Harish Chander Suri

1. The Court is convened via hybrid mode today.

2. The present case is a result of a long-drawn litigation spanning over a period of 32 years. As would be seen from the facts, this case has a checkered history consisting of multiple runs of litigations before various for a and has been heard at length on 08.06.2022, 09.06.2022, 13.06.2022, 14.06.2022, 16.06.2022, 17.06.2022. In order to deal with issue at hand it is important to set out the relevant facts which are as follows:

BRIEF FACTS.

3. Respondent No. 1 is a public limited company which was incorporated on 25.10.1932. The registered office of the same is at Kolkata. The main objectives for which the Company was incorporated as it appears from the memorandum of understanding are set out hereunder:

(i) To carry on financial investment business and to transact and carry on various business, that may be necessary or expedient to carry on.

(ii). To accumulate capital, fund or reserves by means of periodical subscription or otherwise from members or other persons and also by borrowing money from members or other persons on such terms and on such security as may from time to time be arranged.

(iii) To subscribe for, purchase or otherwise acquire and hold shares, stocks, debenture or other interest in any other company.

4. It is an undisputed fact that initially the business was owned and run by two individuals namely, Mr. Kali Kumar Chatterjee and Mr. Sunil Kanti Roy.

5. Mr. Chatterjee died in September, 1980. At the time of his death, he was holding 520 shares of the Respondent No. 1 Company and 4500 shares jointly with his wife Amiya Bala Chatterjee. Mrs. Amiya Bala also held 200 shares in her own name. Therefore, after death of Shri Kali Kumar Chatterjee, his wife held 5220 shares of Respondent No. 1 Company. Thereafter, by virtue of a Family Settlement Mr. Ajit Kumar Chatterjee and Mr. Arghya Kusum Chatterjee (Original Petitioners) became owner of 3500 shares of the said 5200 shares with Mr. Ajit Kumar Chatterjee owning 2700 and Mr. Arghya Kusum Chatterjee owning 800 shares.

6. The present Petitioner Bhagwati Developers Private Limited held 3515 shares. Another individual named Mr. R.L. Gaggar held 5600 shares in Respondent No. 1 Company. His shares were later purchased by the petitioner.

7. It appears from the records that on 30.10.1987 a Board Meeting of Respondent No. 1 was held wherein it was resolved that 30,000 equity shares of Rs. 100/- each would be issued at par on private placement to such persons as the Board may at its discretion think fit although such persons may not be the member of the company. The Respondent has relied on this date to raise a preliminary objection of limitation, which will be dealt in the subsequent paragraphs of this Order.

8. On 25.11.1987 a notice of 54th Annual General Meeting of Respondent No. 1 was issued, inter alia to consider a special resolution to issue 30,000 equity shares for cash at par by private placement. Pertinently an explanatory statement as required by Section 173 (2) of the Companies Act, 1956 was also annexed to this notice. The Explanatory statement with regard to placement of 30,000 equity shares is extracted herein below:

"The members are aware that the present paid up capital of the company is Rs. 73,61,200/- consisting of 73,612 equity shares of Rs. 100/- each, fully paid up. Your Board considered it necessary to increase the capital base of the company and therefore decided in its meeting held on 30.10.1987 to issue, subject to your approval, 30,000 equity shares of Rs. 100/- each for cash at par, by Private placement to such persons as the board may deems fit irrespective of whether such person is a member of the company or not. In accordance with Section 81 of the Companies Act, 1956 the proposed issue can be made only with the consent of the members by a special resolution passed in a general meeting of the company. The proposed special resolution is intended for this purpose. The board recommends passing of the special resolution as proposed for the best interest of the company....."

9. It was the original Petitioners' contention that this notice was never received by them. The Respondent has seriously objected to this contention and has contended that the notice was duly served on the said Petitioners.

10. Thereafter, on 30.12.1987 a resolution was passed to issue and allot 30,000 equity shares by private placement.

11. On 12.03.1988 one Mr. Parasmal Lodha. who was then a Director of Respondent No. 1 resigned from the Board of the Respondent Company.

12. It is the Petitioner's case that during that time (April, 1988), Respondent Nos. 2 and 3 caused Respondent No. 1 Company to make a fixed deposit of Rs. 1 crore with Standard Chartered Bank, N.S. Road, Calcutta, which fixed deposit was thereafter pledged with the said Bank to avail of advances of around Rs. 60 Lakhs, which was thereafter routed to Respondent No. 26 and other Respondents. It is contended by the Petitioner that the said loan was used by the Respondent Nos. 26 and other Respondent companies to purchase 15,626 shares held by Mr. Parasmal Lodha, the present petitioner Bhagwati Developers Private Limited and other shareholders. The Petitioner strenuously contends that the whole transaction was made in violation in Section 77 of the Companies Act, 1956 and that by doing such transaction the Respondents have breached the fiduciary duties which they owed to the company and its shareholders, for which t this transaction should be declared illegal, null and void. The petitioner also contends that there was also the violation of MRTP Act and Securities Contract (Regulations) Act, 1988

13. The other main contention/issue raised is with regard to the issuance of 30,000 equity shares of Respondent No. 1 to the other Respondents.

14. On 28.04.1988, 30,000 shares of Respondent No. 1 were allotted to different Respondents inter alia in the following manner:

15. It is the Petitioner's case that these 30,000 equity shares have been allotted to the friends, relatives and nominees of Respondent Nos. 2 and 3. The Petitioner contends that 20,850 shares were allotted to Respondent Nos. 14 to 16, which Respondents are owned and controlled by Respondent No. 2 and 3. This allegation of the Petitioner has been seriously disputed by the Respondents in the reply in the main petition as well as the Written Submissions submitted by them.

16. The litigation between the parties revolves around the following broad issues, some of which overlap:

(1) Alleged oppression and mismanagement of Respondent No. 1 by the Respondent No. 2 and his alleged associates.

(2) Whether the issuance of 30,000 equity shares by private placements is bad in law

(3) Whether the purchase of 15626 shares of the Respondent No. 1 from Mr. Parasmal Lodha, the present petitioner and other shareholders is hit by provisions of MRTP Act, 1969, the Securities Contracts (Regulations) Act, 1956 and Companies Act, 1956.

17. In this backdrop, it is also important to summarize the multiple rounds of litigation by the parties before dealing with the submissions made at the bar.

18. This petition was originally filed and registered as Company Petition No. 222/1991 before the Hon'ble High Court of Calcutta, it was filed by Ajit Kumar Chatterjee and one Arghya Kusum Chatterjee, petitioners against The Peerless General Finance & Investment Co. Ltd. a corporate entity, registered under the Companies Act, 1956 having its registered office at Kolkata and 32 others respondents. It is noticed that after it started its journey on 30thMay 1991, has seen various springs, seen various parties alight and still others board its flight and finally has landed in this bench as per order of Hon'ble Supreme Court of India passed in Transfer Petition No. (Civil) No. 1200/2021 directing this Tribunal as under:-

"upon hearing the counsel the Court made the following

ORDER

On hearing learned counsel for parties it is a common cause of the both the senior counsels that the jurisdiction to decide the lis now rests with the National Company Law Tribunal (NCLT), Calcutta in view of the provisions of Section 434 of the Companies Act, 2013 which came into effect from 01.04.2017. For reasons best known, which are difficult to fathom, it is not appreciated why for a period of four years the Registry of its own could not have decided this aspect and transferred the matter to the Tribunal. The dispute originally arose in 1991 and is now three decades old. It is not possible to countenance such a situation.

