MANU/CL/0052/2002

Equivalent Citation: [2002]110C ompC as825(C LB), (2002)3C ompLJ224(C LB)

BEFORE THE COMPANY LAW BOARD

PRINCIPAL BENCH, NEW DELHI
CP No. 49 of 2001
Decided On: 25.02.2002
Appellants: Ashok Kumar Oswal
Vs.
Respondent: Panchsheel Textiles Manufacturing & Trading Co. (P.) Ltd.
Hon'ble Judges/Coram:
A.K. Banerji, J. (Chairman) and S. Balasubramanian, Vice-Chairman
Counsels:
For Appellant/Petitioner/Plaintiff: U.K. Chaudhary, Ranjana Roy and R. Shawhney,
Advs.
For Respondents/Defendant: S. Sarkar, S.N. Mookherjee, K.K. Lahiri and Gaurav
Kejriwal, Advs.
ORDER
S. Balasubramanian
1 . The first petitioner claiming to have held control over 68 per cent shares in
Panchsheel Textile Mfg. & Trading Co. (P.) Ltd. ('the company') has filed this petition
with the allegation by clandestine issue of 10,000 shares in the company to
respondents, his controlling interest in the company has come down to about 30 per
cent and as such his conversion into minority from majority is a grave act of
oppression and, therefore, has sought for cancelling the issue/allotment of 10,000
shares in favour of the respondents.
2. Some relevant facts of the case are that this company is a part of a group known
as R.C. Oswal Group or Vardhman group. The first petitioner (the petitioner for short)
and the fourth respondent are sons of Shri R.C. Oswal. Earlier, there had been some
division in the family and the companies and presently this Group consists of three
manufacturing companies - Vardhman Spinning & General Mills Ltd., Mahavir
Spinning Mills Ltd. and Vardhman Polytex Limited. During the life time of Shri R.C.
Oswal (who expired on 6-1-1998), the petitioner became the Managing Director of
Vardhman, while the fourth respondent was the MD/Executive Director of other
companies. He was also the Chairman of the company. Shri R.C. Oswal left behind a
will dated 2-4-1996 in which it has been stated that an understanding had been
reached between him and his two sons that the ownership and control of the
Vardhman shall be with the petitioner and the ownership and control of the other two
companies shall be with the first respondent. In addition to the three manufacturing
companies, the group has a number of investment companies, of which the
respondent-company is one. It holds about 26.2 per cent shares in Vardhman.
Originally, there were only two directors in the company, viz-, the petitioner and his
wife. On 13-12-1997, the third and fourth respondents were appointed as additional
directors. The capital clause of the memorandum was altered in an EOGM on 31-1-

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1998 by which the mix of equity and preference shares were altered. The equity was
enhanced from 10,000 shares of Rs. 10 each to 50,000 shares of Rs. 10 each, while
the preference was reduced from 48,000 shares of Rs. 100 each to 44,000 shares of
Rs. 100 each. The total authorized capital remained as Rs. 49 lakhs. In the Board
meeting on 6-2-1998, 10,000 equity shares were allotted of which the third
respondent subscribed to 1,000 shares and the second respondent to 9,000 shares.
According to the petitioner, before the allotment of 10,000 shares, of the 7995 issued
shares, his group held 68 per cent shares in the company and, therefore, was in
majority and with the allotment of these shares to the respondents' group, now this
group is having majority control over the company resulting in conversion of the
petitioner's group from a majority into a minority and as such the respondents have
acted in a manner oppressive to the petitioner.
3 . Shri Chaudhary, Sr. Advocate appearing for the petitioner submitted : The
petitioner is the youngest son of Shri R.C. Oswal and the fourth respondent being the
elder son, the petitioner had reposed complete faith and confidence in him. In view
of this, even though his client and his wife were the only directors of the company,
they willingly appointed the fourth respondent and his daughter as additional
directors of the company. The affairs of the company were being conducted on
mutual trust and confidence and it was the will of the fourth respondent which
prevailed not only in this company but also in all the companies in the group. The
petitioner trusted his brother and, therefore, was in the habit of signing
documents/papers presented to him by his brother. The petitioner used to abide by
the decision of his brother. In other words, the normal rules of the company
management/corporate governance cannot be applied in facts of this case and,
therefore, the participation of the petitioner in the decision making cannot be held
against him as an estoppel. Till around May 2001, the petitioner was under the
impression that everything was fine with the affairs of the company. However, when
the fourth respondent proposed for appointment of himself as the Chairman and
Managing Director of the company in Vardhman on 24-5-2001, the petitioner
apprehended that his brother was trying to throw him out from the post of Managing
Director in Vardhman. When the petitioner brought to the notice of the fourth
respondent that his appointment as Chairman and Managing Director was not in
accordance with the articles of Vardhman, the fourth respondent withdrew the
proposal. However, when he mooted the same proposal again on 11-8-2001, the
petitioner suspected some foul play and, accordingly, took an inspection of the
records of the registrar of companies from which he found that Form No. 2 indicating
allotment of 10,000 shares in the company, in a Board meeting held on 6-2-1998,
had been filed. Of these 10,000 shares, 1,000 shares were reportedly allotted to the
second respondent who is the wife of the fourth respondent and 9,000 shares to the
third respondent who is his daughter. The petitioner was never aware of any such
Board meeting. The petitioner never had the opportunity of knowing that the share
capital had been increased since he did not sign any annual report after 1998. Even
though the petitioner signed the annual report as on 21-9-1998, he had not signed
any of the enclosures to the same. In the enclosure indicating the details of shares
held on that date, there are manipulations which should have been carried out after
the petitioner had signed the annual report. While the complete format is computer
printed, the date of the meeting is written by hand. As against 10 shares shown
against the third respondent, an addition of the figure 90 is found written in ink,
thus, making the shareholding as 9010. Likewise, as against 2500 shares held by the
second respondent, the figure of "2" has been altered by ink as "3" indicating her
holding as 3500. Likewise in the total also as against 7995 shares, the number "1"
has been inserted in ink to show as if the total number of shares was 17995. This

