Judgment:
Ashim Kumar Banerjee, J.
1. Tin Plate Dealers Association Pvt. Ltd. (hereinafter referred to as 'the said company') was incorporated under the provisions of the Indian Companies Act, 1913. The company for substantial period had no activity save and except receiving income from immovable property. The company had a large plot of land at New Delhi on lease from Delhi Development Authority acquired in 1981. It was a closely held company. The shares were held by the Sanwalka group and the Gupta group. Prior to 1986 one Satyasil Gupta was in control and management of the said company whereas the entire shareholding belonged to him and his family members. In 1986 the Sanwalka were invited to join the company. They were allotted shares in the company. The shares which were allotted to the Sanwalkas, were originally held by M/s. Gupta Brothers (a concern of Gupta) who did not respond to the unpaid calls and thereby the shares were forfeited. Those forfeited shares were allotted to the Sanwalkas. At the time of issuance of such shares the company, however, accepted the partly paid up value of the shares. The shares were Rs. 100 each whereas the paid up value was Rs. 35 per share. The letters of allotment of shares are appearing at pages 127-134 of the paper book. According to the Sanwalkas no call was ever made to them by the Guptas who were in control of the company. Hence, the Sanwalkas could not pay the balance value of the shares. According to the Guptas, by letters appearing at pages 135-143 calls were made on January 5, 1991. However, the Sanwalkas did not respond to the said call. Hence, their shares stood forfeited. According to the Sanwalkas, none of those letters were received by them. The Guptas also could not prove receipt thereof. The contents of the letters allotting the shares and the contents of the letters making a call are quoted below :
Thank you for your letter dated May 16, 1986 and the two drafts enclosed therewith for transfer of shares from Gupta Brothers today.
In compliance of the decision of our board of directors, we send herewith the following share scrips :
1. Share Certificate No. 011 for 2032 equity shares of Rs. 100 each-paid up value Rs. 35 per share, distinctive Nos. 1869 to 3900.
Please acknowledge receipt in good order. We welcome you as our shareholder.
You are holding 2032 partly paid up shares of the company in account of M/s. Gupta Bros, in terms of the amicable settlement arrived at the time of reissue of the said shares.
The balance amount due thereon at Rs. 55 per share along with the interest accrued since January 1,1907 till December 31,1990 was payable on or before December 31, 1990 as per the amicable settlement You have failed to make the payment in time.
You are hereby called upon to make payment of the outstanding call of Rs. 55 per share on or before April 11,1991, along with interest due thereon till December 31, 1990, i.e, Rs. 380 per share. A copy of the board resolution of date is enclosed for your information.
2. After the shares, according to the Guptas, were forfeited the company increased the holding of the Guptas. Preference shares and bonus shares were also issued to them making the Sanwalkas in insignificant minority even if the shares are held to be not forfeited as on the date of making the application before the Company Law Board. It was also alleged that the Guptas dealt with the immovable property by making an unlawful gain to the detriment of the interest of the company at shockingly by a low price.
3. In the backdrop the Company Law Board was approached by the Sanwalkas, inter alia, under Sections 397 and 398 of the Companies Act, 1956, alleging oppression and mismanagement. In the petition before the Company Law Board the Sanwalkas made inter alia the following grievances :
(1) There had been increase of capital without any notice to them ;
(2) The meetings were not held as per the provisions of the Companies Act ;
(3) The representatives of the Sanwalkas were removed from the board without following due process of law ;
(4) Outsiders were brought in within the private limited company without having due consent of Sanwalkas ;
(5) There had been unlawful allotment of bonus shares.
4. In the counter-affidavit the Guptas came up with the story of forfeiture which surfaced for the first time before the Company Law Board. According to them, since the Sanwalkas did not respond to the call their shares stood forfeited and they did not have locus standi at all to question the affairs of the company to which they had no interest on the date of filing of petition.
