on February 15,
1990 and the business conducted therein/resolutions purported to have been
passed therein are all null and void and bad in law;
(2) that respondent No. 1 be restrained by an order and injunction of this hon'ble
court from taking any steps or action on the basis or in pursuance of the
resolutions purported to have been passed at the
Page: 309
said meeting of February 15, 1990 or from in any manner whatsoever giving effect
thereto;
(3) that it may be ordered and declared that the purported transfer of 3,000
equity shares by respondent No. 5 in favour of the second respondent is
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illegal, null and void;

(4) that this hon'ble court be pleased to rectify the register of members of the
first respondent by deleting the name of respondents Nos. 2 and 4 in respect
of 3,000 equity shares standing in their name and substituting the name of
respondent No. 5;
(5) that respondent No. 2 be restrained by a permanent order and injunction of
this hon'ble court from in any manner whatsoever exercising any rights of
membership whatsoever including the voting rights in respect of 3,000 equity
shares standing their names.”
11. It would be now necessary to formulate the issues that have been agitated in
the context of the abovesaid reliefs:
“(1) Whether the present petitioners (original petitioners Nos. 4 and 5) who have
only less than 7 per cent. of the shareholding in the share capital of respondent
No. 1 company are entitled to pursue the claim under section 397 of the Act?
(2) Whether the instances pressed into service by the present petitioners indicate
that the affairs of respondent No. 1 company is being conducted in the manner
prejudicial to public interest or in a manner oppressive to any member or
members?
If yes, whether the said facts would justify making of a winding up order on the
ground that it is just and equitable to wind up the company and whether the
winding up of respondent No. 1 company would or would not unfairly prejudice such
members?
(3) Whether the present petitioners have established that the affairs of respondent
No. 1 company are being conducted in a manner prejudicial to public interest or
in a manner prejudicial to interests of the company?
(4) Whether it is just and equitable to wind up respondent No. 1 company?”
Issue No. 1
12. Reverting to the first issue, it has to be noted that the original petition was
presented by seven petitioners who claimed to have held between themselves 27.21
per cent. of the subscribed and paid-up capital of the company. Out of them, original
petitioners Nos. 1, 2, 3, 6 and 7 have withdrawn from the present proceedings
unconditionally. The effect of
Page: 310
withdrawing from the present proceedings by the said petitioners is to give up their
claim and grounds alleged in the present petition. Instead, they have acquiesced of all
the acts referred to in the present petition and moreso in the stand taken by the
respondent-company. What is further relevant to note is that the present petitioners
(original petitioners Nos. 4 and 5) hold only 6.66 per cent. of the shareholding of the
first respondent-company. There is no dispute on this position. The question is:
whether the present petitioners have right to apply under sections 397 and 398 of the
Act? To answer this question, it would be apposite to advert to section 399(1) of the
Act, which reads thus:
“399. Right to apply under sections 397 and 398.—(1) The following members of
a company shall have the right to apply under section 397 or 398
(a) in the case of a company having a share capital, not less than one hundred
members of the company or not less than one-tenth of the total number of its
members, whichever is less or any member or members holding not less than
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one-tenth of the issued share capital of the company, provided that the
applicant or applicants have paid all calls and other sums due on their shares;
(b) in the case of a company not having a share capital, not less than one-fifth of
the total number of its members.”
13. The law requires that the specified strength of members of the company have
right to apply under section 397 or 398 of the Act. Admittedly, the present petitioners
(original petitioners Nos. 4 and 5) do not fulfil the requirement of section 399(1) of
the Act, which mandates that in the case of a company having a share capital, not less
than 100 members of the company or not less than one-tenth of the total number of
its members, whichever is less or any member or members holding not less than one-
tenth of the issued share capital of the company. In case of company not having a
share capital, not less than one-fifth of the total number of its members. The present
petitioners are only two and their holding is admittedly only 6.66 per cent. On this
finding, the petition should necessarily fail.
14. To get over this position, counsel for the petitioners, however, would rely on the
exposition in the reported cases that the court will have to consider the validity of the
petition on the facts as they were at the time of its presentation and the petition which
was valid when presented, does not become invalid on account of events subsequent
to its presentation. Reliance is placed on the decision in Rajahmundry Electric Supply
Corporation Ltd. v. A. Nageswara Rao reported in [1956] 26 Comp Cas 91;
Page: 311
AIR 1956 SC 213. That decision was rendered in the context of an application filed by
the first respondent under section 162(v) and (vi) of the Act for an order that the
Rajahmundry Electric Supply Corporation Ltd., be wound up. One of the contentions
canvassed before the apex court was that out of 80 persons who had consented to the
institution of the application, 13 were not shareholders at all and that two members
had signed twice. Besides 13 of the members who had given their consent to the filing
of the application had subsequently withdrawn their consent. It was argued that
excluding these 28 members, the number of persons would be reduced to only 52. As
a result, the condition specified under section 153C sub-clause (3)(a)(i) was not
satisfied. The argument that subsequent to filing of the application, some members
had withdrawn their consent, militates against the validity of the petition, has been
overturned. Reliance is also placed on the decision of the Madras High Court, which
has followed the principle stated in Rajahmundry Electric Supply Corporation Ltd. v. A.
Nageswara Rao, [1956] 26 Comp Cas 91 : AIR 1956 SC 213, in the case of L.R.M.K.
Narayanan v. Pudhuthotam Estates Ltd., [1992] 74 Comp Cas 30 (Mad), Steelsons P.
Ltd., In re, [1974] 44 Comp Cas 538 (Delhi), Jawahar Singh Bikram Singh P. Ltd. v.
Smt. Sharda Talwar, [1974] 44 Comp Cas 552 (Delhi) (at page 556), S. Varadarajan
v. Venkateswara Solvent Extraction P. Ltd., [1994] 80 Comp Cas 693 (Mad) (at page
712) and Kshounish Chowdhury v. Kero Rajendra Monolithics Ltd., [2002] 110 Comp
Cas 441 (CLB) : [2002] 1 Comp. LJ 552 (at page 569).
15. There is no difficulty in following the exposition in the above said cases.
However, the enquiry in the present petition will have to be confined only in the
context of grievance of the present petitioners (original petitioners Nos. 4 and 5) and
not on the basis of grievance made by the other original petitioners (Nos. 1, 2, 3, 6
and 7), since those petitioners have consciously withdrawn from the proceedings
unconditionally thereby giving up all the grievances made at their instance in the
present petition. That conscious act of the said petitioners (original petitioners Nos. 1,
2, 3, 6 and 7) relates back to the cause for institution of the petition in relation to the
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grievances made by them. Any other view would result in a situation where the
original petitioners Nos. 1, 2, 3, 6 and 7 having consciously withdrawn from the
present petition unconditionally, would, indirectly, resurrect their claim by this
process, which cannot be countenanced. For that, the said petitioners have willingly
chosen to acquiesce into the acts and stand of the respondent-company as also the
decisions of respondent No. 1 company taken from time to time which were made the
subject-matter of this petition by
Page: 312
them. It is well established position that the conduct amounting to oppression must
be “continuing at the date of hearing of the petition”, which statement of law can be
discerned from Halsbury's Laws of England, 4th edition, volume 7, paragraph 1011,
which is quoted with approval by the apex court in the case of Kamal Kumar Dutta v.
Ruby General Hospital Ltd., [2006] 134 Comp Cas 678 : (2006) 7 SCC 613, in
particular, paragraph 41. Keeping the abovesaid principle in mind, the grievance of the
“present petitioners” alone can be enquired into to find out whether it would constitute
“continuing oppression” qua them, albeit holding only 6.66 per cent. of the shares of
the first respondent-company and no one else.
Issue No. 2
16. Be that as it may, reverting to the second issue, it needs to be noted that no
case has been made out in the petition that the affairs of the company are being
conducted in a manner prejudicial to the “public interest”. Therefore, the discussion
will have to be confined to the question as to whether the alleged affairs of the
company are such that it would result in prejudice or oppression of minority
shareholders.
17. According to the petitioners, the company is a closely held family company in
the nature of glorified partnership, in which the personal relationships and mutual
trust and confidence was flowing from the special underlying agreement which was the
fundamental basis of the incorporation and continued existence of the company and
was an essential part of the substratum of the first respondent. This assertion is made
to further contend that the responsibility of the directors such as respondent No. 2
would be far onerous.
18. The argument of the petitioners has been rightly countered by respondents
Nos. 1 to 4. According to them, even though the respondent-company has emanated
from the original partnership business, the issue will have to be answered on the basis
of the provisions in the articles of association. From the provisions of the articles of
association, it was more than clear that it is a private limited company where the right
to transfer shares of the company is restricted in the manner prescribed in the articles.
I find that there is nothing in the articles of association to suggest that the company
was to be treated as a glorified partnership.
19. According to the petitioners, the second respondent along with his group, by
their action systematically sought to rest complete control of the first respondent by
oppressing the minority shareholders. It was suggested by the petitioners that there is
deadlock in the company in that no special resolutions can be passed. The argument
was that the special resolutions under section 189(2) of the Act requires majority of
75 per cent. of shareholding
Page: 313
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which majority shareholders do not have; whereas, minority shareholders held in