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would indicate that without the knowledge and consent of the petitioner, the shares
had been issued and with a view to keep him in dark, manipulation has been done
after he had signed the annual report.
4. The learned counsel further submitted : The issue and allotment of 10,000 shares
was done with a view to reduce the petitioner from a majority into a minority as is
evident from the fact that the amount of money collected by issue of these additional
shares is only Rs. 1 lakh which as per this company is concerned, is very
insignificant. By converting themselves into a majority in this company, the
respondents have acquired control of 26.2 per cent shares in Vardhman. Therefore,
this issue and allotment of shares is nothing but an indirect way of controlling
Vardhman, which as per the will of the father, should come under the control and
management of the petitioner. In spite of the fact that the fourth respondent and his
daughter were taken on the Board on mutual trust and confidence, they have acted
behind the back of the petitioner with a mala fide intention in allotting these shares.
As a matter of fact, if the contents of the will had been made known to the petitioner,
immediately after the demise of the father, he would not have appointed the
respondents as additional directors. Further, it is doubtful whether any meeting was
held on 6-2-1998 when the shares were allegedly issued/ allotted. As per the version
of the respondents, there was a Board meeting on 4-2-1998. If so, the shares could
have been allotted in this meeting instead of holding another meeting on 6-2-1998
for allotment of shares. The fourth respondent, without disclosing his real interest,
persuaded the petitioner for increasing the authorized capital from 10,000 equity
shares to 50,000 equity shares and within a period of 6 days got 10,000 shares
allotted to his own group. There is nothing on record to show that other shareholders
were offered the shares as there had been no Board meeting between 31-1-1998 and
6-2-1998 for the Board to take a decision to make offers to the shareholders. Even
otherwise, the petitioner never received any notice for the Board meeting on 6-2-
1998. Further, when the father expired on 6-1-1998, there could have been no
meeting on 8-1-1998, i.e., within two days to hold a Board meeting to decide
alteration in the authorized capital of the company. The minutes of this meeting in
which the presence of the petitioner and his wife is noted is nothing but a fabricated
document (Annexure R-10). Further, in the EOGM held on 31-1-1998, there were no
resolutions to allot 10,000 shares nor there was any proposal to allot the shares on a
preferential/private placement basis. Even Form No. 32 was signed only by the fourth
respondent, even though as per the alleged Board resolution, the petitioner had also
been authorized to do so. From this time onwards, all subsequent documents were
signed by the fourth respondent only and the petitioner had not signed any document
including the balance sheet. Even though, the respondents contend, on the basis of
copies of attendance sheets, wherein the signatures of the petitioner are found that
he had attended all the impugned Board meetings, the petitioner did not attend any
meeting and the respondents have used the signatures of the petitioner taken on
blank sheets. The fabrication of the minutes, that the first petitioner had attended the
meeting is evident from Annexure R-4 - copy of the minutes for the AGM held on 21 -
9-1998. While the names of the shareholders are found type written, the name of the
petitioner has been inserted by ink. The fabrication of the signature of the petitioner
on the attendance sheets is evident from the fact that none of the copies of the
attendance sheets relied on by the respondents (Annexure R-3 R-6, R-9, R-11)
indicate the name of the company, the time of, the meeting and also the venue of the
meeting. Therefore, his signatures on the attendance sheets do not establish that the
petitioner had attended these meetings.
5. He further submitted that the allotment of 10,000 shares is not only oppressive to

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the petitioner but also in violation of the provisions of SEBI Take Over Code. By this
allotment, the first respondent has taken control over the company which holds 26.2
per cent shares in Vardhman, which is a listed company. In terms of Regulation 2(b)
(c), the first respondent has indirectly acquired voting rights of Vardhman beyond 15
per cent which he could not have done without making an open offer in terms of
Regulation 10(4). Any acquisition in violation of Regulation 10 is void and invalid, if
the petitioner had participated in the Board meeting on 6-2-1998, as alleged, he
would have brought this violation to the notice of the Board.
6 . Summing up his argument Shri Chaudhary submitted : The company was not in
need of funds, that too this meager amount of Rs. 1 lakh for the 10,000 shares
allotted. No notice for this Board meeting on 6-2-1998 in which the allotment was
made was received by the petitioner nor he attended this meeting. Even his wife
being the other director did not attend this meeting for want of notice. If any one of
them had attended this meeting, he/she would not have committed harakari by
handing over a company which was to go to the petitioner as per the will of the
father. The rule of probability should be applied in favour of the petitioner. The only
document relied on by the respondents about the petitioner's knowledge is the annual
return signed by him. In General Sales case, considering the facts of the case that no
one would hand over the control of a company on a platter, the CLB declined to
accept the veracity of attendance of a director simply on the basis of his signature in
the attendance register. In Manu Property case, applying the rule of probability, the
CLB held that the petitioner therein could not have attended various Board meetings
allegedly attended by him. Likewise, this Board has held in Tinplate case also. In
Hathimal Pincha v. Kettela Tea Co. (P.) Ltd. [CL No. 17 of 1996] case, this Board has
held that when share capital is raised Without any need for funds and if the issue
creates a new majority, the same is an act of oppression. In R.N. Jalan v. Deccan
Enterprises (P.) Ltd. [1992] 75 Comp. Cas. 417 (AP) and Gtuco Series (P.) Ltd., In re
[1987] 61 Comp. Cas. 223 (Cal), the Courts have held that conversion of a majority
into a minority is an act of oppression. Since such a conversion has continuous
effect, the oppression continues even on the date of filing of the petition, as held in
Tea Brokers (P.) Ltd. v. Hemmendra Prosad Barooah [1998] 5 CL J 463. Therefore,
considering the facts of the case that the main motive for issue of 10,000 shares in
the company was with a view to gain indirect control of Vardhman which is to go to
the petitioner in terms of his father's will, the allotment of 10,000 shares should be
cancelled and since the respondents three and fourth have acted in an oppressive
manner, they should be removed as directors of the company.
7 . Shri Sawhney, Sr. Advocate appearing for the second petitioner submitted, his
client is one of the largest shareholders of the company holding 31.27 per cent
shares and by allotment of 10,000 shares to the respondents' group, the shareholding
of his client has come down to about 15 per cent and has, thus, lost the power to
block any special resolution. Even assuming that the first petitioner had consented to
the allotment of the shares as contended by the respondents, yet, his client being an
independent shareholder should have been offered additional shares at the time of
allotment of 10,000 shares. Article 5 of the company specifically provides that the
provision of Section 81 (1A) of the Companies Act, 1956 ('the Act') is to be followed
for allotment of shares. Nothing has been shown that the company had taken the
general body's approval for allotment of shares on preferential basis only to the
respondents. Since as a principle, increase in share capital has to be only for the
benefit of the company and not for the personal benefit of the directors, which is
actually the fact of this case, this allotment should be cancelled. Further, it is an
admitted position that the company is a family company and this has been recognized