5. The Sanwalkas also filed a suit before the Delhi High Court, inter alia, praying for a declaration that 3065 preference shares which had ceased to exist in 1967 could not be substituted by fresh issues as also for a further declaration that after the due date of redemption of 3065 preference shares the right of the holders of the shares was only to recover the value of the share money from the company which stood time barred and an order of injunction restraining the respondent from holding an extraordinary general meeting for issuance of such shares to the defendants.
6. The matter was heard by the Company Law Board. In the course of hearing with the intervention of the Company Law Board the disputes were resolved between the parties.
7. The terms of settlement was duly signed by both the parties and was filed before the Company Law Board resolving the disputes between the parties.
8. In terms of the settlement the bonus shares allotted to the respondents as well as issue of further 25,000 shares were treated as cancelled and the 4132 ordinary shares were restored in the name of petitioners and status quo ante prevalent prior to such alleged forfeiture of shares were restored. The petition was treated to be withdrawn in view of such settlement.
9. Respondents Nos. 5 and 9 who belonged to the Gupta group however challenged the said order disposing of the proceeding by consent of parties on the ground that they did not put their signatures on the terms of the settlement and their consent was not obtained prior to settling the disputes. The order was recalled. The petition was restored. The matter was heard by the Company Law Board afresh.
10. The Company Law Board by their order dated March 1, 2001, disposed of the proceeding allowing the petition.
11. The Company Law Board, inter alia, held as follows :
(i) The contention that the shares were held by the Sanwalka on account of the M/s. Gupta Brothers had no basis and was rejected,
(ii) Once the forfeited shares were re-issued the person who acquired the shares was governed only by the terms of re-issue and in absence of condition that the calls made to Gupta Brothers would be treated as outstanding, the shares were free of the outstanding calls and since there was no valid call made by the company the plea that the petitioners were not entitled to present the petition in terms of Section 399 could not be sustained.
(iii) Since the issue of allotment of preference shares and holding of extraordinary general meeting for the said purpose was a subject matter before the Delhi High Court, the Company Law Board refused to go into that aspect.
(iv) The lease of the plot of land entered into by and on behalf of the company was one sided and against the interest of the company.
12. The Company Law Board restored the shareholding position as it was prior to forfeiture of the shares and prior to issuance of the preference shares. Allotment of further 25,000 shares was also done away with. The nominee of the petitioners was also directed to be inducted in the board of directors. In effect the Company Law Board directed the company to maintain the original ratio between the two groups on the paid up equity share capital of the company.
13. Both the parties filed appeals. According to the company, the petition should have been dismissed. According to the petitioners, the Company Law Board should have set aside and cancelled the lease granted in favour of respondents Nos. 11 and 12 after holding the same one sided and detrimental to the interest of the company. The Company Law Board should also have directed payment of the balance unpaid value of the shares so that the petitioners would not have to depend on such calls to be made by the company at a later stage. The Company Law Board also should have intervened on the issue of redemption of preference shares instead of leaving the said issue to be decided by the Delhi High Court or by the shareholders in the general meeting.
14. The appeals were heard by me on the abovementioned dates. The hearing was concluded on August 12, 2005. Both the parties also prayed for liberty to file written notes of argument which were filed on the above-mentioned dates.
15. On behalf of the company as well as the Guptas Mr. Sudipto Sarkar, learned Counsel contended as follows :
(i) The shares held by the petitioners were subject to unpaid calls as the unpaid calls outstanding on account of Gupta Brothers were attached to the shares. Hence, until and unless such liability was discharged by the petitioner they did not have any right to claim benefit under the shares.
(ii) There was no finding on the part of the Company Law Board that it was just and equitable that the company should be wound up, however, such order would unfairly prejudice the company or the shareholders.
16. To elaborate his submission Mr. Sarkar cited the following decisions :
(a) New Balkis Eersteling Ltd. v. Randt Gold Mining Co. [1904] Appeal Cases 165 (HL).