In view of the aforesaid, by consent, it is directed that the papers of this matter be transmitted to the NCLT, Calcutta by the Registry of the High Court of Calcutta within a period of one week of the receipt of the Order.

Thereafter, the matter should be placed before the NCLT, Calcutta to be decided in the accordance with law. The matter be so placed within one week of it being transferred and the Tribunal will endeavor to treat this matter on priority on the basis of its seniority i.e. unless there is any matter older than three decades, this matter will be given priority over other matters on the basis of the period for which it has remained pending and learned counsel for both the parties have agreed before this court to fully cooperate so that the matter can be considered on day to day basis by the Tribunal.

The transfer petition is closed with the aforesaid directions.

A copy of the order be transmitted to the Registrar, Calcutta High Court and to the Registrar, NCLT, Calcutta.

Pending applications stand disposed of".

19. After receipt of the aforesaid directions from the Hon'ble Supreme Court, this bench has done its best to conclude the hearing in this aged-old matter, and the Ld. Counsel appearing for all the parties have equally cooperated in making their submissions on day to day basis, may be some of them had to sacrifice their other important matters and commitments. Ultimately, the arguments concluded in this matter on 17th June, 2022. The petitioners had sought various reliefs in the original petition but with the passage of time in the present scenario, the petitioners Bhagwati Developers Private Limited has consciously decided to confine its challenge in the petition to essentially only two issues that had been urged by the erstwhile petitioners (hereinafter called "Chatterjees") themselves in the Company Petition namely:-

i. The issue and allotment 30,000 shares by private placement;

ii. The illegal acquisition of 15,626 shares by Respondent No. 2 and his Group;

LITIGATION BETWEEN THE PARTIES:

20. On 30.05.1991 an Application bearing C.P. No. 222 of 1991 was filed by Ajit Kumar Chatterjee and Arghya Kusum Chatterjee before the Hon'ble Calcutta High Court under Sections 397 and 398 of the Companies Act, 1956. This Petition was supported by Bhagwati Developers Pvt. Ltd. (the Present Petitioner) and Mr. R.L. Gaggar and therefore, it is the Petitioners contention that the combined shareholding of all the four (i.e. both the Chatterjees; Bhagwati Developers Pvt. Ltd.; Mr. R.L. Gaggar) was 17.14% of the total issued share capital of the Company. This contention has been disputed by the Respondent herein, however, the same has been dealt in detail by the Hon'ble High Court in its judgment dated 10.06.2013 passed in APO no. 346 of 1996 wherein it was, inter alia, observed that "We are of the considered view, the learned Judge did not apply His Lordship's mind on the issue. His Lordship did not assign any reason why it would be unsafe to rely on the support of Gaggar when it was in consonance with the wishes of the beneficial owners. Mr. Gaggar never raised his finger towards the transactions. He denied having read the petition. Even if we give full credence to what he had said, such positive averment on behalf of Chatterjees in their petition would be superfluous as it was not the legal necessity. We hold, the petition filed by Chatterjees maintainable. We have already observed, we should ignore subsequent crossing of the floor. Hence, BDPL would be entitled to be transposed and/or substituted in place of Chatterjees in the proceeding."

21. In the said Company Petition the Original Petitioners sought various reliefs inter alia:-

(a) "The Board of Directors of the Company and its subsidiaries the Respondent No. 1, 10, 11, 12 and 13 be superseded;

(b) A special officer and/or administrator to be appointed to take charge of the business and affairs of the company and its subsidiaries being Respondent No. 1, 10, 11, 12 and 13 along with its books, papers and documents and to run and manage the same.

(c) A Scheme of Management of the company and its subsidiaries being respondent Nos. 1, 10, 11, 12 and 13 be framed by this Hon'ble Court.

(d) A Declaration that the purported Resolution under Section 81(1A) of the Companies Act, 1956 purportedly passed in the Annual General Meeting held on 30th September, 1987 for issuing 30,000 Equity shares, the purported Board Resolution dated 28th April, 1988 issuing and allotting 30,000 Equity Shares, the purported Board Resolution dated 28th April, 1988 issuing and allotting 30,000 equity shares of Rs. 100/- each of the respondent Nos. 2 to 14 to 24 are illegal, null and void and not binding upon the company and its shareholders;

(e) Declaration that the respondent nos. 2 to 14 to 24 and all persons claiming through them are not entitled to any claim of right including voting rights on basis of the purported issue and allotment of 30,000 equity shares;

(f) The resolutions under Section 81(1A) of the Companies Act, 1956 purportedly passed in the Annual General Meeting of the Company held on 30th December 1987 and the Board Meeting dated 28th April, 1988 for issuing and allotting 30,000 equity shares of Rs. 100/- each be delivered up cancelled and set aside;"

22. This application was countered by the Respondent No. 1 which had also filed its own substantive application challenging the maintainability of CP. No. 222 of 1991. Both the parties filed Affidavits and Counter Affidavits in both the Applications. Vide Order dated 30.01.1992, Ld. Single Judge of the Hon'ble Calcutta High Court dismissed C.P. No. 222 of 1991 solely on the ground of maintainability holding that the minimum requirement to file a Petition under Section 397 was not met.

23. The original Petitioners i.e. Ajit Kumar Chatterjee and Arghya Kusum Chatterjee filed two appeals, one against dismissal of the C.P. No. 222 of 1991 and another against the order allowing Respondent No. 1's application for dismissal of Petition. It appears that on 16.11.1993 and 18.11.1993 both the original petitioners withdrew their appeals and the same was allowed by the Hon'ble High Court.

24. Thereafter on 22.12.1993 the Petitioner herein i.e. Bhagwati Developers Pvt. Ltd. moved two applications before the Hon'ble Calcutta High Court inter alia seeking (i) recall of the orders dt. 16.11.1993 and 18.11.1993 and (ii) for transposition of Bhagwati Developers Pvt. Ltd. in the withdrawn appeals as the Appellant.

25. The Hon'ble Calcutta High Court vide order dt. 02.02.1995 dismissed the applications of the Petitioners herein. Against this dismissal order two Special Leave Petitions bearing No. 19193 and 19217 of 1995 were filed by the Petitioner herein. Vide order dated 26.04.1996, the Hon'ble Supreme Court disposed of the said SLPs by granting liberty to the Petitioner herein to file an independent appeal against the order dated 13.01.1992.