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by the Delhi High Court itself in its order dated 12-8-1987 (Annexure A-2). This
being the case, one group of shareholders cannot be denied the right to subscribe to
additional shares.
8. He further argued : No reliance should be placed on the various Board meetings as
the company had not followed the provisions of Sections 193, 194 and 195 of the
Act. As per Section 193, the minutes are to be recorded in bound books with pages
consecutively numbered. However, the company is maintaining the minutes book in
loose leaf Form which is not permissible. Section 183(1B) specifically prohibits
pasting or otherwise of the minutes. Further, according to Section 193(1A)(a), the
minutes of the meeting are to be signed by the chairman of the subsequent meeting.
However, all the minutes have been signed by the fourth respondent in his capacity
as a director. Therefore, there are no minutes before this Bench which could be
considered to be valid in law and as such should be ignored in addition to all being
fabricated. Further, even though the respondents contend that in a Board meeting
held on 31-1-1998, a decision was taken to allot shares, yet, the minutes of this
meeting have not been disclosed and there are no details as to how was decided to
make offers and to whom. Further, no details have been furnished as to when the
allottees had applied for these shares and how the consideration was paid. It is also
to be noted that there is a difference in the date of Form No. 2 which is dated as 4-3-
1998, while the covering letter addressed to ROC is dated as 16-2-1998 (Annexure R-
8). This would indicate that documents are fabricated. Therefore, even the allotment
of shares had not been conclusively established and the documents have been
fabricated only to show as if the allotment had taken place. Even if the actual
allotment had taken place, it is highly oppressive to his client as this allotment has
reduced his client's shareholding from 31 per cent to 15 per cent. Therefore, this
allotment of 10,000 shares should be cancelled.
9 . Shri Mookherjee appearing for the respondents two to fourth submitted : The
motive of the petition is to get the will of the father executed through this petition
which is not permissible. The third and fourth respondents were inducted into the
Board with the full consent and knowledge of the petitioner during the lifetime of the
father. As a matter of fact in paragraph number X of the petition, the petitioner has
averred that these respondents were appointed as additional directors with a view to
avail the experience and business acumen of the fourth respondent indicating very
clearly that the petitioner admits the need to appoint the fourth respondent as a
director. Simultaneously, the respondents were also appointed as additional directors
in five other companies also which hold shares in Vardhman, with the view that the
first respondent should have the control over the shares held by these companies in
Vardhman. Therefore, the petitioner cannot now seek removal of these respondents
as directors.
10. He further submitted : In regard to the allotment of 10,000 shares, it could not
have been done without amending the memorandum of the company. As admitted by
the petitioner himself, the memorandum was altered in an EOGM held on 31-8-1998.
While doing so, the company has not altered the authorized capital. It only altered
the mix of equity and preference shares by which the preference share capital was
reduced and the equity capital was increased. This equity was increased from 10,000
shares to 50,000 shares only with a view to issue further shares to the respondents'
group. Once the petitioner admits his knowledge of the EOGM held on 31-1-1998, his
allegation relating to the Board meeting on 8-1-1998 that no such meeting could
have taken place within two days of the demise of his father loses significance. Even
otherwise, all the ceremonies relating to the demise of the father were completed on

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7-1 -1998 and not only the Board meeting of this company but also other companies
also were held. The petitioner himself held Board meetings of the companies under
his control as is evident from the documents produced during the hearing. The
company held a Board meeting on 4-2-1998 exclusively to consider bank operations
and the petitioner has signed a copy of the minutes for forwarding the same to the
bank. The meeting on 6-2-1998 was held exclusively for the purpose of allotting the
shares and this meeting was also attended by the petitioner and his wife as is evident
from the fact that both of them have signed the attendance register. One significant
aspect to be noted is that on 2-2-1998, the sum of Rs. 1 lakh was deposited in the
bank account of the company on which date the company had a balance of only Rs.
29,490. On 4-2-1998, the petitioner issued a cheque for Rs. 50,000 and encashed the
same on 6-2-1998. But for his knowledge that the money had come from the
respondents towards the equity shares, he could not have issued the cheque for this
amount.
11. The learned counsel further submitted : The allegation of the petitioner that he
was not aware of the allotment of shares is absolutely false. The annual return made
as on 21 -9-1998 was signed by him and his claim that the Annexures to the annual
report were fabricated can also not be accepted. Even the main annual report
indicates the increase in the paid up capital and also the percentage holding of body
corporate and directors. That is the reason why the petitioner, in the petition, has not
filed the full copy of the annual report but filed only the Annexures containing the
details of shares. Further, the annual accounts of the company were approved in a
Board meeting on 12-8-1998 and both the petitioner and his wife were present in the
meeting after which the annual general body meeting was held on 21-9-1998
adopting the accounts and that the petitioner signed the annual return. Therefore, to
allege that the petitioner was not aware of the allotment of shares cannot be
accepted.
12. The learned counsel further submitted : The entire foundation of the petition is
that the petitioner's group being in majority was converted into a minority. This
foundation itself is not correct. Before issue of 10,000 shares, Shri R.C. Oswal held
25 shares and his wife's will account had 2250 shares. Both together constituted
28.46 per cent shares. The fourth respondent and his group held 2520 equity shares
constituting 31.52 per cent shares. The first petitioner and his family members held
700 shares constituting 8.76 per cent shares. Second petitioner held 2500 shares
constituting 31.26 per cent shares. As per the will of the mother, there were only two
trustees, namely, the petitioner and the fourth respondent and the will provided for
casting vote for the senior most of the trustees. Thus, the fourth respondent, being
the senior of the two trustees had effective control of around 60 per cent shares as
against about 40 per cent shares held by the petitioner's group. Thus, the claim that
petitioner's group was in the majority of the company is not correct.
13. He further submitted : The allotment of 10,000 shares cannot be examined in
isolation. During the lifetime of the father, substantial shares of Vardhman held by
Mahavir were transferred to the company for a consideration of about Rs. 10 crores.
Since the company did not have funds, the fourth respondent arranged for a loan of
Rs. 10 crores from GE Capital at an interest of 20.25 per cent by giving his personal
guarantee as also corporate guarantees of the companies under this control. Shares
held by companies under his control were also pledged with the GE Capital. Since the
company was not in a position to make arrangements for repayment of the loan
which would result in the fore closure of the pledge of the shares by which the fourth
respondent would loose control of the other two companies, it was decided in

