Topic: Jer Rutton Kavasmanek & Anr vs Gharda Chemicals Ltd

Jer Rutton Kavasmanek & Anr vs Gharda Chemicals Ltd
Bombay High Court- Comp.Appeal No.24-10- In The High Court Of Judicature At Bombay - Ordinary Original Civil Jurisdiction - Company Appeal No.24 Of 2010 In Company Petition No.132 Of 2010 - Bench: S.C. Dharmadhikari - Date of Judgment: 14 June, 2011

ORAL JUDGEMENT:-



1] This company Appeal is filed by the Appellants original Comp.Appeal No.24-10 Petitioners impugning the order passed by the Company Law Board, Mumbai (CLB) in Company Petition No.132 of 2009. By the order under challenge dated 14th May 2010, the learned Member of the CLB has dismissed this petition and vacated all interim orders therein.

2] This appeal has been admitted on the questions of law which have been framed by this Court in its order of Admission, dated 28th June 2010. The same read as under:-

"Heard all the parties. In my view, there are several important question of law which arise in this company appeal. Some of the questions of law which can be formulated are as under:-

"A. Section 111A is the only provision that talks of free transferability of shares. In view of section 111A read with section 111(14), the provisions of section 111A do not apply to a private company which had become a public company by virtue of section 43A. Accordingly, section 111A is not applicable to the present company;

"B. The 2000 amendment states that section 43A will not apply "on and after" its introduction. Therefore, companies that had acquired such status would continue to retain such status."

"C Alternatively and assuming that the 2000 amendment is construed as a "repeal" of section 43A under section 6 of the General Clauses Act such repeal would not disturb GCL's status."

Comp.Appeal No.24-10 "2. The questions of law that arise and which are enumerated herein above are not exhaustive. In the circumstances, company appeal is admitted.

3] Although this Court has in the order of 28th June 2010 observed that these questions of law are not exhaustive, yet, the arguments of the Senior Counsel appearing for parties revolve around these questions. I am of the opinion, therefore, that the questions as framed suffice for determination of the controversy.

4] The company petition on which the impugned order has been delivered pertains to a company known as Gharda Chemicals Ltd.

(GCL). The company petition was filed by the appellants against GCL and six others alleging that GCL is a closely held company and a glorified partnership. It was incorporated on 6th March 1967 under the Companies Act, 1956 as a private limited company. It is a closely held family company belonging to Gharda/ Kavasmaneck families. On 17th August 1988, the first respondent became a deemed public limited company pursuant to section 43A of the Companies Act, 1956.

Comp.Appeal No.24-10 5] It is alleged that at the meeting of the members held on 5th May 2001 a special resolution was proposed, inter alia, to insert an additional clause (d) in its Articles of Association pursuant to the Companies Amendment Act, 2000 (Amendment Act). The Resolution was not passed. After setting out details of the Authorised, subscribed and paid up share capital so also main objects of the GCL, it is alleged that the appellants - original petitioners are members of Kavasmaneck family. The first appellant is sister of the original second respondent and she was married to late Rutton Kavasmaneck. The second appellant is son of appellant No.1 and the late Rutton Kavasmaneck. They are part of a minority group of shareholders of respondent No.1 GCL. The appellants as members and shareholders of GCL amongst themselves hold and/or otherwise control 10516 equity shares aggregating to 17% approximately of the issued, subscribed and paid up capital on said GCL. After referring to the details of the shareholdings, it is alleged that as members of the said GCL, the appellants hold not less than 1/10th of the issued, subscribed and paid up share capital of GCL and are eligible under the provisions of section 399 of the Act to file the petition.

Comp.Appeal No.24-10 6] The Kavasmaneck family consists of the first appellant (mother) and her three children viz., the second appellant (son), one Maharookh Oomrigar (daughter) and one Percy Kavasmaneck (son). One Aban Kavasmaneck is the wife of the said Percy. The said Maharookh is presently in India but spends a considerable time with her daughter in the United States of America. The said Percy and the said Aban are presently residing in the United States of America. The said Maharookh, Percy and the Aban amongst themselves hold and or otherwise control 8115 shares aggregating to approximately 13% of the issued, subscribed and paid up share capital. The Kavasmaneck family accordingly holds and or otherwise controls 18,631equity shares aggregating to 30% approximately of the issued, subscribed and paid up share capital.

In addition to the Kavasmaneck family, there is also a Rebello family that holds and or otherwise controls 2640 equity shares aggregating to 4% approximately of the issued, subscribed and paid up share capital of GCL.

7] The first respondent is a closely held family company which Comp.Appeal No.24-10 was incorporated as a private limited company under the Companies Act, 1956. The first respondent is a family run enterprise whose continued existence has been based on mutual trust and faith amongst the Kavasmaneck / Gharda families. The second respondent is the first appellant's brother. He is the Chairman and Managing Director of first respondent company.

Respondent No.3 is second respondent's wife and a Director of first respondent. The third respondent however, does not discharge any functions as Director of the first respondent and is appointed as a Director only because she is second respondent's wife. The second/ third respondents between themselves hold 38,651 equity shares of first respondent company aggregating to 60% approximately of the issued, subscribed and paid up share capital.

The remaining 4592 shares aggregating to 7% approximately of the issued, subscribed and paid up capital of the first respondent company are held by the friends, nominees and employees of Dr.Gharda (second respondent) and all of whom owe allegiance to him. Thus 43,243 equity shares aggregating to 67% approximately of the issued, subscribed and paid up share capital of the first respondent is owned and / or otherwise controlled by Dr.Gharda Comp.Appeal No.24-10 who constitutes the preponderant majority group in the first respondent.

8] The respondent No.4 is appointed as an Additional Director by the Board of Directors on 29th July 2009 and has now been appointed as a full time Director of the first respondent. The 5th respondent is the wife of one late Hoshang Patel who was the classmate of 2nd respondent and who was also the Vice Chairman and Director of the first respondent. The 6th respondent is a Chartered Accountant and is on the board of Directors since last more than two years.

9] The appellants stated that the family history is relevant because one late Bai Ruttonbai Gharda had three children i.e. late Mrs.Coomi Warden, Mrs.Jer Kavasmaneck, the first appellant and Dr.Gharda the second respondent. Husband of late Coomi and the first appellant so also their families have been referred to along with wife of Dr.Gharda. It is stated that Dr.Gharda had no children whereas the first appellant and her late husband (Rutton Kavasmaneck) had one son- the second appellant, Mrs.Maharookh Comp.Appeal No.24-10 Murad Oomrigar and Dr. Percy R. Kavasmaneck. Thus the first appellant is sister of second respondent. Whilst the second appellant is nephew of respondent Nos. 2 and 3. It is then alleged that in or around early 1960's the second respondent had returned from U.S.A., after securing a masters degree and a doctorate in chemical engineering, he was desirous of setting up a manufacturing unit but was unable to do so for lack of funds. The second respondent requested his late mother Mrs.Bai Ratanbai Gharda, his later sister Mrs.Coomi Warden and the late Mr.Rutton Kavasmaneck to invest their funds and join him in partnership. The late Mr.Rutton Kavasmaneck made an investment of practically all his savings as mentioned in the petition.

10] In or about April 1962, the second respondent, late Grand mother of second appellant (Bai Ratanbai Gharda), husband of first appellant and father of second appellant (Rutton Kavasmaneck) and late Mrs.Coomi Warden (maternal aunt of second appellant) entered into a partnership dated 28th April 1962 called M/s.Gharda Chemical Industries. The deed of partnership dated 28th April 1962 shows that the total capital contribution from the partners was Rs.2,50,000/- out Comp.Appeal No.24-10 of which Rs.1,00,000 (40%) was contributed by the late Rutton Kavasmaneck, Rs.50,000/- (20%) by the late Bai Ratanbai Gharda and Rs.50,000/- (20%) by late Mrs.Coomi Warden. The only financial contribution of the second respondent was Rs.50,000/- i.e. 20% of the total contribution. As far as the appellants are aware, the second respondent was not even in a position to fulfill his financial contribution. In fact the second respondent was unable even to raise the "pennies" initially. Against his capital contribution of 20%, the second respondent was to receive 40% of the profits and/or losses while the remaining 60% was divided amongst the others with the late Rutton Kavasmaneck having 30% share of the profits and/ or losses. Under the said deed of partnership, whilst second respondent was responsible for the manufacturing activity and matters connected therewith, the selling arrangements and prices were to be decided by the second respondent in consultation with the other partners. The said partnership also provided that the name and goodwill of the business would belong to the partners in proportion to their interest and the heirs of any partner of the said firm had option to continue as a partner along with the surviving partner.

Comp.Appeal No.24-10 11] It is further stated by the appellants that on the death of late Bai Ratanbai Gharda on 30th November 1965, a fresh deed of partnership was executed and entered into on 14th January 1966.

The partnership firm of M/s.Gharda Chemical Industries was continued by the remaining three partners. The said deed of partnership dated 14th January 1966 shows that the capital contribution provided for the partners was Rs.2,00,000/- out of which Rs.1,00,000/- (50%) was contributed by the second appellant's late father. The profit sharing ratio was changed to the extent that the second respondent now had a 45% share while the second appellant's late father had 35% share and the late Mrs.Coomi Warden had a 20% share. The said deed of partnership had identical clauses as the Deed of Partnership of 28th April 1962 i.e. the name and goodwill of the partnership business would belong to the partners in proportion to their interest in the partnership and that the heirs of any deceased partner would have option to continue as a partner along with the surviving partners.

12] Sometime in 1965/ 1966 the firm of M/s.Gharda Chemical Comp.Appeal No.24-10 Industries underwent a deep financial crisis. The entire working capital limit was fully used up in manufacturing a product that failed to have the expected market. The firm had no funds to manufacture any other products. The banks refused to lend monies until old stocks were sold. The Appellants understand that at such time the second respondent approached one Dr.Damascene Rebello whose contact was built/ developed at the University Department of Chemical Technology (UDCT).

ig The said Dr.Rebello was also instrumental in introducing the second respondent to Godrej Soaps Limited through which the second respondent was able to get a contract for supply of a vital product known as G-11 used by Godrej Soaps Limited for their prestigious product Cinthol soaps. The appellants understand that the second respondent requested for financial support/ assistance of an amount of Rs.50,000/- from Dr.Rebello. The second respondent persuaded Dr.Rebello to break his family investment and guaranteed far better returns. To the end and intent, the second respondent, inter alia, agreed to grant to the Rebello family an option not to accept prepayment of the loan but to invest maximum of Rs.20,000/- in a limited company that would be formed on conversion of the said firm of M/s.Gharda Chemicals Comp.Appeal No.24-10 Industries.

13] With the profits of the firm of M/s.Gharda Chemicals Industries subsequently escalating, the second respondent reneged from his commitment viz - a - viz the Rebello family. Appellants were informed that the second respondent attended Dr.Rebello's residence without any prior intimation and left a cheque for an amount of Rs.51,500/- on a sofa. Dr.Rebello however refused to accept the said cheque as he desired to take a share in the limited company as per the agreement with Dr.Gharda. The Rebello family who had a right to acquire 200 shares at a value of Rs.100/- per share in the first respondent was subsequently, after persuasion, allotted only 85 shares at a premium of Rs.136/- per share. It is significant that if Dr.Rebello had been issued 200 shares as per the Agreement, Rebello family's shareholding would have aggregated to 6080 shares.

14] The first respondent was formed and incorporated on or about 7th March 1967 with the principal object of taking over the partnership firm of M/s.Gharda Chemicals Industries as a going Comp.Appeal No.24-10 concern. The subscriber members of the first respondent as per the memorandum and Articles of Association of the first respondent were the late Mr.Rutton Kavasmaneck and the second respondent who each subscribed to 5 shares of Rs.100/- each. Apart from the above Rs.1000 no capital contribution was made in cash. However, the partners of the firm were issued fully paid up shares amounting to Rs.2,00,000/-. Dr.Gharda was allotted 1100 shares, the late R.M.Kavasmaneck was ig allotted 600 shares and the late Mrs.Warden was allotted 300 shares.

15] In the aforesaid partnership firm, the late Rutton Kavasmaneck was the major financial partner. However, the second respondent allotted to himself 55% shares (as against his share of 25% in the capital of the firm and 45% in profits of the firm) to the late Rutton Kavasmaneck 30% shares (as against his share of 50% in the capital of the firm and 35% in the profits of the firm) and to one Coomi Warden 15% (as against her share of 25% in the capital of the firm and 20% in the profits of the firm). The first respondent came to be incorporated with a view to obtain the benefit of corporate personality and the advantage of a limited liability. The Comp.Appeal No.24-10 first directors of the respondent No.1 were (a) Dr.K.H.Gharda (b) Late Mr.Rutton Kavasmaneck and the Articles of Association expressly provide that neither were subject to retirement by rotation.

Moreover the late R.M.Kavasmaneck was the Chairman and accordingly had a casting vote. Some of the relevant clauses of the Articles of Association of the first respondent were as follows:-

"3. The company is a private company and accordingly;

(a) The right to transfer shares of the company is restricted in the manner hereinafter appearing;

(b) ...... ........

"118. The first Directors of the Company are:-

(a) Shri K.H.Gharda

(b) Shri R.M.Kavasmaneck Who are also the subscribers of the Memorandum of Association of the company; and they shall not be subject to retirement by rotation."

"147. Save as otherwise expressly provided in the Act, questions arising at any time in the meeting of the Board shall be decided by a majority of votes. In case of an equity of votes the Chairman of the Board shall have a second or casting vote."

16] It is therefore, alleged that the company is a private limited Comp.Appeal No.24-10 company and accordingly the provisions of Companies Act and the Articles of Association are hence referred to. It is then alleged that despite formation of the company all business of partnership being taken over by the said GCL, the character and business was always treated as if it is partnership between Kavasmaneck family and second respondent's family being the dominant partners having substantial stake in GCL. To that end and intent it was also a family understanding between dominant partners that their inter se proportionate shareholding in the first respondent company should not be altered without consent of the other groups and should any group decide to sell their shares other groups should be given the first right of refusal. This family understanding was also recorded in Articles and Memorandum of Association and Article 57 states 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 descendent, 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 Comp.Appeal No.24-10
(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 members 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 offer closed, offer the untaken shares to such of the members as have applied for the purchase and transfer of all 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 of the fair value of such shares, to transfer the shares to the member applying;
(e) The promising 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 Comp.Appeal No.24-10 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 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 being issued."
17] It was therefore stated that in 1968-69 and 1977-80 a small number of shares were allotted to employees and others who were Comp.Appeal No.24-10 essentially friends and family members. Apart from such allotment all subsequent increases in the paid up capital have been by fully paid up bonus shares. By such bonus share issues the initial capital of 2000 equity shares has arisen to 64,514 shares.

18] It is further stated that with the growth of the first respondent, the second respondent adopted an attitude which was oppressive to the late Ruttonig Kavasmaneck and the members of the Kavasmaneck family so as to compel the Kavasmaneck family to exit the first respondent. In fact the late Rutton Kavasmaneck was repeatedly constrained to observe that he had been wrongfully prevented from having any stake in the management and affairs of the first respondent and that he was not permitted to have access to relevant information or documents with regard to the first respondent to enable him to have a say in the management and affairs thereof to enable him to take decisions in respect of matters laid before the Directors for their consideration. Several acts of oppression of the Kavasmaneck family by the second respondent have been recorded in the draft of the minutes of the Board of Directors meeting dated 16th December 1974. Further, it would be Comp.Appeal No.24-10 evident from a letter dated 27th June 1975 addressed by the late Rutton Kavasmaneck to the second respondent. The said letter and the statement annexed thereto would show the manner in which the late Rutton Kavasmaneck was sought to be harrassed and humiliated in several possible ways including financially. In fact, during the life time of the late Rutton Kavasmaneck, the second respondent attempted to dilute away the shareholding and stake of the Kavasmaneck family in the first respondent by any and every devious stratagem. Not succeeding in forcing the late Rutton Kavasmaneck to exit the first respondent, the second respondent even sought to requisition an Extra Ordinary General Meeting (EOGM) to appoint additional Directors on the board of first respondent. He along with his nominees first issued a requisition notice dated 20th June 1975 and then as one of the requisitionist, he issued a Notice dated 6th August 1975 convening an EOGM on 4th September 1975. This being the last straw, the late Ratton Kavasmaneck became constrained to institute a suit in the City Civil Court being Short Cause Suit No.6360 of 1975, inter alia, against the respondent Nos. 1 to 3. In the said suit, the late Rutton Kavasmaneck sought a declaration that the purported Notice dated Comp.Appeal No.24-10 6th August 1975 was void, illegal and of no effect and that the first respondent and the second and third respondents were not entitled to hold the said EOGM of the first respondent or to pass any resolution as mentioned in the said notice and for injunction, ad-

interim reliefs etc. On the institution of the above suit, an application for ad-interim reliefs was made and an ad-interim order was passed on 3rd September 1975. On the passing of the said ad-interim order, a close relative, both of the second respondent and Kavasmaneck family who was also a Solicitor and shareholder of the first respondent company, intervened in the matter and on the second respondent agreeing not to proceed further to pass any resolution at the proposed EOGM so also agreeing to ensure the required financial reliefs to the late Rutton Kavasmaneck, the said suit was not proceeded further.

19] As a part of the settlement of the aforesaid City Civil Court suit, one of the assurances given by the second respondent to the late Rutton Kavasmaneck was that a new chemical plant would be set up which would be fully backed by the first respondent in terms of technical know how and infrastructure and that the plant would be Comp.Appeal No.24-10 under the total control and management of the Kavasmaneck family.

The setting up of the new plant would take care of and solve the financial needs of the Kavasmaneck family. Pursuant to the settlement, the Kavasmaneck family incorporated and registered a private limited company called Kavasmaneck Chemicals Pvt. Ltd.

(KCPL). In the spirit of settlement, the second respondent was made a permanent Director of KCPL and also Chairman.

20] For the purpose of raising required finance for the project of KCPL at the 2nd respondent's instance, the members of the Kavasmaneck family had handed over to the second respondent some blank signed share transfer forms in 1976 and a few more blank transfer forms in or about May 1977. This was done with the intention of enabling the second respondent to realise a good price and to sell only the bare minimum numbers of shares as were necessary for the new project. From the records which subsequently became available, it has transpired that the second respondent had transferred either to himself or his nominees an aggregate 685 shares by misusing the said blank signed transfer forms viz., between the period 1976 - 1977 about 480 shares were Comp.Appeal No.24-10 transferred in the year 1976 for the purpose of the initial capital of KCPL and 205 shares in July 1977 for the further capital required by KCPL in view of the change in the project by the second respondent.

21] The records available further reflect that the appellants 180 shares (155 shares of second appellant and 25 shares of first appellant) were apparently transferred to the nominee of the 2nd respondent through five transfer forms. Except for the signatures of the appellants, there is nothing else in the hand writing of the appellants in the said forms. The said forms appear to have been subsequently filled up by one J.P.Somaiya, the then Company Secretary of the first respondent. The said transfer forms itself would show that they had been so dated as to fit in the larger scheme of the second respondent without the knowledge of the Kavasmaneck family. Two of the forms also have the date of the form corrected from another date. It appears that the said blank transfer forms were filled in after the transfer, inasmuch as, in the form pertaining to the transfer of 25 shares of the first appellant, the entry in the form shows the entry number in the register of transfers Comp.Appeal No.24-10 as No.5 and dated 4th August 1977 though in the case of transfer of the 2nd appellant's 155 shares, all the entries in the forms are shown as entered in the register of transfers as No.6 and dated 30th July 1977. An entry purportedly earlier in point of time has a subsequent number than the purported subsequent entry.