26. Bhagwati filed fresh appeals in line with the order of the Hon'ble Supreme Court. Vide order dated 24.11.2003, a Division Bench of Hon'ble Calcutta High Court dismissed the appeals preferred by the Petitioner herein on the ground that the main proceedings under Section 397/398 of the Companies Act, 1956 stood withdrawn by the orders dated 16.11.1993 and 18.11.1993 and therefore, there was nothing left in the matter.

27. Bhagwati Developers Pvt. Ltd. preferred an SLP against the order dated 24.11.2003. Vide order dated 04.04.2013 the Hon'ble Supreme Court set aside the order of the Division Bench of the Hon'ble Calcutta High Court and remanded the matter back to Hon'ble High Court to hear the appeal preferred by Bhagwati Developers Pvt. Ltd.

28. On 10.06.2013, Hon'ble Calcutta High Court in A.P.O. No. 346 of 1996 and A.P.O. No. 347 of 1996 passed a detailed judgment after hearing both the parties holding that the Petitioner herein was entitled to be transposed and/or substituted in the original proceedings as Petitioners. It is pertinent to note that the matter was directed to be heard on merits.

29. In around September, 2021 the Petitioner filed a Transfer Petition bearing Transfer Petition (Civil) No. 1200/2021 in the Hon'ble Supreme Court seeking transfer of the main proceedings to Madras High Court. Vide order dt. 21.09.2021, the Hon'ble Supreme Court directed this Tribunal to hear the matter in view of the provisions of the Companies Act, 2013 read with MCA Notification.

ISSUES FOR CONSIDERATION:

30. The Petitioner has primarily argued two grounds to support the present Petition for oppression and mismanagement i.e.:

(a) the issuance of 30,000 equity shares by private placement was wrongful and illegal

(b) purchase made by Respondent Nos. 26 and other Respondents of 15,626 shares of Respondent No. 1 Company was bad in law and could not have been done.

On this basis, reliefs have been claimed as mentioned earlier.

(c) As regard financial mismanagement by Respondents the Petitioners have sought, a detailed scrutiny and investigation by a special officer of the accounts and the Company's records to unravel the truth. The records of the case are voluminous and the transactions go back to a few decades. It was submitted that the contentious issue of mismanagement could be looked into later on by the Tribunal after the report of the special officer was available.

31. The Respondents have contested the present Petition on the following grounds inter alia:

(i) The Petition is barred by limitation.

(ii) The Petition is mala fide and in fact the Petitioner is the alter ego of Mr. Parasmal Lodha, who was the ex-director of Respondent no. 1.

(iii) The Petitioner is estopped from challenging the validity of issuance and allotment of 30,000 shares because the Petitioner was represented by Shri Sunil Jain (its authorised representative) at the concerned Annual General Meeting and as such the Petitioner had knowledge and was party to and approved the transactions.

(iv) Respondent No. 1 has additionally contended that logically the reversal of the whole process would be cumbersome since the issue relates to transactions which had occurred around 33 years back.

(v) That no case for oppression and/or mismanagement under Section 387 or 398 of the Companies Act, 1956 has been made out by the Petitioner.

(vi) Respondent Nos. 15 and 16 in their Written Submissions supported the stand taken by the other respondents and have additionally resisted the Petition on the ground that being third parties, they would be prejudicially affected.

(vii) In the Affidavit in Opposition filed by the Respondents to CP No. 222 of 1991, the Respondents also contended that the authorization given by the Petitioner herein and Mr. Gaggar in favour of the Original Petitioners was not valid and therefore, the Original Petitioners did not have the required percentage of shares to file a Petition for Oppression and Mismanagement. This aspect has been elaborately dealt with by the Hon'ble High Court of Calcutta in the judgment dated 10.06.2013 in A.P.O. No. 346 of 1996 and A.P.O. No. 347 of 1996.

SUBMISSIONS MADE BY THE PARTIES AND ANALYSIS

32. The Respondents have raised a preliminary objection of limitation and therefore it is imperative to deal with this issue at the first instance.

33. Respondents' case is that the Petition is barred by limitation in so far as it relates to transactions and/or events which took place prior to 3 years preceding May 30, 1991, i.e. the date on which the present petition was filed. It is Respondents' contention that the primary challenge of the Petitioner is against the action of allocation of 30,000 equity shares which took place on 28.04.1988, the notice for which was given 25.11.1987. Therefore, on the date of filing of the C.P. No. 222 of 1991 the limitation of 3 years had elapsed. The Respondents have also argued that contrary to the Petitioners contention that it got to know of the impugned transaction only in the year 1990, the fact is that the original petitioners knew about the transactions since May, 1988. In support of this contention the Respondents have relied on the following cases:

(1) Srikanta Datta Narasimharaja Wadiyar Vs. Sri Venkateswara Real Estate Enterprises (Pvt.) Ltd. ILR 1989 KAR 2603 para 12 at Page 2637

(2) Raj Kumar Gupta and Others Vs. R. Gupta and Others (2009) 147 Comp Cas 690 (CLB) para 15 at Page 702

(3) Raj Kumar Bhatia and Ors. Vs. M/s. AV Light Automotives Ltd. & Ors. (2016) 197 Comp Cas 144.

34. The Petitioner on the other hand contended that although the resolution for allotment of 30,000 equity shares was passed on 30.12.1987, the actual allotment of such shares took place only on 28.04.1988. According to the petitioner, it is the allotment that is under challenge, the challenge to the resolution being only one of the grounds for the same. The original Petitioners stated that they had no knowledge of the purported issuance and/or allotment of shares until October, 1990. The notice dated 25.11.1987 of the Annual General Meeting of Respondent No. 1 Company was never received by the original Petitioners. Furthermore, the Petitioners also relied on the Directors report dated 17.08.1988 to show that the said report failed to disclose the fact of allotment of the said 30,000 equity shares.

35. After hearing the parties at length, we are inclined to accept the petitioner's contentions for the following reasons:

(i) A petition under S. 397 & 398 of the Companies Act, 1956 may be resisted not so much as by Limitation Act as on principles of delay and latches. (See A.P. Jain v. Faridabad Metal Udyog, 123 (2005) DLT 114 [LQ/DelHC/2004/1578] ).

(ii) Even otherwise, assuming the Limitation Act were to apply, even then it is a well settled principle of law as reiterated by the Hon'ble Supreme Court of India in Ramesh B. Desai and & Ors. Vs. Vibin Wadilal Mehta & Ors. (2006) 5 SCC 638 (Para 19) that the plea of limitation is a mixed question of law and fact. It held:-

"19. A plea of limitation cannot be decided as an abstract principle of law divorced from facts as in every case the starting point of limitation has to be ascertained which is entirely a question of fact. A plea of limitation is a mixed question of law and fact. The question whether the words "barred by law" occurring in Order 7 Rule 11(d) CPC would also include the ground that it is barred by law of limitation has been recently considered by a two-Judge Bench of this Court to which one of us was a member (Ashok Bhan, J.) in Balasaria Construction (P) Ltd. v. Hanuman Seva Trust [(2006) 5 SCC 658, [LQ/SC/2005/1147 ;] below] it was held: (SCC p. 661, para 8)

'8. After hearing counsel for the parties, going through the plaint, application under Order 7 Rule 11(d) CPC and the judgments of the trial court and the High Court, we are of the opinion that the present suit could not be dismissed as barred by limitation without proper pleadings, framing of an issue of limitation and taking of evidence. Question of limitation is a mixed question of law and fact. Ex facie in the present case on the reading of the plaint it cannot be held that the suit is barred by time.'