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consultation with the first petitioner that the composition of the share capital of the
company would be changed and, accordingly, the memorandum was altered. On this
understanding, it was decided that the fourth respondent would have control of the
company by allotment of 10,000 shares. As a package deal, the fourth respondent
invested about Rs. 5.41 crores towards preference shares through his finance
companies, while the petitioner subscribed about Rs. 1.72 crores towards the
preference shares. Therefore, it is wrong to say that the fourth respondent had taken
over the company with a mere investment of Rs. 1 lakh. If it is the contention of the
petitioner that he had never seen the balance sheets from 1997-98 to 1999-2000 to
claim that he was not aware of the increase in the share capital, then he cannot claim
that he was in control of the company. Further, he claimed that he came to know of
the increase in the capital only on inspection of the ROC records in May 2001, and he
never complained of the same till he wrote a letter to the company on 23-8-2001, on
the same day when this petition was filed.
14. As far as the allegations relating to the attendance of the petitioner and his wife
in various Board meetings impugned in the petitioner are concerned, the learned
counsel submitted : It is not correct that the signatures of the petitioner and his wife
were taken on blank sheets. The company is maintaining an attendance register and
the signatures are taken in that register for every meeting attended by the directors.
The petitioner has not alleged that any of the signatures is forged. It is not that
neither of them had attended any Board meeting. As a matter of fact, as is seen from
the minutes of the Board meeting held on 11-7-1998 (Annexure R-19), these minutes
have been signed by the wife of the petitioner as Chairman of that meeting. Likewise,
the Board meeting held on 3-9-1998 was chaired by her as seen from the minutes at
Annexure R-20. Therefore, the allegation that the petitioner and his wife have been
excluded from the management is not borne on facts. Every decision taken in the
company was with the knowledge and consent of the petitioner and, therefore, he is
estopped now from challenging the allotment of shares which incidentally is also
time-barred.
1 5 . Summing up his arguments, Shri Mookherjee submitted : The petitioner has
raised the issue of allotment of shares belatedly only on account of certain
developments that had taken place in respect of Vardhman. When the petitioner tried
to go out of the group, in the interest of Vardhman, the fourth respondent got himself
appointed as the Chairman and Managing Director of the company. This has caused a
sort of insecurity to the petitioner and that is why he has filed this petition invoking
the provisions in the will of the father. It is to be noted that through a will, control of
the listed companies could never be bequeathed and even family settlement cannot
be a subject-matter of a petition under section 397/398 of the Act. Since the
challenge is on allotment of shares which took place in February 1998, it cannot be
challenged belatedly in August 2001 as has been held in Hungerford Investment Ltd.
v. Turner Morrison Ltd. ILR 1972 (1) Cal. 286. When in this case the composite
arrangement of allotment of equity shares and preference shares has got the
company out of debt trap and has benefited the company, the allotment cannot be
challenged as held In Re, Jermpur Street Turkish Baths Ltd. [1971] 3 AER 184
wherein in facts of that case, the Court of Appeal held that in case of a package deal
of issue of shares and debentures made for the benefit of the company, issue of
shares alone cannot be looked into in isolation. Further, this challenge has been
made on the ground that the control of Vardhman has been taken over by the fourth
respondent. The affairs of the two companies are different and this Board has held in
Shankar Sundram v. Amalgamations Ltd. [2001] 2 CL J 176 that in a petition against
the holding company, the affairs of a subsidiary cannot be considered. In the present

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case, even the relationship of holding and subsidiary companies does not exist. Since
it has been fully established that the petitioner was a party to the allotment of 10,000
shares, he is estopped from challenging the same as held in Maharani Yogeshwari
Kumari v. Lake Shore Palace Hotel (P.) Ltd. [1995] 3 CL J 418. The petitioner has
claimed that he had signed the annual report without referring to the Annexures. In
Saunders v. Anglia Building Society[1970] 3 AER 961, it has been held that
carelessness on the part of the person signing a document would preclude him from
later pleading non est factum on the principle that no man may take advantage of his
own wrong. The same principle has been applied in United Dominions Trust Ltd. v.
Western [1975] 3 AER 1017 stating that non est factum I cannot be pleaded on the
ground of negligence in signing a document. One of the main contention of the
petitioner is that there has been a breach of trust on the part of the fourth respondent
and that there has been a loss of confidence between the petitioner and the fourth
respondent. It has also been alleged that there has been a breach of family
understanding. It has been held in Shanti Prasad Jain v. Kalinga Tubes Ltd.
MANU/SC/0368/1965 : AIR 1965 SC 1535 and also in V.B. Rangaraj v. V.B.
Gopalakrishnan[1992] 1 SCC 160 that the provisions of section 397/398 cannot be
used for enforcing any family arrangement. It has also been held in the former case
that mere loss of confidence cannot be a ground for a petition under section 397/398.
As far as the cases cited by the learned counsel for the petitioner are concerned, none
of the case is applicable in the facts of the present case. Therefore, this petition
deserves to be dismissed.
1 6 . Shri Sarkar appearing for the first respondent submitted : The stand of the
petitioner that if he had been aware of the will, he would not have co-opted the third
and fourth respondents as directors does not stand to scrutiny. They were appointed
as additional directors during the lifetime of the father and the will came to light only
after his demise. The will of the father itself indicates that an understanding has been
reached with the brothers about the division of the company and if so, the petitioner
must have been aware of his arrangement even in the absence of the will. Even
assuming that he had the knowledge of the will only later, yet, he waited for three
long years to agitate the same. Further, the will is dated April 1996 at which time it
was 'M' which was in control of Vardhman. Any way the provisions of the will cannot
be enforced through this petition. Further, since Vardhman is not a party to the
proceedings, the CLB cannot pass any order in respect of Vardhman. As far as the
alleged violation of SEBI, Take Over Code is concerned, the same is not applicable
when there is inter se transfers within the group. If the SEBI Code were to apply,
then the transfer of 25 per cent shares from 'M' to this company will also be hit by
these provisions. As far as the violation of Section 193 in regard to minutes book is
concerned, keeping minutes book in loose leaf form is permitted and the only
provision is that they should be got bound every six months. The CLB has held in VLS
Finance Ltd. v. Sunair Hotels Ltd. [2001] 4 CL J 321 that a party to a decision cannot
complain of the same later and that conduct of the parties is relevant in a proceeding
under section 397/398. Since the petitioner was a party to the allotment of 10000
shares, he cannot complain of the same and seek relief and as such this petition
should be dismissed or else to put an end to the disputes, the shares held by the
company in Vardhman may be divided in the ratio of 68 and 32 between the
petitioner and the fourth respondent as these shares are the only property of the
company with the stipulation that the petitioner should take over the liabilities of the
company and also release the fourth respondent of all his personal guarantees. Such
a relief was granted by the CLB in James Fedrick v. Minnie R. Fedrick [2000] 36 CLA
371.