22] After setting out the details of the transfer in paras 6.17 to 6.20, it is alleged that the appellants were wrongfully and illegally deprived of their bonus shares as subsequently discovered. It is also alleged that after demise of Rutton Kavasmaneck on 6th February 1977, instead of any member of the said family being taken on board of directors of GCL, Mrs.Gharda, respondent No.4 was coopted as director. It is alleged that second respondent had hatred towards the late Rutton Kavasmaneck. It is stated that after the death of Rutton Kavasmaneck, the Kavasmaneck family decided to set up its own chemical plant without assistance of second respondent and independently applied for loan and prepared Project Reports. However, the second respondent upon coming to know all these developments, devised a strategy to ruin the family by persuading them that they should trust him and he would render all Comp.Appeal No.24-10 assistance for setting up chemical plant and that too with the backing up of GCL. After setting out as to how the plant was set up to manufacture H-Acid by first respondent, there is a narration subsequently about obtaining of finance, recruitment of employees and other benefits. It is alleged that the project was changed mid-

way. That project with its details (KCFL) is then referred to. It is stated that this project suffered losses and, therefore, there were certain demands made or else the second respondent threatened to withdraw the support to KCPL. He resigned as Director and dumped records and books of KCPL at the second appellant's residence. There are allegations of syphoning of funds and certain dealings with Canara Bank. There is reference to the report of Consultants which was submitted to the Bank and, thereafter, it is stated that despite all odds Kavasmaneck refused to succumb to any pressures to reduce or dilute their shareholdings in GCL.

However, second respondent devised strategies to dilute their shareholdings and acted malafide. These are the allegations then made in the company petition.

23] It is further alleged that as a result of second respondent's Comp.Appeal No.24-10 calculated designs as aforesaid, the Kavasmaneck family's capital was totally wiped out and they were faced with losses to the tune of nearly Rs.2 Crores. They had to face litigation on all fronts including from Canara Bank, suppliers, Creditors etc. Several winding up petitions were instituted against KCPL. As a result the Kavasmaneck family was kept totally busy in efforts to salvage themselves from the losses.

24] It is further stated that even after the formation of the company, the business was continued as a glorified partnership essentially of the family. As the business had been started and taken over/ continued on partnership principles and on the basis of funds got in by the family, the family members / shareholders shares in the business and profits of the company by substantial amounts ranging from 20% to 45% of the net profits of the company being distributed to the family members/ partners/ shareholders as and by way of dividend as only Dr.Gharda received remuneration/ commission. Such distribution of profits by way of dividend was the only manner in which the other partners who had contributed funds could receive benefits/ returns. To that intent, profits were further Comp.Appeal No.24-10 distributed to the partners/ shareholders by way of bonus issues of capital by the company in the ratio mentioned in petition.

25] During 1982 to 1987 the first respondent however continued to duly distribute profits/ benefits to the partners/ shareholders in accordance with partnership principles. Except for 1982 and 1983 when the first respondent made only marginal profits, the first respondent distributed substantial proportions of its net profits ranging from 7% to 30% to the partners/ shareholders. In fact, in 1986 and 1987 the first respondent declared dividends amounting to 27.91 % and 29.76% of its net profits. Moreover, profits/ benefits were further distributed to the partners in accordance with partnership principles by the first respondent making a bonus issue of shares in 1986 on 1:1 basis. During these years, notwithstanding the distribution of profits as above, the reserves of the first respondent increased from Rs.20 lakhs in 1967 to Rs.348 lakhs in 1987. On 17th August 1988 the first respondent became a deemed public company under the provisions of section 43A of the Companies Act.

Comp.Appeal No.24-10 26] From the year ended 30th June 1988 onwards, Dr.Gharda with a view to squeezing out the Kavasmaneck family and compelling them to sell their shares in the first respondent company, departed from the earlier understanding/ practice of distributing profits to the partners/ shareholders through dividends and bonus shares and deliberately commenced a policy of wrongfully withholding dividends/ distribution of profits. The accretions to reserves raised the fair value of the shares and commensurately increased the wealth tax payable thereon. Consequently in most years the dividend declared was insufficient to even meet the income tax and wealth tax payable in respect of the said shares. For the earlier two years (i.e. 1986 and 1987), the dividend declared by the company was 27.91% and 29.76% of net profit. In fact the average mean of the dividend declared in the last preceding 14 years (even when for three years no dividend was declared) was 24.69% of the net profits.

27] However, for the year ended 30th June 1988, although the net profits increased phenomenally from Rs.43.35 lakhs in 1987 to Rs.

756 lakhs in 1988 i.e. an increase of 1644%, the dividend declared Comp.Appeal No.24-10 was reduced from 29.76% of net profits in 1987 to 2.13% of the net profits in 1988 i.e. the dividend sharply decreased by 92.85%. At the same time the reserves increased from Rs.348 lakhs in 1987 to Rs.1088 lakhs in 1988 resulting in a commensurate increase in the book value of the first respondent's shares from Rs.640 to Rs.1787 per share and the wealth tax liability in respect thereof. Similarly for the year ended 1989, the net profit increased from Rs.7.56 Crores in 1988 to Rs.16.93 Crores.

ig The percentage of net profits distributed by way of dividend was only 1.14%. An amount of Rs.16.73 Crores was transferred to reserves and the book value of the shares consequently increased from Rs.1787 to Rs.4382 per share. This resulted in a steep increase in the wealth tax liability and the dividend received by the appellants was not even sufficient to meet the wealth tax liability on the shares. The amount distributed by way of dividend to all the partners/ shareholders was Rs.19.35 lakhs. As against that first respondent invested Rs.634 lakhs on units of UTI, received Rs.79.72 lakhs as and by way of donation. In fact in some years the amount paid by the first respondent/ Dr.Gharda by way of donation has exceeded the amount distributed/ paid to the partners/ shareholders by way of dividends. Between the period 1st April 1988 Comp.Appeal No.24-10 and 31st March 1992, the wealth tax payable by appellant No.2 alone for his shareholding in the 1st respondent aggregated to Rs.

13,89,376/-. However, the dividend received by appellant No.2 in respect of the said shareholding was only Rs.4,34,000/- for the same period.

28] During the period 1989-90 whilst commencing the unfair dividend squeeze policy, Dr.Gharda and the first respondent despite being fully aware that the appellants and their family members were the only heirs of the late R.M.Kavasmaneck, wrongfully delayed transmitting the shares on various pretexts. At the same time Dr.Gharda convened an Extra Ordinary General Meeting and proposed drastic changes to Article 57 which would destroy the partners/ shareholders existing rights of preemption. The delay in transmitting the shares gained significance from the fact that the appellants along with their other family members held more than 25% of the 1st respondent's issued capital and could prevent all such oppressive amendments from being approved. It is also alleged that Dr.Gharda had stated at a meeting in September 1989 that the heirs should provide an indemnity/ undertaking. By his letter dated Comp.Appeal No.24-10 18th September 1989 the appellant No.2 forwarded the final Estate Duty Clearance Certificate and requested that the shares be transmitted to the concerned heirs and requested for a copy of the proposed indemnity/ undertaking. There was no reply for about three months. Accordingly, the Appellant No.2 addressed a reminder dated 21st December 1989. Since no reply was received or action taken, appellant No.2 addressed further reminder dated 6th January 1990. By a letter dated 16th January 1990, Company Secretary of the first respondent stated that action would be taken only on receipt of a request letter signed by all the heirs and this requirement was in addition to the indemnity. The letter also stated that first respondent was taking legal advise regarding the draft indemnity bond. Thereafter, by a letter dated 23rd January 1990, the appellant No.2 pointed out that almost all shareholders of the first respondent were relatives and that all persons entitled/ heirs had personally met Dr.Gharda in September 1989. Appellant No.2 pointed out that the draft indemnity bond was available and had in fact been accepted in the past. The appellant No.2 accordingly called on the first respondent not to intentionally waste time and delay registration of the transfer. It is further alleged that despite Comp.Appeal No.24-10 assurances, the first respondent did not deliver the draft indemnity.

The appellant No.2 recorded this deliberate delay by his letters dated 1st February 1990 and 3rd February 1990. By a letter dated 5th February 1990 the Company Secretary stated that indemnity bond would be forwarded "as soon as it is ready". Thereafter, appellant No.2 by his letter dated 5th February 1990 addressed to respondent No.2, inter alia pointed out that the delay in transmitting the shares, was to be viewed in the context of the scheduled EGM where respondent No.2 was proposing to make far reaching changes which would be destructive of the appellant's right of preemption. The appellant No.2 pointed out that Dr.Gharda was apparently seeking to oust the appellants although the first respondent was a closely held family concern. The appellant No.2 called on Dr.Gharda to defer the EGM and threatened action.

Thereafter, on 6th February 1990 Dr.Gharda and the Company Secretary of first respondent agreed to transmit the shares on receipt of the certificates and on the appellants agreeing to send an indemnity bond subsequently. By its letter dated 9th February 1990 the first respondent forwarded the said shares duly transmitted.

Comp.Appeal No.24-10 29] After narrating the events of 1989-90 leading up to filing of company petition No.77 of 1990 in this Court invoking section 397 and 398 of the Companies Act and referring to the reliefs claimed therein, what has been alleged is that after the petition was filed, the oppressive attempts of second respondent continued and each of these attempts are narrated from paras 6.4 onwards and under heading Item No.I etc. During the course of referring to attempts there is a detailed reference to the letters addressed from time to time.

30] It is stated that on 2nd April 2001, the first respondent issued a notice convening an Extra Ordinary General Meeting on 5th May 2001 for passing a special resolution for amendment of the Articles of Association for incorporating additional clause "d" in Article 3 viz., "no invitation or acceptance of deposits shall be made to/ from other members/ directors or their relatives." This was stated to be done in view of the Companies (Amendment) Act, 2000.

31] On 5th May 2001, the said Extra Ordinary General Meeting was held. The appellants opposed the proposed resolution. The Comp.Appeal No.24-10 proposed resolution for amendment of the Articles of Association was not passed. The appellants amongst the other shareholders voted against the said resolution. After this EOGM, one Mr.Udayan Maroo, the Company Secretary and Financial Director of first respondent as well as one Mr.C.C.Dayal (Internal Auditor of the first respondent) in the presence of Dr.Rebello informed the 2nd Appellant that since the resolution was defeated, the first respondent was a full fledged public company and Article 57 was no longer applicable.

The second appellant did not agree with the aforesaid contention and pointed out that the first respondent continued to remain a private company and Article 57 continued to govern the rights between the parties.

32] Whilst on the one hand the first respondent's officers informed the second appellant that Article 57 was no longer applicable, on 17th May 2001 and 28th May 2001 the first respondent circulated two transfer notices under Article 57 of the Articles of Association. The appellants who by that time were already under a tremendous financial strain, were unable to accept the said shares. Besides, having already informed the second appellant that in the opinion of Comp.Appeal No.24-10 first respondent, Article 57 was no longer applicable, the first respondent circulated two Transfer Notices under Article 57. This came as a surprise to the appellants. Accordingly, the second appellant addressed a letter dated 6th June 2001 to the first respondent stating that he failed to understand how the company continued to circulate the transfer notices under Article 57.

33] Whilst these events transpired, the second respondent's unfairly prejudicial stratagems continued to be unleashed from time to time. The objective of the second respondent is to squeeze out the appellants in any manner possible so as to force and/ or compel the minority shareholders to sell their shares to the 2nd respondent at a very negligible value and to oust them from the first respondent.

The second respondent being at the helm of the control and management of the affairs of the first respondent is only ensuring that he gains and enjoys the benefits which other shareholders cannot and which he would receive having regard to his status and position as the Managing Director of the first respondent through excessive remuneration, increased commission and grant of huge donations to Trusts/ entities owned/ controlled by the second Comp.Appeal No.24-10 respondent and his wife. For the year ended March 2004, the second respondent also siphoned a huge amount of approximately Rs.4 Crores in the guise of alleged compensation for alternative accommodation. Further it is alleged that in or around August 2004, the second appellant received a notice dated 27th July 2004 by which the first respondent convened the 38th Annual General Meeting of the first respondent on 4th September 2004. By the said notice it was inter alia, proposed to empower the first respondent to give donation of an amount aggregating to Rs.5 Crores during the financial year 2004-05 in favour of Trusts/ Foundations owned and/ or controlled by the second respondent. The proposed resolution was sought to be passed as an "ordinary" resolution. With the second respondent owning and or controlling more than 65% of the issued subscribed and paid up share capital of the first respondent and controlling the first respondent, the aforesaid was yet another pre-planned strategy to enrich the second respondent at the cost of and to the detriment of the first respondent and appellants.

Re: Jer Rutton Kavasmanek & Anr vs Gharda Chemicals Ltd

34] Further, it is alleged that by a letter dated 26th August 2004, the second appellant requested the first respondent to furnish Comp.Appeal No.24-10 details with regard to the proposed charitable Trust/ activities to/ for which the donation of Rs.5 Crores was proposed to be given. In the explanatory statement it was evasively stated that the amount was to be donated for the purpose of setting up and conducting an educational institute in Ratnagiri for the underprivileged. However, no details or particulars were made available. No details regarding the availability or cost of land/ building, the budgetary estimates/ cash flow requirements for setting up and running the alleged institute, the nature of the courses, the availability of teachers, the affiliations with recognised university etc. have been disclosed thereby once again denying the appellants the right to take any informed decision.

35] By a letter dated 4th September 2004, addressed by the appellants to the Chairman in respect of the said 38th AGM, the appellants protested to the proposed Ordinary Resolution empowering the first respondent to pay an amount of Rs.5 Crores to the Trusts/ entities owned and/or controlled by the second respondent in the name of charity. It was pointed out that the proposed resol

Re: Jer Rutton Kavasmanek & Anr vs Gharda Chemicals Ltd

34] Further, it is alleged that by a letter dated 26th August 2004, the second appellant requested the first respondent to furnish Comp.Appeal No.24-10 details with regard to the proposed charitable Trust/ activities to/ for which the donation of Rs.5 Crores was proposed to be given. In the explanatory statement it was evasively stated that the amount was to be donated for the purpose of setting up and conducting an educational institute in Ratnagiri for the underprivileged. However, no details or particulars were made available. No details regarding the availability or cost of land/ building, the budgetary estimates/ cash flow requirements for setting up and running the alleged institute, the nature of the courses, the availability of teachers, the affiliations with recognised university etc. have been disclosed thereby once again denying the appellants the right to take any informed decision.

35] By a letter dated 4th September 2004, addressed by the appellants to the Chairman in respect of the said 38th AGM, the appellants protested to the proposed Ordinary Resolution empowering the first respondent to pay an amount of Rs.5 Crores to the Trusts/ entities owned and/or controlled by the second respondent in the name of charity. It was pointed out that the proposed resolution directly affected the reserves and net worth of Comp.Appeal No.24-10 the first respondent, diminishes the value of the minority shareholders' investment and is a further act of oppression. In spite of these protests and or objections, the resolution for giving a contribution of Rs. 5 Crores was alleged to be passed by the use of second respondent's brute majority. It is significant that no details of any nature whatsoever with regard to the proposed educational institution was given even at the time of the meeting. After the said meeting and after the resolution was already passed, by its letter dated 7th September 2004, the first respondent replied to the second appellant's letter dated 26th August, 2004 in an attempt to reply to the various queries contained in the second appellant's letter dated 26th August 2004. This letter further demonstrates that first and/or second respondents' intention was to keep the appellants in dark and deny them any information.

36] The second appellant also addressed a letter dated 30th August, 2004 to the second respondent. By the said letter it was pointed out by the second appellant that notwithstanding the encouraging performance of the first respondent, the company at the behest of second respondent was continuing with its policy of Comp.Appeal No.24-10 unfairly and/or inadequate distribution of its wealth especially to the minority shareholders. It was pointed out that whilst the minority is deprived from sharing the profits through dividend, the majority shareholders who were controlling the first respondent sought to take away huge and disproportionate sums of money in the form of remuneration, perquisites, commission and charity to institutions owned and/or controlled by themselves. By the said letter, the second appellant further suggested to the second respondent that if he genuinely desired to do charity he could declare a higher dividend to all the shareholders and from the dividends so received by him he could do such charity as he thought fit. It was further stated that if the second respondent decided to accept the minority shareholders aforesaid suggestion, it would go a long way in improving the strained relationship between the minority and the majority. Neither the second respondent nor the first respondent company replied to the above letter or considered the suggestions made on behalf of appellants.

37] By a separate letter dated 4th September 2004, addressed by the appellants to the Chairman of the said AGM, the appellants Comp.Appeal No.24-10 recorded some of the aforesaid facts and informed the Chairman of the meeting about their objections to the declaration of miniscule dividend and the fact that the same was a part of the dividend squeeze policy continually adopted by the second respondent.

Along with aforesaid notice dated 27th July 2004, the first respondent also circulated an abstract dated 28th July 2004 in purported compliance of section 302 of the Companies Act, 1956. By the said abstract, the minority ig shareholders were informed that a supplemental agreement dated 27th July 2004 had been entered into between the first respondent and the second respondent by which the commission payable to the second respondent was revised from 1% to 5%. This meant that the first respondent was now being made to pay to the second respondent, in addition to his remuneration and perquisites, a further amount as and by way of commission upto 5% calculated with reference to the net profits of the first respondent in a particular financial year.

38] By letter dated 27th August 2004 addressed to the first respondent, the second appellant pointed out that the decision to pay the huge commission of upto 5% of the net profits to the second Comp.Appeal No.24-10 respondent was clearly reflective of the discriminate policy of the majority shareholders of self aggrandizement at the cost of the minority shareholders. The second appellant also requested the first respondent to, inter alia, furnish a copy of the minutes of the Board meeting held on 27th June 2004 at which it was decided to enhance the payment of compensation. The appellants by their letter dated 4th September 2004 addressed to the Chairman for the 38th AGM, once again objected to the payment of such huge commission and recorded that the same was clearly reflective of the discriminate policy of the majority shareholders and in particular the second respondent of self aggrandizement at the cost of minority shareholders and the company. It was further pointed out that this self aggrandizement constituted to a further act of oppression. By its letter dated 7th September 2004 the first respondent declined to furnish copies of the minutes of the said Board meeting on the ground that shareholders are not entitled to the same.

39] It is stated that the decision to enhance payment of commission to the second respondent is retrospective inasmuch as the first respondent has in its letter dated 7th September 2004 Comp.Appeal No.24-10 clarified that the remuneration paid to the second respondent for the year ended March 2004 is Rs.410 lakhs comprising of commission of Rs.398 lakhs @ 4% of the net profits for the said year. The aforesaid figures demonstrate that the total amount paid by the first respondent to the second respondent towards remuneration excluding perquisites but including commission is Rs.410 lakhs whilst the total dividend paid to all the share holders including the second respondent is Rs.193 lakhs. Out of the said amount of Rs.