This principle would be equally applicable to a company petition. Therefore, unless it becomes apparent from the reading of the company petition that the same is barred by limitation the petition cannot be rejected under Order 7 Rule 11(d) CPC."

(iii) In the matter of Dhanajay Krishna Nath Gaikwad & Ors. Vs. Tulijabhavani Cold Storage Pvt. Ltd. & Anr. Company Appeal (AT) No. 322 of 2018 the Hon'ble NCLAT had observed that the period of limitation would start when the violation of right occurs or is discovered. After going through the facts of the present case, it is clear that the allocation of 30,000 equity shares to various Respondents occurred only on 28.04.1988. The present petition was filed on 30.05.1991. There is dispute as to when the Petitioner acquired knowledge of the same. According to the Petitioner it was much later on. As per the respondents the AGM meeting took place in late 1987 and was attended by the Petitioner. But this much is evident that the Petitioner could have come to know of the actual allotment only later on i.e. sometime after 28.04.1988. Admittedly, till this time the names of the allottees were not known. In fact some of the Respondents such as No. 14 to 16 were not even in existence till a few days prior to the allotment. The substance of the allegation of the Petitioner relates to allotment to parties who had a close nexus with Respondents no. 2 & 3 and which has been claimed to be oppressive. Furthermore, there are other allegations of oppression and mismanagement also which acts took place on various dates which the Petitioner contends that it learnt of only later on. On the other hand, the Respondent has not produced proof that the Petitioners were aware of these facts at a time prior to 3 years from date of filing of the petition. It would therefore, not be proper to dismiss the petition on ground of delay or limitation.

Also, the petition has been pending for very long with several rounds of litigation going right up to the Hon'ble Apex Court and it would therefore, be a travesty not to entertain the petition on the ground of delay/limitation.

We are also of the view, the acts of oppression and mismanagement in question are of continuing acts even on the date of filing of this petition and therefore this petition in no way can be said to be barred by limitation.

Furthermore, the Hon'ble Calcutta High Court vide judgment dated 10.06.2013 had directed the matter to be heard on merits. We therefore, reject the preliminary objection of the petition being barred by limitation.

THE ISSUE OF ALLOTMENT OF 30,000 SHARES OF RESPONDENT NO. 1 TO OTHER RESPONDENTS

36. It is the Petitioner's contention that in the year 1988 the Respondent No. 2 had issued and allotted 30,000 shares of Respondent No. 1 Company to himself and his close associates to obtain control more than 50% shares in Respondent No. 1 company. The Petitioner has challenged the allotment on the following grounds:

(a) The explanatory note given under Section 173(2) of the Companies Act along with the notice dt. 25.11.1987 was a tricky one and failed to disclose the real purpose behind the proposed issuance and allotment of 30,000 shares. In response to this allegation the Respondents have contended that the Petitioner was well aware about issuance of these shares since the notice dated 25.11.1987 was also sent to the Petitioners. Therefore, the Petitioner had in a way given a consent to such allocations. Secondly, the Respondents further submitted that there is no requirement in law to give "detailed reason" in the notice or in the explanatory statement in respect of a particular business to be transacted at a General Meeting. Furthermore, the requirements under Section 173(2) of the Companies Act are directory and not mandatory in nature. The Respondents have also vehemently argued that the Petitioner is an alter ego of one Mr. Parasmal Lodha, who is an ex-Director of Respondent no. 1 Company and that Mr. Lodha is a disgruntled ex-director who has initiated this litigation to get the Respondent no. 1 company back. To support this contention, the Respondents in their Reply have stated that Mr. Lodha had not only siphoned off monies from Respondent no. 1 Company but had also threatened Respondent no. 2 and 3 with dire consequences.

(b) Another ground raised by the Petitioner to challenge the issuance of these 30,000 shares is that the original Petitioners had no notice of the meeting and as such had no opportunity to object to the resolution for increase of capital. The Respondents have rebutted the arguments by contending that the notice was duly sent to the original petitioner at the recorded address and was also published in the newspaper. The Respondents have further stated that there was no motive for not giving notice to the Petitioners since the petitioners were in minority and their presence could not have made any difference. According to Respondents, Mr. Parasmal Lodha was also present in the 54th AGM through his proxy wherein the resolution for issuance of 30,000 shares was passed, and as such he had given his consent to the same. Furthermore, it is also contended that the present Petitioner was aware about the share issue since 1987-1988, but chose to remain silent till 1991. To buttress this argument, the Respondents have relied on following cases:

a. G. Nagarajan vs. A.N Marketing Services P. Ltd. And Ors., (2009) 150 Comp Cas 641 (CLB);

b. Raj Kumar Gupta vs. R. Gupta and Others,

c. M. Palanisamy and other vs. SVT Spinning Mills P. Ltd. and Ors.,

d. Jiwan Mehta vs. Emmbros Metals P. Ltd. And Ors.

(c) Another ground on which the Petitioner has assailed the impugned action is that at the time of issuance of these additional 30,000 equity shares the Respondent No. 1 had a very sound financial position and did not require any such small additional fund. The Petitioner contends that the Respondent No. 1 Company had reserve funds which were about 20 times its share capital. It had not borrowed any money from any bank during that period. The bank balance in the current Account of the Respondent No. 1 Company as on 31.03.1988 was Rs. 9.22 Crores. The Respondent has rebutted these contentions by arguing that the bulk of these funds were certificate holders' money which the company was ultimately required to repay. It is stated by the Respondent that at the time when those 30,000 shares were issued, the company was merely complying with RBI directions in its totality.

(d) In their next contention, the Petitioner has also raised serious allegations as to the intent of the Respondents behind issuance of these 30,000 shares. It is Petitioner's case that the Respondent Nos. 14 to 16 (which were allocated 20,850 shares out of the said 30,000 shares) were private companies owned and controlled by Respondent No. 2 and 3. Furthermore, the Petitioner has also contended that the other allottees of these 30,000 shares were either friends or relatives or companies controlled by Respondent No. 2. It is the Petitioner's case that the allotment of shares was only done so that Shri S.K. Roy and Shri P.C. Sen could assume majority control of the Company. To support this argument the Petitioner stated that before issuance of these 30,000 shares the total shareholding of Shri S.K. Roy and Shri P.C. Sen was merely 30.82%. However, after the allotment of the additional 30,000 shares the Respondent Nos. 2 and 3 have gained a majority of 50.27%. Furthermore, it is contended that the allotment was made at Rs. 100/- per share. As per the Petitioner the book value of shares was about Rs. 1,300/- per share and the intrinsic value of the same was Rs. 2,000/- per share.