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17. Shri Choudhary in rejoinder submitted : Probity means honesty, integrity and
fairness. Even in respect of lawful acts, if the same lack probity. CLB can interfere in
exercise of its equitable jurisdiction. It is beyond one's comprehension that a person
would voluntarily allow himself to be reduced to a minority. Even assuming so, he
would not handover the company with over Rs. 250 crores turnover without any
consideration. When the father had desired that the petitioner should have the control
of Vardhman and as such 25 per cent shares were transferred from 'M' to the
company under the control of the petitioner, he would never handover the company
without any consideration. As all the companies are within the family, the petitioner
could have sought for 50 per cent shares of all the companies but yet he settled for a
small company having just Rs. 250 crore turnover as against the companies having
put together over Rs. 1500 crores turnover taken over by the fourth respondent.
18. He further submitted : There was no composite arrangement as claimed by the
respondents. While the equity shares were allotted in February 1998, the amount of
Rs. 5.72 crores towards preference shares came in only in September 1999 and the
petitioner himself had invested about Rs. 1.7 crores. Of the money brought in by the
fourth respondent, he had given Rs. 1.7 crores as loan to his own company. There
was no proximity between allotment of equity shares and the preference shares to
contend that there was a composite arrangement. The fourth respondent, for the
purposes of pleasing the father transferred shares from M to the company and after
the death of the father, he has once against taken control of the shares and in the
process got the company to pay Rs. 10 crores taken as loan from GE Capital to M.
Thus, whatever he has done by alleged arranging of loans, etc., was to benefit only M
which is under his control. His object has always been to regain the control of
Vardhman and that is the reason why even though as per the will of the father, he
has to handover four finance companies holding 8 per cent shares in Vardhman to the
petitioner, he has not done so. A careful consideration of the facts of the case would
show that the petitioner could have never handed over the control of the company by
consenting to the allotment of 10,000 shares.
1 9 . He further submitted: The mere fact that the petitioner has consented to the
appointment of two directors from the respondents' group does not mean that he had
handed over the company to them. At that point of time, the petitioner was
controlling 68 per cent in the company and, therefore, the appointment of these
directors was never a threat to him. But these directors in breach of their fiduciary
duties have issued shares to themselves. If there was any bona fide need of funds,
the petitioner should also have been allotted proportionate shares as was done in the
case of preference shares. It is crystal clear that the respondents got 10,000 shares
allotted to them only with a view to gain control of the company. The only evidence
produced by the respondents about the attendance of the petitioner is his signatures
in the attendance register which was signed by the petitioner in good faith. If the
petitioner had consented to the allotment of shares, there was no reason why the
respondents did not take his signature on the balance sheet for the year ended 31-3-
1998. They did not do so only with a view of hide the fact of the allotment of shares
from the petitioner. If the petitioner had been present in the meeting, he would have
definitely protested as it would affect his interest. When he came to know of his
exclusion from operation of the bank account of the company, he protested about the
same as is evident from his notice in the copy of the minutes at Annexure R-42. In
the same way, when he came to know about the allotment of shares only in May
2001, he immediately moved the CLB.
2 0 . Producing before the Bench the opinion of a handwriting expert on various

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handwritings in the annual report as on 21-9-1998, he pointed out that from the
report it is clear that not only the corrections in Annexure relating to shareholding but
also the entries in the main body of the annual report indicating the authorised
capital and the paid up capital as also the percentage holding of directors and
corporate have all been made in a different handwriting to indicate that these are all
fabricated after the petitioner had signed the annual report. Likewise, the handwriting
expert has also opined that the insertion of the name of the fourth respondent in
Annexure R-2 being a letter dated 4-2-1998 to the Manager, Allahabad Bank had been
inserted subsequently. This would indicate that the respondents are guilty of
manipulation of the records of the company and as such no reliance should be placed
on any of the documents placed by them.
21. Summing up his arguments, Shri Choudhary submitted : His client is agreeable
for division of the shares of Vardhman held by the company in the shareholding ratio.
The petitioner is willing to purchase the shares held by the respondents in the
company as he was in majority before the allotment of the impugned shares and he is
also willing to assume all the liabilities of the company. Therefore, either the
allotment of 10,000 shares should be cancelled or the respondents be directed to sell
their shares held by them in the company to the petitioner.
22. Shri Mookherjee submitted with reference to the opinion of handwriting expert
that the same should be rejected on various grounds. The letter through which the
opinion was sought has not been disclosed, the opinion is based on a photocopy of
the annual return and not on the original, there has been no pleading that the annual
return is fabricated, the handwriting expert has not been called as a witness nor has
he filed any affidavit and has not been subject to any cross examination which is
must as held in Musstt. Padma Priya Devy v. Danna Das Deb 15 CWN 729. Therefore,
no cognizance of the opinion of the handwriting expert should be taken.
23. We have considered the pleadings and arguments of the counsel. At the out set,
it may be mentioned that this Bench tried to resolve the disputes amicably not only in
relation to this company but also of Vardhman by interacting with the petitioner and
the fourth respondent. Even though, both of them were inclined to settle the disputes
amicably, yet, they could not arrive at mutually acceptable terms of settlement. Thus,
the efforts of amicable settlement failed.
24. The petition contains certain allegations in regard to the affairs of Vardhman on
which extensive arguments took palace. Since all these allegations have been covered
in CP 48 of 2001 and since they are not relevant in adjudicating the allegations in the
present petition, we are not dealing with the same in this order. First we shall deal
with the issue as to whether the complaint on allotment of 10,000 shares is time-
barred and whether such a single act could give cause of action to file this petition.
Since the complaint of the petitioner is that his group has been converted from a
majority to a minority by the allotment of these shares, the same will have
continuous and perpetual effect notwithstanding being a single act. This Board has
held, on the basis of Tea Brokers (P.) Ltd.'s case (supra), in a number of case, that
even a single act of allotment of shares could be considered to be an act of
oppression within the meaning of Section 397. Further, in view of the continuous
effect arising out of the allotment of shares, we cannot apply time-limit to file a
petition to challenge the same.
25. Another issue raised in that by allotting 10,000 shares, the respondents' group
has gained control of 26 per cent shares in Vardhman which is a listed company