excess of 25 per cent. of the shareholding. It was argued that all matters which
require a special resolution, cannot be passed in view of the deadlock between the
majority and the minority of shareholders. At the same time, it was contended that an
order of winding up would unfairly prejudice the members.
20. In so far as the argument of deadlock is concerned, it is noticed that there is no

specific case made out in the petition in this behalf. Besides, the shareholding pattern
of majority and minority shareholders was almost the same right since its inception
when the company was incorporated. In that, the minority shareholders always held in
excess of 25 per cent. of the shareholding. In spite of that, the company has travelled
thus far. The facts would not justify a finding of deadlock in respondent No. 1
company.
21. According to the petitioners, after the incorporation of the first respondent, the
second respondent with a view to gain absolute majority and control of the first
respondent, sought to oust the predecessor of the present petitioners (deceased
Rutton Kavasmaneck). The petitioners are relying on the oppressive attitude of the
second respondent towards the deceased to contend that the deceased was unable to
have a say in the management of the first respondent.
22. In the first place, this assertion has not been substantiated. Indeed, the
petitioners have relied on letter sent by the deceased to the second respondent dated
June 27, 1975. This letter has come on record for the first time along with the affidavit
of Darium Rutton Kavasmaneck dated August 3, 2005. Besides this letter, reliance is
also placed on proceedings in Suit No. 6360 of 1975. No reference of the contents of
these documents are found in the original petition.
23. The differences which have led to the writing of the said letter or for that matter
for filing the suit, if any, is a tall claim put up by the petitioners to establish the fact
that there has been continuous oppression of minority shareholders. As a matter of
fact, it is noticed that till the deceased Rutton Kavasmaneck was alive, he acted as
chairman of the board of directors and exercised all his powers in that behalf. The
issues raised in the letter or the suit do not suggest that respondent No. 2 was
instrumental in oppressing the deceased Rutton Kavasmaneck (predecessor of the
present petitioners).
24. The petitioners would then assert that after the demise of Rutton Kavasmaneck
on February 5, 1977, the company was expected to transmit the shares in favour of all
the heirs of the deceased. The deceased had left behind about 3,300 equity shares
about 5.25 per cent. of paid-up capital of the first respondent. However, there was
delay in transmission of the
Page: 314
shares in favour of the heirs of deceased Rutton Kavasmaneck. Besides, no member of

Kavasmaneck family was replaced on the board after the demise of Rutton
Kavasmaneck. Instead, the fourth respondent was made a director of the first
respondent in place of the deceased.
25. The argument, though attractive, will have to be considered in the context of
the fact that it is the heirs of the deceased Rutton Kavasmaneck who for the first time
applied for transmission of shares on September 13, 1989. The heirs of the deceased
had done so only after estate duty clearance relating to the estate of the deceased
Rutton Kavasmaneck was available. It is well established position that the heirs of the
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deceased would be in a position to avail of the rights only after becoming a member of
the company and not otherwise. It is noticed from the record that within three days
from the date of presentation of the request, the shares were transmitted in the name
of the heirs of the deceased. Therefore, no fault can be found with the company for not
transmitting the shares of the deceased Rutton Kavasmaneck in the name of his heirs
immediately after the demise of deceased Rutton Kavasmaneck. Suffice it to observe
that the fact that the shares of the deceased were transmitted in favour of the heirs
after over 12 years from the demise of the deceased is not on account of any
deliberate failure or omission on the part of the respondents and in any case, cannot
be the basis to draw inference that it was with a view to suppress or oppress the
minority shareholders. It was for the heirs of the deceased to apply for transmission of
shares expeditiously. Due to their lapse, no adverse inference can be drawn against
the company. As aforesaid, so long as the shares were not transmitted in the names of
heirs of the deceased, the question of nominating any of them on the board of
directors did not arise. At the same time, since the affairs of the company were
required to be carried on, it was necessary to appoint some other able and suitable
person as director. The decision of the company in appointing in the first place
respondent No. 4 and later on replacing him by respondent No. 7, cannot be viewed as
oppression of the minority shareholders.
26. That leaves us with the instance or acts for period after the heirs of deceased
Rutton Kavasmaneck were enlisted as members on account of transmission of shares
in their favour. Although the petition deals with several aspects, in my opinion, it
would be appropriate to consider the matter in the context of the grounds canvassed
during the arguments and in particular, the relevant reliefs pressed by the present
petitioners at the hearing, to which reference has been made hitherto.
27. In so far as reliefs (c) and (d) are concerned, the same are in the context of
3,000 shares held by the fifth respondent which were sold to the second
Page: 315
respondent on November 26, 1988. The said shares were sold by the firth respondent
for; a consideration of Rs. 12,00,000 (rupees twelve lakhs). According to the present
petitioners, the said transaction was not in conformity with the provisions of article 57
of the articles of association, whereunder the shares were required to be offered to the
other existing shareholders and could not have been directly purchased by the second
respondent. In so far as the fact that the fifth respondent sold the said 3,000 shares in
favour of the second respondent on November 26, 1988, the same is not in dispute.
The question is: Whether the said transaction was contrary to the provisions of article
57 of the articles of association?
28. Respondents Nos. 1 to 5, however, submit that as the sale of shares was
between member to member, it was not necessary to offer the shares to other existing
members of the company. On the basis of the stand taken by the parties, the real
question is of construction of article 57 of the articles of association of respondent No.
1 company. We shall immediately refer to the said article as was applicable prior to its
amendment. The same reads thus:
“57. Save as aforesaid, the following provisions shall apply to the transfer of
shares.—(a) A member of the company may transfer a share to his lineal
descendant, but save as aforesaid no share shall be transferred to a person who is
not a member of the company so long as any member is willing to purchase the
same at the fair value as hereinafter provided;
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(b) The member proposing to transfer any shares (hereinafter called the
proposing transferor) shall give notice in writing (hereinafter called a transfer
notice) to the company that he desires to transfer the same;
(c) Within the period of seven days from the receipt of a transfer notice as
aforesaid the company shall offer to each of the existing members of the
company respectively such number of the shares included in the transfer
notice, as a pro rata or as nearly as may be to the holding of each member
respectively on the footing that if he desires to purchase any or all of such
numbers of the said shares at the fair value he shall within fifteen days of the
offer be entitled to apply for the purchase and transfer of the same and the
company shall be bound, upon payment to the transferor of the fair value of
such shares, to transfer the shares of member applying;
(d) In case any member or members shall not have applied for the purchase and
transfer of any or all of the shares to which he is entitled, the company shall
within seven days of the date at which the
Page: 316
offer dosed, offer the untaken shares to such of the members as have applied for the
purchase and transfer of all of the shares to which they were entitled by the terms of
the original offer in proportion as the holding of each of such members bears to the
total number of shares held by them and they shall be entitled within fifteen days of
the offer to apply for the purchase and transfer of a pro rata number of the said
untaken shares and the company shall be bound, upon payment to the transfer for the
fair value of such shares, to transfer the shares to the member applying;
(e) The proposing transferor shall be bound to execute a transfer in respect of