This contention of the Petitioner is contested by the Respondents by submitting that Mr. Sen was holding merely 20 number of shares in Respondent No. 1 Company. These shares were issued for the benefit of the company and any benefit which has been accrued to any of the Directors in the process is immaterial and cannot be ground for allowing the oppression and mismanagement of the Petitioner.

Furthermore, the Respondent has opposed the valuation of shares suggested by the Petitioner. They have mentioned that the funds available with the Company belonged to certificate holders which had to be repaid to them on contractually stipulated dates. They also contended that the value at which shares were being sold is mentioned in the AGM resolution passed on 30.12.1987 and therefore, there is no basis for the Petitioner's arguments.

(e) In order to appreciate the law, it would be beneficial to see the wordings of Section 173(2) of Companies Act, 1956.

173. Explanatory statement to be annexed to notice.- (1) For the purposes of this section-

(a) in the case of an annual general meeting, all business to be transacted at the meeting shall be deemed special, with the exception of business relating to

(i) the consideration of the accounts, balance-sheet and the reports of the Board of Directors and auditors,

(ii) the declaration of a dividend,

(iii) the appointment of directors in the place of those retiring, and

(iv) the appointment of, and the fixing of the remuneration of, the auditors; and

(b) in the case of any other meeting, all business shall be deemed special.

(2) Where any items of business to be transacted at the meeting are deemed to be special as aforesaid, there shall be annexed to the notice of the meeting a statement setting out all material facts concerning each such item of business, including in particular (the nature of the concern or interest), if any, therein, of every director, and the manager, if any......."

37. A perusal of Section 173 (2) makes it clear that the same is mandatory in nature. The objective of enacting Section 173 was to secure that all facts which have bearing on question on which shareholders have to form their judgment are brought to the notice of the shareholders so that the shareholders can exercise their option in an intelligent manner. It has been held in various judicial pronouncements that where neither the notice nor the explanatory note discloses material facts pertaining to a resolution, the resolution would be invalid and ineffective.

38. This view has been supported in the matter of Laljibhai C. Kapadia Vs. Lalji B. Desai (1973) 43 Comp Cases 17, wherein it was held that the averments in the proceedings challenging the notice should be sufficient to cover a plea that the explanatory statement appended to the notice of the meeting about the special business is insufficient or misleading.

39. In the matter of Life Insurance Corporation of India Vs. Escorts Ltd. And Ors. AIR 1986 SC 1370 [LQ/SC/1985/371] a Constitutional Bench of the Hon'ble Supreme Court of India had observed, "100....... It is true that under Section 173 (2) of the Companies Act, there shall be annexed to the notice of the meeting a statement setting out all material facts concerning each item of business to be transacted at the meeting including, in particular, the nature of the concern or the interest, if any, therein, of every Director, the managing agent if any, the secretaries and treasurers if any, and the manager, if any. This is a duty cast on the management to disclose, in an explanatory note, all material facts relating to the resolution coming up before the general meeting to enable the shareholders to form a judgment on the business before them".

40. Furthermore, it is essential to see that the explanatory statement set out by the Board is fair, and as far as possible gives all the information reasonably necessary to enable the recipients to decide how they should vote. A Division Bench of the Hon'ble Calcutta High Court in the matter of Shalagram Jhajharia Vs. National Co. Ltd. And Ors. (1965) 35 Com Cases 706 (DB) Calcutta has held that the notice which discloses nothing is a tricky notice. Whether the notices is tricky or not depends on the facts of each case.

41. In Shanti Prasad Jain vs. Kalinga Tube Ltd. (1965) 35 Comp Cases 351 (SC), the Hon'ble Supreme Court held that where neither the notice nor the explanatory note disclosed material facts pertaining to a resolution, the resolution would be invalid and ineffective. Furthermore, it is imperative to mention a Director's concern or interest in the resolution.

42. A perusal of the explanatory statement given along with the notice of 54th Annual General Meeting would show that the only reason given by the Board for issuance of the 30,000 shares is that it considered the issuance necessary to increase the capital base of the company. There is however no mention as to why the Board recommended passing of the special resolution for the best interest of the company as to how or why the allotment was necessary for the best interest of the Company. The explanation is as such clearly lacking and does not make a full disclosure of the material facts. The names of the proposed allottees were not mentioned. We find that the allottees to whom these shares were eventually allotted had relationship with Respondents no. 2 & 3 and other shareholders. In fact, Respondents no. 14 to 16 allottees did not even exist on the date on which the resolution was passed. They were all incorporated much later on the same day i.e. 11.04.1988 i.e. a few days before the actual allotment.

43. In our opinion, the explanatory note is neither here nor there. It only mentions that the Board considered it necessary to increase the capital base of the Company. However, the reason for the need to raise the capital base was not given. The reasons mentioned in the Affidavit for raising the capital base finds no mention in the explanatory statement. There is nothing in the resolution passed on 30.12.1987 which would throw any further light on the reasons for the allotment. If the full facts had been disclosed in the explanatory statement, a shareholder would have been better informed to take a proper decision by casting his vote. Even if he/she were a minority shareholder and it would not have made a difference to the outcome as the non disclosure itself would vitiate the notice and would entitle the shareholder to contest the allotment as an act of oppression. It is settled law that an act of majority which is oppressive can be challenged by the minority shareholders. Therefore, the Respondent's plea that there would have not been a difference in the outcome does not impress us. Merely, because the Petitioner was represented through its authorized representative does not mean that it cannot later on raise an objection once it comes to know that the allotment is to take place to persons who have a close nexus with Respondents no. 2 & 3.

44. There is no explanation given by the respondents as to why, even in view of the alleged impending need to broad base the capital of the company, for which a departure was made from a rights issue in favour of a private placement, no allotment was made for almost four months. This in itself brings the notice and the explanatory statement under the shadow of doubt. The suggestion in the explanatory statement, by necessary implication, was to the effect that respondent No. 1 urgently needed to increase its capital base. Had it been made known to the shareholders that the company was not in immediate requirement of funds, it would have been difficult for the Board of the respondent to justify the need for allotment of shares by private placement. Had it also been made known to the shareholders that the private placement was intended to be made in favour of entities that were non existent on the date of the resolution, or that they were in fact alter egos of respondent Nos. 2 and 3 themselves, the shareholders are likely to have reacted differently.