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coming under the purview of SEBI Take Over Code, according to which, in terms of
proviso to Regulations 3(k) even in case of indirect acquisition of shares of a listed
company, compliance with the provisions of the Take Over Code is necessary. It is an
admitted position and as a matter of fact one of the foundations of the petition is that
Vardhman group has three manufacturing companies and various other investment
companies holding shares in the manufacturing companies. Therefore, the proviso to
Regulation 3(k) has to be read in harmony with Regulation 3(e) of the Take Over
Code which specifically exempts inter se transfers among the promoters' group from
the provisions of the Take Over Code. Therefore, even assuming that by the allotment
of 10,000 shares, the respondents' group has gained control over 26 per cent of
shares held by it in V since the change in control is within the group, the provisions
of SEBI Take Over Code are not applicable. Further, as rightly pointed out by the
learned counsel for the respondents, the company itself had acquired 25 per cent
shares from M without complying with the provisions of the SEBI Take Over Code.
Since the said transfer was also within the promoters' group, therefore, the change in
control of the shares within the promoters group is not hit by the provisions of the
Take Over Code.
26. Regarding the allegations of the second petitioner that being the largest single
shareholder in the company, it should have been allotted proportionate shares in
terms of Section 81(1A), we note that there is no such allegation in the petition. Shri
Sawhney referred to the articles of the company to urge that proportionate shares
should have been allotted to all the shareholders. We find that, in line with articles of
any private company, Article 6 provides for absolute discretion with the Board in
regard to allotment of shares. Further, the second petitioner is a company under the
control of the first petitioner and he seems to be representing that company in the
general meetings as is evident from his signature in the attendance register for the
EOGM held on 31-1-1998. Therefore, wherever findings are given on his allegations,
the same will apply to the second petitioner also. Shri Sawhncy also alleged that
none of the minutes could be considered to be valid as they do not comply with the
provisions of Sections 193, 194 and 195. We agree with the submissions of Shri
Sarkar in this regard as recorder in paragraph 16 ante. Further, we also note that it is
not the case of the petitioner that the respondents had started a different practice in
maintaining and signing of minutes book than what was in vogue when the Board
consisted of only the petitioner and his wife.
2 7 . The complaint of the petitioner is that his group has been reduced from a
majority to a minority by allotment of 10,000 shares. According to the respondent,
the petitioners' group was not in majority since the fourth respondent had the casting
vote in respect of the mother's trust then holding 28 per cent and, therefore, along
with his group holding of 31.5 per cent, the fourth respondent controlled majority
voting rights in the company and, therefore, there has been no conversion of majority
into minority. We are not able to accept this contention. Since the shares were held
by the trust and since both the petitioner and the fourth respondent were the
trustees, on the basis of a right arising out a contingent event of disagreement
between the trustees, one of the trustees cannot, that too on the basis of such
contingent right to vote, claim over the shares for computation of percentage shares.
As a matter of fact, as per the terms of the will these shares are to be divided equally
between the two. In that case, the petitioner's group would control about 54 per cent
shares as against about 56 per cent by the respondents. Even otherwise, excluding
the trust shares, the petitioners group held 40.01 per cent and the respondent's
group 31.52 per cent. Therefore, if not the majority, the petitioner's group had a
larger percentage of shares than the respondents. In any event, this Board has been

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taking a consistent view that any disturbance in the shareholding percentage in a
family company, irrespective of the percentage of the shares, could be considered to
be an act of oppression.
28. The main complaint of the petitioner in relation to the allotment of 10,000 shares
is that it had been done behind his back and without his consent and he came to
know of the allotment only in August 2001, on search of ROC records. He also alleges
that the trust and confidence that he had reposed in fourth respondent had been
belied and the fourth respondent has acted in a manner oppressive to the petitioner
by allotting 10,000 shares to the respondent's group. It is a case wherein, as seen
from paragraphs 30 to 33 of the reply, the fourth respondent does not deny that the
shares were issued/allotted, only with a view to keep control of the company with
him but he claims that it was with the consent and the knowledge of the petitioner.
Since there is an admission that the shares were issued only for the purpose of
getting control over the company, all issues as to whether, the company needed
funds, whether the respondents had acted in breach of their fiduciary duties, and
whether the majority was converted into a minority, etc., become irrelevant as also
the cases cited by the learned counsel in this regard, viz., Hathimal Pincha's case
(supra) R.N. Jalan's case (supra) Gluco Series Private Limited case (supra). Since,
the respondents claim that the allotment was made with the consent and knowledge
of the petitioner, we have to only examine, in view of the denial of the petitioner, as
to whether the circumstances establish that the allotment had been done with the
knowledge and consent of the petitioner.
29. A lot of arguments took place as to whether a meeting of the board of directors
could have been held on 8-1-1998, i.e,, within two days of the demise of Shri R.C.
Oswal. Normally, when the head of the promoters group expires, the Boards of the
companies with which he was associated, meet and pass a condolence resolution. In
the present case, we find from the minutes of the meeting on 8-1-1998, that such a
resolution had been passed. In case there had been no such meeting on that day,
noting has been produced before us that in any subsequent meeting, such a
resolution had been passed. Therefore, we do not doubt the holding of that meeting.
Even otherwise, notwithstanding the fact that the respondents have produced
sufficient materials to show that not only a Board Meeting of this company was held
but also other companies in control of the petitioners, yet, according to us, it is
irrelevant to examine this issue in detail. The petitioner questions the factum of this
meeting only because it is in this meeting that the proposal for altering the
authorized capital was approved. Since no EOGM could be convened without an
approval from the Board, the petitioner must have questioned the authority of
convening the EOGM on 31-1-1998 before attending the same when he participated
in the general body meeting on 31-1-1998. The very fact he had not done so would
indicate that he was aware of the Board meeting on 8-1-1998. The petitioner does
not question the factum of the approval given in the EOGM for altering the authorised
capital except to say that he was persuaded by the respondent to approve the
increase.
30. The impugned shares were allotted in the Board meeting held in 1998. According
to the respondents, in a Board meeting held on 31-1-1998, it was decided to increase
the subscribed capital by 10,000 shares. The minutes of the Board meeting of this
date are not on our record and it has not been possible for us to ascertain as to the
nature of decision taken in this meeting. If the petitioner had attended this meeting
and had consented to the allotment of 10,000 shares, he cannot have any grievance
of oppression. While the petitioner denies his attendance in this meeting, the