any shares so sold and in default thereof be deemed to have executed such a
transfer. The company shall thereupon cause the names of the members who
have purchased the shares to be entered in the register as the holders of such
shares and thereafter the validity of the proceedings shall not be questioned
by any person;
(f) In case no member shall apply for any of the shares included in the transfer
notice or in case any are untaken after compliance with the foregoing
provisions of this article the intending transferor shall have the right (which
right shall endure for the period of one year from the date of transfer notice)
to sell and dispose of his shares to any person and at any price and to apply
for registration of the transfer of the same and the company shall be bound to
give effect to the transfer of such shares accordingly;
(g) For the purpose of this clause the fair value of the share shall be such sum, if
any, as the auditors for the time being of the company shall certify as the fair
value thereof provided that it expressly declared that the fair value shall be
(1) the amount of capital paid up thereon plus, (2) a sum bearing the same
proportion to the value as appearing in the company's last balance-sheet of
any reserve fund or other fund of the company as the capital paid-up on all
the shares of the company for the time being issued plus or minus as the case
may be, (3) a sum bearing the same proportion to the value as appearing in
the company's last balance-sheet of any balance in the profit and loss account
consisting of or representing undivided profit and loss account consisting of or
representing undivided profits or losses as the capital paid-up on such share
bears to the total capital paid-up on all the shares of the company for the time
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being issued.”
29. On a fair reading of the provision, in particular, clause (a), I am in agreement
with the argument of the respondents that in case of transfer of shares between
member to member of the company, the requirement of
Page: 317
offering the shares to other existing members on pro rata basis, would not arise. The
avowed object of the article is to restrict the right to transfer the shares of the
company “essentially to outsiders”. As the company was incorporated as private
limited company, imposing of such restriction was very natural. Notably, the
restriction in clause (a) is of very limited nature. It postulates that as a general rule,
transfer of shares to a person who is “not a member” of the company is prohibited. It,
however, makes one exception that a member can transfer his shares to his lineal
descendant though not a member of the company. That provision, in no way, creates
any inhibition for transfer of share by a member to another member of the company.
For, by doing so, the change that would be brought about is only in the percentage of
holding of the respective members and not to introduce any outsider as member of the
company. It is well established position that while construing any restriction with
regard to transferability of shares of the company, the provision will have to be strictly
construed. On reading article 57 of the articles of association, either clause by clause
or as a whole, there is absolutely no indication to infer that before effecting transfer of
shares between member to member, it is necessary to offer the shares to other
existing members on pro rata basis. The respondents have justly pressed into service
decision of Court of Appeal in the case of Greenhalgh v. Mallard reported in [1943] 2
All ER 234, where similar controversy has been considered. The question considered in
that case was of construction of articles of association of that company which provided
that no share in the company shall be transferred to a person not a member of the
company so long as any member of the company may be willing to purchase such
shares at a fair value to be ascertained in accordance with sub-clause (b) of the
relevant article. The court went on to hold that on reading the said provision, it cannot
be suggested that sub-clause (a) contains any prohibition express or implied against
transfers to persons who are members of the company. It further held that the object
of the said article was quite clear: It is to put a clog upon the power of transfer outside
the ring of members of the company, and nothing else. The court rejected the
argument that the said clause be construed to mean that even in case of transfer of
shares from member to member, same regime should apply as in the case of transfer
in favour of a person who is not a member of the company. The apex court in the case
of V.B. Rangaraj v. V.B. Gopalakrishnan reported in [1992] 73 Comp Cas 201 : (1992)
1 SCC 160 : AIR 1992 SC 453, had an occasion to consider the question whether
shares are transferable like any other movable property under the Companies Act,
1956 or the Transfer of Property Act, 1882. In paragraph 6, the apex court has plainly
observed that
Page: 318
only restriction on the transfer of shares of the company is as laid down in its articles,
if any. It is further observed that restriction which is not specified in the articles, is,
therefore, not binding either on the company or on the shareholders. In paragraph 7,
the court has noted that in determining the extent of any restriction contained in the
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articles, a strict construction is to be adopted. The restriction must be set out

expressly or must arise by necessary implication and any ambiguous provision is
construed in favour of the shareholder wishing to transfer. The apex court has referred
to authorities dealing with restrictions on transfer of shares, amongst others,
Penington's Company Law (6th edition) at page 753, wherein it is mentioned that
shares are presumed to be freely transferable and restrictions on their transfer are
construed strictly and so when a restriction is capable of two meanings, the less
restrictive interpretation will be adopted by the court It is also noted that the
restrictions have to be clearly embodied in the articles of association.
30. It is well established position that articles of a company are constituent

document and are binding on the company and its directors. As aforesaid, the
intention of article 57 is that the share capital of the company remains within the close
knit group and nothing more. On the plain language of the said provision and the
intent behind it, the regime of article 57 has no application to transfer of shares
between member to member of the company inter se. There is force in the argument
of the respondents that from the contemporaneous situation, it would appear that all
concerned were ad-idem on this aspect, which position is reinforced from the fact that
on June 27, 1971 original petitioner No. 4 (petitioner No. 1) had transferred 50 shares
to original petitioner No. 1, which was a transfer of shares between member to
member of the company. The same was approved by the predecessor of the present
petitioners (deceased Rutton Kavasmaneck) in his capacity as chairman. Those shares
were not offered to any other existing member on pro rata basis to comply with the
regime of article 57. Similar position obtained when original petitioner No. 3
transferred 120 shares in favour of original petitioner No. 2 when it was once again a
case of transfer of shares between member to member of the company, duly approved
by the said deceased Rutton Kavasmaneck as chairman without offering those shares
to other existing members of the company. Even in January 1982, original petitioner
No. 1 sold 120 shares directly to respondent No. 2 which was transfer of shares
between member to member of the company without following the regime of article 57
about first offering the same to other existing members. Taking any view of the
matter, therefore, by no standard, it can be suggested that the transfer of 3,000
shares by
Page: 319
respondent No. 5 directly to respondent No. 2, transfer of shares between member to

member of the company was violative of article 57 of the articles of association in any
manner. The claim of the petitioners in that behalf will have; to be stated to be
rejected. Thus understood, the same cannot be ruled as constituting oppression of
minority.
31. That takes me to relief (e), whereby the petitioners seek declaration of the
purported extraordinary general meeting held on October 15, 1988, as null and void.
Averments to support this relief can be traced to paragraph 14(i). It is stated that
notice (exhibit S) was issued with regard to purported ordinary resolution proposing
enhancement of the borrowing powers of the board of directors of the first respondent
from Rs. 20 crores (as. purportedly done on October 15, 1988) to an amount of Rs. 40
crores. It is stated that to the knowledge of the petitioners, there was no expansion
plan of the company. On the other hand, the company had free reserves to the tune of
Rs. 27 crores from which any expansion plan could be met, It is stated that the stand
of respondent No. 1 company about necessity of enhancing borrowing limit was based
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on false and misleading statement deliberately made to suggest that it was necessary
for expansion plans. It is stated that the mala fides are also bome out from the fact
that the directors and/or company did not deem it fit nor felt it necessary to propose
any such resolution at the annual general meeting convened on December 29, 1989.
32. The respondents by filing affidavit have not only stated that the allegations of
the petitioners are baseless, but also assert that notices of extraordinary general
meeting dated October 15, 1988, were duly sent on the last known address of the
present petitioners (original petitioners Nos. 4 and 5) in India. There is nothing on
record to doubt this position. Besides, at the time of hearing, grievance was made on
behalf of the respondents that the present petitioners have given false and incorrect
residential address in the cause title of the petition. Be that as it may, in the reply, it
is stated that the decision to enhance the borrowing powers of the board of directors
was in the interests of the company. The respondents have stated on affidavit that the
company has had expansion programme on hand involving capital expenditure of Rs.
30 crores. That was to cover the period from March, 1990 to June, 1991. It is stated
that the company had plans to produce Aniline and various other products based on
Aniline apart from Anilopos Technical, Ortho Phenylene Diamine (OPDA) Vanillin, etc.,
at its new factory site at Lote Parshuram, Chiplun, District Ratnagiri, Maharashtra
State. The respondent-company has stated on affidavit that the company has
borrowed a sum of Rs. 410 lakhs from ICICI
Page: 320
and Rs. 175 lakhs from commercial banks to finance the capital expenditure already
incurred at the Lote site during the relevant period. That the total capital expenditure
envisaged has been to the tune of Rs. 15 crores for which the company had already
obtained sanction. The total amount disbursed till the filing of the affidavit was Rs.
445 lakhs and the balance was expected to be disbursed. In substance, elaborate
information has been provided by the company as to the circumstances in which it
became imperative for enhancing the borrowing powers of the board of directors. The
basis on which relief (e) is claimed is wholly unsubstantiated by the present
petitioners. In the circumstances, I have no hesitation in taking the view that by this
act of the respondent-company, which was in the interests of the company, there was
any oppression of minority shareholders at all. In any case, the petitioners have not
succeeded in substantiating the basis on which relief (e) is claimed.
33. That takes me to relief (f) of the petition. It is for declaration that the purported
annual general meeting held on December 29, 1989, is null and void and of no effect.
The substance of the allegation is that the original second petitioner and Dr. Rebello
(father of original petitioners Nos. 6 and 7), who held shares in the company jointly
with original petitioners Nos. 6 and 7, attended the registered office of the company,
where the said meeting was to be held on December 29, 1989, amongst others, to
consider the issue of dividend and reappointment of third respondent as director who
purportedly retired by rotation. However, when they reached the office, in fact, no
meeting was seen to be held or in progress. The respondent-company on affidavit has
stated that the annual general meeting held on December 29, 1989, was in fact held
at 11.00 a.m., as stated in the notice. It is further stated that since the agenda was
very short and routine, the meeting terminated within half an hour of its
commencement; whereas, respondent No. 2 and Dr. Rebello arrived at the said
company's office only at around 12.00 noon, by which time, meeting had already been
terminated. The respondent-company has thus denied the allegation that no meeting
was in fact held. There is no reason to doubt the correctness of the stand taken by the
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respondent-company. In any case, it is the second petitioner (original petitioner No. 2)