45. It is significant to note in this regard that no disclosure was also made in the explanatory statement to the effect that no valuation exercise had been undertaken by the Board before deciding to allot the shares by private placement at par value. There is no real denial by the respondents that the value of the shares was far in excess of the par value of the same. Not only is there admission by the respondents in the affidavit that respondent No. 1 company was prosperous as borne out from the petitioner's assertion with regard to the value of its shares at the relevant time, the fact is that the respondents themselves acquired shares from the petitioner and the said Parasmal Lodha, amongst others, and values far in excess of the par value of the shares. Furthermore, there is no explanation as to why the respondent Nos. 14, 15 and 16 were chosen as the allottees of the said 30,000 shares, particularly as each of these companies had insignificant paid up capital at the relevant time, and had just been incorporated. For the aforesaid reasons we have no hesitation in concluding that material facts and information were deliberately suppressed in the expressly statement with the object of misleading shareholders. Apart from suppression of material facts, we are also of the opinion that deliberate false and misleading representations were made in the explanatory statement, which amounts to a grave representation to the shareholders.

46. The contention that the petitioner was aware of the decision to allot shares by private placement and consequently cannot challenge the same also does not impress us. It is relevant to note in this regard that as on the date of the general meeting when the decision to allot the said 30,000 shares by private placement was taken, there was no disclosure made to the effect that the shares would ultimately be allotted to entities not in existence, entities that had insignificant paid up capital and no reputation whatsoever, and which in fact where entities owned and/or controlled by the respondent Nos. 2 and 3. There was also no discovery of the fact that the shares were far more valuable than the price at which they were offered for allotment, which fact came on record at the time of purchase of the shares of the petitioner and the said Parasmal Lodha in April 1988. Upon it being contended by the petitioner that respondent Nos. 14, 15 and 16 were in fact companies owned managed and controlled by respondent Nos. 2 and 3, the same could not be effectively contradicted by the respondents. While in fact admitting that the wife of respondent No. 2 had significant interest in the respondent No. 15, the respondents merely attempted to deny any knowledge of or association with respondent Nos. 14 and 16. No attempt was made by them to explain as to why respondent Nos. 14, 15 and 16 were all incorporated on the same date with consecutive serial numbers and as to why all of them maintained their records in the same premises.

47. It is not the case of the respondents that the petitioner was aware of the incorporation of respondent Nos. 14, 15 and 16, all of the decision of the respondents to allot a significant part of the said 30,000 shares to them. It is also not the case of the respondents that the petitioner was aware of the association of respondent Nos. 2 and 3 with respondent Nos. 14, 15 and 16. After the respondent numbers two and three, amongst others, had come to learn that the shares commanded a much higher price than their par value, there could be no justification for the respondents to continue with the allotment of the said shares at their par value. This undoubtedly has caused significant loss to the company.

48. In such circumstances, the only conclusion that can be reached is that the issuance and allotment of the said 30,000 shares in favour of the allottees thereof, including respondent Nos. 14, 15 and 16 was certainly a dishonest act of the Respondent Nos. 2 and 3 that resulted in not only in oppression insofar as the shareholders are concerned, but also an act of intentional mismanagement, if not a fraud in the Company itself on the company itself. It is now well entrenched in legal jurisprudence that fraud unravels everything. Reference is the in this regard may be made to the following decision.

(ii) Ram Preeti Yadav vs U.P. Board of High School and intermediate Education & Ors. - (2003) 8 SCC 311 [LQ/SC/2003/870]

For the aforesaid reasons we accept the argument raised by the Petitioner that later on after the actual allotment and upon learning of the designs of Respondents no. 2 & 3, they are within their rights to challenge the allotment.

We are of the opinion that the explanatory note given along with the notice of 54th annual General Meeting was not a proper one and was violative of Section 173(2) of the Companies Act, 1956.

49. In the circumstances as enumerated hereinabove, the question of service of notice pales into insignificance. However, even if we accept that notice of the general meeting was duly served, the same cannot absolve the respondents of their fraudulent acts in the matter of issuance and allotment of the said 30,000 shares by private placement to respondent Nos. 2 and 3 and/or their family members or companies at a fraction of the original value of such shares. There was clearly no notice of such an intent that was ever served or any of the shareholders of the company, and consequently there is no question of the petitioner being estopped from challenging the issuance and allotment of the same. The respondents have failed to explain as to why even after some of the respondents proceeded to purchase shares of respondent No. 1 company at more than five times the face value of the shares, they still proceeded with the allotment of 30,000 shares of the company by private placement at par value. In the absence of such explanation, all other objections raised by the respondents with regard to the contentions of the petitioner must be ignored as hyper- technical objections which cannot stand in the way of uncovering a fraud or visiting the perpetrators of the same with necessary consequences. The contention of the respondents that notice of the general meeting was duly served on the petitioner or the original petitioners as such deserves to be disregarded.

50. In this context we proceed to reiterate that it is trite law that requirements provided under Section 173 of the Companies Act, 1956 are mandatory and not directory in nature, and any disobedience to its requirements must lead to nullification to the actions taken. This has been held in Mohanlal Ganpatram vs. Shri Sayaji Jubilee C. & J. Mills Co., (1964) 34 Comp Cases 777 (Guj) and the view has been affirmed in various subsequent judgements.

51. Therefore, the issue whether Petitioner attended the Board Meeting and/or had given consent for issuance of 30,000 shares of Respondent no. 1 Company loses significance in view of the fact that even assuming that the Petitioner had attended the meeting and given consent for issuance of 30,000 shares, the same is bad in law in view of violation of Section 173 of the Companies Act, 1956.

52. On the issue of necessity for issuance of 30,000 additional equity shares it would be appropriate to note that the Respondents have contended that the capital was required by Respondent No. 1 and that it was merely complying with RBI's guidelines. Furthermore, the Respondents have contended that at the time these 30,000 shares were issued, Respondent no. 1's financial condition was in doldrums and that it was difficult for Respondent no. 1 even to find any investors in the Company. It was contended that the investment certificates of the investors were actually a liability rather than assets.

53. In our opinion, the aforementioned reason may or may not be a plausible reason for issuance of the 30,000 equity shares. However, it is an undisputed fact that no such reasoning has been provided for either in the notice of the annual general meeting or the explanatory note annexed along with the notice. The Respondent ought to have given these explanations to its shareholders who have right to know the reasons for issuance of additional equity shares and for the consequent change in the shareholding structure of Respondent No. 1. It ought to have been disclosed that allotments would be made to persons who may have nexus with Respondents no. 2 & 3.

54. There is one more aspect to be seen here. We have held in the latter part of this Order that the money of the Company itself was used for purchase of its shares by the Respondent allottees in violation of the law as applicable then. Thus, there are serious infirmities in the allotment which could not have been noticed in absence of material facts being disclosed in the explanatory statement.