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respondents have produced the attendance register, wherein the petitioner has signed
his presence of this day. The petitioner's stand in regard to his signatures in the
attendance register is not consistent. While in the petition, he has alleged that his
signatures were obtained on blank sheets, in the rejoinder, he has averred that he
had signed the attendance register in good faith. When such a controversy regarding
his attendance exist, we have to go by the contemporaneous conduct of the parties to
come to a conclusion as to whether the petitioner could have attended this meeting
wherein 10,000 shares were allotted. It is on record that the respondents had
remitted the money for these shares on 2-2-1998 as seen from the bank's statement
produced by the respondents. As per the version of the respondents, and
corroborated by the blank statement, the credit balance of the company in the bank
on 1-2-1998 was only about Rs. 30,000 and the petitioner has issued a cheque for
Rs. 50,000 on 4-2-1998. But for this amount of Rs. 1 lakh remitted by the respondent
on 2-2-1998, there would not have been sufficient credit in that account for issue of
a cheque for Rs. 50,000 on 4-2-1998. When a person, that too, a director, signed a
cheque, he should have verified the balance available in the bank account and should
have known about the source of the immediate previous credit, especially when
without such a credit, there would not have been sufficient balance to cover the
amount of the cheque. It would indicate that the petitioner was aware that the money
had come from the respondents. When he knew that the money had come from the
respondents, he would have also been aware of the purpose of the remittance.
Therefore, the knowledge of the petitioner regarding the allotment cannot be ruled
out, especially when the stand of the respondents of this issue has not been
countered by the petitioner. Further, Shri Mookerjee rightly pointed out that there
was no reason to change the mix of the equity and preference capital, if there was no
understanding for issue/ allotment of equity shares.
31. According to the petitioner, he came to know of the allotment only on inspection
of the ROC records on 10-8-2001 and he has annexed to the petition, a list of
shareholders forming part of the annual report as on 21-9-1998 in which allotment of
10,000 shares is indicated, which, according to him, is a fabricated document. In the
petition, he has stated that at the time when he signed the annual report, the
shareholding of the third respondent had been shown as 10 shares and that of the
fourth respondent as 2500 shares, which after he had signed the annual report had
been fabricated by ink to show as if the shareholding of the third respondent as 9010
shares and that of fourth respondent as 3500 shares. He has also alleged that the
annexures had not been signed by him and has been signed only by the fourth
respondent only with the view to suppress the fact of allotment of shares. We have
seen the full copy of the annual report filed by the respondents in their reply,
(Annexure R-14). In Part-II of the annual report, the number of equity shares is
shown as 30,000 and the issued equity shares as 17995, It also indicates the
percentage of shares held by corporate entities and directors and relatives of the
directors. As rightly pointed out by the learned counsel for the respondents, these
figures are in the main body of the annual report and not in the Annexures and before
signing the annual report, the petitioner should have seen the same. If for any
reason, he has not done so, the plea of 'non est factum' is not available to the
petitioner in terms of the cases cited by the counsel for the respondents. However, on
the basis of the opinion of the handwriting expert, now the petitioner contends that
even these figures have been subsequently inserted with which we are not much
impressed since this allegation that the figures had been inserted after he signed the
annual report had not been taken in the rejoinder which was filed after the
respondents had filed their replies enclosing therewith a full copy of the annual
report. Further, it is not possible to rely on the hand writing expert's opinion for the