and Dr. Rebello (representing original petitioners Nos. 6 and 7) had attended the
meeting. The said petitioners have already withdrawn from the present proceedings
unconditionally. Implicit in that is giving up the allegation stated in the petition on
their behalf.
34. Be that as it may, the items on which decision was taken by the general body
was in relation to declaration of dividend and reappointment of the
Page: 321
third respondent. With regard to issue of dividend, the grievance of the petitioners is
that from the period from 1991 to 1998, the company has declared low dividend with
a view to cause harassment and prejudice to the minority members. It is the case of
the petitioners that respondent No. 2 in addition to dividend was being paid
remuneration by the company; whereas, the petitioners were fully dependent on the
dividend income receivable from the company. On account of low dividends, the
petitioners were required to shell out substantial amount towards tax liability leaving
almost no income in their hand. Instead, the petitioners were required to sell the
shares to meet their liability. It is the case of the petitioners that on account of low
dividends, the value of the shares was affected, thereby causing oppression of the
minority shareholders. The basis on which the grievance regarding low dividend is
made has been addressed by the respondent-company. The respondent-company has
relied on the tabular chart to indicate that the rate of dividend in fact has been
growing from 1984 to 1990. After the year of filing of the present petition, i.e., 1990,
dividend paid has been progressively increased from 14 per cent. to 50 per cent. and
thereafter, increased from 50 per cent. to 90 per cent. in 1997. Material produced by
the respondent shows that the company had a lean period from 1998 to 2002.
However from 2003, dividend paid once again increased from 200 per cent. to 400 per
cent. The explanation offered by the respondent-company seems to be plausible.
There is no deliberate intention to declare inadequate dividends.
35. In so far as dividend amount is concerned, the same is expressed as a

percentage of the paid-up capital on the face value of the share; and not on the basis
of share in profits, which concept is relevant to a partnership firm. Besides giving the
break up regarding the pattern of disbursal of dividend amount, the respondents have
also produced on record material to suggest that in addition to dividends, respondent
No. 1 company has issued bonus shares on four occasions and has raised the paid-up
capital from 2,000 to 62,166. On account of issuance of bonus shares, the present
petitioner No. 1 (original petitioner No. 4) has become shareholder in 1,967 × 150
shares being transferred to him by deceased Rutton Kavasmaneck; and present
petitioner No. 2 (original petitioner No. 5) has become shareholder in 1,981 × 500
shares being transferred to her by petitioner No. 1 (original petitioner No. 4).
According to the respondent-company, on the date of petition in 1990, present
petitioner No. 1's shareholding had increased to 3,208 shares and of present petitioner
No. 2 increased to 1,000 shares. Together, they held total 4,208 shares. Further, the
increased dividend paid on increased number of shares to
Page: 322
the present petitioners is Rs. 1,21,14,425 (rupees one crore twenty-one lakhs fourteen
thousand four hundred twenty-five) and the, total face value of 4,208 shares is Rs.
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4,208 × 100 = Rs. 4,20,800 for which the present petitioners have not spent any
money to acquire the same. Moreover, the total value of the said 4,208 shares it was
stated across the bar, at present, was at the rate of; Rs. 50,000 per share, would be
approximately Rs. 21.04 crores.
36. Be that as it may, the question is: Whether payment of low dividend by the
company can be the basis to hold that it results in oppression of minority
shareholders?. The answer is an emphatic “No”, especially in the fact situation of the
present case. The decision to pay low dividend applies across the board to all the
shareholders and not limited to minority shareholders. The respondents have given
justification for the low dividend policy keeping in mind the income-tax and wealth tax
liability of individual shareholders at the relevant time. If any authority is required in
support, we can usefully refer to the decision of the Calcutta High Court in the case of
Maharani Lalita Rajya Lakshmi v. Indian Motor Co. (Hazaribagh) Ltd. reported in
[1962] 32 Comp Cas 207. The Division Bench of the Calcutta High Court rejected
similar grievance of the shareholders by observing thus (page 212):
“It is then argued that the board of directors controlled by the managing agents
has not been properly declaring dividends. In fact what is said in paragraph 21 of
the petition is that dividend which is much below the actual profit earned by the
company has been declared. I fail to see how this is an act of oppression to any
member or members within the meaning of section 397 of the Companies Act. The
board of directors has a discretion to declare dividend and the rate of such dividend.
There is no company law that I know which obliges a board of directors to use up all
its profits by declaring dividend. No company law lays down that all profits must be
declared and exhausted in paying dividends. Surely, failure to do so could not be a
ground for an application for oppression under section 397 of the Companies Act.
Besides, that will also not be a ground for winding up a company as indicated by
Lord Blanesburgh in the observation quoted above in the Privy Council decision of
Ripon Press and Sugar Mill Co. Ltd. v. V. Gopal Chetty, [1932] 2 Comp Cas 70.”
37. The above decision has been followed by the single judge of the Calcutta High
Court, Mrs. Justice Ruma Pal (as she then was), in the case of Jaladhar Chakraborty v.
Power Tools and Appliances Co. Ltd. reported in [1994] 79 Comp Cas 505. From page
516 onwards of the reported decision, the issue regarding non-declaration of dividend
whether per se constitutes
Page: 323
oppression, has been considered. After referring to the above quoted exposition in
Maharani Lalita Rajya Lakshmi, [1962] 32 Comp Cas 207 (Cal), the court observed
that the test appears that whether by deliberately not declaring dividend the
respondent directors have caused the “value of the shares to fall” so as to compel the
minority to sell their shares to the majority, which statement of law was reiterated in
the cases of K.M.J. Joseph v. Kuttanad Rubber Co. Ltd. reported in [1984] 56 Comp
Cas 284 (Ker) and 301.
38. Even in the present case, the present petitioners have failed to establish that
the share value held by them has depleted in any manner. No such case is made out
in the petition. There is, however, material to take the contrary view that the value of
the shares has enhanced steeply. In such a case, the question of holding that on
account of declaration of low dividend, has resulted in oppression of minority
shareholders cannot be countenanced.
39. The decision in the case of Jaladhar Chakraborty, [1994] 79 Comp Cas 505
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(Cal), has been pressed into service also on the proposition that once the court finds
that there is no ground for oppression or mismanagement, there is no question of the
court passing any order from bringing to an end the matter complained of either under
section 397 or 398. In that, the substratum for passing any order under section 397 or
398 is unavailable. For that, reliance has been placed in the said decision on the case
of Jermyn Street Turkish Baths Ltd., In re, [1971] 41 Comp Cas 999 (CA), wherein it
was observed as follows (page 1023):
“If this could be regarded as an act of oppression, which in our opinion it cannot,
it would not, we think, justify an order that one side should buy the shares of the
other. So drastic a remedy would go far beyond what is necessary to put an end to
this particular form of oppression.”
40. Reliance is also placed on the earlier decision in Maharani Lalita Rajya Lakshmi
v. Indian Motor Co. (Hazaribagh) Ltd., [1962] 32 Comp Cas 207 (Cal), wherein at page
210 of the report, the Division Bench of that court had observed that: “wide as the
power of the court is following from the words of the expression ‘such order as it
thinks fit’, it is nevertheless controlled by the overall objective of this section which
must be kept strictly in view that the order must be directed “to bringing to an end
the matters complained of”. It is further observed that (page 210 of 32 Comp Cas):
“The marginal note of section 397 of the Act shows also that the purpose of the order
of the court in this section is to give ‘relief in case of oppression’.” The single judge of
the Calcutta High Court then proceeded to distinguish
Page: 324
the exposition in Needle Industries (India) Ltd. v. Needle Industries Newey (India)
Holding Ltd. reported in [1981] 51 Comp Cas 743 : (1981) 3 SCC 333. After
elaborately considering the circumstances in which the observations were made by the
apex court in Needle Industries (India) Ltd. v. Needle Industries Newey (India)
Holding Ltd., [1981] 51 Comp Cas 743 : (1981) 3 SCC 333, the court went on to hold
that in the case before it, the respondents had never expressed any willingness to
purchase the shares of the petitioners. That there is also no act of inequity in the case
as the illegal meeting in Needle Industries (India) Ltd. v. Needle Industries Newey
(India) Holding Ltd., [1981] 51 Comp Cas 743 : (1981) 3 SCC 333, of which justice
demands rectification. The court plainly observed that the Needle Industries (India)
Ltd. v. Needle Industries Newey (India) Holding Ltd., [1981] 51 Comp Cas 743 :
(1981) 3 SCC 333, was not an authority for proposition that even in cases where
oppression and mismanagement are not found under section 397 or 398 of the Act,
the court can compel the company or the respondents to buy the dividend
shareholdings.
41. The petitioners would rely on the decision of the Chancery Division in the case
of Sam Weller and Sons Ltd., In re reported in [1990] BCLC 80. In the said case, the
grievance of the petitioners who were minority shareholders of the company was that
even though the company had very substantial accumulated profits, the directors
failed to give an adequate consideration to the question of what proportion of the
profits of the company should be distributed by way of dividend. The court accepted
the said grievance of the petitioner and found that in the fact situation of that case, it
was unfairly prejudicial to the interest of some part of the members. In the first place,
the legal exposition in the said decision is in the context of section 459(1) of the
Companies Act, 1985, which was applicable to the case before the Chancery Division.
The same reads thus:
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“Section 459(1) of the Companies Act, 1985, is in these terms:

‘A member of a company may apply to the court by petition for an order under
this part on the ground that the company's affairs are being or have been
conducted in a manner which is unfairly prejudicial to the interests of some part
of the members (including at least himself) or that any actual or proposed act or
omission of the company (including an act or omission on its behalf) is or would
be so prejudicial’.”
42. I am in agreement with the argument of the respondents that the provision in
the Indian Companies Act, 1956, is differently worded. In that, the provision in
Companies Act, 1956, does not limit the action to conduct which is unfairly prejudicial
to the interest of some part of the members.
Page: 325
Whereas, it requires that the conduct should be such that it is in a manner oppressive
to any member or members. The Indian law envisages that the act of the majority
shareholders should be replete with malice and one of continuous oppression of the
minority shareholders' right till the hearing of the company petition.
43. Counsel for the respondents has invited my attention to the decision of the
apex court in the case of Hind Overseas P. Ltd. v. Raghunath Prasad Jhunjhunwalla
reported in [1976] 46 Comp Cas 91 : (1976) 3 SCC 259. In paragraph 32 of this
decision, our apex court has expounded that although the Companies Act is modelled
on the English Companies Act, the Indian Law is developing on its own lines. Our law
is also making significant progress of its own as and when necessary. It is further
observed that where the words used in both the Acts are identical, the English
decisions may throw good light and reasons may be persuasive. But then the court
added a word of caution relying on the exposition of the Privy Council in the case of
Mt. Ramanandi Kuer v. Mt. Kalawati Kuer reported in AIR 1928 PC 2, which reads thus
(page 4 of AIR 1928 PC):
“It has often been pointed out by this Board that where there is a positive
enactment of the Indian Legislature, the proper course is to examine the language
of that statute and to ascertain its proper meaning, uninfluenced by any
considerations derived from the previous state of the law—or of the English law
upon which it may be founded.”
44. This decision of the apex court was also pressed into service in the context of
the argument of deadlock in relation to passing of special resolution. In paragraph 33,
the apex court has observed 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 as members who are sought to be excluded from management, the
principles of dissolution of partnership cannot be liberally invoked. Besides, it is only
when shareholding is more or less equal and there is a case of “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 company as a
commercial concern, there may arise a case for winding up on the just and equitable
ground. In the present case also, the grievance of the present petitioners is that the
majority shareholders, in particular, respondent No. 2, always kept out the
predecessor of the present petitioners (Rutton Kavasmaneck) and controlled the entire
affairs of respondent No. 1 company himself. Besides, after the demise of Rutton
Kavasmaneck, none of his heir was replaced as director on the board of
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Page: 326
directors. Both these arguments will have to be stated to be rejected keeping in mind
the principle stated by the apex court that there was no right accrued upon in this
behalf. Besides, I have already dealt with the grievance of the petitioners with regard
to the delayed transfer of shares of the deceased. Until the shares were transmitted,
the heirs could not have been made directors. It is the petitioners' group who delayed
the process of transmission by submitting application in that behalf almost after
twelve and a half years. With regard to the argument that it is a case of deadlock in
passing of special resolution, is also answered by this decision as what is envisaged to
be a complete deadlock in the company on account of lack of probity in the
management of the company and there is no hope and possibility of smooth and
efficient continuance of the company concerned. By no standards, such a finding can
be recorded in the fact situation of the present case.
45. Reliance is also placed by the petitioners on the decision of Privy Council in the
case of Loch v. John Blackwood Ltd. reported in [1924] AC 783, in particular,
exposition at pages 793 and 794 to contend that the petitioners' group had completely
lost confidence in respondent No. 2 on account of continuous act of respondent No. 2
in keeping out the petitioners' group from the affairs of respondent No. 1 company. It
was a case of incompatibility between the petitioners' group and respondent No. 2. In
the first place, it is only the present petitioners who can make such grievance. In so
far as other original petitioners are concerned, they have already withdrawn from the
proceedings and given up all their claim. This authority is also concerning the issue of
declaration of low dividend and of benefiting only one group. The court on facts found
that the same was done unilaterally, as no notice was given to the respondents, as
shareholders of particular piece of business being contemplated and no notice was
given of what had been done. Similarly, no accounts were provided and the minority
group was kept in ignorance. That is not the case on hand.
46. Reverting to the grievance regarding declaration of low dividend, notably, the
prerogative to recommend the rate of dividend is exclusively in the board of directors
of a company in terms of section 205 of the Act. Even the shareholders at the annual
general meeting cannot increase the rate of dividend recommended by the board but
at best, can consider of reducing the same. Even article 183 of the articles of
association of the respondent-company would reinforce this position. Besides article
183, it will be useful to refer to articles 185 to 188. Article 188 postulates that the
board may set aside profit as reserve as it thinks proper. Dividend is to be paid out of
profits only in terms of article 185. Considering the scheme of these
Page: 327
provisions, coupled with the fact that no tangible material has been brought on record
by the present petitioners to substantiate that the declaration of low dividend was not
only intentional, deliberate and replete with malice, but was intended to and in fact
had reduced the value of their shares. In such a case, there can be no cause for
oppression. In my opinion, present petitioners are not entitled for even relief (f) of the
petition.
47. That takes us to relief (h) which presumably seeks a declaration that the
holding of extraordinary general meeting on February 15, 1990, is illegal and bad and
to refrain the company from proceeding to convene the said meeting. The present
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petition has been filed two days before convening the said meeting dated February 15,
1990, with a view to interdict the said meeting. However, under the orders passed by
this court, the meeting was convened on the basis of undertaking given by the
respondents not to act on any resolution that may be passed at the said meeting till
further orders. The subjects which were to be discussed in the said meeting were
notified by way of notice dated January 16, 1990, for holding extraordinary general
meeting. The items that were to be discussed have already been mentioned hitherto.
The grievance about the invalidity of this meeting at the instance of the present
petitioners is on diverse grounds. However, those grounds at best make out a case
bordering some irregularity. Significantly, the original petitioners Nos. 1, 2, 3, 6 and 7
having unconditionally withdrawn from the present proceedings and have given up all
the grounds presupposes that they have accepted the resolution passed at the said
meeting dated February 15, 1990. In other words, it is only the present petitioners
who are opposed to the validity of the said meeting and the decisions taken therein.
The present petitioners, however, constitute less than 7 per cent, of the shareholding.
By no standards, it can be said that the present petitioners on their own would be in a
position to defeat the resolution which is supported and in any case now accepted by
members having majority of over 93 per cent, shareholding. Had it been a case where
the ground pressed into service by the present petitioners would end up in a finding
that the conduct of the said meeting was void, it would be worthwhile for the court to
examine each of such ground elaborately. Be that as it may, the grounds which are
pressed are that the proposed resolutions were for the personal benefit of the second
respondent and were sought to be passed with a view to oppress the minority. That
the purpose of the amendment was to overcome the restriction and permit transfer of
shares to the foundation/other persons/company's control by the second respondent
and to exert petitioners to sell their shares by depriving them of adequate price. The
purpose of the resolution was to gain complete control of the first respondent.
Page: 328
It is stated that the second respondent was interested in the proposed resolutions for
which it was incumbent to disclose in the explanatory statement annexed to the notice
dated January 16, 1990, the nature of interest of the second respondent in the
proposed resolution as also his interest in the foundation. Whereas, the statement in
the explanatory statement stated that none of the directors was concerned with the
resolution which was palpably false. That no approval of the board of directors was
granted in the proposed extraordinary general meeting held on February 15, 1990;
whereas, such meeting could have been called only by the board of directors. It is the
case of the petitioners that the decision in the said meeting was for the personal
benefit of the second respondent. The main argument of the present petitioners is that
they had lodged proxies well in time but at the behest of the second respondent, the
proxies were not received before time so as to render the proxy invalid. In the process,
the proxy of present petitioners was denied participation in the meeting. On the other
hand, the proxies appointed by the supporters of the second respondent were allowed
to participate in the meeting even though their proxies were invalid. If the said votes
were to be discarded, then it would necessarily follow that the resolution was not
carried through. These are amongst other grounds on the basis of which validity of the
meeting dated February 15, 1990, has been now questioned.
48. On the other hand, the respondents have not only denied material grounds and
would submit that proper compliance has been observed. In addition, the respondents
would contend that the petitioners should be non-suited for having approached this
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court with unclean hands. In that, the fact that the petitioners have already entered
into a memorandum of understanding with Godrej Soaps Ltd., to acquire shares in
respondent No. 1 company was kept a secret arrangement till it became known for the
first time to the respondent in February, 2005. It is common ground that even the
present petitioners are signatories to the said memorandum of understanding. In fact,
even the present petitioners have sold 27 and 66 shares respectively to Godrej Soaps
Ltd., without following the regime of article 57. On the one hand, the petitioners were
questioning the intention of the second respondent but at the same time, the
petitioners were themselves indulging in act which was not only illegal but against the
interests of the company. According to the respondents, the petitioners' group was
bent upon selling their shares to a person who happens to be the competitor of the
respondent-company. Besides, it is the petitioners' group who on the one hand were
opposed to increase of authorised share capital resulting in respondent No. 1 not being
able to declare bonus shares; and
Page: 329
on the other hand were acting against the interests of the company by committing
themselves to sell their shares to person who happens to be the competitor of the
respondent-company. According to the respondents, the present petition is a
speculative petition, for which reason also the grievance made at the instance of the
petitioners with regard to meeting dated February 15, 1990, cannot be countenanced.
49. The fact that even the present petitioners were party to the memorandum of
understanding and have committed themselves to espouse the cause of the alleged
competitor of the company and in fact transferred part of the shares to an outsider,
have come to the notice of the respondents only in February, 2005. Those material
facts have been suppressed by the petitioners. For this reason alone, the petitioners
deserve to be non-suited. It is well established that no indulgence can be shown to a
litigant who approaches the court with unclean hands. In any case, as observed
earlier, after the withdrawal of other petitioners from the present proceedings
unconditionally, thereby giving up all the allegations and claim against the respondent
-company, the issue regarding validity of meeting dated February 15, 1990, survives
only at the instance of the present petitioners. They have less than 7 per cent. of
shareholding in the respondent-company. At their instance, therefore, the question of
overturning the decisions taken in the said general meeting particularly having
referred to their conduct does not arise. Even if the matter was to be examined on
facts, on its own merits, the grievance of the petitioners in respect of each of the
grounds will have to be stated to be rejected. By no standards, the decision to
convene meeting to consider the eight items stated in the notice dated January 16,
1990, can be said to be oppression against minority shareholders. The necessity to
increase borrowing powers was in the context of expansion plans in relation to which
ample explanation has been offered by the respondent-company. In so far as changing
of name from private limited company to one of public limited company was also out
of necessity. Even the explanation offered by the respondent-company about the
necessity to increase the authorised capital of the company can, by no standards, be
said to be oppression against the minority shareholders. No tangible material has been
produced to substantiate that position. Even the amendments suggested to the
articles of association were not to favour only the majority shareholders but would
apply across the board and every member would be benefited by the said amendment.
The controversy regarding deletion of article 123 as raised is also without any
substance. Besides, it is common ground that the company has now become a public
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limited company. Even on
Page: 330
account of this change, it has become redundant to entertain the grievance of the
present petitioners in relation to the issues concerning extraordinary general meeting
dated February 15, 1990. Moreso, when the stand taken by the present petitioners at
the time of arguments plainly suggests that they are interested in walking out of the
company and sell their shares at a fair price.
50. That takes me to next relief (hh)(i) to (hh)(iii) which pertain to the transfer of
four shares from respondents Nos. 11 and 12 to respondent No. 13 being contrary to
articles of association. According to the petitioners Mrs. Ruby Madon and Mr. Fali
Madon had offered 400 shares of the first respondent. The shares were offered only to
five shareholders of the first respondent. It is not in dispute that the letter of offer was
also received by original petitioners Nos. 2 and 3. The original petitioners Nos. 2 and 3
registered their protest about the proposed transfer being contrary to article 57 of the
articles of association. The petitioners had moved Company Application No. 104 of
1991 to prevent the first respondent from registering any transfer of the said shares
except in accordance with the procedure set out in article 57. The court directed
respondent No. 1 company to follow unamended article 57 of the articles of association
before registering the transfer of shares. The controversy brought before this court is
only in respect of four shares out of the said 400 shares. It is not in dispute that out of
400 shares, 395 shares were already purchased by the petitioners' group. In fact, the
present petitioners have purchased 93 shares out of the shares offered to them. The
petitioners may be justified in asserting that in spite of the order dated March 21,
1991, passed by this court, the “four shares” out of the 400 shares offered by
respondents Nos. 11 and 12 were transferred in favour of respondent No. 13 in
violation of unamended article 57. On that view, the four shares would come under
cloud. However, it cannot be overlooked that the order of this court dated March 21,
1991, was a tentative order and not a final order as such. Moreover, having held that
the decision taken in extraordinary general meeting dated February 15, 1990, has
become conclusive and cannot be reopened, the present petitioners cannot succeed in
their argument that the transfer of said four shares was contrary to article 57. In that,
article 57 as amended in the meeting of February 15, 1990, would recognise the said
four shares in favour of respondent No. 13 as valid transfer. The amended article 57
contains additional clauses (h) to (k) after clause (g). Resolution No. 6 of the
extraordinary general meeting passed on February 15, 1990, reads thus:
“6. Resolved that the following clauses be inserted as clauses 57(h), 5(i), 57(j),
57(k) as additional clauses to existing article No. 57.
Page: 331
Nothing contained in clauses 57(a) to 57(g) hereof shall apply to any, transfer or
shares which falls under any one or more of the following circumstances:—
(i) transfer by a person to another person who is a ‘relative’ within the meaning
ascribe thereto in the Companies Act, 1956;
(ii) transfer to a body corporate in which a majority of directors (or other persons
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who in law are to be regarded as directors or shareholders holding not less