193 lakhs, an amount in excess of Rs.125 lakhs is in turn received by the second respondent as dividend. The amount which the second respondent seeks to pay himself was clearly excessive, more so, when compared with the dividend outlay. Besides, the alteration in the terms of remuneration was also illegal and contrary to the provisions of the Companies Act, 1956.

40] It is further alleged that not being satisfied with the excessive remuneration being paid to the second respondent, the first respondent/ second respondent devised yet another subterfuge to divert a further amount of Rs.3.92 Crores from the company and pay over the same to the second respondent. The 38th Annual Comp.Appeal No.24-10 report of the first respondent reflects that a sum of Rs.3.92 Crores has been paid to the second respondent apparently as "tenancy compensation.". The enquiries made by the petitioners revealed that the aforesaid amount was paid allegedly in lieu of alternate accommodation to the second respondent for allegedly surrendering an alleged tenancy in favour of the first respondent. It is significant that the existence of the alleged tenancy was hitherto fore never disclosed in any statutory or other records of the first respondent.

There was no alleged tenancy created or subsisting in favour of the second respondent. The appellants submit that with a view to give some semblance of sanctity to this illegal payment, the first and/or second respondents have attempted to take shelter under an alleged award dated 4th February 2004. The second appellant by his letter dated 11th March 2005 requested first respondent to furnish copies of the alleged tenancy agreement between the first/ second respondent and a copy of the alleged award dated 4th February 2004.

41] Thereafter the allegations pertain to Godrej Industries Ltd., with whom the appellants had pledged some of its shares and how Comp.Appeal No.24-10 these shares were lodged for transfer with the Godrej Industries Ltd are made in the company petition. The events under which the appellants were allegedly kept in dark and particularly while refusing the request to register the shares (3119 equity shares) in favour of Godrej Industries are also set out. There is also a reference to the correspondence in that behalf. It is alleged that the first respondent addressed a letter dated 16th March 2005 to the appellants and to the other members of the Kavasmaneck family and the Rebello family purportedly under Article 59(c) of the Articles of Association of the first respondent. By the said notice, the first respondent sought to contend that the appellants, inter alia, had been found to be working and or doing activities against the interest of the first respondent and accordingly the appellants were called upon to serve a Transfer Notice under Article 57 of the Articles of Association of the first respondent. One of the reasons cited by the first respondent as an act against the interest of the first respondent was quoted as under:-

"You have attempted to induct persons in allied fields knowing that the research of the company is a precious and invaluable asset and the involvement of Comp.Appeal No.24-10 outsiders/ persons from associated fields will affect the confidentiality and value of the company's research and adversely affect the company."
42] In the meanwhile, on 17th March 2005, the first/ second respondents filed Suit No.1170 of 2005 in this Court, inter alia, against the appellants invoking the said Article 59(c) of the first respondent's Articles of Association. By the said suit, the first/ second respondents have sought a direction that the appellants should be directed to sell their shares in the first respondent to the first/ second respondent's nominees at the price prevailing in 1990 viz., at Rs.6599.48 per share. The relevant prayer of the said suit is as under:-

"(a) That this Hon'ble Court be pleased to declare that the Memorandum of Understanding dated 3rd June 1992 between the first defendant and defendant Nos. 2 to 8 is void ab initio, non est and of no effect whatsoever."
43] One of the reasons cited by the first/ second respondents for seeking the aforesaid relief is that fact that the appellant had sought to sell some of their shares to the said Godrej Industries Ltd., who in the opinion of the first/ second respondents was the competitor of Comp.Appeal No.24-10 first respondent. The Appellants are informed that on 15 th April 2005, the said Godrej Industries Limited filed a petition before the Company Law Board on being aggrieved by the first respondent's refusal to transfer the said 3119 equity shares that were lodged by them on 11th January 2005.

In the petition, the first respondent sought to justify its refusal, inter alia, on the ground that para 10.4 ground (d) of letter dated 10th March 2005 of GCL as under:-

"....... you Godrej Industries Ltd., being engaged in the allied field of activity, such transfer of shares, in the circumstances would be prejudicial to the economic interest and the well being of GCL .. .... With reference to para 10.4 of the said petition, I reiterate all that is stated hereinabove and deny all that is contrary thereto and inconsistent therewith in the said para 10.4. I submit the Godrej Group of Companies is into allied business.
The said Godrej Group entered into allied business at approximately the same time as the time when it executed the MOU dated 3rd June 1992."
The appellants have stated that by an order dated 31st July 2008, the Company Law Board has dismissed the petition filed by the said Godrej Industries Ltd. Against the aforesaid dismissal, the said Godrej Industries Ltd., have preferred an appeal in this court under section 10F of the Companies Act and the said appeal is admitted Comp.Appeal No.24-10 and pending.

44] The appellants are also informed that on 18th May 2005 the said Godrej Industries Limited filed a petition before the CLB being aggrieved by the first respondent's refusal to split the said 100 equity shares that were lodged by them on 17th January 2005. In the petition, the first respondent sought to justify its refusal, inter alia, on the ground that:-

"paragraph 10.4 Ground (d) of letter dated 10th March 2005 of GCL .... you Godrej Industries Ltd. Being engaged in the allied field of activity, such application for splitting the share certificates of GCL to thereafter get these shares transferred to its name in the circumstances would be prejudicial to the economic interest and the well being of GCL ...... With reference to para 10.4 of the said petition, I reiterate all that is stated hereinabove and deny all that is contrary thereto and inconsistent therewith in the said para 10.4. I submit that the Godrej Group of companies is into allied business."
45] It is further stated that by an order dated 31st July 2008, the CLB has dismissed the petition filed by Godrej Industries Ltd.

Against the aforesaid dismissal, the said Godrej Industries Ltd., have preferred an appeal in this Court under section 10F of the Comp.Appeal No.24-10 Companies Act, 1956. The aforesaid appeal is admitted and pending.

46] The appellants along with their supporters were diiligently pursuing the said company petition. However the continued litigation of over a decade and a half had already taken its toll on the appellants, particularly, the first appellant, who was then approaching 80 years of age. Additionally, the said litigation had also caused a considerable financial drain on the appellants. The respondents, it is significant, were litigating at the cost of first respondent, whilst the appellants had to use their own personal resources to pursue the said litigation.

47] The first appellant as the head of Kavasmaneck family persuaded the second appellant to approach the second respondent and explore avenues where the family ties could be once again restored and the long drawn litigation could be ended. The second appellant accordingly approached the second respondent for amicably resolving matters, if possible. After discussions, the second respondent suggested that if the appellants were agreeable Comp.Appeal No.24-10 to withdraw the company petition then he would ensure that for the future years, he will declare adequate dividend of atleast Rs.400 per share, subject to legal requirement. The second respondent also assured that should he choose to sell his shares in the first respondent to an outsider, he would give to the appellants a right of first refusal in terms of Article 57. He also stated that he expected the appellants to also reciprocate in the same way. Further the second respondent also suggested to gradually involve the second appellant in the business of first respondent to the extent possible.

The second respondent suggested that this, in his view would adequately take care of the minority shareholders' interest and at the same time ensure non-interference from the minority shareholders.

50] Discussions were accordingly held within the minority shareholders. The appellants, the said Oomrigar and the members of the Rebello family were agreeable to the second respondent's aforesaid suggestion. However, Dr.Percy Kavasmaneck and his wife, Aban Kavasmaneck were not agreeable and were desirous of continuing the litigation with the second respondent. When this was Comp.Appeal No.24-10 communicated to the second respondent he suggested that if Percy and his wife Aban wanted to continue to litigate with him, the second respondent would defend himself. The second respondent accordingly offered to the appellants that if the appellants desire to avail of second respondent's offer as above, they should withdraw from the pending litigation.

51] In these circumstances, the appellants relying and trusting the second respondent agreed to withdraw from the company petition.

Accordingly, the appellants made statement before this Court that they were not interested in prosecuting the company petition No.77 of 1990 and requested for withdrawal from the same. The said request was accepted by this Court. After withdrawing from company petition the relationship between the appellants and second respondent started impro

Re: Jer Rutton Kavasmanek & Anr vs Gharda Chemicals Ltd

34] Further, it is alleged that by a letter dated 26th August 2004, the second appellant requested the first respondent to furnish Comp.Appeal No.24-10 details with regard to the proposed charitable Trust/ activities to/ for which the donation of Rs.5 Crores was proposed to be given. In the explanatory statement it was evasively stated that the amount was to be donated for the purpose of setting up and conducting an educational institute in Ratnagiri for the underprivileged. However, no details or particulars were made available. No details regarding the availability or cost of land/ building, the budgetary estimates/ cash flow requirements for setting up and running the alleged institute, the nature of the courses, the availability of teachers, the affiliations with recognised university etc. have been disclosed thereby once again denying the appellants the right to take any informed decision.

35] By a letter dated 4th September 2004, addressed by the appellants to the Chairman in respect of the said 38th AGM, the appellants protested to the proposed Ordinary Resolution empowering the first respondent to pay an amount of Rs.5 Crores to the Trusts/ entities owned and/or controlled by the second respondent in the name of charity. It was pointed out that the proposed resolution directly affected the reserves and net worth of Comp.Appeal No.24-10 the first respondent, diminishes the value of the minority shareholders' investment and is a further act of oppression. In spite of these protests and or objections, the resolution for giving a contribution of Rs. 5 Crores was alleged to be passed by the use of second respondent's brute majority. It is significant that no details of any nature whatsoever with regard to the proposed educational institution was given even at the time of the meeting. After the said meeting and after the resolution was already passed, by its letter dated 7th September 2004, the first respondent replied to the second appellant's letter dated 26th August, 2004 in an attempt to reply to the various queries contained in the second appellant's letter dated 26th August 2004. This letter further demonstrates that first and/or second respondents' intention was to keep the appellants in dark and deny them any information.

36] The second appellant also addressed a letter dated 30th August, 2004 to the second respondent. By the said letter it was pointed out by the second appellant that notwithstanding the encouraging performance of the first respondent, the company at the behest of second respondent was continuing with its policy of Comp.Appeal No.24-10 unfairly and/or inadequate distribution of its wealth especially to the minority shareholders. It was pointed out that whilst the minority is deprived from sharing the profits through dividend, the majority shareholders who were controlling the first respondent sought to take away huge and disproportionate sums of money in the form of remuneration, perquisites, commission and charity to institutions owned and/or controlled by themselves. By the said letter, the second appellant further suggested to the second respondent that if he genuinely desired to do charity he could declare a higher dividend to all the shareholders and from the dividends so received by him he could do such charity as he thought fit. It was further stated that if the second respondent decided to accept the minority shareholders aforesaid suggestion, it would go a long way in improving the strained relationship between the minority and the majority. Neither the second respondent nor the first respondent company replied to the above letter or considered the suggestions made on behalf of appellants.

37] By a separate letter dated 4th September 2004, addressed by the appellants to the Chairman of the said AGM, the appellants Comp.Appeal No.24-10 recorded some of the aforesaid facts and informed the Chairman of the meeting about their objections to the declaration of miniscule dividend and the fact that the same was a part of the dividend squeeze policy continually adopted by the second respondent.

Along with aforesaid notice dated 27th July 2004, the first respondent also circulated an abstract dated 28th July 2004 in purported compliance of section 302 of the Companies Act, 1956. By the said abstract, the minority ig shareholders were informed that a supplemental agreement dated 27th July 2004 had been entered into between the first respondent and the second respondent by which the commission payable to the second respondent was revised from 1% to 5%. This meant that the first respondent was now being made to pay to the second respondent, in addition to his remuneration and perquisites, a further amount as and by way of commission upto 5% calculated with reference to the net profits of the first respondent in a particular financial year.

38] By letter dated 27th August 2004 addressed to the first respondent, the second appellant pointed out that the decision to pay the huge commission of upto 5% of the net profits to the second Comp.Appeal No.24-10 respondent was clearly reflective of the discriminate policy of the majority shareholders of self aggrandizement at the cost of the minority shareholders. The second appellant also requested the first respondent to, inter alia, furnish a copy of the minutes of the Board meeting held on 27th June 2004 at which it was decided to enhance the payment of compensation. The appellants by their letter dated 4th September 2004 addressed to the Chairman for the 38th AGM, once again objected to the payment of such huge commission and recorded that the same was clearly reflective of the discriminate policy of the majority shareholders and in particular the second respondent of self aggrandizement at the cost of minority shareholders and the company. It was further pointed out that this self aggrandizement constituted to a further act of oppression. By its letter dated 7th September 2004 the first respondent declined to furnish copies of the minutes of the said Board meeting on the ground that shareholders are not entitled to the same.

39] It is stated that the decision to enhance payment of commission to the second respondent is retrospective inasmuch as the first respondent has in its letter dated 7th September 2004 Comp.Appeal No.24-10 clarified that the remuneration paid to the second respondent for the year ended March 2004 is Rs.410 lakhs comprising of commission of Rs.398 lakhs @ 4% of the net profits for the said year. The aforesaid figures demonstrate that the total amount paid by the first respondent to the second respondent towards remuneration excluding perquisites but including commission is Rs.410 lakhs whilst the total dividend paid to all the share holders including the second respondent is Rs.193 lakhs. Out of the said amount of Rs.

193 lakhs, an amount in excess of Rs.125 lakhs is in turn received by the second respondent as dividend. The amount which the second respondent seeks to pay himself was clearly excessive, more so, when compared with the dividend outlay. Besides, the alteration in the terms of remuneration was also illegal and contrary to the provisions of the Companies Act, 1956.

40] It is further alleged that not being satisfied with the excessive remuneration being paid to the second respondent, the first respondent/ second respondent devised yet another subterfuge to divert a further amount of Rs.3.92 Crores from the company and pay over the same to the second respondent. The 38th Annual Comp.Appeal No.24-10 report of the first respondent reflects that a sum of Rs.3.92 Crores has been paid to the second respondent apparently as "tenancy compensation.". The enquiries made by the petitioners revealed that the aforesaid amount was paid allegedly in lieu of alternate accommodation to the second respondent for allegedly surrendering an alleged tenancy in favour of the first respondent. It is significant that the existence of the alleged tenancy was hitherto fore never disclosed in any statutory or other records of the first respondent.

There was no alleged tenancy created or subsisting in favour of the second respondent. The appellants submit that with a view to give some semblance of sanctity to this illegal payment, the first and/or second respondents have attempted to take shelter under an alleged award dated 4th February 2004. The second appellant by his letter dated 11th March 2005 requested first respondent to furnish copies of the alleged tenancy agreement between the first/ second respondent and a copy of the alleged award dated 4th February 2004.

41] Thereafter the allegations pertain to Godrej Industries Ltd., with whom the appellants had pledged some of its shares and how Comp.Appeal No.24-10 these shares were lodged for transfer with the Godrej Industries Ltd are made in the company petition. The events under which the appellants were allegedly kept in dark and particularly while refusing the request to register the shares (3119 equity shares) in favour of Godrej Industries are also set out. There is also a reference to the correspondence in that behalf. It is alleged that the first respondent addressed a letter dated 16th March 2005 to the appellants and to the other members of the Kavasmaneck family and the Rebello family purportedly under Article 59(c) of the Articles of Association of the first respondent. By the said notice, the first respondent sought to contend that the appellants, inter alia, had been found to be working and or doing activities against the interest of the first respondent and accordingly the appellants were called upon to serve a Transfer Notice under Article 57 of the Articles of Association of the first respondent. One of the reasons cited by the first respondent as an act against the interest of the first respondent was quoted as under:-

"You have attempted to induct persons in allied fields knowing that the research of the company is a precious and invaluable asset and the involvement of Comp.Appeal No.24-10 outsiders/ persons from associated fields will affect the confidentiality and value of the company's research and adversely affect the company."
42] In the meanwhile, on 17th March 2005, the first/ second respondents filed Suit No.1170 of 2005 in this Court, inter alia, against the appellants invoking the said Article 59(c) of the first respondent's Articles of Association. By the said suit, the first/ second respondents have sought a direction that the appellants should be directed to sell their shares in the first respondent to the first/ second respondent's nominees at the price prevailing in 1990 viz., at Rs.6599.48 per share. The relevant prayer of the said suit is as under:-

"(a) That this Hon'ble Court be pleased to declare that the Memorandum of Understanding dated 3rd June 1992 between the first defendant and defendant Nos. 2 to 8 is void ab initio, non est and of no effect whatsoever."
43] One of the reasons cited by the first/ second respondents for seeking the aforesaid relief is that fact that the appellant had sought to sell some of their shares to the said Godrej Industries Ltd., who in the opinion of the first/ second respondents was the competitor of Comp.Appeal No.24-10 first respondent. The Appellants are informed that on 15 th April 2005, the said Godrej Industries Limited filed a petition before the Company Law Board on being aggrieved by the first respondent's refusal to transfer the said 3119 equity shares that were lodged by them on 11th January 2005.

In the petition, the first respondent sought to justify its refusal, inter alia, on the ground that para 10.4 ground (d) of letter dated 10th March 2005 of GCL as under:-

"....... you Godrej Industries Ltd., being engaged in the allied field of activity, such transfer of shares, in the circumstances would be prejudicial to the economic interest and the well being of GCL .. .... With reference to para 10.4 of the said petition, I reiterate all that is stated hereinabove and deny all that is contrary thereto and inconsistent therewith in the said para 10.4. I submit the Godrej Group of Companies is into allied business.
The said Godrej Group entered into allied business at approximately the same time as the time when it executed the MOU dated 3rd June 1992."
The appellants have stated that by an order dated 31st July 2008, the Company Law Board has dismissed the petition filed by the said Godrej Industries Ltd. Against the aforesaid dismissal, the said Godrej Industries Ltd., have preferred an appeal in this court under section 10F of the Companies Act and the said appeal is admitted Comp.Appeal No.24-10 and pending.

44] The appellants are also informed that on 18th May 2005 the said Godrej Industries Limited filed a petition before the CLB being aggrieved by the first respondent's refusal to split the said 100 equity shares that were lodged by them on 17th January 2005. In the petition, the first respondent sought to justify its refusal, inter alia, on the ground that:-

"paragraph 10.4 Ground (d) of letter dated 10th March 2005 of GCL .... you Godrej Industries Ltd. Being engaged in the allied field of activity, such application for splitting the share certificates of GCL to thereafter get these shares transferred to its name in the circumstances would be prejudicial to the economic interest and the well being of GCL ...... With reference to para 10.4 of the said petition, I reiterate all that is stated hereinabove and deny all that is contrary thereto and inconsistent therewith in the said para 10.4. I submit that the Godrej Group of companies is into allied business."
45] It is further stated that by an order dated 31st July 2008, the CLB has dismissed the petition filed by Godrej Industries Ltd.

Against the aforesaid dismissal, the said Godrej Industries Ltd., have preferred an appeal in this Court under section 10F of the Comp.Appeal No.24-10 Companies Act, 1956. The aforesaid appeal is admitted and pending.

46] The appellants along with their supporters were diiligently pursuing the said company petition. However the continued litigation of over a decade and a half had already taken its toll on the appellants, particularly, the first appellant, who was then approaching 80 years of age. Additionally, the said litigation had also caused a considerable financial drain on the appellants. The respondents, it is significant, were litigating at the cost of first respondent, whilst the appellants had to use their own personal resources to pursue the said litigation.