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various reasons pointed out by the counsel for the respondents as recorded as a part
of their arguments and also in view of the fact that this opinion was produced at the
fag end of the hearings, that too, after the learned counsel for the respondents had
cited the cases on "non est factum". As far as his allegation that the Annexures had
been signed only by the fourth respondent, we find that the Annexures to the . annual
reports as on 28-9-1996 and 12-9-1997 had also been signed only by one director
even though the main reports had been signed by two directors. Further, being a
director, he must have been aware that the annual report has to reflect the status of
the company as on the date of ihe annual general meeting. It is on record that the
petitioner had signed the annual report as on 21-9-1998, being the date of the AGM.
As per law, it is in the AGMs, that accounts are adopted by the general body. Even
though he has alleged that he had not signed the annual accounts, we are sure, he
would not have signed the annual report if no AGM had been held on that day in
which the annual accounts should also have been adopted. The balance sheet as on
31-3-1998 indicates the paid up equity capital as Rs. 1,79,950 comprised in 17,995
shares. Therefore, it is difficult for us to believe that the petitioner came to know of
the allotment of shares only in August 2001. Further, the petitioner was a party to the
appointment of the third and fourth respondents as additional directors and they
could have held office only up to the date of the next AGM. If the petitioner had not
received any notice for the AGM on 21-9-1998, he should have at least found out as
to how these respondents continued as directors after the due date of the AGM. As a
matter of fact, we find from the minutes of the meeting on 21-9-1998, that the wife
of the petitioner had been reap-pointed to the Board in that meeting but for which
she would have retired by rotation.
32. Another important aspect that we have noticed is that the authorised capital was
altered from Rs. 49 lakhs to Rs. 2.1 crore on 16-10-1998, reportedly in an EOGM on
that day. The petitioner has not challenged this alteration, as, in the prayers, he has
sought for cancelling the increase in the authorised capital from Rs. 2.10 crores to
Rs. 8.05 crores (this increase alteration was reportedly made in general meeting on
30-8-1999). Since the petitioner has not challenged the meeting on 16-8-1998, he
must have attended this meeting or this increase should have been with his consent.
At least as on 16-10-1998, the petitioner must have been aware of the
issue/allotment of 10,000 shares.
33. According to the petitioner, he and his wife have been completely excluded from
the management and that all the statutory records are signed only by the respondent
directors and as such he has not been aware of the happenings in the company. This
stand of the petitioner is contrary to his stand that his group was in majority of the
company. Being a majority in the company, it is very difficult for us to believe that he
would have never bothered about the affairs of the company. The respondents have
established that the wife of the petitioner chaired two meetings of the Board and it is
on record that the petitioner and his group companies have subscribed over Rs. 1.5
crores for the performance shares. We do not believe that a person claiming to be the
majority shareholder would not bother to ascertain the affairs of the company for
three long years, but would continue to fund the company as is evident from the fact
that he had subscribed to the preference shares to the tune of about Rs. 1.6 crores,
substantial of which in late 1999. May be as claimed by him, he had complete faith
and confidence in the fourth respondent and as such he never took the pain to look
into the affairs of the company, yet, it would not establish that he has been
completely excluded from the affairs of the company and if at all he had been
excluded, it must have been at his own will.

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3 4 . On an overall assessment of the facts of this case, more particularly the
appointment of the third and fourth respondents as directors of the company during
the lifetime of the father, the silence of the petitioner for nearly 3 years in
challenging the allotment of shares, even though the circumstances establish that he
must have known of the same much earlier, his contribution of funds of over Rs. 1.5
crores for subscription towards preference shares, a substantial portion of which was
made in August 1999, etc., it appears to us that there is substance in the contention
of the fourth respondent that the petitioner willingly allowed the allotment of 10,000
shares to the respondents' group. In spite of this, from his filing of this petition
challenging, the allotment and the circumstances under which this petition has been
filed, we get a distinct impression that this petition is the off shoot of the
apprehension of the petitioner in regard to his position in Vardhman wherein the
fourth respondent has got himself appointed as the Chairman and Managing Director
as is evident from the extensive narration of the same in the petition and that the
petitioner has chosen to question the allotment of 10,000 shares in the company
thereafter. Therefore, we are of the view that the petitioner has not established that
allotment of 10,000 shares was without his knowledge and concurrence or that he
came to know of the same only in August 2001. The learned counsel for the
respondents rightly relied on Maharani Yogeshwari Kumari's case (supra) and VLS
Finance Ltd's case (supra) cases to urge that a party to a decision cannot challenge
the same later.
35. Even though, from the facts and circumstances of the case, we have come to the
conclusion that the allegation relating to allotment of 10,000 shares is an after-
thought after the disputes started in respect of Vardhman, yet, certain facts need to
be referred to. The main asset of this company is the shares held in Vardhman. It is
on record that 25 per cent shares of Vardhman which were earlier held by M were
transferred to this company in 1997, during the lifetime of the father. If it is the
contention of the fourth respondent that he had issued the shares with the intention
of controlling Vardhman shares held by the company, there would have been no need
for the transfer of shares from M to the company as M was/ is under the control of
the fourth respondent. By the process of transfer, considerable amount of money
must have been spent towards stamp duty and the company has been subject to
heavy interest cost on the borrowing to fund the acquisition of the shares from M.
Therefore, the only reason for the transfer could be either to benefit M with the
consideration of nearly Rs. 10 crores for the shares or to keep the shares under the
control of the petitioner. Taking into consideration the provision of the will of the
father, the later seems to be the main reason for the transfer of the shares. Even
though, no will nor family arrangement could be sought to be implemented through a
proceeding under Section 397/ 398 as has been held in Shanti Prasad Jain's case
(supra) and V.B. Rangaraj's case (supra) cases as cited by the learned counsel for the
respondents, yet, in facts of this family company, equitable consideration will have to
over weigh legal considerations. In facts of this case, that the company is a family
company with two brothers, equity demands that the control of the company should
go to the petitioner, which proposition is not opposed by the respondents also as
revealed during the hearing. The only stipulation by the respondents for handing over
the control of the company to the petitioner is that, the shares of Vardhman held by
the company should be divided between the petitioner and the fourth respondent in
the ratio of 68:32. We would have supported this view, as this Board had done in
James Fredric's case (supra) but for the fact that with the conversion of warrants in
Vardhman, the shareholding of the respondents' group in that company would go up
considerably and in such a situation, the distribution of the shares as suggested by
the respondents would be prejudicial to the interest of the petitioner. Therefore,

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notwithstanding the merits of the case, purely on equitable grounds, we feel that the
control of the company should go to the petitioner along with all assets and liabilities
of the company. Accordingly, we direct that as and when the petitioner
assumes/discharges all the liabilities of the company, more so the liability towards
ICICI and releases the fourth respondent and his group companies from whatever
guarantees they have given in respect of this company, the 10,000 shares shall stand
cancelled and the share capital of the company will be reduced to that extent on
refund of Rs. 1 lakh that was received as consideration for these shares to the
respondents. Simultaneously, all the loans taken by the companies under the control
of the fourth respondent from this company will be repaid, and the petitioner will
also acquire the preference shares held by fourth respondent and his group at the
face value. Till that time the Board will continue as it is and notices for the board
meetings to all the directors will be sent by registered post with at least 7 days clear
notice and their signatures taken in the attendance register. As and when all the
obligations as per this order on the petitioner are discharged, he will purchase the
other shares held by the fourth respondent and his group at face value and the third
and fourth respondents will cease to be directors of the company. Till then, no voting
rights held by the company in Vardhman shall be exercised in any matter which
would affect the status of the petitioner or that of the fourth respondent in that
company.
36. With the above directions, we dispose the petition without any order as to cost.

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