than 51 per cent. of the voting rights are persons who are the members of the
company;
(iii) transfer by way of gift whether on account of love and affection between
persons who are relatives of each other or by way of philanthropy;
(iv) transfer by a person to another person who is an existing member of the
company:
Provided that in each the question as to whether the case falls under any of
the foregoing circumstances shall be subject to a decision by the board of
directors who shall be entitled to call for such information and particulars as may
be reasonably required to examine as to whether the case does in fact bona fide
fall under any of the foregoing circumstances.”
51. It is not the case of the petitioners that the transfer of said four shares in
favour of respondent No. 13 was also in breach of this amended article 57 as such.
Indubitably, the matter will have to be tested in the context of the amended article 57
which amendment has been approved by the general body on February 15, 1990,
whereas the proposal for transfer of shares by respondents Nos. 11 and 12 in favour of
respondent No. 13 in relation to the stated “four shares” was obviously subsequent, to
be governed by the amended provision. Taking any view of the matter the controversy
regarding four shares can be no basis to rule that it is a case of oppression of minority.
Thus understood, the petitioners are not entitled to any of the reliefs under
consideration.
52. In so far as reliefs (hhh)(i) to (hhh)(iii), these reliefs will have to be denied to
the present petitioners. Inasmuch as, the same are in relation to 22 shares offered by
respondents Nos. 5 and 6 referred to in paragraph 14(A)(vii) of the petition. The case
made out is specific to original petitioner No. 2. It is the original petitioner No. 2 who
alone was willing to purchase the said 22 shares offered by respondents Nos. 5 and 6.
It is nowhere mentioned in the petition that the said offer given by original petitioner
No. 2 was for himself and for and on behalf of other original petitioners, much
Page: 332
less, the present petitioners. It is admitted position that original petitioner No. 2 has
withdrawn from the present proceedings and therefore given up the claim set up in
the petition in relation to the said 22 shares of respondents Nos. 5 and 6. The present
petitioners cannot espouse the cause of original petitioner No. 2 who has already
withdrawn from the proceedings and given up that claim. This does not persuade me
to hold that it will or has resulted in oppression of the minority. Accordingly, the
present petitioners are not entitled for any of the reliefs under consideration.
53. In so far as relief (hhh)(iv) and (hhh)(v) are concerned, the same pertain to
transfer of shares from respondents Nos. 33 to 36 in favour of respondents Nos. 27 to
32. The grievance can be discerned from averments in paragraph 14C(iii) to 14D(ii).
In substance, the allegation is that the petitioners noticed new entries in respect of
Folio No. 31 (of one Mr. R.G. Vyas), in Folio No. 32 (of one Mr. L.P. Bhanushali), in
Folio No. 33 (of one Mr. A.M. Malte), in Folio No. 43 (of one Mr. C.A. Pinto), in Folio No.
62 (of one Mr. M.K. Thimothy) and in Folio No. 72 (of one Dr. D.C. Manshurmani). It
was noticed that each certificate of 10 equity shares were split into two certificates of
5 shares each, bearing the new distinctive numbers. This was done on May 28, 1992.
According to the petitioners, this was a calculated attempt so as to unduly increase
the number of members and to defeat the possibility of transfer of shares at the
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instance of petitioners' group in favour of non-member. Since the maximum number