47] The first appellant as the head of Kavasmaneck family persuaded the second appellant to approach the second respondent and explore avenues where the family ties could be once again restored and the long drawn litigation could be ended. The second appellant accordingly approached the second respondent for amicably resolving matters, if possible. After discussions, the second respondent suggested that if the appellants were agreeable Comp.Appeal No.24-10 to withdraw the company petition then he would ensure that for the future years, he will declare adequate dividend of atleast Rs.400 per share, subject to legal requirement. The second respondent also assured that should he choose to sell his shares in the first respondent to an outsider, he would give to the appellants a right of first refusal in terms of Article 57. He also stated that he expected the appellants to also reciprocate in the same way. Further the second respondent also suggested to gradually involve the second appellant in the business of first respondent to the extent possible.

The second respondent suggested that this, in his view would adequately take care of the minority shareholders' interest and at the same time ensure non-interference from the minority shareholders.

50] Discussions were accordingly held within the minority shareholders. The appellants, the said Oomrigar and the members of the Rebello family were agreeable to the second respondent's aforesaid suggestion. However, Dr.Percy Kavasmaneck and his wife, Aban Kavasmaneck were not agreeable and were desirous of continuing the litigation with the second respondent. When this was Comp.Appeal No.24-10 communicated to the second respondent he suggested that if Percy and his wife Aban wanted to continue to litigate with him, the second respondent would defend himself. The second respondent accordingly offered to the appellants that if the appellants desire to avail of second respondent's offer as above, they should withdraw from the pending litigation.

51] In these circumstances, the appellants relying and trusting the second respondent agreed to withdraw from the company petition.

Accordingly, the appellants made statement before this Court that they were not interested in prosecuting the company petition No.77 of 1990 and requested for withdrawal from the same. The said request was accepted by this Court. After withdrawing from company petition the relationship between the appellants and second respondent started improving. The appellants and the second respondent who were earlier litigating with one another started socialising and meeting often with the second respondent inviting the appellants and particularly appellant No.2 to his office.

The second respondent also as assured declared a dividend of Rs.

400/- for the year ended March 2005 and March 2006.

Comp.Appeal No.24-10 52] It is further stated that sometime in the year 2007 at a meeting held between the second respondent and second appellant, the second respondent confided in the second appellant that for the year ended March 2007 it may not be possible to declare any dividend as the performance of the first respondent company was not satisfactory. The second respondent at this juncture stated that this would work unfairly on the minority shareholders whose only means to sharing the growth of the first respondent was through dividends. Besides the first respondent had enormous accumulated reserves and hence one year's bad performance should not result in withholding of dividends. The second respondent accordingly agreed to declare a dividend of Rs.300 per share as against the agreed amount of Rs.400 per share for the year and assured that for the future years if the first respondent's performance is better higher dividend would be declared.

53] There is a detailed reference to the proposal for settlement and the agreement reached and that is to be found in paragraphs 6.82 and 6.83. It is stated that the relations between the appellants Comp.Appeal No.24-10 and the second respondent improved but an important event took place In terms of the agreement that was reached, viz the Company Petition No.77 of 1990 was dismissed by an order dated 14th November 2008. It is stated that the appellants were not parties to the proceedings when this order was passed and therefore this decision would operate only against the parties thereto and would not bind the appellants or operate against them. The appellants then narrate the events leading to circulation of the notice of 42nd Annual General Meeting of GCL proposed to be held on 24th February 2008 and the declaration of dividend not at Rs.500 per share but at Rs.

400 per share. The second appellant requested the second respondent to abide by his commitment to declare dividend at Rs.

500 per share. The inability of the second appellant to attend the meeting was also conveyed but the assured dividend of Rs.500 was not forthcoming. The second respondent ultimately assured the second appellant that interim dividend of Rs.250 per share would be declared. There are certain reminders issued on this point but the assurance has not been fulfilled.

52] In terms of the agreement that was reached between the Comp.Appeal No.24-10 minority shareholders and the second respondent as narrated above, the appellants refrained from questioning any act of the second respondent and allowed the second respondent to function without any objection whatsoever from the petitioners. It is stated that in acknowledgment of the appellants aforesaid cooperativeness, and in the course of the improved relationship between the parties, some time towards middle of 2008, the second respondent informed the second appellant that as assured, he wanted to involve the second appellant in the affairs of the 1st respondent.

53] It is also stated that the second respondent informed second appellant that in so far as the 1st respondent's factory at Dombivali was concerned, it had constructed in excess of the construction permissible under the MIDC Rules. The second respondent informed the second appellant that he wanted to involve the second appellant in the aforesaid matter and for that purpose the second appellant could not represent the 1st respondent, interact with the 1st respondent's staff and also interact with the 1st respondent's lawyers.

Comp.Appeal No.24-10 54] It is further stated that, accordingly, the second appellant started visiting the office of the 1st respondent. At the request of the second respondent, one Mr.V.Satheesh of the 1st respondent addressed an email dated 20th June 2008 to the second appellant giving out details of the factory and built up area, the excess construction etc. By the said email the 1st respondent also furnished details of the available plots around the premises of the 1st respondent.

55] It is transpired that the 1st respondent had entered into an MOU with one Mulgaonkar Engineering Works and Forgings Pvt Ltd. It is further transpired that the 1st respondent had already paid an amount of Rs.1.25 crores. It is also transpired that now the said Mulgaonkar Engineering Works and Forgings Pvt Ltd was facing certain problems and was not in a position to honour the terms of the MOU.

56] It is stated that the second respondent informed his staff that this problem may also be entrusted to the second appellant.

Comp.Appeal No.24-10 Accordingly, by their email dated 26th June 2008 the 1st respondent forwarded to the second appellant a file note on the said Mulgaonkar Engineering Works and Forgings Pvt Ltd plot purchase transaction.

57] The second appellant by his email dated 30th June 2008 requested the 1st respondent to address a letter to the said Mulgaonkar Engineering Works and Forgings Pvt Ltd seeking certain details as enlisted.

58] With regard to the aforesaid matter, the second appellant also started interacting with the advocates for the 1st respondent. The emails and documents exchanged between the second appellant and the advocates for the 1st respondent are testimony of the aforesaid.

59] At around the same time, the second respondent informed the second appellant that the performance of the company had been much better than the earlier year and that he was considering declaring a dividend of Rs.500/- per share. The second respondent Comp.Appeal No.24-10 also mentioned that this would help generate funds for his foundation also. It is stated that the second appellant informed the second respondent that the minority shareholders would certainly appreciate the aforesaid gesture, especially when in the earlier year, the second respondent had declared a dividend of only Rs.300/- per share.

60] Whilst the relationship between the appellant and the second respondent had started improving manifold with the second respondent also gradually involving the second appellant in the affairs of the 1st respondent, the above referred important event took place.

61] It is further stated that around the same time, the appellants received the Annual Report and the notice for the 42nd AGM of the 1st respondent proposed to be held on 24th November 2008.

Contrary to the assurance of the second respondent to declare a dividend of Rs.500/- per share, it was noticed that the 1st respondent had proposed the dividend of Rs.400/- per share. The second appellant by his letter dated 10th November 2008 recorded some of Comp.Appeal No.24-10 the aforesaid facts and requested the second respondent that in all fairness they shall abide by his assurance of declaring a dividend of Rs.500/- per share. It is stated that there is no reply to the said letter dated 10th November 2008.

62] It stated that by a further letter dated 24th November 2008 the second appellant informed the second respondent that he and the said Dr.Rebello would be unable to attend the proposed AGM.

There were a few questions on the accounts which, the second appellant requested the second respondent to answer. The second appellant also informed the second respondent that he would meet the second respondent latter in the day and if convenient to the second respondent have lunch with him as usual.

63] The second appellant thereafter met the second respondent on several occasions and reminded the second respondent of having failed to declare the assured dividend of at Rs.500/- per share. The second respondent ultimately assured the second appellant that on or before 21st March 2009, which was the prospective New Year, the second respondent would declare interim Comp.Appeal No.24-10 dividend of at least Rs.250/- per share. It is stated that second appellant by his letter dated 2nd March 2008 recorded some of the aforesaid facts and reminded the second respondent of his aforesaid assurance to declare interim dividend of at least Rs.250/-

per share on or before 21st March 2009. It is further stated that once again the assurance was only made in breach.

64] It is stated that in or around 5th May 2009 the petitioners were shocked to hear news reports carried on NDTV profit whereby it was stated that the second respondent was offering to sell 75.1% of the Company's equity shares for a value of Rs.1600 crores. Accordingly, by his letter dated 7th May 2009, the second appellant recorded some of the aforesaid facts. The second appellant further recorded that the appellants had in good faith believed and reposed trust in the second respondent and had acted in a manner as indicated by the second respondent and had co-operated with the second respondent in all respects. By the said letter the second appellant requested the second respondent to furnish information regarding the aforesaid proposal and also put on record the fact that the minority shareholders must be given the option to exit with the Comp.Appeal No.24-10 second respondent or to permit the third party outsider to control the 1st respondent.

65] By his letter dated 13th May 2009 the second respondent equally expressed surprise and shock at the news report that was carried out and categorically denied that he was attempting to transfer his own shares clandestinely. By the said letter the second respondent acknowledged and expressed his happiness that the appellants had reposed trust in him and had acted in a manner as indicated by him from time to time. By the said letter the second respondent further acknowledged that any exit option would have to be "within the framework of the Articles of Association of the Company and applicable laws."

66] It is further stated that after categorically denying that the second respondent intended to transfer his shares, the appellants were again shocked at the newspaper articles that appeared in towards the end of July/August 2009 in which the second respondent has now evinced his desire openly to sell his shares in the 1st respondent. The intended transferees were stated to be Comp.Appeal No.24-10 either United Phosphorous or the Blackstone Group or Makhteshim Agam. It is significant that United Phosphorous and Makhteshim Agam are direct competitors of the 1st respondent. The Blackstone Group is only a venture capitalist/private equity investor who would ultimately sell the company to another competitor of the 1st respondent.

67] It is also stated that after publication of the aforesaid news reports, the second respondent has turned a complete blind eye to the appellants. The second appellant has made several attempts to contact the second respondent to seek a dialogue with him, but the appellants efforts have been unsuccessful. The intentions of the second respondent became quite clear, when the appellants (who believed to have improved their relation with the second respondent) were not even invited for the 80th birthday celebration of the second respondent on 26th September 2009.

68] It is stated that report of the second respondent selling his share privately have also appeared in Business India December 2009 Edition. The appellants now understand that the second Comp.Appeal No.24-10 respondent is at a very advanced stage of divesting his shareholding in the 1st respondent contrary to the agreements with the Kavasmaneck family, contrary to the assurances made to the appellants and contrary to the Articles of the 1st respondent and in breach of the preemptive rights of the appellants.

69] On these allegations that the aforementioned company petition was filed in the CLB and interim orders were sought therein.

70] Annexures to the said petition are right from certificate of incorporation to the detailed correspondence. The prayers are to be found in paragraph 8.11 of the memo of the company petition.

71] On being served with the proceedings in the company petition, a reply affidavit was filed by the company secretary of respondent No.1 in which several contentions have been raised. The preliminary objections about maintainability have been set out in para 6 and that are particularly that the first respondent is a public limited company and that the appellants seek to restrain transfer of shares in a public limited company. However, in law there cannot be any restriction for Comp.Appeal No.24-10 transferability of these shares. That is evident because of the following:

i. On and from 13th December 2000 (the date of coming into effect of the Companies Amendment Act, 53 of 2000) section 3(1)(iii) of the Companies Act, 1956 ("the said Act") which defines a private limited company stood amendmed. By the said amendment as well section 43 A of the said Act being also deleted the concept of a Deemed public limited company was done away with. (The company was initially incorporated as a Private Limited Company and subsequently on 17th August 1988 had become a deemed public limited company by virtue of the provisions of the erstwhile section 43A of the said Act.);

ii. Accordingly, a notice of an extraordinary general meeting dated 2nd April 2001 was circulated seeking to amend article 3 of the Articles of Association (AOA) of Respondent No.1 by incorporating a clause restricting the acceptance of deposits from members of the public and to change its name from "Gharda Chemicals Limited" to "Gharda Chemicals Comp.Appeal No.24-10 Private Limited" and thereby revert to being a private limited company. At the extraordinary general meeting held on 5th May 2001 pursuant to the said notice, the appellants and other members of the Kavasmanek/Rebello group collectively holding 32% of the shareholding of Respondent No.1 defeated the said resolutions;

iii. Consequently on and from 5th May 2001 respondent No. 1 has become and continued to be a public limited company.

Thus, for all practical purposes respondent No.1 functions as and the affairs of respondent No.1 are conducted as a public company. All the statutory filings of respondent No.1 are also made on the basis of the fact that it is a public company.

Respondent No.1 has more than 50 members. Respondent No.1 has more than three directors as mandated by the said Act. Respondent No.1 has accepted deposits in the form of fixed deposits from public and hence cannot be a private limited company. The appointment of the Managing Director of respondent No.2 was after following the provisions of section 269 of the Act as applicable to public limited companies. The approval of the Central Government has also been sought and Comp.Appeal No.24-10 obtained. Such approvals are not required for private limited companies. The appointment of the directors of respondent No.1 has also been in consonance with section 257 of the said Act, which is not applicable to private companies. It is pertinent to note that even appellant No.2 has followed the provisions of section 257 of the said Act whilst nominating himself for being appointed as a director of respondent No.1 on several occasions since the year 2001. The Board of Directors of respondent No.1 comprises of well reputed independent directors like Mrs.Almitra Patel who is a member of the Supreme Court committee for Solid Waste Management;

iv. It is pertinent to mention here that, by a judgment and order dated 14th November 2008 (hereinafter the 'said judgment and order') passed in Company Petition No.77 of 1990 (earlier filed by the appellants herein as set out hereinbelow), the Hon'ble High Court has affirmed and held that respondent No.1 has acquired the status of a public limited company and its share are freely transferable;

v. Further, the restriction on the right to transfer the shares Comp.Appeal No.24-10 applicable to a private limited company would naturally get diluted upon the company becoming a public limited company;

vi. Accordingly, it is now beyond the pale of any doubt that respondent no.1 is a public limited company. In the circumstances, there can be no fetter and/or restriction on the free transferability of shares in a public limited company.

Accordingly, the said petition insofar as it seeks to restrain respondent Nos.2 and 3 from transferring and/or alienating the shares of respondent No.1 ought to be dismissed in limine;

vii. The appellants are well aware of the fact that respondent No.1 is a public limited company and that article 57 of the articles of Association has become void after the defeat of the aforesaid resolution and is contrary to the said Act. This is further evident from the fact that:

(a) When the company received two transfer notices dated 17th May 2001 and 28th May 2001 respectively from its membmers Mr.B.E.Daruwalla and Mr.S.C.Gandhi, which were circulated amongst all its members under Article 57 of the AoA Comp.Appeal No.24-10 of respondent No.1 (this was after the aforesaid resolution dated 5th May 2001 was defeated), appellant No.2 by his letter dated 6th June 2001 (being Exhibit 1-3 to the petition) stated that he was "unable to understand as to how the company continues to circulate Transfer Notices under Article 57 especially in view of the recent turn of events" (being the non-

passing of Special Resolution for amendment of articles).

Appellant No.2 has recorded his objection and stated that he would be ignoring the transfer notices, if any, circulated by respondent No.1 under Article 57 of the Articles of Association.

(b) In view of what is stated above, the Appellants are estopped from denying that respondent No.1 is a public limited company and from contending that Article 57 has any effect or is binding as alleged;

(c) Further and in any event, it was submitted that as

Re: Jer Rutton Kavasmanek & Anr vs Gharda Chemicals Ltd

80] It is submitted that Articles of Association constitute a contract not only between the company and its members but also amongst the members inter se. The right of preemption contained in the Articles is a solemn contract not only between the shareholders and the company, but also between the members inter se. In fact, the right of preemption that has been enshrined in the articles is merely a reiteration of the earlier understanding whereby a stranger cannot be inducted in the partnership (which was taken over by GCL) Comp.Appeal No.24-10 without the consent of the other partners and forms the fundamental understanding on the basis on which the families got together to constitute and continue GCL.

81] It is further submitted that breach of Articles would be ultra vires and breach of the right of preemption constitutes an act of oppression. To that effect, taking away or cancelling a right of preemption will also amount to oppression and will be actionable.

What cannot be done directly cannot be permitted to be done indirectly. The right of preemption is a vested right of a shareholder and cannot be taken away or cancelled without his consent. The power to amend articles cannot be used to oppress the minority and or take away their vested rights.

82] Further it is submitted by Mr.Samdani that the notice and explanatory statement dated 16th October 2010 are misleading and are not in conformity with section 173 of the Companies Act, 1956.

The material facts of (i) the pendency of the Appeal No.24 of 2010,

(ii) the said appeal having been admitted, (iii) this Court having granted an injunction not to violate Article 57, (iv) the questions Comp.Appeal No.24-10 formulated have all been omitted-giving a totally misleading picture.

It is further stated that compliance of section 173 is mandatory. A meeting convened on the basis of a notice which is not compliant with section 173 will be bad in law and so will the resolutions passed thereat.

83] He submits that the questions of law, therefore, as framed arise for determination and they can be broadly indicated thus:

(a) Whether the 2000 amendment is prospective which states that section 43A will not apply "on and after" its introduction is prospective and companies that had already acquired such status earlier would continue to retain such status?

(b) Assuming that the 2000 amendment is construed as a 'repeal' of section 43A, whether under section 6 of the General Clauses Act, such repeal would not disturb the status of companies that had already acquired the status of deemed public companies?

(c) If a company, whic

Re: Jer Rutton Kavasmanek & Anr vs Gharda Chemicals Ltd

93] Further it is submitted that section 43, under the heading "Private Companies" (which has only three sections viz sections 43, 43A and 44) provides that if the Articles of a company include the provisions required by section 3(1)(iii), and if default is made in complying with the provisions, the company shall "cease to enjoy the privileges of and exemptions conferred on private companies by or under this Act, and this Act shall apply to the company as if it were not a private company". The result is that it becomes a public company. Similarly, under section 44 if a private company alters its Articles in such a manner that they no longer include the provisions required by section 3(1)(iii), such private company would equally become a public company.

Comp.Appeal No.24-10 94] It is further submitted that a fortiori, where a company does not have in its articles the provisions required by section 3(1)(iii), there is no question of complying with non-existent articles, and the company forthwith ceases to be a private company and becomes a public company.

95] Section 43A inserted with effect from 28.12.1960 provides private companies becoming public companies in certain cases. A third class of companies was thus introduced: "private companies which have become public companies by virtue of section 43A, but which retain the three characteristics of a private company." The basic requirement, or foundation or substratum, for the operation of the legal fiction in the section is that the company in question be a private company as defined by section 3(1)(iii). If at any time the company ceases to be a private company, it cannot continue as a public company under section 43A at all, because the legal fiction ceases to operate.

96] It is submitted that sub-section (1-A) was inserted in section Comp.Appeal No.24-10 43A with effect from 1.2.1975 which provided that a private company having a certain turnover (Rs.1 crore was provided), will become a public company. The proviso allowed such a deemed public company to retain its articles as a private company as provided in section 3(1)(iii). This type of public company was not a truly public company for all purposes; it retained characteristics of a private company and did not fall under section 3(1)(iv). The respondent company became a deemed public company when its turnover exceeded Rs.1 crore. It applied to the Registrar of Companies who issued a certificate of incorporation with effect from 17.8.1988 which deleted the word "private" in the company's name as required by sub-section (2).