55. On the issue of nexus between the allottees of these 30,000 shares for benefit for Respondent No. 2 and 3 and the relationship between them, we are inclined to accept the Petitioner's contentions for the following reasons:-

• The authorized share capital and paid up share capital of all Respondents no. 14 to 16 Companies - allottees are same. These facts have not contested by the Respondents.
• With respect to the contention of the Petitioner on nexus between Respondents no. 2 & 3 and the Respondent allottees, a perusal of paragraph 48 of the reply affidavit filed by the Respondents would show that the Respondents have vaguely denied the relationship, without any explanation for the same. It is a trite law that a bare denial is no denial. The aforementioned facts clearly shows that there is a direct nexus between Respondent no. 2 and other Respondents who have been allotted majority of the shares of Respondent no. 1.
• The Key Management Personnel of Respondent no. 14 to 16 Companies appear to be the same. For example, the auditors of Respondents no. 14-16 are same.
• The Petitioner's contend that Respondent no. 2 and his wife are the directors in Respondent no. 14 to which there is mere denial by the Respondents without adducing any proof.
• Respondents no. 17 and 18 allottees are the children of Respondent no. 2.
• In/around September 1988, Respondent no. 1 company sanctioned a clean unsecured advance of Rs. 3 crores to Respondent no. 30 company, which is owned by Respondent no. 31 company. The relationship between Respondent no. 31 and Respondent no. 2 dates back to several years. Pertinently, at the time of sanctioning the loan, the paid up capital of Respondent no. 30 was merely Rs. 200/-. In para 79 of the reply, Respondent no. 2 contends that Rs. 30 lacs was advanced by Respondent no. 1 to Respondent no. 30 on 30.04.1989 and another sum of Rs. 2.70 crores on 21.4.1989 and that both loans were for 3 years carrying interest at 20% and that the loans had been advanced without touching certificate holders monies. But the fact remains that loans were advanced by Respondent no. 1 to Respondent no. 30 for which there is no explanation.
• It is the settled principle that the corporate veil of the company can be lifted for the advantage of the Company. A This is a fit case where the corporate veil of the other Respondent Companies should be lifted.

56. The Petitioner has also raised an issue with respect to applicability of provisions of 'The Monopolies and Restrictive Trade Practices Act, 1969' ("MRTP Act"). According to Petitioner, Respondent no. 1 Company and its subsidiaries exceed a sum of Rs. 100 crores. Furthermore, the Respondent no. 1 is an "undertaking" within the meaning of Section 2(v) of the MRTP Act and therefore, Respondent no. 1 Company was required to be registered under Section 26 of the MRTP Act. To counter this averment, Respondent no. 2, in paragraph 49 of the Counter Affidavit has stated that neither the assets of Respondent no. 1 company, nor any of the subsidiaries exceed even Rs. 10 crores. Furthermore, the Respondents also state that the Company does not fall within the definition of 'undertaking' and that the services, if any, rendered by the company is done free of charge and therefore, cannot be said to be service within the meaning of MRTP Act. It is further stated that the MRTP Authorities had issued a notice dated 11.08.1988 to Respondent no. 1 to show as to why it should not be registered under MRTP Act, 1969. The Respondent contends that it had replied to the said notice and they did not hear thereafter from the Authority.

57. On the issue of applicability of MRTP Act on Respondent no. 1 Company, it is to be noted that Explanation III to Section 2(v) of the MRTP Act clearly states that For removal of any doubt, an investment company shall also be deemed to be an undertaking for the purpose of this Act. Section 3 lists out the exclusions on which the MRTP Act would not apply. A perusal of Section 3 would show that Respondent no. 1 Company is not covered under any of the exclusions. Although, Section 26 stood repealed by the MRTP (Amendment) Act, 1991, the law, as it existed at the relevant time was that any enterprise on which part 'A' of the MRTP Act was applicable, was liable to be registered under the MRTP Act. Furthermore, a perusal of the balance sheet of Respondent no. 1 Company would show that it met the minimum threshold to be registered under the MRTP Act. This finding is further supported by the fact that Respondent no. 1 was in fact issued a notice on 11.08.1988 by the MRTP Authorities to get itself registered. Despite the same, Respondent no. 1 failed to do so. Though, the Respondent contends that it had replied to the said notice and did not hear from the Authority thereafter, it does not mean that there was a closure of the issue. The nature of services undertaken by Respondent no. 1 and the assets of Respondent no. 1 as they existed at the relevant period would clearly show that Respondent no. 1 was liable to be registered under the MRTP Act and the provisions of the Act were applicable on Respondent no. 1.

58. The Petitioner has also raised several serious allegations to support its plea of financial mismanagement of Respondent no. 1 Company by Respondent nos. 2 and 3. It is Petitioner's contention, that monies of Respondent no. 1 Company have been used by the other Respondents to subscribe to the shares of Respondent no. 1 Company. We feel that it is important to look into these allegations as well as Respondent's reply to the same for proper adjudication of the present matter.

• According to the Petitioner, Respondent nos. 2 to 9 used to make Respondent no. 1 Company grant loans to Respondent nos. 25 to 32 and that money was used by Respondents no. 25 to 32 in turn give loans to Respondent nos. 14, 15 and 16 for the purpose of subscribing shares of Respondent no. 1 Company. Therefore, the argument of the Petitioner is that the funds of Respondent no. 1 Company which were lent as advances and loans were actually ploughed back into the Company in form of subscription of shares by other Respondents.
• To buttress the aforementioned argument, the Petitioner, in paragraph 37A of the Petition has stated that Respondent no. 16 had obtained an unsecured loan of Rs. 6 lacs from Respondent no. 31 and further sum of Rs. 2.5 lacs from one Vanshree Holdings Pvt. Ltd. (Petitioner has relied on extracts from the financial statement of Respondent no. 16 which contains the shareholding statement, abridged balance sheet etc.). It is Petitioner's contention that both Respondent no. 31 as well as Vanshree Holding Pvt. Ltd. had taken inter corporate loans from Respondent no. 1 Company and therefore, in essence, Respondent no. 16 had used the funds of Respondent no. 1 Company to subscribe to 8,350 equity shares of Respondent no. 1.
• The Petitioner contends that similar modus operandi was followed by Respondent nos. 14 and 15. According to Petitioner, Respondent no. 14's balance sheet as on 31st March 1989 shows that Respondent no. 14 had obtained unsecured loan of Rs. 9,50,000/- from Respondent no. 26 to 32. The said Respondents no. 26 to 32 had in fact taken a loan from Respondent no. 1 Company and therefore, the monies used by Respondent no. 14 to subscribe to Respondent no. 1 Company's shares were in fact of Respondent no. 1 itself. With respect to Respondent no. 15, the Petitioner has relied on the shareholding statement of Respondent no. 15 to show that Respondent no. 2 was a Director in Respondent no. 15 as well.
• The Respondents have vehemently denied the aforementioned allegations. Respondent no. 2 in its Counter Affidavit in paragraph 55 has stated that it had no knowledge of the funds obtained by Respondent no. 15 from Respondent no. 31 and Vanshree Holdings Pvt. Ltd. Respondent no. 2 has further admitted that an inter corporate loan of Rs. 1 crore was given by Respondent no. 1 to Respondent no. 31 on 03.03.1987, however, the said loan carried interest at the rate of 18% p.a. and the same was granted against the hypothecation of computer micro filing equipment. Furthermore, Respondent no. 2 has also stated that out of Rs. 1 crore, a sum of Rs. 22,855/- was refunded on 04.05.1989. On the allegation of giving loan to Vanshree Holdings Pvt. Ltd., the Respondents have denied that any such loan was advanced to the said Company. With respect to allegations qua other use of Respondent no. 1's monies by Respondent nos. 14 and 16, Respondent no. 2 has merely denied the same, without any elaboration.