of members could be only 50. According to the petitioners, the apprehension turned
out to be correct since the shares lodged for transfer at the instance of the petitioners'
group were declined as the maximum number of members was exhausted. Once
again, the petitioners heavily rely on the order passed by this court dated March 21,
1991, to contend that splitting of shares in favour of non-members by the six
employee members was impermissible. The above argument though attractive, is of
no avail. Inasmuch as, as has been found earlier, once the validity of the resolution
passed on February 15, 1990, has been held to be conclusive and cannot be reopened,
the transfers made by the employees in favour of their relations only of part shares
originally held by the employee concerned was permissible within the scope of
amended article 57. Amended article 57 allows such transfer in favour of a relative of
the member without requiring him to offer those shares to the existing members.
From the events that have unfolded from the inception of the company, it is noticed
that transfer of shares in favour of lineal descendant though not a member was always
granted. There are more than one such instance referred to by the respondents. In
that, on November 3, 1967, deceased Rutton Kavasmaneck, predecessor of the
present petitioners transferred his 150 shares to Maharukh Murad Oomrigar (original
petitioner
Page: 333
No. 3), 150 shares to Dr. Percy Rutton Kavasmaneck (lineal descendant) petitioner No.
4/present petitioner No. 1, and 70 shares to Jer Rutton Kavasmaneck (not a lineal
descendant-original petitioner No. 1)—which transfers were approved by the deceased
Rutton Kavasmaneck as chairman himself. The respondents would also rely on the
instance of 1968 when A.M.C. Rebello transferred his 85 shares to joint names of
herself and her husband (not a lineal descendant). Even this transfer was approved by
the said deceased Rutton Kavasmaneck as chairman. Instance of another transfer by
respondent No. 2 of 100 shares on February 4, 1969, to his wife/respondent No. 4 (not
a lineal descendant) was also approved by deceased Rutton Kavasmaneck as
chairman. Respondents also rely on transfer of 160 shares by deceased Rutton
Kavasmaneck in favour of original petitioner No. 2 and original petitioner No. 3 on June
22, 1971. The argument of the petitioners, however, is that those transfers were done
by consent and not unilaterally. The fact remains that the procedure under article 57
was not strictly followed even during the lifetime of the deceased Rutton Kavasmaneck
and more so, in relation to transfer in favour of the lineal descendant. In any case, on
account of amendment to article 57 which is approved by the general body on
February 15, 1990, the act of splitting of shares on May 28, 1992, being subsequent in
time, would be legitimate and permissible. It is not the argument of the petitioners
that even the amended article 57 would not permit such transfer or splitting of shares
in favour of the relations and lineal descendants.
54. The only other argument of the petitioners that needs to be addressed is the
apprehension expressed by the petitioners that taking advantage of the increased
number of members on account of such splitting of shares, respondent No. 1 company
would block the possibility of shares proposed to be transferred by the petitioners on
the ground that the maximum number of members is exhausted. And in that case, the
only option to the petitioners would be to offer the shares to the existing members and
that too, at unreal and depressed value. The argument will have to be rejected for
more than one reason. In the first place, article 57 is a complete Code as to how the
shares offered by the member ought to be valued. The shares will have to be offered
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to the existing members at a fair value. The method of computing fair value is also
spelt out in that article itself. There is no ambiguity in that behalf. It is not the case of
the petitioners that the said method is inappropriate or unfair. The said article will be
as much binding on the company as on the present petitioners. The regime of article
57 further postulates that if the offered shares are untaken at the determined fair
value, it is open to the offeror to sell the shares to a non-member or
Page: 334
recognise such transfer unless the transferee was found to be unsuitable and opposed
to the interest of the company. Once it is held that the company is obliged to
recognise such transfer by the member, it necessarily follows that the company would
be bound to take such remedial-measures including to amend its articles of
association so as to record the transfer within a reasonable time. As a matter of fact, it
is common ground that the company has now assumed that the hat of a public limited
company from May 5, 2001. On account of this transformation, the apprehension of
the petitioners that the possibility of denying transfer of shares to outsiders at a real
value is misplaced. I may clarify that this is not an expression of opinion either way in
relation to transfers already effected in favour of nonmembers by the petitioners'
group and still not recognised by the company. All issues in relation to the said
transaction will have to be answered on its own merits on case to case basis in
appropriate proceedings. Suffice it to observe that the splitting of shares belonging to
respondents Nos. 33 to 36 cannot be the basis to take the view that it was done with
the purpose of oppressing the minority shareholders, in particular, the present
petitioners. In the circumstances, even these reliefs under consideration cannot be
granted to the present petitioners.
55. That takes me to the prayer clauses (hhh)(xix) and (hhh)(xx). The same
pertain to transfer of five shares of respondents Nos. 2 and 4 in the name of
respondent No. 44 being contrary to the articles of association. Relevant assertion in
this behalf can be found in paragraph 16(S)(1)(xiii). According to the petitioners, one
Dr. Bomi Patel was the husband of the fourth respondent's niece, i.e., the niece is the
wife of the second respondent. According to the petitioners till June 10, 1996, the said
Dr. Bomi Patel did not hold any shares in the first respondent. The first respondent
purported to employ the said Dr. Bomi Patel as an additional director on September
14, 1996. It is further stated that on August 10, 1998, five shares held by the second
and fourth respondents were transferred to Dr. Bomi Patel. According to the
petitioners, the transfer of the said shares was contrary to article 57. Besides, the said
Dr. Bomi Patel was not qualified to remain as additional director as he did not hold the
requisite qualification shares in terms of article 123. It is further stated that the
transfer of shares was suppressed in notice dated September 21, 1996. The argument
though attractive, does not take the matter any further for the present petitioners. The
petitioners accept that the said Dr. Bomi Patel was employed. During his employment,
he was allotted five shares of respondents Nos. 2 and 4 as per the articles of
association. The said transfer of shares in favour of the employee was recognised. It is
not in dispute that the transfer of five shares was done on
Page: 335
August 10, 1998. Indeed, the transfer of five shares in favour of Dr. Bomi Patel was
not done within two months from his appointment as additional director.; That, at
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best, would be a breach of article 123, but by no standards, can be a case of