97] It is submitted that by the amendment of 2000, with effect from 13.12.2000, sub-section (2-A) was inserted alongwith sub-section (11), sub-section 2A contemplates if such a public company 'becomes a private company on or after the commencement of the Companies (Amendment) Act, 2000, the company shall inform the Registrar and he shall substitute the words 'private company' for the words 'public company'. Sub-section (11) made inapplicable the Comp. Appeal No.24-10 entirety of section 43A except sub-section (2-A) 'on and after the commencement of the Companies (Amendment) Act, 2000'. Thus, the third 'hybrid' category of deemed public companies under section 43A ceased to exist after 13.12.2000. Sub-section (2A) was retained to allow the public companies to revert to being private companies. This is because a new requirement was added in 2000 for being a private company: clause (d) was added to section 3(1)

(iii). From 13.12.2000, the position was restored to only two legally recognized categories of companies under section 3(iii) and 3(iv) i.e private company and public company.

98] It is further submitted that the most important addition to section 3(1)(iii) was made by the amendment of 2000 by addition of clause (d) which required a private company to have an article prohibiting deposits from the public. Clause (b) was always there which required the membership of the company not to exceed 50.

99] It is submitted that a company is a private company only if it satisfies the requirements of section 3(1)(iii)(a) to (d). If it does not satisfy the requirements it is not a private company. By reason of Comp.Appeal No.24-10 section 3(iv)(a) it becomes a 'public company'. Therefore, even during the time that Section 43A operated from 1960 to 2000, to become a deemed public company, the company first had to be a private company. Unless the company was a private company, Section 43A was not attracted at all. Assuming that a private company became a deemed public company under section 43A, if for any reason, the company ceased to be a private company the very substratum was removed and the edifice of Section 43A could not be sustained and Section 43A would become inapplicable automatically even while section 43A was in force. A fortiori, after section 43A became inapplicable as a result of the Amendment Act of 2000, if the hitherto deemed public company does not become a private company under sub-section (2-A) of Section 43A by bringing its Articles in conformity with the requirements of Section 3(1)(iii)(d) introduced by the same Amendment, it would have ceased to be a private company, it could become only a full fledged public company within the meaning of section 3(iv) since the third "hybrid" category of deemed public company had ceased to exist.

100] Mr.Bobde relies on following decisions in support of his Comp.Appeal No.24-10 submissions:

1. (2009) 8 S.C.C. 709 (Ram Purshotam Mittal & Anr. Vs. Hillcrest Realty SDN. BHD. & Ors)

2. A.I.R. 1992 S.C. 453 (V.B.Rangaraj Vs. V.B.Gopalkrishnan and Ors.)

3. 11 Ind. App. 37 (pc) (Ram Kirpal Shukul Vs. Mussumat Rup Kuari)

4. (1973) 43 Company Cases 235 (Mad) (Jacob Cherian Vs. K.N.Cherian & Ors.);

5. (2006) 131 Comp. Cases 42 (Delhi) (Smt. Pushpa Katoch Vs. Manu Maharani Hotels Ltd. & Ors)

6. (1992) Vol. 74 Company Cases 82 (CLB WB) Kinetic Engineering Ltd. Vs. Sadhana Gadia & Ors.)

7. Halsbury's Laws of England, 4th Edn. Reissue, Vol. 16(2) pp. 426-27

8. (1991) 72 Comp. Cases 211 (Kar) (Srikanta Datta Narsimhraja Wadiyar Vs. Sri Vekateswara Real Estate Enterprises (Pvt) Ltd. & Ors.

9. A.I.R. 1959 Punjab 610 (Parma Nand Vs. Kalyan Dass and Anr.) 101] Mr.Subramaniam, learned Senior Counsel appearing for respondent No.3 while adopting the submissions of Mr.Bobde, learned Senior Counsel, relied upon the Security Contracts Regulation Act, 1956 and omission of Section 22A therefrom. He submits that the appellants should not be permitted to canvass the abovenoted submissions because the appellants have not advanced any argument on mismanagement except to urge that Comp.Appeal No.24-10 respondent No.2 allegedly unjustly enriched himself. He submits that there is no act of oppression inasmuch as reliance is placed on newspaper reports and that cannot be termed as proof of act of oppression. He submits that the petition has been filed only to advance the cause of M/s.Godrej Ltd., and not that of the original petitioners - appellants. There is suppression of material facts by the appellants. There appeal, therefore, should be dismissed.

Mr.Subramaniam has also invited my attention to certain provisions of the Transfer of Property Act and the Sale of Goods Act to submit that shares are freely transferable and Article in question has no applicability to respondent No.1. For all these reasons, the appeal may be dismissed.

102] Mr.Sen appearing on behalf of respondent Nos. 1, 4 and 5 adopted the arguments of the learned Senior Counsel for other respondents and submitted that what the appellants are arguing is that the first respondent is a deemed public company. He submits that there is either a public company or a private company. But, there is nothing like deemed public company. If the law postulates that something should be presumed to be existing although it is not Comp.Appeal No.24-10 so, then, it would have expressly said the same. However, in the absence thereof and by implication it will not be possible to hold that any third category of company exists. If the third category does not exist and there is no restriction on transferability of shares, then, all the more this appeal should be dismissed.

103] Thus, these are the only submissions canvassed. With the assistance of learned Senior Counsel appearing for parties, I have perused the rather bulky records which include memo of company petition filed before CLB, affidavits of parties and some of the relevant documents. With their assistance I have carefully perused the legal provisions brought to my notice, so also the decisions and rulings of the Supreme Court, this Court and other High Courts.

104] For properly appreciating the rival contentions, it would be necessary to refer to some basic facts:

The appellants contended in their petition that the 1st respondent was incorporated as a private company. On 17th August 1988 it became a deemed public company by virtue of section 43A Comp.Appeal No.24-10 of the Companies Act. It is contended that it continued to retain its basic and fundamental characteristic of a private company. At the meeting of the members of the 1st respondent held on 5th May 2001 a special resolution was proposed, inter alia, to insert an additional clause viz clause (d) in its Articles of Association pursuant to the Companies Amendment Act of 2000. This resolution was not passed. This however would not alter GCL's basic and fundamental characteristic on the basis ig of which it was formed. Further, the amendment states that section 43A will apply "on and after" the year 2000. Therefore, it was submitted that the companies that had acquired such status prior thereto would continue to retain the same.

105] Assuming that this amendment is considered as repeal of section 43A, yet in the light of section 6 of General Clauses Act, 1897, such repeal would not disturb essential private character of the 1st respondent. Thus, the thrust of the submissions of the appellants is that the company incorporated as private company, if, by fiction of law is treated as public company it does not lose its character/fabric of a private company. In such circumstances the Comp.Appeal No.24-10 right of preemption provided by the Articles of Association of the 1 st respondent would continue to hold the field. Once it continues to hold the field and there is no free transferability of shares of the 1st respondent, then, the attempt to defeat the preemptive rights by issuing notice dated 16th October 2010 cannot be countenanced in law. Therefore, such an Act should be construed as an oppression of the minority by the majority and the CLB should prevent the same by granting the reliefs claimed.

106] On the other hand, it was the contention of 1st respondent that the statutory provisions referred to by the appellants cannot be construed in this manner and after 13th December 2000, in law, there is no third category namely a deemed public company. In law there are only two categories viz private company and public company. This broad classification and categorisation does not permit invocation of any third category and the attempt to introduce the same is contrary to law. It is this controversy which will be dealt with in this judgment.

107] To deal with the same some basic statutory provisions will Comp.Appeal No.24-10 have to be noticed. The Companies Act, 1956 is an Act to consolidate and amend the law relating to companies and certain other associations. The definitions are to be found in section 2 but, the definitions that are material of the term "Articles" [Section 2(2)].

That definition is exhaustive. The term means the Articles of Association of the Company as originally framed or as altered from time to time in pursuance of any previous companies law or the present Companies Act. The model regulations are also construed as Articles. The further definition to which reference has been made is in section 2(23A) viz, of the term, "listed public companies". While it may be true that a public company which has any of its securities listed in any recognised stock exchange is referred to as listed public company, yet, the controversy in this case is not about listing of securities of GCL. Whether the securities are listed or not, the term "Public Company" and the distinction between a "private company" and "public company" is alone relevant and material.

However, the section contains some other terms definitions, which are also relevant. The term private company is defined in section 2(35) to mean a private company as defined in section 3. Similarly, the term "Public Company" is defined in section 2(37) to Comp.Appeal No.24-10 mean a public company as defined in section 3. Section 3(1) in so far as it is relevant reads thus:

"3(1) In this Act, unless the context otherwise requires, the expression "company", "existing company", "private company" and "public company", shall subject to the provisions of sub-section (2), have the meanings specified below:-
(i) .....
(ii) .....
(iii) "Private company" means a company which has a mnimum paid up capital of one lakh rupees or such higher paid up capital as may be prescribed, and by its articles, --
(a) restricts the right to transfer its shares, if any,
(b) limits the number of its members to fifty not including -
(i) persons who are in the employment of the company; and
(ii) 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 members after the employment ceased;" and
(c) prohibits any invitations to the public to subscribe for any shares in, or debentures of, the company;
(d) prohibits any invitation or acceptance of deposits from to persons other than its members, directors or their relatives;
Comp.Appeal No.24-10 Provided that where two or more persons hold one or more shares in a company jointly, they shall, for the purposes of this definition, be treated as a single member;
(iv) "Public Company" means a company which --
(a) is not a private company;
(b) has a minimum paid up capital of five lakh rupees or such higher paid up capital, as may be prescribed;
(c) is a private company which is a subsidiary of a company which is not a private company;
(2) .....
(3) .....
(4) .....
(5) .....
(6) .....
108] Both sides also made a reference to section 9 to point out that the Companies Act, 1956 would over ride the memorandum and Articles of Association even if there is anything contrary contained in the same. Thus, the argument is that by sub-clause (b) of section 9 any provision contained in the memorandum/Articles/agreement or resolution to the extent to which it is repugnant to the provisions of this Act become void as the case may be.

Comp.Appeal No.24-10 109] Then comes section 43 and 43A which read thus:

"43. Where the articles of a company include the provisions which, under clause (iii) of sub-section (1) of section 3 are required to be included in the Articles of a Company in order to constitute it a private company, but default is made in complying with any of those provisions, the company shall cease to be entitled to the privileges and exemptions conferred on private companies by or under this Act, and this Act shall apply to the company as if it were not a private company:"
Provided that the Central Government on being satisfied that the failure to comply with the conditions was accidental or due to inadvertence or to some other sufficient cause, or that on other grounds it is just and equitable to grant relief, may, on the application of the company or any other person interested and on such terms and conditions as seems to the Central Government just and expedient, order that the company be relieved from such consequences as aforesaid."
"43A. (1) Save as otherwise provided in this section, where not less than twenty five per cent of the paid up share capital of a private company having a share capital, is held by one or more bodies corporate, the private company shall -
(a) on and from the date on which the aforesaid percentage is first held by such body or bodies corporate, or
(b) where the aforesaid percentage has been first so held before the commencement of the Companies (Amendment) Act, 1960 on and from the expiry of the period of three months from the date of such commencement unless within that period the aforesaid Comp.Appeal No.24-10 percentage is reduced below twenty five percent of the paid up share capital of the private company, become by virtue of this section a public company,"
Provided that .....
Provided further that .....
(a) ....
(i) ...

(ii) ....

(iii) ....





(b)
ig ....

(i) ...

(ii) ....

(iii) ....



Explanation:- .....




(1A) ......

Provided that .....





(1B) ......
(a) .....
(b) ......





Provided that ....


(1C) Where, after the commencement of the
Companies (Amendment) Act, 1988 a private company accepts, after an invitation is made by an advertisement, or renews, deposits from the public, other than its Comp.Appeal No.24-10 members, directors or their relatives, such private company shall, on and from the date on which such acceptance or renewal as the case may be, is first made after such commencement, become a public company and thereupon all the provisions of this section shall apply thereto;
Provided that even after the private company has so become a public company, its articles of association may include provisions relating to the matters specified in clause (iii) of sub-section (1) of section 3 and the number of its members may be, or may at any time be, reduced below seven;
Within three months from the date on which a private company becomes a public company by virtue of this section, the company shall inform the Registrar that it has become a public company as aforesaid, and thereupon the Registrar shall delete the word "Private" before the word "Limited" in the name of the company upon the register and shall also make the necessary alterations in the certificate of incorporation issued to the company and in its memorandum of association.

(2A) Where a public company referred to in sub- section (2) becomes a private company on or after the commencement of the Companies (Amendment) Act, 2000, such company shall inform the Registrar that it has become a private company and thereupon the Registrar shall substitute the word "private company" for the word "public company" in the name of the company upon the register and shall also make the necessary alterations in the certificate of incorrporation issued to the company and in its memorandum of association within four weeks from the date of application made by the company"

(3) ....
(4) ....
(5) ....





Comp.Appeal No.24-10


(6)& (7) omitted by Act 31 of 1988
(8) ....





(a) ....
(b) .....





(c) .....
(d) .....
(9) .......
(a) ......





(i) .....
(ii) ......
(iii) .......
(b) ........
(c) ........





(10) .......

(11) Nothing contained in this section, except sub- section (2A), shall apply on and after the commencement of the Companies (Amendment) Act, 2000."
110] A perusal of these sections would indicate that they deal with private companies and they appear in Part II of the Companies Act.

Prior thereto is Sec.26 which appears below the sub-heading "Articles of Association." A perusal of Sec.26 would indicate that there may, in the case of a public company limited by shares, and there shall in the case of an unlimited company or a company limited by Guarantee or a private company limited by shares, be registered with the Memorandum,Articles of Association signed by the subscribers of the Memorandum, prescribing Regulations for the Comp.Appeal No.24-10 company. Thus, the registration of Articles of Association with the Memorandum of Association is mandatory for a private limited company by shares whereas there is no such mandate in the case of a public company limited by shares. After providing for Articles of Association and Membership of Company and their registration, sections 43 and 43A appear in the Statute book and it is clear from a reading of the same that whenever there is any provision which under clause (iii) of section 3(1) is required to be included in the Articles of Company in order to constitute it as a private company, then, that is a private company. However, in default of compliance with the same, the company would lose the privileges and exemption conferred on private companies by or under the Companies Act but the Act continues to apply to it and it will be then treated as if it is not a private company.

111] Section 43A provides for a private company to become public company in certain cases. This provision was inserted by Act 65 of 1960 with effect from 28th December 1960. Thereafter, there have been certain amendments inasmuch as by Act 91 of 1974 change was effected from 1st February 1975 and sub-section 1(A) was Comp.Appeal No.24-10 inserted in Section 43A. Thereafter, an explanation below sub-

section 1 of 43A came to be inserted and at the same time sub-

section 1A which was inserted in 1974 had to be amended.

112] By 1988 Act so also prior thereto by 1974 Act, sub-sections 1B and 1C were inserted in section 43A and in 2000 by Act 53 of 2000, with effect from 13th December 2000 sub-section 2A was inserted.

That dealt with the situation of a public company becoming a private company. In other words, this section permitted a private company to become a public company in certain cases and once the word private is deleted it becomes a public company. However, there was nothing which permitted such public company to again become private company and that is achieved by insertion of section 43(2A).

Sub-section 43A(11) which also was inserted by Act 53 of 2000 from 13th December 2000, clarified that nothing contained in section 43A, save and except sub-section 2A shall apply on and after the commencement of Companies (Amendment) Act 2000. In other words, whole of section 43A except for one sub-section viz., sub-

section 2A ceases to apply after the commencement of Companies (Amendment) Act, 2000. The reason for this is obvious because the Comp.Appeal No.24-10 Parliamentary Standing Committee submitted a report which is known as 64th report on Companies Second Amendment Bill 1999.

It recommended that entire section 43A must be deleted. The recommendation was that some part and particularly section 43A(4) may be retained so that deemed public companies may submit certificate of incorporation to Registrar of Companies for correction by adding the word "Private" before the word "Limited", in the name as indicated in the certificate of incorporation. However, when that bill became an Act, new sub-section 2A came to be inserted in the aforesaid terms. Thus, section 43A itself became inapplicable by virtue of sub-section 11. The effect of all this is that the concept of deemed public company under section 43A and introduced by the Companies (Amendment) Act has now been abolished based on the recommendation of the working group the Companies Act, 1956.

113] In my view, the legal consequences of the amendments, which have been termed as of far reaching importance and substantial by none other than Mr.A.Rammaiyya in his work "Guide to the Companies Act", cannot be ignored. If these amendments are placed in the forefront, then, there is much substance in the Comp.Appeal No.24-10 contentions of Mr.Bobde, learned Senior Counsel appearing on behalf of respondent No.2.

114] Mr.Bobde is right in his contention that after these amendments are noted only two broad categories of companies viz., public company and private company remain and there is no scope for introduction of any third type or category. The amendment was made with obvious purpose. If a private company is to become public company in certain cases, then, all attributes and characteristics of a public company get attached to it. Thereafter, there should be no scope left for it to revert back to the status of a private company. If while amending section 43A care was taken to introduce sub-clause (d) in section 3(1)(iii) of the Companies Act, 1956 and at the same time substitute section 3 (1)(iv)of the Companies Act, 1956, then, there is no warrant for creation of third category or permitting reversal of status from a public company to a private company. In other words if sub-clause (d) was inserted to provide for a prohibition against inviting or accepting deposits from persons other than the members of a private company, its Directors or their relatives in addition to the prohibition from inviting the public Comp.Appeal No.24-10 to subscribe for any shares or debentures of a private company, then, the demarcation and distinction ought to be clear and specific.

If the broad definition of the term "public company" is that it means a company which is not a private company and further requires minimum paid up capital, but importantly the term "public company"

also means a company which is a private company but is a subsidiary of company which is not a private company, then, this only shows that the Legislature wanted to include within the term "public company" a private company which is a subsidiary of a company which is not private. If the holding company is not a private company but its subsidiary is a private company such subsidiary also becomes a public company now. If all this is read together and seen as a whole, it becomes at once clear that the Legislature did not desire to continue any concept of deemed public company which was in force on account of the amendment made in the year 1974 to the Companies Act. The effect and implication of 1974 amendment is to be wiped out completely and that has been done by the 2000 Act to the extent it made the whole of section 43A except sub-section 2A inapplicable and from ineffective from 13th December 2000.

Comp.Appeal No.24-10 115] It is clear from the factual position that the attempt to amend the Memorandum and Articles of Association of the first respondent was unsuccessful. The said resolution proposed in the meeting held on 5th May 2001 was not carried but in fact defeated. Once it was defeated, then, the first respondent which had become a public company on 17th August 1988 continued with that status. It would be of relevance to note that the resolution was moved in the meeting held on 5th May 2001. That resolution was defeated on that day. However, the Companies Amendment Act 2000 had come into effect already and to be precise from 13th December 2000. On 13th December 2000, GCL was not a deemed public company but a public company. Once it was a public company, then, the argument of the appellants that it continued to retain its fundamental and basic character as a private company cannot be accepted. The status is conferred by law. The status was sought to be changed or amended by moving an amendment to the Articles of Association.