(b) Dr. Kamal K. Dutta v. Ruby General Hospital Ltd. [2000] 2 Comp LJ 289 (CLB) : [2002] 108 Comp Cas 312.
(c) Bagree Cereals P. Ltd. v. Hanuman Prasad Bagri [2001] 105 Comp Cas 465 (Cal).
(d) Sangramsinh P. Gaekwad v. Shantadevi P. Gaekwad [2005] 123 Comp Cas 566 (SC).
(e) Randt Gold Mining Co. Ltd. v. Wainwright [1901] 1 Ch 184.
(e) An unreported judgment passed by the Honourable Mr. Justice Pinaki Chandra Ghose in A. P. O. No. 746 of 1999, on March 31, 2005 (since reported as Ruby General Hospital Ltd. v. Dr. Kamal Kumar Dutta [2006] 129 Comp Cas 1 (Cal)).
17. Mr. Sarkar's argument as I understand was based upon the decision in the case of New Balkis Eersteling Ltd. v. Randt Gold Mining Co. [1904] Appeal Cases 165 (HL). The said decision decided the law relating to forfeiture of shares. According to Mr. Sarkar, the unpaid call outstanding was attached to the share and it was not a liability of either Gupta Brothers or the petitioners irrespective of their holding. Since Gupta Brothers did not discharge such liability and the same was issued to the petitioners they were duty bound to discharge such liability as and when they were called upon. So long such liability was not discharged the petitioners were not entitled to maintain their petition in terms of Section 399. He, however, was unable to show convincingly as to how the call was made known to the petitioners. In my view assuming Mr. Sarkar's contention was correct to the extent that the petitioners were duty bound to discharge the outstanding call on account of Gupta Brothers attached to the shares there should have been a genuine attempt on the part of the company to give opportunity to the petitioners to discharge such responsibilities and/or liability. Admittedly, the same was not done. If one looks at the contents of the letter of allotment quoted (supra) it would appear that there was no whisper about such outstanding call. On a query made by me Mr. Sanjib Banerjee, learned Counsel also appearing for the appellant could not give any convincing answer as to why the petitioners were not asked to pay the entire value of the shares at the time of allotment if there was no outstanding unpaid call as on the date of allotment. I have no hesitation to agree with the finding of the Company Law Board that the terms of allotment would be the guiding factor on this issue. On this score Mr. Sarkar tried to make a distinction between the decision of the House of Lords in the case of New Balkis [1904] Appeal Cases 165 and the decision in Randt Gold Mining Co. Ltd. v. Wainwright [1901] 1 Ch 184. Such distinction, in my view, would not help me to resolve the present controversy. In the case of Randt Gold Mining Co. Ltd. v. Wainwright [1901] 1 Ch 184, the article provided that a member would not be entitled to vote if there was any unpaid call on the shares due from the former holder of the said shares. When the forfeited shares were issued as in the present case without any such stipulation the petitioners were entitled to put in the balance sum a call was subsequently made on the shares allotted to them. On both counts the petitioners were entitled to maintain the instant petition as the company could not convincingly show either to the Company Law Board or before me that there was in fact an opportunity given to the petitioners to respond to the unpaid call. It is impossible to suggest that the petitioner would be allotted partly paid up shares and the company would not give them opportunity to make good the short fall. The petitioners thus would not be entitled subsequently to complain about the mismanagement and oppression. Then entire concept of oppression and mismanagement would be futile.
18. Hence, in my view, Mr. Sarkar's contention that the petitioners were not entitled to maintain the petition and the shares stood forfeited as they did not respond to the unpaid calls, cannot be sustained.