oppression of minority. It is not the case of the present petitioners that any of them
wanted to be director when Dr. Bomi Patel was appointed or when he incurred such
disqualification. In my view, the factum of illegal continuation of Dr. Bomi Patel as
additional director even after two months from the date of his appointment without
acquiring five shares, cannot be the basis to answer the issue of oppression of minority
shareholders in the affirmative.
56. The only grievance of the petitioners that needs to be considered in the context
of oppression of minority is of transfer of five shares by respondents Nos. 2 and 4
directly to Dr. Bomi Patel without following the regime of article. 57. In so far as this
grievance is concerned, as aforesaid, the said shares have been allotted to Dr. Bomi
Patel being an employee of respondent No. 1 company, which was permissible under
the articles of association. It cannot be overlooked that the transfer is only in respect
of five shares which is insignificant number and cannot be the basis to hold that it is a
case of oppression of minority shareholders. In any case, on account of the
amendment of article 57 in terms of general body resolution dated February 15, 1990,
transfer of five shares in favour of Dr. Bomi Patel by respondents Nos. 2 and 4 were
perfectly valid. Accordingly, even the reliefs under consideration cannot be granted at
the instance of the present petitioners.
57. The next reliefs pressed are (hhh)(xxii) and (hhh)(xxiii) in relation to transfer of
5,492 shares in favour of respondent No. 39 being contrary to articles of association.
According to the petitioners, respondent No. 1 company surreptitiously and without
giving notice to other shareholders of the respondent-company transferred the stated
5,492 shares, approximately 8.5 per cent. of the issued and paid-up capital of
respondent No. 1, in favour of respondent No. 39. That was not only a case of
oppression of minority shareholders but also a case of mismanagement. Grievance
with regard to this relief can be traced to averments in paragraph 16(1)(2) of the
petition. The relevant averments read thus:
“16(I)(2). The petitioners have also thereafter discovered that the wife of the
said Bomi Patel (viz., the niece of respondent No. 4) has been appointed Chief
Manager (Rural Development) in respondent No. 1 company. The main objects of
respondent No. 1 company does not include any type of rural development.
Significantly, it is respondent No. 2 who claims to have earned and profited only by
way of
Page: 336
salary/commission from respondent No. 1 company but yet has, after the filing of this
petition, been able to invest an mount exceeding Rs. 10 crores through the said
Gharda Consultants P. Ltd., to purchase approx 5,492 shares of respondent No. 1
company surreptitiously and without notice to the other shareholders of respondent
No. 1 company. Such acquisition of 5,492 shares since 1990 onwards is approximately
8.5 per cent. of the issued and paid-up capital of respondent No. 1 company. The said
Gharda Consultants P. Ltd., is a dead/dormant company, which has no business and
the cornering of shares by this company, is clearly the result of siphoning away of
monies from respondent No. 1 company by respondent No. 2 and utilising the same
for purchasing further shares of respondent No. 1 company. Even apart from the fact
that the provisions of article 57 have been breached by such transfers, the purchase of
shares in all by Gharda Consultants P. Ltd., are illegal being contrary to section 77 of
the Companies Act, 1956 and oppressive to the petitioners apart from being an
indicator of the mismanagement of respondent No. 1 company. These facts have come
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to the notice of the petitioners only after the filing of the above petition. The
petitioners state that in respect of the aforesaid they have filed an independent
application for appropriate reliefs. The petitioners crave leave to refer to and/or reply
upon the said application, when produced and reiterate all that is stated therein as if
the same were specifically set out in this petition. The petitioners reserve their right to
claim pro rata entitlement in respect of the said 5,492 equity shares in accordance
with the articles of association of the first respondent-company at the price when the
same were purportedly transferred, from time to time.”
58. Respondents Nos. 1 to 4 have denied the above allegations. It is denied that
Gharda Consultants have no income and were incapable of purchasing the said shares.
It is also denied that the purchase of shares exceed Rs. 10 crores or that they were
founded by any diversion of funds of the company as alleged. The respondents have
also denied the charge of siphoning of any monies from the respondent-company to
Gharda Consultants P. Ltd., or utilising any such money for purchasing the shares.
According to the respondents, transfer of shares in favour of respondent No. 39 was
one of member-to-member transfer which did not require observing regime of article
57. In so far as that argument is concerned, the same has already been answered in
favour of the respondents in the earlier part of this judgment.
Page: 337
59. What is intriguing is that the principal prayer of the present petitioners during
the argument was that direction be issued to the majority shareholders to buy out the
shares held by the present petitioners. On the one hand, the present petitioners are
keen to walk out of the company by selling their shares to the majority shareholders at
a price to be determined by this court. I have already adverted to the provisions of the
articles of association which govern the procedure for determining fair value of the
shares, in the event, the shares were to be offered to the existing members. In my
opinion, in the fact situation of the present case, there is no question of issuing
direction to the majority members to buy out the shares of the present petitioners.
60. If the petitioners are keen to walk out of the respondent-company, it does not
stand to reason as to why the petitioners are questioning every singular transfer of
shares, especially between 1989 to May 5, 2001. After May 5, 2001, as the company
has become a public company, the issues raised on behalf of the petitioners would
become insignificant. Assuming that the petitioners were to succeed in their assertion,
it is only the present petitioners who would be entitled to claim pro rata shares
allocable to them (original petitioners Nos. 4 and 5) and not to invalidate the transfer
of 5,492 shares in its entirety. However, as has been found earlier, since the transfer
of the said 5,492 shares was between member-to-member, the same was legitimate
and even consistent with the norms of article 57. Accordingly, no relief in terms of
prayer clauses under consideration can be granted to the present petitioners.
61. The only other reliefs that need to be addressed are the alternative reliefs to
prayer clauses (a) and (b) being prayer clause (I) and in particular clauses I(i) to (iii)
and H(i) to (v). All these reliefs are also incidental to the reliefs pressed at the time of
arguments which have already been dealt with in the earlier part of this decision. For
that reason, it is not necessary to separately deal with the same.
62. Taking overall view of the matter, I have no hesitation in concluding that no
case regarding oppression of minority shareholders has been established by the
present petitioners. Assuming I were to hold to the contrary, I would still be inclined
-----------------------------------------------------------------------------------------------------------------------------------------------------------
to hold that no tangible grounds are made out to conclude that it is just and equitable
to wind up respondent No. 1 company. For, on this finding as observed in the case of
Jaladhar Chakraborty, [1994] 79 Comp Cas 505 (Cal), no further direction needs to be
issued. However, insofar as the direction pressed by the present petitioners against
the majority shareholders to buy out the shares of the present petitioners, I have
already dealt with that aspect in the earlier part of this judgment.
Page: 338
Issue No. 3
63. That takes me to the third issue as to whether the affairs of the company have
been conducted in a manner prejudicial to the interests of the company. At the cost of
repetition, it is relevant to note that no case has been made out in the petition that
the affairs of the company are being carried on in a manner prejudicial to the “public
interest”. Even with regard to the ground that the affairs of the company have been
conducted in a manner prejudicial to the interests of the company, on reading the
petition as a whole, and more particularly, upon considering the arguments of the
present petitioners canvassed at the time of hearing, no such case has been
presented. As recorded at the outset, counsel for the petitioners fairly stated that
initially the grievance regarding mismanagement of the company ascribable to section
398 was given up but the amendment was once again introduced. Nevertheless, the
present petitioners would confine the ground only of oppression of the minority and
the facts indicated for that purpose be construed as mismanagement of the company.
In my view, none of the facts pressed into service would persuade me to hold that
either singular or all of them together were of such magnitude so as to result in
conduct which is prejudicial to the interests of respondent No. 1 company. No serious
attempt has been made by the present petitioners to identify the acts that would
constitute mismanagement of respondent No. 1 company. On the other hand, there is
ample material on record that in spite of differences between the two groups, the
company has been performing very well and the financial position of the company is
very sound. The company has made huge profits in the past and has grown by leaps
and bounds. Even if the court were to consider the issue of mismanagement of
respondent No. 1 company as has been found earlier, that even if all the acts
complained of are taken into account as it is, singularly or together, no case is made
out that it is just and equitable to wind up the respondent-company.
Issue No. 4
64. That takes me to the last issue as to whether it is just and equitable to wind up
the respondent-company. I have already adverted to all the grounds complained of by
the petitioners which according to them constitute a case of oppression and
mismanagement. As aforesaid, even if the said acts constituted oppression or
mismanagement, were not sufficient to hold that the respondent-company be wound
up on the ground that it is just and equitable to do so within the meaning of section
433(1)(f) of the Act.
65. Accordingly, this petition should fail. Hence, the same is dismissed on the
above terms. No order as to costs.
———
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Page 1 Tuesday, March 08, 2022

In the Bombay High Court

Dr. Percy Rutton Kavasmaneck and another

Company Petition No. 77 of 1990

The Judgment of the Court was delivered by

3. This petition, which was originally presented by seven petitioners claiming to

two months from his appointment as director. In spite of having ceased to be a

4. According to the petitioners group, the design of the second respondent to

8. Ordinarily, as the allegation is one of oppression of minority, the court is bound

articles of association (as 50 members) has already been exhausted. As a matter of

9. Suffice it to observe that even if the present petitioners were to succeed in

contrary to the articles of association of the first respondent-company and contrary

(hhh)(xxiii) that the register of members of the first respondent-company be

illegal, null and void;

which majority shareholders do not have; whereas, minority shareholders held in

20. In so far as the argument of deadlock is concerned, it is noticed that there is no

shares in favour of the heirs of deceased Rutton Kavasmaneck. Besides, no member of

(e) The proposing transferor shall be bound to execute a transfer in respect of

articles, a strict construction is to be adopted. The restriction must be set out

30. It is well established position that articles of a company are constituent

respondent No. 5 directly to respondent No. 2, transfer of shares between member to

respondent-company. In any case, it is the second petitioner (original petitioner No. 2)

35. In so far as dividend amount is concerned, the same is expressed as a

“Section 459(1) of the Companies Act, 1985, is in these terms:

limited company. Even on

who in law are to be regarded as directors or shareholders holding not less

instance of petitioners' group in favour of non-member. Since the maximum number

best, would be a breach of article 123, but by no standards, can be a case of

authenticity of this text must be verified from the original source.

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