Once that amendment to insert an additional clause (d) was defeated, then, there is no scope to alter the status of the respondent No.1 company by either terming it as a deemed public Comp.Appeal No.24-10 company or a public company retaining the fundamental and basic character of a private company. Both these concepts are unknown to law. Once they are contrary to the statutory mandate flowing from the terms as defined in the Companies Act, 1956, read together with section 43A and particularly sub-section 11 thereof, then, all the more the arguments of Mr.Samdani cannot be accepted. Mr.Samdani's attempt was to show that sub-section 11 of section 43A is not attracted in the facts of this case. Mr.Samdani argued that the principles of partnership which govern the administration and management of first respondent through out hold good in any event. His first contention was that section 43A(11) ceases to make section 43A inapplicable after 13th December 2000.

Alternatively and even if the amendment is taken as a repeal, that repeal of section 43A will not affect the underlying character of the first respondent as a family concern or glorified partnership.

116] Mr.Samdani is not right on both counts. The amendment to Section 43A was brought into effect on 13th December 2000. The amendment to the Articles of Association was proposed and it was to be considered at a meeting held on 5 th May 2001. That Comp.Appeal No.24-10 amendment was to alter the status of the company by insertion of sub-clause (d) in the Articles of Association. That amendment was not carried. Therefore, sub-section 11 of section 43A and the entire amendment of 2000 as far as section 43A is concerned, is operative and is applicable to respondent No.1. The appellants and others proposed the change in the status of GCL after the amendment had come into force. In such circumstances, emphasis on the words "on and after" as appearing in Section 43A(11) will not be of any assistance to the appellants.

117] In any event, as far as the principles of statutory interpretation are concerned, long back in a decision reported in A.I.R. 1988 S.C. 740 Bhagatram Sharma Vs. Union of India, the Supreme Court held that it is a matter of legislative practice to provide, while enacting and amending a law, that an existing provision would be deleted and a new provision substituted. Such deletion has effect of repeal of the existing provision. Such a law may also provide for introduction of new provision. There is no real distinction between "repeal" and "amendment". The Supreme Court holds that amendment is in fact a wider term and it includes abrogation or Comp.Appeal No.24-10 deletion of a provision in a existing statute. If the amendment of existing law is small the act professes to amend the Act. If it is wide, it repeals a law and re-enacts it. (see paras 16 to 18 pgs.745-6).

117] Therefore, in my view, once the first respondent is a public company as evidenced by the certificate referred to above, with effect from 17th August 1988, then, the amendment made in 2000 would be applicable and section 43A ceases to apply to it. That the words "On and After", are used makes no difference as far as present case is concerned. In the present case, the status of the first respondent as a public company remains and it is now academic to find out whether it was a deemed public company earlier as contended. Once the law makes only a broad categorisation as noticed above, then, it is not necessary to deal with this contention any more.

Re: Jer Rutton Kavasmanek & Anr vs Gharda Chemicals Ltd

118] Once it is understood that GCL is public company, then, all that remains is to find out as to whether there is any restriction on the transfer of its shares. In this behalf, Part IV of the Companies Act, 1956 which contains section 82 clarifies that the shares or Comp.Appeal No.24-10 debentures, other interest of any member in a company shall be moveable property, transferable in the manner provided by the Articles of the Company. That they are moveable property and, therefore, transferable is amply clear in law. The Articles only provide for the manner in which the transfer has to be effected. In this behalf section 111 of the Companies Act 1956 was referred to by the Counsel. That provision reads thus:-

"111. Power to refuse registration and appeal against refusal --- (1) If a company refuses, whether in pursuance of any power of the company under its articles or otherwise, to register the transfer of, or the transmission by operation of law of the right to, any shares or interest of a member in, or debentures of, the company, it shall, within two months from the date on which the instrument of transfer, or the intimation of such transmission, as the case may be, was delivered to the company, send notice of the refusal to the transferee and the transferor or to the person giving intimation of such transmission, as the case may be giving reasons for such refusal.
The transferer or transferee, or the person who gave intimation of the transmission by operation of law, as the case may be, may appeal to the Tribunal against any refusal of the company to register the transfer or transmission, or against any failure on its part within the period referred to in sub-section (1) either to register the transfer or transmission or to send notice of its refusal to register the same.
Comp.Appeal No.24-10 (3) An appeal under sub-section (2) shall be made within two months of the receipt of the notice of such refusal or where no notice has been sent by the company, within four months from the date on which the instrument of transfer, or the intimation of transmission as the case may be, was delivered to the company.

(4) If --

(a) the name of any person ----
(i) is, without sufficient cause,
entered in the register of members of a company; or

(ii) after having been entered in the register, is, without sufficient cause, omitted therefrom; or

(b) default is made, or unnecessary delay takes place, in entering in the register the fact of any person having become, or ceased to be a member influding a refusal under sub-section (1)"

The person aggrieved, or any member of the company, or the company, may apply to the Tribunal for rectification of the register.

(5) The Tribunal while dealing with an appeal preferred under sub-section (2) or an application made under sub-section (4) may, after hearing the parties, either dismiss the appeal or reject the application, or by order ---

(a) direct that the transfer or transmission shall be registered by the company and the company shall comply with such order within ten days of the receipt of the order; or

(b) direct rectification of the register and also direct the company to pay damages, if any, sustained by any party aggrieved.

(6) The Tribunal, while acting under sub-section Comp.Appeal No.24-10 (5) may, at its discretion, make ----

(a) such interim orders, including any orders as to injunction or stay, as it may deem fit and just;

(b) such orders as to costs as it thinks fit;

and

(c) incidental or consequential orders regarding payment of dividend or the allotment of bonus or rights shares.

(7) On any application under this section, the Tribunal ----

(a) may decide any question relating to the title of any person who is a party to the application to have his name entered in, or omitted from the register;

(b) generally, may decide any question which it is necessary or expedient to decide in connection with the application for rectification.

(8) The provisions of sub-sections (4) to (7) shall apply in relation to the rectification of the register of debenture holders as they apply in relation to the rectification of the register of members.

(9) If default is made in giving effect to the orders of the Tribunal under this section, the company and every officer of the company who is in default shall be punishable with fine which may extend to ten thousand rupees and with a further fine which may extend to one thousand rupees for every day after the first day after which the default ccontinues.

(10) Every appeal or application to the Tribunal under sub-section (2) or sub-section (4) shall be made by a petition in writing and shall be accompanied by such fee as may be prescribed.

(11) In the case of a private company which is not Comp.Appeal No.24-10 a subsidiary of a public company where the right to any shares or interest of a member in or debentures of, the company is transmitted by a sale thereof held by a court or other public authority, the provisions of sub-sections (4) to (7) shall apply as if the company were a public company;

Provided that the tribunal may, in lieu of an order under sub-section (5) pass an order directing the company to register the transmission of the right unless any member or members of the company specified in the order acquire the right aforesaid within such time as may be allowed for the purpose by order, on payment to the purchaser of the price paid by him therefor or such other sum as the Tribunal may determine to be a reasonable compensation for the right in all the circumstances of the case (12) If default is made in complying with any of the provisions of this section, the company and every officer of the company who is in default, shall be punishable with fine which may extend to five hundred rupees for every day during which the default continues;

(13) Nothing in this section and section 108, 109 or 110 shall prejudice any power of a private company under its articles to enforce the restrictions contained therein against the right to transfer the shares of such company;

(14) In this section "company" means a private company and includes a private company which had become a public company by virtue of section 43A of this Act."

119] A bare perusal of the entire section would denote that by virtue Comp.Appeal No.24-10 of Act 22 of 1996 section 111(14) was inserted with effect from 20th September 1995. By insertion of this provision it has been clarified that section 111 applies to a company which is a private company and includes a private company which had become public company by virtue of section 43A of the Act. Once section 43A ceases to apply in the present case to GCL, then, there is substance in the argument of Mr.Bobde that Section 111 is inapplicable. In this behalf it must also be noted that sub-section 14 was added to section 111 by way of consequential amendment introduced by the Depositories Act, 1996. The effect of amendment is that in case of public companies to which Depositories Act would apply, instead of section 111, section 111A of the Companies Act, 1956 would apply which has also been introduced as consequential amendment by the Depositories Act, 1996.

120] Section 111A deals with rectification of Register of Transfer and sub-section 1 of this section states that the word "company", unless the context otherwise requires means a company other than a company referred to in sub-section 14 of section 111 of the Companies Act and immediately by sub-section 2 clarifies that Comp.Appeal No.24-10 subject to the provisions of section 111A the shares or debentures and any interest therein of a company shall be freely transferable.

121] To my mind once the statutory scheme is noticed, then, there is no difficulty in turning down the contentions of Mr.Samdani. There is no question, therefore, of any preemptive right being recognised.

The articles of association that are referred to by Mr.Samdani are that of a company which was a private company. After 17 th August 1988 and in any event after dated 13th December 2000, the position has undergone a change and Article 57 appearing in the Articles of Association would no longer be the governing article. It is not necessary to then consider the argument as to whether the said article is void or not. That article must give way to the statutory provision. If the shares of public company are freely transferable, then, the statutory provisions in that behalf will take such effect notwithstanding anything to the contrary contained in the Articles of Association of such company. The over-riding effect given to the Act by section 9 cannot be ignored and brushed aside as desired by the appellants. Their alternate argument that assuming that GCL is public company, its shares being nonlisted, there can be a right of Comp.Appeal No.24-10 preemption, is equally unsound and not tenable. There is no distinction made in the Act of this nature. That argument is canvassed only by relying on the definition of the term "listed public companies" appearing in section 2(23A). The definition itself clarifies that a public company which has any of its securities listed in any of the recognised stock exchange will be termed as listed public company. Nonetheless it remains a public company and merely because its shares are not listed in any recognised stock exchange does not mean that there is any restriction on their transfer. They are and continue to be freely transferable as they are shares of a public company. The broad distinction as noticed above, between the term 'Private" and "Public" company, is enough to turn down this alternate argument.

122] Considerable time was taken by the Counsel to point out that the reliance placed by the CLB on the decision of a learned Single Judge (Dr.Justice D.Y.Chandrachud) in the case of Western Maharashtra Development Corporation Vs. Bajaj is either misplaced or not justified and apposite.

Comp.Appeal No.24-10 123] Mr.Samdani contends that the basis of the conclusion drawn by the CLB is reliance on this decision and now it stands over-ruled by the Division Bench and in that behalf he invites my attention to the Division Bench judgement rendered on 1st September 2010 in Appeal Nos.840, 841, 855 and 857 of 2003. (Messer Holdings Ltd.

Vs. Shyam Madanmohan Ruia & Ors). He submits that the Division Bench was dealing with a case of public limited company and while dealing with somewhat identical controversy and argument, the Division Bench held as under:-

43. The understanding arrived at as per this clause is that as and when the plaintiffs or defendant no.1 intended to sell entire or any part of the shares of the company held or acquired by it, it shall first offer such shares to the other party. Only in the event of the other party not agreeing to purchase the shares so offered for the price and other terms and conditions, it would be open to sell the said shares to any person other than the competitors of the offeree. However, this right of first refusal was not made applicable to sale of shares by the defendant no.1 to a company directly or indirectly controlled by or under direct or indirect common control with the Hoechst Group.
44. The real question is whether clause 6.1 has been breached by the defendant no.1 by effecting the transfer of said shares of defendant no.2 acquired by it to defendant no.4. Until the authorised officer of defendant no.1 filed affidavit in this Court, there was some doubt whether the defendant no.1 had major shareholding of Comp.Appeal No.24-10 defendant no.4 to the extent of 51% and the subsidiary of defendant no.3 had only 49% of shares therein. If the shares held by the defendant no.1 were to be in excess of 50% of the shares of defendant no.4, it would follow that the defendant no. 4 is a Hoechst Group Company. However, defendant no. 1 has taken a clear stand that by circular transactions effected on the same day on 17th February, 2000, the net result is that the shares held by defendant no.1 of defendant no. 4 company are only to the extent of 49%, whereas the shares held by the subsidiary of defendant no. 3 is to the extent of 51% with right of management of the defendant no.4. In other words, it is the Goyal Group who is in control of the defendant no.4 company. The circular transactions have been graphically explained by a pictorial sketch at Exhibit A to the written submissions filed on behalf of defendant no.1. In view of the stand taken by the defendant no.1 on affidavit, there is no manner of doubt that the defendant no.4 was never intended to be and cannot be treated as Hoechst Group Company. If so, transfer of disputed shares in favour of defendant no.4 would be clearly in breach of clause 6.1 of the said SPA dated 23rd June, 1997.

45. Besides the quantum of shares held by the subsidiary company of defendant no. 3, as per the arrangement agreed between defendant no.3 and defendant no.1, the nominee of Goyal Group would be in the control of management of defendant no. 4 company. That arrangement is also indicative of the fact that it is the Goyal Group who is in complete control of defendant no.4 company. If it were to be otherwise, there is no reason why defendant no.4 should toe the line of defendant no. 3 and resist grant of any relief to the plaintiffs. Moreso when the defendant no. 1 has entered into amicable arrangement with the plaintiffs as recorded in agreement dated 5th December, 2002. We are conscious of the fact that defendant no.4 is a company and a separate juristic person. However, if it were to be a Hoechst Group of Comp.Appeal No.24-10 Company, by no stretch of imagination, it would take stand contrary to what is taken by defendant no.1. The fact that in proceedings before this Court, the defendant no. 3 and defendant no. 4 are pursuing remedy together, inference can be drawn that the Goyal Group has complete control over the defendant no. 4. In other words, there is material to take prima-facie view that the defendant no. 4 is not and was never intended to be a Hoechst Group of Company. Instead, it has been formed only to enable the defendant no. 1 to extricate from its obligation under clause 6.1 of SPA and at the same time enable the defendant no. 3 to accomplish its design to some how take over the control of defendant no. 2 company. On this finding, it would necessarily follow that the transfer of shares in favour of defendant no.4 was not consistent with the arrangement provided in clause 6.1 of the said SPA between plaintiffs and defendant no.1. As a result, that transfer is in breach of order of injunction passed by this Court which is still in force.

46. The next question is whether clause 6.1 itself is illegal and void. The defendants 3 & 4 contend that by virtue of Section 111A of the Companies Act, the shares or debentures and any interest therein of a company shall be freely transferable. Whereas, the arrangement provided by clause 6.1 infracts the principle of free transferability of shares. Resultantly, the said clause 6.1 is in the teeth of Section 111A of the Companies Act. To buttress this submission, reliance has been placed on the decision of the Apex Court in the case of V.B.Rangaraj v/s. V.B.Gopal Krishnan & ors. reported in AIR 1992 SC 453 and Western Maharashtra Development Corporation Ltd. v/s. Bajaj Auto Ltd. reported in (2010) 154 Company Cases 593 (Bom). The plaintiffs on the other hand have placed reliance on the decision of the Apex Court in M.S. Madhusoodhanan v/s. Kerala Kaumudi Pvt. Ltd. reported in AIR 2004 SC 909. However, since the decision in the case of Western Maharashtra Development Corporation (supra) of the Comp.Appeal No.24-10 Learned Single Judge of this Court is directly on the point, it was argued that the conclusion reached in the said decision is not correct.

47. We shall first refer to the decision in the case of Western Maharashtra Development Corporation (supra). In that case, the parties had incorporated clause 7 in the Protocol Agreement which provided that right of preemption is created between the petitioner and the respondent in the event that either of them seeks to part with or transfer its shareholding in the joint venture company formed by them. In view of certain disputes the matter was referred to the Arbitrator. The contention was that clause-7 of the Protocol Agreement provides for right of preemption. That was against Section 111 A of the Companies Act. For, the joint venture being a public company, the shares or debentures of such a company and any interest therein ought to be freely transferable.

The decisions of the Apex Court both in the case of Rangaraj and Madhusoodhanan (supra) have been considered. The Learned Single Judge of this Court has taken the view that the dictum in the said decisions were of no avail as the case on hand was in relation to a public company. It is held that in case of public company, Section 111 A provides that the shares or debentures and any interest therein of the company shall be freely transferable. Reliance is also placed on Section 9 of the Companies Act which stipulates that provisions of the Act shall have the effect notwithstanding anything to the contrary contained in the Memorandum or Articles of the Association. The Learned Judge has then adverted to the dictionary meaning of expression "transfer" and "transferable". The Learned Judge has distinguished the exposition of the Privy Council in the case of Ontario Jockey Club Ltd. v/s. Samuel McBride reported in AIR 1928 PC 291. It is held that the Privy Council was considering the case in which the legislation authorised the Board of Directors to regulate the transfer of shares and transferability of the shares of the Comp.Appeal No.24-10 company. The bye-laws specifically contemplated a restriction of transferability otherwise than to a member of the company. While considering the legal position in India, the Learned Single Judge adverted to the decision of the Supreme Court in Rangaraj (supra) wherein the agreement between the members of the family, who was the only shareholder of the private company which imposed a restriction on the shareholders' right to transfer the shares was contrary to the articles of association and was not binding on the company or its shareholders. The Learned Single Judge has then analyzed the case of Madhusoodhanan (supra) and extracted portion of the said decision. Thereafter, the Learned Single Judge proceeded to hold that both these cases deal with a private company.

ig It is further held that the dictum of Apex Court in Madhusoodhanan's case expressly clarified that as far as private companies are concerned, the Articles of Association restrict shareholders' rights to transfer the shares and prohibit invitation to the public to subscribe to shares or debentures of the company. The Learned Single Judge has then adverted to the opinion of the Apex Court whereby the dictum in Rangaraj's case has been distinguished on the ground that there was no restriction on the transferability of the shares in the Karar and the Karar itself was an agreement between the particular shareholders relating to transfer of specified shares which was capable of specific performance. The Learned Single Judge then proceeded to observe that a situation involving a restriction of transferability of shares in a private company has to be contrasted with cases involving public companies where the law provides for free transferability. It is thus held that free transferability of shares is the norm in the case of shares in a public company. The Learned Single Judge has then held that provision contained in the law for the free transferability of shares in a public company is founded on the principle that the members of the public/every shareholder must have the freedom to purchase and every shareholder the freedom to transfer.

Comp.Appeal No.24-10 We would think it apposite to reproduce the relevant extract of the opinion of the Learned Single Judge in support of this conclusion that clause-7 (which is similar to clause 6.1 of the SPA) is void. The same read thus:-

"60. ................... A situation involving the restriction on the transferability of shares in a private Company has to be contrasted with cases involving public Companies where the law provides for free transferability. Free transferability of shares is the norm in the case of shares in a public Company.

61. The provision contained in the law for the free transferability of shares in a public Company is founded on the principle that members of the public must have the freedom to purchase and, every shareholder, the freedom to transfer. The incorporation of a Company in the public, as distinguished from the private, realm leads to specific consequences and the imposition of obligations envisaged in law. Those who promote and manage public companies assume those obligations. Corresponding to those obligations are rights, which the law recognizes as inhering in the members of the public who subscribe to shares. The principle of free transferability must be given a broad dimension in order to fulfill the object of the law. Imposing restrictions on the principle of free transferability, is a legislative function, simply because the postulate of free transferability was enunciated as a matter of legislative policy when Parliament introduced Section 111A into the Companies' Act, 1956. That is a binding precept which governs the discourse on transferability of shares. The word "transferable" is of the widest possible import and Parliament by using the expression "freely transferable", has reinforced the legislative intent of allowing transfers of shares of public companies in a free and efficient domain.