19. I wish to look at this problem from a different angle too. If there was an unpaid value attached to the shares what was the necessity of issue of fresh call Was it a reminder Or was it a fresh call The answer would come from the text itself. In the first paragraph of the letter in 1991 the company contended that partly paid up shares were being held in the account of Gupta Brothers in terms of the amicable settlement arrived at the time of re-issue. The balance amount due there at along with interest was payable as per the board resolution. The shareholder was called upon to make payment of the outstanding call. If I take this as a reminder to respond to the unpaid calls on behalf of Gupta Brothers as the same was attached to the shares the same could have been realised at the time of allotment which was not done. Admittedly, receipt of this letters in 1991 by the petitioners could not be proved by the company. I have no hesitation to hold these were brought to forstall the proceeding initiated by the petitioners. The issue of original allotment did not even mention about the Gupta Brothers or the unpaid calls thereunder.
20. Mr. S. N. Mukherjee, learned Counsel appearing for the Sanwalka, inter alia, raised the following issues :
(i) Had there been an unpaid call the same should have featured in the contemporaneous balance sheet as required under the provisions of the Companies Act. It was not done.
(ii) The terms of original allotment of shares would be the key factor to decide on the issue. Since the original allotment did not speak about the unpaid call on account of Gupta Brothers the petitioner were only obliged to answer to the fresh call to be issued by the company upon due notice to the shareholders.
(iii) Article 18 of the company clearly stipulated that the liability for unpaid calls was that of persons whose shares were forfeited and it did not make any provision for attaching such liability with the shares even after reallotment.
(iv) On the cross appeal Mr. Mukherjee contended that the issue of cancellation of lease should have been taken up by the Company Law Board. The Company Law Board should have also taken up the issue of 3065 preference shares instead of leaving the said issue to be decided in the annual general meeting to be held by the company in terms of the direction of the Company Law Board.
(vi) In support of his contention Mr. Mukherjee relied on the following decisions :
(a) Amali English Medium High School v. Government of Andhra Pradesh, : AIR1993AP338 .
(b) Ramashankar Prosad v. Sindri Iron Foundry (P.) Ltd. : AIR1966Cal512 .
(c) Firm Sriniwas Ram Kumar v. Mahabir Prasad : [1951]2SCR277 .
(d) Dale and Carrington Invt. P. Ltd. v. P.K. Prathapan : (2005)1SCC212 .
(e) Public Passenger Service Ltd. v. M. A. Khadar : [1966]1SCR683 .
(f) Cosmosteels P. Ltd. v. Jairam Das Gupta [1978] 48 Comp Cas 312 (SC).
(g) Bagree Cereals P. Ltd. v. Hanuman Prasad Bagri [2001] 105 Comp Cas 465 (Cal).
21. The company was a closely held company. Prior to 1986, the Guptas were in control holding almost all the shares of the company. The shares held by Gupta Brothers were partly paid up and there had been an outstanding call on their account. In 1986 partly paid up shares belonged to the Guptas were forfeited and allotted to the Sanwalkas. The terms of such allotment would ex facie show that the value of the shares was Rs. 100 whereas the Sanwalkas paid Rs. 35 per shares meaning thereby they were to pay Rs. 65 per share on a call being made. Although the said shares originally belonged to Gupta Brothers such fact was not mentioned in the letter of allotment. Article 18 of the company stipulated that shareholders were obliged to make good the unpaid calls. It was not the provision of the article that the unpaid calls were attached to the shares. Hence, in my view there had been no occasion on the part of the company either to claim the balance amount on account of Gupta Brothers or to claim interest thereon as the same stood unpaid from 1967. This fact would get further support from the fact that the petitioners were not called upon to pay the entire value of the shares as also the interest payable on the unpaid calls from 1967 to 1986 at the time of their entry in the company. It was nobody's case that the Sanwalkas could not pay the said amount or asked for an accommodation to that extent. My view would also get support from the fact that in 1991 when the petitioners were asked to make good the call the company did not refer to the terms of the original allotment to the petitioners. The petitioners were asked to pay Rs. 55 whereas they were to pay Rs. 65 as per the terms of allotment. Even, if I hold that the company was entitled to recover the balance price of the shares payable by Gupta Brothers from the petitioners together with interest payable thereon from 1967 there had been no genuine attempt on the part of the company to do so in the absence of any proof of dispatch and receipt of those letters of 1991. Hence, I hold that there was neither any attempt on the part of the company to ask the petitioners to make good the call unpaid on account of Gupta Brothers nor on account of the petitioners in terms of the letters of allotment issued in 1986. Hence, subsequent action on the part of the company either for forfeiting the shares or for further issue of shares (either bonus or original shares) or attempt to deal with the preferences shares was wrong.