62. The effect of Clause 7 of the Protocol Agreement is to create a right of preemption between the Petitioner and Comp.Appeal No.24-10 the Respondent in the event that either of them seeks to part with or transfer its shareholding in MSL. In that event, the party desirous to transfer its shareholding is obligated to furnish a first option to the other for the purchase of the shares at such rate, as may be agreed to between the parties or decided upon by arbitration. The consequence of Clause 7 of the Protocol Agreement, which has been incorporated in the Articles of Association, is to preclude sale to or purchase by the members of the public of the shares, which are offered for sale if the offer is accepted by the Petitioner, or as the case may be, by the Respondent within thirty days of the receipt of the notice. The effect of a clause of preemption is to impose a restriction on the free transferability of the shares by subjecting the norms of transferability laid down in Section 111A to a preemptive right created by the agreement between the parties. This is impermissible. Section 9 of the Companies' Act, 1956 gives overriding force and effect to the provisions of the Act, notwithstanding anything to the contrary contained in the Memorandum or Articles of a Company or in any agreement executed by it or for that matter in any resolution of the Company in general meeting or of its Board of Directors. A provision contained in the Memorandum, Articles, Agreement or Resolution is to the extent to which it is repugnant to the provisions of the Act, regarded as void.

65. Counsel appearing on behalf of the Respondent submitted that Section 111A has no application to contracts for the transfer of particular shares between particular shareholders when incorporated in the Articles of Association. The submission is that restrictions which bind third parties are bad. Section 111A was intended to curb the power of the Board of Directors to obstruct transfers and clearer words would be required to destabilize bargains which are the heart of commerce.

66. The submission that Section 111A would not interdict Comp.Appeal No.24-10 "an agreement between particular shareholders relating to the transfer of specified shares" is based on the judgment of the Supreme Court in Madhusoodhanan (supra). In that case, as already noted earlier, the Supreme Court noted that the Karar was an agreement between "particular shareholders relating to the transfer of the specified shares". What is significant is that the Company in that case was a private Company. The Supreme Court noted with some emphasis that in the case of a private Company, the Articles of Association would restrict the right of shareholders to transfer shares and prohibit invitation to the public to subscribe for shares or debentures of the Company. The position in law of a Public Company is materially different. By the provisions of the Companies' Act, 1956, restrictions on the transferability of shares which are contemplated by the definition of a "private company" under Section 3(1)

(iii) are expressly made impermissible in the case of a public company by the provisions of Section 111A. Once that be the position, the submission urged on behalf of the Respondent cannot be accepted. In essence, the submission of the Respondent is that the provisions of Section 111A should be read as being subject to a contract to the contrary. A restriction to that effect cannot be read into the provision of Section 111A; firstly because, such a restriction is not mentioned in the statutory provision; secondly, the word "transferable" is of the widest import; and thirdly, the context in which the provision has been introduced, is susceptible to the inference that it should be given a wide meaning. Where the language of the statute is plain and unambiguous, neither the consequence nor the conduct of parties would be of relevance. Reliance was sought to be placed on a notification that was issued on 27th June 1961 by which, in exercise of powers conferred by Section 28(2) of the Securities Contracts (Regulation) Act, 1956, the Central Government specified contracts of preemption as contained in promotion or collaboration agreements or in the Articles of Association of a Limited Company as Comp.Appeal No.24-10 contracts to which the said Act shall not apply. That notification, it has to be noted, related to an exemption from the provisions of the SCRA and cannot override the plain mandate of Section 111A. Besides, Section 111A was introduced in the Companies' Act, 1956 by the Depositories Act, 1996 with effect from 20th September 1995. The plain intendment and meaning of Section 111A must prevail." The Learned Single Judge has then adverted to the Delhi High Court Judgment in the case of Smt. Pushpa Katoch vs. Manu Maharani Hotels Ltd. reported in 2005(121) DLD 333 which has taken a similar view.

48. The Counsel appearing for the plaintiffs submits that the decision in the case of Western Maharashtra Development Corporation Ltd.(supra) does not lay down the correct law. For, it is founded on misreading of the Judgment of the Apex Court in Madhusoodhanan's case (supra). According to the plaintiffs, the Apex Court in Madhusoodhanan's case has distinguished the dictum in Rangaraja's case on the finding that in Rangaraja's case there was a blanket restriction on all the shareholders present and future. Therefore, in that case the Court held that agreement imposed a restriction on shareholders right to transfer shares present as well as future. Whereas, in Madhusoodhanan's case, the Supreme Court pointed out that, in agreement between particular shareholders relating to the transfer of specified shares did not impose a restriction on the transferability of shares and it was unnecessary for the company or any other shareholders to be a party to the agreement. It is contended that this crucial distinction drawn by the Apex Court in Madhusoodhanan's case has been glossed over by the Learned Single Judge of this Court. In other words, an agreement by a particular shareholder or between two shareholders relating only to their own shares (by way of pledge, sale or for preemption) is a consensual arrangement entered into by them, in exercise of their right of free transferability and it consequently imposes no Comp.Appeal No.24-10 restriction on transferability. The company or any other shareholder of the company does not have to be a party to such agreement. For the same reason such agreement need not be embodied in the Articles of Association.

Whereas, if arrangement by a particular shareholder relating to his own shares by way of pledge or preemption was to be restricted, then there ought to be an express provision in that behalf. Inasmuch as, the sweep of Section 111A was intended mainly to restrict the right of Directors of the Company to refuse transfer of a members shares. It is not intended to and does not affect the right of shareholders to deal with their specific shares or to enter into any consensual arrangement or agreement regarding their shares (by way of pledge, preemption, sale or otherwise).

ig That position is reinforced even from the objects and reasons of the Act in question. Further, reliance is placed on the legislative history which indicates that prior to coming into force of Section 111 A of the Companies Act, similar provision was introduced in the Securities Contracts (Regulations) Act, 1985. Section 22A thereof provided that Securities of Companies shall be freely transferable. The said provision also restricted companies right to refuse registration of transfer only on four specified grounds mentioned therein. That is reinforced from the objects and reasons of the amending Act of 1985. It makes it clear that the provision was intended to restrict the right of the Board of Directors to refuse registration of transfer of shares only on the specified reason. Sans those reasons, bestowed wide discretion in the Board. That places an undue burden on small investors and was not conducive to free marketability of listed securities and healthy growth of the capital market. It states that unrestricted transferability is particularly necessary for securities of public limited companies which are listed on the Stock Exchange. Further, under the proposed provision, companies would be entitled to refuse registration of transfer in specified circumstances only. It is by Depositories Act, 1996, Section 22A of the Securities Comp.Appeal No.24-10 Contracts (Regulation) Act, 1956 came to be deleted and simultaneously 111A of the Companies Act, 1956 was introduced, which declares the shares of a company to be freely transferable. Section 111A (3) simultaneously restricted the right of a company to seek rectification of a transfer of shares, only on specified grounds. Our attention was also invited to clause-14 of the notes on clauses of the Companies Amendment Bill, 2001. In addition, reliance was placed on the decision of the Apex Court in that case of Dove Investments (P) Ltd. & ors. v/s. Gujarat Industrial Investment Corporation & anr. reported in (2006) 2 SCC 619 wherein the Apex Court has held that the company may refuse to register shares for various reasons. In that case, the shares were freely transferable. It was held that refusal for transfer of such shares can be made only on limited grounds such as Section 22A(3) of the Securities Contracts (Regulation) Act, 1956. According to the plaintiffs when a shareholder deals with a share or enters upon a contract to pledge, sale or principle of first refusal, he does so in exercise of his right of free transferability of shares. He does that in the same manner as in the case of any other movable or immovable property in India which is also freely transferable. That right would include right to pledge, mortgage or preemption regarding his property. That right of any person would be intrinsic in his right of free transferability. If the statute made by Parliament intended to affect such right, ought to have made express provision in that regard. Only upon making such express provision that legal right of the owner can be taken away. There can be no presumption that the legislature has taken away that right while making provision to restrict the right of Directors of a company to refuse transfer of members share. Reliance has been placed on the decision in the case of ICICI Bank Ltd. v/s. SIDCO Leathers Ltd. reported in 2006 (10) SCC 452 at paras 41-43 and in the case of Byram Pestonji Gariwala vs. Union Bank of India (1992) I SCC page 31 and at paras 28-30 and 35.

Reliance has also been placed on the exemption Comp.Appeal No.24-10 notification dated 27th June, 1961 issued under Section 28 of the Securities Contracts (Regulation) Act, 1956 by the Central Government exempting contracts for preemption or similar rights contained in the Promotion or Collaboration Agreements or any Articles of Association of limited company on the ground that such contracts were in the interest of trade and commerce or the economic development of the country. Even for this reason, it is contended that, it cannot be presumed that legislature while enacting Section 111 A impliedly intended to make the agreements referred to in the abovementioned notification illegal or invalid.

49. As is noticed earlier, the plaintiffs and defendant no. 1 have already amicably resolved their disputes inter se by agreement dated 5th amicably resolved their disputes inter se by December, 2002. Neither the defendant no. 3 nor the defendant no. 4 is party to the said agreement.

Challenge to the terms contained in the said agreement between plaintiffs and defendant no. 1 at the instance of defendants 3 and 4 who are not party to the agreement that too in these proceedings is itself doubtful.

50. The question is: whether clause 6.1 of SPA can be said to be violative of free transferability of shares provided by Section 111 A of the Act. For that, we may have to consider the objects and reasons for which Section 111 A has been introduced in the Companies Act.

Prior to introduction of Section 111 A, Section 111 of the Companies Act, 1956 provided for remedy of appeal to a transferor or transferee seeking relief in respect of a transfer/transmission of shares in public or private company. They could apply for rectification of register of members under Section 155. With effect from January 17, 1986, Section 22 A was inserted in the Securities Contracts (Regulations) Act, 1956. It provided that the shares of the registered company to be freely transferable. However, the company could refuse transfer only on four specified grounds. The said provision was Comp.Appeal No.24-10 introduced in the backdrop of series of complaints regarding arbitrary powers exercised by the Board of Directors in refusing or non-consideration of request for transfer/transmission of shares in favour of the transferee. It thus follows that the provision of Section 22 A of the Act of the Securities Contracts (Regulation) Act 1956 was intended to regulate the right of the Board of Directors of the company to refuse transfer of members shares. That was not a provision to restrict the right of shareholders to deal with their shares or to enter into consensual arrangement/arrangement regarding their shares (by way of pledge, preemption, sale or otherwise). Suffice it to observe that the intention behind introducing Section 22 A in 1986 was to regulate the right of the Board of Directors to refuse transfer of members share and it was not to impose restriction on the right of shareholder to deal with his shares by entering into consensual arrangement with the third party to which the company need not be a party.

51. Section 22 A was deleted by Depositories Act, 1996 and at the same time Section 111 A in the Companies Act came to be introduced. Section 111A as applicable at the relevant time (prior to amendment of 2003) reads thus:

"[111-A. Rectification of register on transfer.--(1) In this section, unless the context otherwise requires, "company" means a company other than a company referred to in sub-section (14) of Section 111 of this Act.

(2) Subject to the provisions of this section, the shares or debentures and any interest therein of a company shall be freely transferable:

Re: Jer Rutton Kavasmanek & Anr vs Gharda Chemicals Ltd

[Provided that if a company without sufficient cause refuses to register transfer of shares within two months from the date on which the instrument of transfer or the intimation of transfer, as the case may be, is delivered to Comp.Appeal No.24-10 the company, the transferee may appeal to the Company Law Board and it shall direct such company to register the transfer of shares.] [(3) The Company Law Board may, on an application made by a depository, company, participant or investor or the Securities Exchange Board of India, if the transfer of shares or debentures is in contravention of any of the provisions of the Securities and Exchange Board of India Act, 1992 (15 of 1992), or regulations made thereunder of the Sick Industrial Companies (Special Provisions) Act, 1985 (1 of 1986), or any other law for the time being in force, within two months from the date of transfer of any shares or debentures held by a depository or from the date on which the instrument of transfer or the intimation of the transmission was delivered to the company, as the case may be, after such inquiry as it thinks fit, direct any depository or company to rectify its register or records.] (4) The Company Law Board while acting under sub-section (3), may at its discretion make such interim order as to suspend the voting rights before making or completing such enquiry.

(5) The provisions of this section shall not restrict the right of a holder of shares or debentures, to transfer such shares or debentures and any person acquiring such shares or debentures shall be entitled to voting rights unless the voting rights have been suspended by an order of the Company Law Board. (6) Notwithstanding anything contained in this section, any further transfer, during the pendency of the application with the Company Law Board, of shares or debentures shall entitle the transferee to voting rights unless the voting rights in respect of such transferee have also been suspended.

(7) The provisions of sub-sections (5), (7), (9), Comp.Appeal No.24-10 (10) and (12) of Section 111 shall, so far as may be, apply to the proceedings before the Company Law Board under this section as they apply to the proceedings under that section.]" Even the sweep of Section 111 A is the same as Section 22 A of the Securities Contracts Act. In that, it is a provision regarding rectification of register on transfer. Sub-Section (2) opens with the expression "subject to the provisions of this section". In other words, it is a provision restating that the shares or debentures and any interest therein of a company shall be freely transferable subject, however, to the stipulation provided in the other part of Section 111 A of the Act. The proviso to sub- section (2) reinforces the position that Section 111 A is to regulate the powers of the Board of Directors of the company regarding transfer of shares or debentures and any interest therein of a company. The Board of Directors cannot refuse to register transfer of shares unless there is sufficient cause to do so. In other words, the setting in which Section 111A is placed in part IV of the Act under heading "transfer of shares and debentures", it is not a provision to curtail the rights of the shareholders to enter into consensual arrangement with the purchaser of their specific shares. The right to enter into consensual arrangement must prevail so long as it is in conformity with the terms of Articles of Association and other provisions of the Act and the Rules. Whereas, Section 111A is a provision mandating the Board of Directors of the company to transfer shares in the name of the transferee, subject to the stipulations in Section 111A of the Act. The expression "freely transferable" therein is in the context of the mandate against the Board of Directors to register the transfer of specified shares of the members in the name of the transferee, unless there is sufficient cause for not doing so. The said provision cannot be construed to mean that it also intends to take away the right of the shareholder to enter into consensual arrangement/agreement with the purchaser of their specific shares. If the legislature intended to take away that right of the shareholder, it would have made an Comp.Appeal No.24-10 express provision in that regard. Reliance has been rightly placed on the decision of the Apex Court in the case of Byram Pestonji Gariwala (supra) which takes the view that the freedom of contract generally, the legislature does not interfere except when warranted by public policy, and the "legislative intent is expressly made manifest". Even in the case of ICICI Bank Ltd. (supra), the Apex Court has in unmistakable terms expounded that while enacting a Statute, Parliament cannot be presumed to have taken away a right in property and deprivation of legal right existing in favour of a person. That cannot be presumed in construing the Statute. In fact, it is the other way round and a contrary presumption must be raised. The concept of free transferability of shares of a public company is not affected in any manner if the shareholder expresses his willingness to sell the shares held by him to another party with right of first purchase (pre- emption) at the prevailing market price at the relevant time. So long as the member agrees to pay such prevailing market price and abides by other stipulations in the Act, Rules and Articles of Association there can be no violation. For the sake of free transferability both the seller and purchaser must agree to the terms of sale. Freedom to purchase cannot mean obligation on the shareholder to sell his shares. The shareholder has freedom to transfer his shares on terms defined by him, such as right of first refusal, provided the terms are consistent with other regulations including to repurchase the shares at the prevailing market price when such offer is made. The fact that shares of public company can be subscribed and there is no prohibition for invitation to the public to subscribe to shares, unlike in the case of private company, does not whittle down the right of the shareholder of a public company to arrive at consensual agreement which is otherwise in conformity with the extant regulations and the governing laws.

52. In the case of Madhusoodhanan (supra) no doubt the Apex Court was dealing with the case of a private Comp.Appeal No.24-10 company. However, at the same time, it has considered the general question regarding the right of shareholder-not limited to shareholder of a private company-to enter into such consensual arrangement which is not in violation of Articles of Association or the provisions of Act or Rule. In Paragraph 140 of the decision while referring to the Judgment of S.P. Jain v/s. Kalinga Tubes reported in AIR 1965 SC 1535, the Court has noticed two different situations. In the first case, it is the company which issues and allots the new shares and the second situation is of recognition of private arrangement between the existing shareholder by way of sale of share in favour of new shareholder. In the latter case, the company comes into the picture only for the purpose of recognition of transferee as the new shareholder. It is also noted that it is not necessary for the company to be a party in any agreement relating to the transfers of issued shares for such arrangement to be specifically enforced between the parties to the transfer. Notably, in S.P. Jain's case, the company was a public company at the relevant time during which alleged oppression was caused in violation of the agreement by the two shareholders qua S.P. Jain. In Paragraph 142 of the reported decision, the Apex Court has noted that the Judgment in the case of S.P. Jain (supra) does not in any way hold that transfer of shares agreed between shareholders inter se does not bind them or cannot be enforced like any other agreement. That means that it is open to the shareholders to enter into consensual agreements which are not in conflict with the Articles of Association, the Act and the Rules, in relation to the specific shares held by them; and such agreement can be enforced like any other agreement. That does not impede the free transferability of shares at all.

53. Thereafter, the Apex Court went on to analyze the Rangaraja's case and has distinguished the same on the opinion that in that case there was a blanket restriction on all the shareholders present and future. There was no Comp.Appeal No.24-10 such restriction in the case before it. In the case before it was an agreement between particular shareholders relating to the transfer of specified shares and it was unnecessary for the company or the other shareholders to be party to the agreement. In other words, the decision in Madhusoodhanan's case is an authority on the proposition that consensual agreements between particular shareholders relating to their specific shares do not impose restriction on the transferability of shares. Further, such consensual agreements between particular shareholders relating to their shares can be enforced like any other agreements. It is not required to be embodied in the Articles of Association.

54. We shall now turn to the opinion of the Learned Single Judge in the case of Western Maharashtra Development Corporation Ltd. (supra). The Learned Single Judge after adverting to the Supreme Court decision in Madhusoodhanan's case in the first place noted that the said case dealt with a private company. In case of private companies, the Articles of Association restrict shareholders' right to transfer the shares and prohibit invitation to the public to subscribe shares or debentures of the company. He has held that the scheme relating to transfer of shares of a private company and in contradistinction a public company, is different. The Learned Single Judge went only by the expression "freely transferable" occurring in Section 111A(2) of the Act. It is held that principle of free transferability must be given a broad dimension in order to fulfill the object of the law. For that, reliance is placed essentially on Section 111 A and Section 9 of the Companies Act.