22. On each issue parties cited decisions recorded above. On the issue of forfeiture several passengers from Bucklay were relied on. The decision of the House of Lords in the case of New Balkis Eersteling Ltd. v. Randt Gold Mining Co. [1904] Appeal Cases 165 and the decision in the case of Randt Gold Mining Co. Ltd. v. Wainwright [1901] 1 Ch 184 on the issue of unpaid share were cited by the parties. Those issues were dealt with by the Company Law Board in detail referring to the decisions referred to above. On a cumulative reading of the decisions my understanding of the law on subject is that issue of unpaid calls would be governed by the terms of allotment and the relevant provisions of the articles of association. In the instant case, Article 18 of the articles of association stipulated that a shareholder was obliged to make good the unpaid value on call meaning thereby it was a personal liability and not a liability attached to the share. The terms of allotment in the instant case would clearly show that it was an independent allotment without having reference to Gupta Brothers. Hence, the petitioners were and still are obliged to make good the short fall of the unpaid value stipulated in the letter of allotment issued in 1986 and nothing else.
23. Mr. Sarkar relied on an unreported decision of the learned single judge of this Court dated March 31, 2005, in APO No. 746 of 1999 (Ruby General Hospital Ltd. v. Dr. Kamal Kumar Dutta [2006] 129 Comp Cas 1), wherein his Lordship held that in an application under Section 397 it was an essential requirement that a case was to be made out to the extent that it was fair, just and equitable that the company should be wound up, however, it would unfairly prejudice the company and the shareholders at large if such order was passed. Citing the said decision Mr. Sarkar contended that the case of just and equitable winding up was not made out in the instant case. Hence, the proceeding was not maintainable under Section 397 of the said Act of 1956. From the facts discussed above it would appear that the petitioner was able to make out a case of oppression under Section 398. The instant company had no business to carry on save and except managing the immovable property. The Company Law Board came to a definite finding that the lease executed by the then management was detrimental to the company's interest and it was done favouring the lessee. There were enough materials to show that the present management to benefit themselves mismanaged the company by granting lease to third parties for a sum below the market rate. This case was made out by the petitioners as would appear from the pleadings. There were discussions on the said issue in the order impugned passed by the Company Law Board. Hence, it would not be proper for me to hold that the case of just and equitable winding up was not made out by the petitioner. The contention of Mr. Sarkar on that count is thus rejected.
24. Hence, in my view, the Company Law Board was right in restoring the status quo ante as of 1991 and I do not find any scope of reference to interfere with the order impugned in the appeal filed by the company and Guptas.
25. On the cross appeal filed by the Sanwalkas I am of the view that once the Sanwalkas approached the Delhi High Court on the issue of dealing with preference shares as well as the holding of the extraordinary general meeting for the said purpose the Company Law Board rightly refused to entertain the identical issue as the issue was subjudice before the Delhi High Court. The petitioners decided their course of action. They approached the Company Law Board for a particular purpose. They approached the Delhi High Court for a different purpose. Hence, the Company Law Board was right in not interfering with the issue pending before the High Court and I do not find any scope for interference on that score.
26. On the issue of allotment of lease although the Company Law Board was within its power to cancel the same, in my view, for the said purpose appropriate action should be brought as against the lessee by the company inter alia for cancellation of the said lease. The Company Law Board was right in not interfering on that score.
27. In the result, both the appeals fail and are hereby dismissed.
28. There would be no order as to costs.
29. There would be however stay of operation of this judgment and order for a period of three weeks from date.
30. Urgent xerox certified copy would be given to the parties, if applied for.