55. Insofar as Section 9 of the Companies Act is concerned, it contemplates that provisions of the Act shall have effect notwithstanding anything to the contrary contained in the Memorandum or Articles of Association or in any agreement executed by it or in any resolution passed by the company in General Meeting or by its Comp.Appeal No.24-10 Board of Directors, whether the same be registered, executed or passed as the case may be, before or announcement of the Act. Clause (a) thereof, which refers to any agreement executed, is in respect of an agreement executed by the company; and not by the shareholder with third party-which is a private consensual arrangement/agreement to which the company is not a party. As aforesaid, Section 111A is not a law dealing with the right of the shareholders to enter into consensual arrangement/agreement by way of pledge, preemption/sale or otherwise. If that right is not covered by Section 111 A of the Act as has been found by us, then consensual arrangement/agreement between shareholder and third party or shareholders inter se to which company is not a party, Section 9 of the Act will not come into play at all. Thus, the expression "freely transferable" in Section 111A does not mean that the shareholder cannot enter into consensual arrangement/agreement with the third party (proposed transferee) in relation to his specific shares If the company wants to even prohibit that right of the shareholders, may have to provide for an express condition in the Articles of Association or in the Act and Rules, as the case may be, in that behalf. The legal provision as obtained in the form of Section 111 A of the Companies Act does not expressly restrict or take away the right of shareholders to enter into consensual arrangement/agreement in respect of shares held by him.

56. We find force in the argument of the plaintiffs that the logic applied by the Learned Single Judge is founded on the erroneous premise that an agreement of preemption, even if freely entered into by a shareholder and third party or between shareholders, imposes a restriction on the free transferability of shares.

57. The Learned Single Judge has then distinguished the exposition in Madhusoodhanan's case on the basis Comp.Appeal No.24-10 that the Karar referred to therein was an agreement between particular shareholders relating to the transfer of the specified shares. It is noted that in that case the company was a private company and restriction on the right of the shareholders to transfer shares and prohibit invitation to the public to subscribe for shares and debentures of the company is materially different. The main thrust is that in case of public company there can be no restriction whatsoever and if any other argument was to be accepted, it would mean that Section 111 A is being read as being subject to a contract to the contrary. The notification dated June 27, 1961 has been discarded on the opinion that, that cannot have any bearing in relation to Section 111 A of the Companies Act as it is issued in exercise of powers under Depositories Act, 1996. With utmost humility at our command, we do not agree with this reasoning of the Learned Single Judge in the case of WMD Corporation Ltd. (supra) for the reasons recorded hitherto. "

124] Mr.Bobde, learned senior counsel appearing for respondent No.2 and Mr.Sen appearing for respondent Nos. 1, 4 and 5 urge that any wider question or controversy need not be gone into because the essential difference between a preemptive and restrictive right conferred by Articles of Association and an agreement between members inter se or with third parties providing for a preemptive right must be borne in mind. The inter se agreement conferring such right is de hors the Articles of Association and is, therefore, not affected by the character of the company, whereas, what is Comp.Appeal No.24-10 impermissible by the Statute is that in case of a public limited company, the Articles, even if having any such right, the same stands over-ridden by the statutory provision and enactment and must, therefore, give way to the same. The Division Bench judgement does not indicate that such a preemptive right conferred by the Articles remains intact or not and yet proceeds to over-rule the Single Judge's judgement in WMDC Vs. Bajaj (supra). The Division Bench over-rules Single Judge's view to the extent of the preemptive right conferred by an agreement entered into inter se by members or by members with third parties. To my mind, the distinction as pointed out by Mr.Bobde and Mr.Sen will have some bearing but for the purpose of present case, it is not necessary to enter into any larger controversy. Any wider question is not required to be answered because once the statutory scheme is noticed by me and the character of the company in question being undisputed, then, the matter can be decided with the aid and assistance of the statutory provisions and applying them to the peculiar facts of this case. Therefore, the agreement between the members inter se or between members and third parties containing a preemptive clause or conferring a preemptive right and the ambit and scope thereof Comp.Appeal No.24-10 even in case of public limited company is a matter which can be gone into in an appropriate case. In the present case, it is not necessary to go into and deal with the question and issues raised.

Therefore, reliance on the Division Bench decision by Mr.Samdani is of no assistance to the appellants and particularly when I am of the opinion that the conclusions of the CLB do not rest merely on the view taken by the learned Single Judge but also on the facts and circumstances peculiar to the case before me and brought to the notice of the learned Member, CLB.

125] Mr.Samdani, learned Senior Counsel has contended that even if GCL is a public company, still going by the definition of the term "private company" as appearing in the Companies Act, 1956, the character and nature of such a company is never lost upon it becoming a public company or losing its status and identity as a private company. He has relied upon the requirements that are stipulated in the Articles of Association of a private company in this behalf.

126] On the other hand, Mr.Bobde, learned Senior Counsel has Comp.Appeal No.24-10 emphasised that there can be only two categories of companies, a public company and private company. I have in the foregoing paragraphs dealt with this aspect in great details and accepted Mr.Bobde's arguments that there cannot be any third category viz., "deemed public company". The arguments of Mr.Bobde are accepted because on noticing the amendments made to the Companies Act, 1956 and particularly in the year 2000, the third category as projected (deemed public company), cannot be carved out or if existing earlier, cannot be held to be continuing any further.

The arguments of Mr.Samdani that despite this amendment, the character and fabric of GCL is not altered or changed and it remains a glorified partnership or a private company or a family concern, essentially revolves around the same category noted by me above.

For the reasons that have persuaded me not to read into or add any third category other than a private company and public company, these arguments must also fail. Once again, it must be clarified that the categorisation that has been highlighted before me is in the context of the assertions of the appellants that GCL is a deemed public company. It must be clarified that I have not held that the Act does not envisage any company other than a private company or Comp.Appeal No.24-10 public company limited by shares. The act itself points out that there can be categories and sub-categories within the broad categorisation pointed out above. Further, a perusal of the section relating to kinds of share capital and voting rights would reveal that there can be a company limited by shares, unlimited company, a foreign company etc. Therefore, it should not be held that this distinction or categorisation has not been noted by me.

127] Once all these arguments and contentions are dealt with, then, other part of submissions of Mr.Samdani on oppression of minority also fail. They are raised on the basis that the preemptive right is defeated by respondent Nos. 2 to 5 by their several acts of omission and commission. Once the preemptive right itself is not in existence by virtue of the statutory provisions in the field, then, there is no act of oppression. As held above, the plea of mis-management has been given up and has not been pursued.

128] The other contentions that are raised to support the argument of oppression are that irrespective of the character of the company, the majority shareholders have by their acts oppressed the minority.

Comp.Appeal No.24-10 Several instances of denial of dividend have been brought to my notice. The CLB in the impugned judgement has not commented on the same nor rendered any finding but since the contentions have been exclusively raised and argued, I have dealt with the same. In this behalf, it must be immediately noticed that the appellants were parties to Company Petition No.77 of 90. Some of the instances that have been highlighted before me were part of the pleadings in this company petition.

ig Further, this company petition was extensively amended. The original as well as amended petition has been dealt with by the learned Single Judge of this Court by his judgement and order dated 14th November 2008. He proceeded to dismiss the same. While dealing with self same allegations, the learned Single Judge has observed thus:-

"49. 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 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 Comp.Appeal No.24-10 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 2nd 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 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 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 respondent company. According to the respondents the present petition is a speculative petition for which reason also the grievance made at the instance of petitioners with regard to meeting dated 15th February 1990 cannot be countenanced."

"50. The fact that even the present petitioners were party to 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 15th February 1990 survives only at the instance of present petitioners. They Comp.Appeal No.24-10 have less than 7% of share holding 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 16th January 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. Insofar 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 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 A.O.A. 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 limited company. Even on account of this change, it has become redundant to entertain the grievance of the present petitioners in relation to the issues concerning extra ordinary general meeting dated 15th February 1990. More so, 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."

129] In the earlier part of his judgement in para 47 the learned Comp.Appeal No.24-10 Judge has dealt with the argument regarding declaration of low dividend and found no substance in the allegation of oppression based on the same. My attention is also invited to the earlier paras of this judgement and in particular paras 35 to 37 wherein this charge of low dividend has been dealt with extensively.

130] The argument is that the appellants were not parties to this judgement and, therefore, it does not bind them.

ig However, it is pertinent to note that the appellants were original petitioners. They withdrew from Company Petition No.77 of 1990. There is nothing on record to indicate that they withdrew with liberty to raise the pleas raised by them again. Once the learned Judge has found that the conduct of the remaining petitioners was entirely blameworthy and they could not substantiate the charge and/or allegation levelled of being oppressed as minority shareholders, then, I do not see how the present appellants can on the same material succeed in proving the said allegation. Apart from finding that they are raising the same issues based on the same allegations and identical arguments, I am of the opinion that the observations of the learned Single Judge would be applicable to the present appellants too. Any Comp.Appeal No.24-10 wider controversy, including about applicability of Order XXIII Rule 1 of CPC to a Company Petition need not be gone into and decided.

Assuming that this provision and/or principles analogous thereto apply, apart from the appellants not seeking any liberty from the learned Single Judge while withdrawing themselves from Company Petition No.77 of 1990, I find that their arguments in the present appeal are identical to those raised by the remaining petitioners in Company Petition No.77 of 1990.

132] Mr.Samdani, learned Senior Counsel has relied upon a number of decisions and it is not necessary to refer to each one of them. In the first compilation of the Authorities and Rulings, the appellants have compiled judgements on the ambit and scope of section 397 and 398 of the Companies Act and the reliefs that can be sought and granted thereunder. In my view, each of these judgements need not be referred to. The principles are too well settled and I have decided this case by applying them. Therefore, each of the decisions whether of the Hon'ble Supreme Court, this Court, other High Courts or English Courts need not be referred to seriatim.

Comp.Appeal No.24-10 133] Part II of the compilation contains broad questions and propositions of law which I have already referred to and dealt with.

Suffice it to note that in the latest decision of the Supreme Court in the case of V.S.Krishnan Vs. West Coast Hightech Hospital Ltd. & Ors., (reported in 2008 (3) SCC 363) the Supreme Court has held that whether an Act is oppressive or not is fundamentally and basically a question of fact.

ig Its answer must depend upon circumstances in each case. However, the broad tests have been indicated by the Hon'ble Supreme Court and they have been summarised in para 14 of this decision.

134] After carefully perusing this paragraph and earlier authorities, I am of the view that the judgement rendered by the Hon'ble Single Judge, Justice A.M.Khanwilkar, J dated 14th November 2008 in Company Petition No.77 of 1990 applies to the appellants as well. I have indicated the reasons for this conclusion in the foregoing paragraphs. Therefore, it is not necessary for me to decide any wider controversy and particularly whether the judgement of the learned Single Judge (Khanwilkar, J) could be said to be a Comp.Appeal No.24-10 judgement in rem and or whether the Civil Procedure Code and particularly Order XXIII of the same applies to the present proceedings or not. The submission of Mr.Samdani is that this judgement cannot be a judgement in rem. Assuming it is not so, yet, it binds the appellants for the reasons indicated above. The appellants may have withdrawn from Company Petition No.77 of 1990 but in their independent proceedings before the CLB on which the impugned order has been passed, they relied on the same material and same circumstances as were set out in Company Petition No.77 of 1990. They relied upon the same amendments which were to Company Petition No.77 of 1990. There allegations are also the same viz., of low dividend and unjust enrichment so also diversion of funds by respondent No.2. These were the grounds raised in Company Petition No.77 of 1990. Having found no substance therein, for the reasons, which have been given by Hon'ble Mr. Justice Khanwilkar, and finding them to be fully applicable to the present facts as well, I see no justification for taking a different view. If the appellants had placed any material other than what has been referred to by Khanwilkar, J or had they pointed out even during the course of arguments before me by Comp.Appeal No.24-10 referring to the available record, anything in addition to what has been noted by the learned Single Judge, possibly, they could have urged that I should take a different view or that a further probe and investigation into the matter was called for. Having found that they placed no such material and that the available record does not furnish substantial proof of the allegations of oppression of the appellants, I am of the view that the judgement of Justice Khanwilkar in Company Petition No.77 of 1990 binds the appellants.

135] Once this view is taken, then, strictly it is not necessary to refer to the judgements cited by Mr.Samdani on the applicability of Order XXIII of the CPC and particularly Rule 1 thereof. Therefore, the judgements in compilation III on this point need not be referred in further details. Equally in the view that I have taken, it is not necessary to refer to the judgement of the Supreme Court reported in 2006(1) SCC 212 (S.Vijayarama Raju Vs. Immakka Jaya Raj & Ors.). Lastly, the reliance placed on the judgement of the Supreme Court and other courts on the right of preemption is misplaced in the view that I have taken. The nature of the right is not in dispute. In the present case the question is of its availability. I have proceeded Comp.Appeal No.24-10 on the basis that the Articles of Association of respondent No.1 did contain a clause giving preferential or preemptive rights as claimed by the appellants. However, upon the status of the company, undergoing a change as noted above, this clause could not have been invoked.

136] It is in the light of this view that I have not entered into the controversy as to whether the view taken by the learned Single Judge in WMDC Vs. Bajaj (supra) is correct and whether the over-

ruling of that view by the Division Bench was called for at all. I have carefully perused both judgements with the able assistance of Mr.Samdani and Mr.Bobde. In WMDC's case, the challenge was to an arbitration award rendered by a sole arbitrator. The arbitration covered a dispute between two public companies. The WMDC, a Government of Maharashtra undertaking held 27% of shares of Maharashtra Scooters Ltd. (MSL), a public limited company whereas the respondent - Bajaj Auto held 24% shares. The balance 49% is held by public. The dispute as noted by the learned Single Judge between the parties was whether clause 7 of the agreement could form a valid basis for the conclusion of the Comp.Appeal No.24-10 arbitrator or not. The learned Judge held that the shares in question are of a public limited company. Those shares are freely transferable. The stipulation in clause 7, therefore, is inapplicable and reliance was placed on the provisions of the Companies Act in this behalf so also the judgements of the Supreme Court. The learned Judge concluded that section 111A applies to public companies and noticing the difference between private company and public company, he concluded that the effect of clause 7 is to create a right of preemption between the petitioner and respondent before me in the event either of them seeking to part with or transfer its shareholding in MSL. The learned Single Judge concluded that a clause of preemption is to impose restriction on free transferability of shares and that is impermissible because the provisions of the Companies Act have been given a over-riding effect. On such conclusion, he set aside the Award and allowed the petition.

137] This view of the learned Judge was noted by the Division Bench in Messer Holdings Vs. Shyam Madan Mohan Ruia. There the issue was whether the defendant No.2 which is a public limited company and having its shares listed on the stock exchange could Comp.Appeal No.24-10 resist a transfer of shares under share purchase agreement dated 23rd June 1997 between plaintiffs before Division Bench and the defendant No.1. A suit was filed being Suit No.2494 of 1999 by the plaintiffs for a declaration that the acquisition of the shares by defendant No.3 under an agreement dated 12th May 1995 is illegal, null and void ab initio and of legal effect. In other words, its 30,000 shares were the subject matter of the June 1997 Agreement between plaintiffs and defendant No.1 and the attempt by defendant Nos. 1 and 3 to defeat that by relying upon prior agreement is not permissible, was the issue. The Division Bench noted the arguments of both sides during the course of which its attention was invited to the view taken by the learned Single Judge in WMDC (Supra). The Division Bench concluded that the consensual agreements between particular shareholders relating to their shares can be enforced like any other agreements. It is not required to be embodied in the articles of association. In para 56 the Division Bench referred to the view taken by the learned Single Judge in WMDC and in the paras which I have reproduced above, the judgement of the learned Single Judge is over-ruled. A proper and complete reading of this para would reveal that the Division Bench Comp.Appeal No.24-10 proceeded to reverse the view taken by the learned Single Judge essentially because of the conclusion reached by it and noted above. Additionally, it reversed it because an agreement of preemption even if willingly and consensually entered into by a shareholder and third party or between shareholders, imposes a restriction on the free transferability of shares. Before me reliance is placed only on Article 57 of the Articles of Association of GCL when it was a private company and the wording thereof to urge that the respondent No.2 cannot transfer the shareholding to any third party and the shares must be first offered to the appellants in terms of this Article. Whether this article and the right of preemption recognised therein is itself applicable after the status of the company has been altered and changed is the only issue before me. Therefore, the controversy with regard to the judgement rendered by the learned Single Judge in WMDC and whether it is rightly over-ruled or not cannot be taken note of in the peculiar facts of this case. However, it must be immediately noted that the Agreement or a consensual arrangement relating to their own shares between shareholders would bind them or not or whether that is void as not surviving in the teeth of Section 9 or Section 111A Comp.Appeal No.24-10 of the Companies Act, 1956, was the core issue in Messer Holding (supra) (see paras 48 to 57).

138] Mr.Samdani is in error in urging that the CLB has based its conclusion in the present case only on the view taken by the learned Single Judge in WMDC's case. A complete reading of the judgement of the CLB would show that the conclusion is with regard to the status of GCL and merely to support it, that it referred to the judgement of the Single Judge. The view taken by CLB is, therefore, not founded only on the single Judge's judgement as erroneously urged by Mr.Samdani.

139] For the reasons that persuaded the learned Single Judge (A.M.Khanwilkar, J), I am also of the opinion that the appellants have failed to substantiate their charge of oppression of minority. In my view, these allegations being serious, the appellants ought to have brought adequate and substantial proof. On the basis of the materials produced, it cannot be held that there is any oppression of minority. The conduct of the appellants in withdrawing from the proceedings and settling their disputes with respondent No.2 is also Comp.Appeal No.24-10 a relevant factor in denying them any relief. Now, their argument is that the understanding and agreement between them has not been adhered to and breached by respondent No.2. However, when they talk of such breach and allege as such, they rely upon the very events which have been made subject matter of Company Petition No.77 of 1990 by the other petitioners therein. Therefore, there being no independent proof and considering that the broad principles enshrined in law and referred to by the learned Single Judge would prevent the parties from raising same pleas again and again, the arguments insofar as oppression of minority concerned, also fail.

140] Having dealt with the submissions of parties, as noted above and finding that the appellants have failed to make out any case for intervention by this Court on the questions of law formulated above, there is no alternative but to hold that the company Appeal fails.

Accordingly, it is dismissed but without any order as to costs.

141] At this stage, Mr.Samdani, learned Senior Counsel appearing on behalf of the appellants submits that there is an interim order Comp.Appeal No.24-10 which is made by this Court in Company Application No.25 of 2010 which has been in force from 11th December 2009. That order has been continued on 28th June 2010 by learned Single Judge of this Court. Therefore, the interim order in terms of prayer clause (iii) be continued till the appellants impugn this order in Appeal. His request is that the order may be continued for a reasonable period so as to enable the appellants to adopt appropriate proceedings.

142] This request is opposed by Mr.Sen who appears for respondent Nos. 1, 5 and 6 and Mr.Tulzapurkar and Mr.Subramanian, learned Senior Counsel appearing for respondent Nos.2 and 3.

143] After having heard the learned Counsel at some length on this issue, I am of the opinion that interest of justice will be served if this interim order in terms of prayer clause (iii), is continued for a period of six weeks from today, save and except, the bracketed portion.

The grant and continuation of interim order is without prejudice to the rights and contentions of all parties. The prayer clause (iii) after deleting bracketing portion reads as under:-

Comp.Appeal No.24-10 "(iii) that pending the hearing and final disposal of the appeal, this Hon'ble Bench be pleased to restrain the 2nd/ 3rd respondents by themselves and/or through their servants and or agents from in any manner howsoever, directly or indirectly, from selling, transferring, alienating, pledging, encumbering or in any manner creating any third party rights in to over or upon or in respect of the shares held, directly or indirectly, by the 2nd/3rd respondents in the company."

(S.C.Dharmadhikari, J)