59. From the above, it does appear that there has been routing of Respondent no. 1's money by some allottees to purchase shares. This Tribunal is unable to accept the contention that Respondent no. 2 had no knowledge of receipt of money by the Respondent no. 15 from Respondent no. 31 which in turn had taken a loan from the Company. It does appear that there has been re-routing of money belonging to the company for purchase of shares by the allottees.

60. The manner in which these 30,000 shares have been allocated to the Respondent allottees is questionable, and from the materials on record it does appear that the Company's money has been used for purchase of its shares by the allottees. The Respondents have not shown by producing material on record what was their source of money for purchase of the shares and that the funds used for purchase of the same were not in any manner linked to the Company. As the law then stood, this was not a permissible transaction. We have to look at the transactions on the basis of the law as it then stood. Upon consideration of the pleadings and records before us, this Tribunal holds that the allocation was for the benefit of Respondents no. 2 & 3 rather than the Company itself and thus, such allotment has to be set aside.

61. With regard to Respondents contention that Mr. Parasmal Lodha is the key person behind this whole litigation and that he is a disgruntled ex-director of Respondent no. 1, we would respectfully like to observe that the pivotal question before this Tribunal is to ascertain whether there was any illegality in allotment of shares. The issue as to whether Mr. Lodha is the alter ego of the Petitioner may not be relevant.

THE DISPUTES QUA PURCHASE OF 15,626 SHARES OF PARASMAL LODHA AND OTHERS BY THE RESPONDENTS.

62. The Petitioners have also challenged the legality of purchase of 15,626 shares made by Respondent Nos. 26 and 28 from Mr. Parasmal Lodha, and other shareholders of Respondent no. 1 Company.

63. As per Petitioner, on 16.03.1988, Respondent no. 26 purchased 10,915 shares of Respondent no. 1 Company from Mr. Parasmal Lodha and the present petitioner and 4,711 shares from other shareholders, totaling to 15626 shares.

64. The Original Petitioners challenged the said transaction on the following grounds:

• The transaction is hit by Section 77 of the Companies Act, 1956. It is Petitioner's case that Respondent Nos. 2 and 3 in the year 1988 caused Respondent No. 1 company to make a fixed deposit of Rs. 1 Crore with Standard Chartered Bank Ltd., N.S. Road, Calcutta. Thereafter, Respondent Nos. 2 and 3 pledged the said Fixed Deposit with the Standard Charted Bank Ltd. and caused the said Bank to advance loans to Respondent Nos. 26 and other associates. According to Petitioners, the said Standard Chartered Bank granted loan of Rs. 60 lacs against pledge of the said fixed deposit out of which about Rs. 37 lacs was advanced to Respondent Nos. 26 and Rs. 23 lacs was advanced to the other investment companies and/or Respondent Nos. 2, 3 and their relatives. By obtaining such loans and also inter corporate loans, Respondents Nos. 2 and 3 purchased 10,915 shares from Mr. Paramal. Lodha and from the present petitioner and 4,711 shares from other shareholders of the Company. In all 15,626 shares were purchased and/or acquired in this way. According to the petitioners, such acquisition of shares was wholly in violation of the provisions contained in Section 77 of the Companies Act, 1956.
• Furthermore, the Petitioner has also pointed out that the registered office of Respondent no. 26 is at residence of Respondent no. 2 and the administrative office of Respondent no. 28 is same as address as that of Respondent no. 1 Company.
• The next ground taken by Petitioner to challenge this transaction is that the same is hit by Section 30 (b) of the MRTP Act, 1969. It is Petitioner's case that since the provisions of MRTP Act are applicable to Respondent no. 1 Company, the aforementioned transaction is hit by Section 30B of the MRTP Act and that the 'Roy-Sen' Group ought to have obtained the previous approval of the Central Government before purchasing the shares. This argument of the Petitioner proceeds on the basis that Respondent no. 26 and 28 are part of Respondent no. 2 and Respondent no. 3 combine and that Respondent no. 26 and 28 are in fact controlled by Respondents no. 2 and 3.
• The Petitioner has also taken an additional ground that the sale of shares by present Petitioner was hit by provisions of Securities Contracts (Regulation) Act, 1956. It is Petitioner's case that though, even according to the respondents themselves, the purported sale of shares was concluded on 16.03.1988, the fact is that 50% of the value of the said shares being sum of Rs. 27,81,625/- was not paid by Respondent no. 26 until 02.05.1988. This despite the fact that the delivery of share certificates was made by 16.03.1988.

65. To counter the allegations made by the Petitioner, Respondent no. 2 in its Counter Affidavit has argued:

• Respondent no. 1 had made fixed deposits for a total sum of Rs. 50,33,033/- in May 1988 and another FD of Rs. 50,00,000/- on 08th February 1989 with Standard Charted Bank, and the same were made in usual course of business. On 07.03.89, the Board of Directors of Respondent no. 1 decided that an overdraft of maximum Rs. 75 lacs can be taken by the Company against the deposit of Rs. 1 crore. On 28.03.89, Respondent no. 1 wrote a letter to the Bank asking for sanctioning of overdraft facility against the fixed deposit made by Respondent no. 1 Company. The said overdraft facility was approved and the same was extended from time to time. By mentioning the aforementioned fact, the Respondents have taken a plea that the pledge of fixed deposits was made in March 1989, which was much after the sale of shares by Petitioner herein.
• Respondent no. 2 has further averred that a loan of Rs. 25 lacs was advanced by him to Respondent no. 26 on 02.05.1988, but the same had no nexus with Mr. Parasmal Lodha's shares. Additionally, Respondent no. 2 has also averred that he had taken a personal loan from Standard Charted Bank of Rs. 40 lacs, however, that loan was taken after Rs. 25 lacs were advanced by Respondent no. 2 to Respondent no. 26.
• To counter the allegation of violation of Section 30(b) of the MRTP Act, the Respondents have averred that the provisions of MRTP Act are not applicable on Respondent no. 1 Company.

66. In the rejoinder filed by Petitioners, the Petitioner has, inter alia stated that Respondent no. 2 could not have secured a personal loan of Rs. 40 lacs against the securities which he had mentioned in the Counter Affidavit. It is Petitioner's contention that the personal loan of Rs. 40 lacs could have only been granted to Respondent no. 2 on the strength of the fixed deposit of Rs. 1 crore made by the Company.

67. After hearing both the parties, we think that the preliminary question, in order to adjudicate the present issue is whether Respondent nos. 26 and 28 are in fact controlled and managed by Respondent no. 2 and 3. The residence of the Respondent no. 2 and the Administrative office of Respondent no. 28 is at the same address as of Respondent no. 1 Company. Both of these cannot be coincidences. If a Company's registered address is also the residence of Respondent no. 2, then, it is amply clear that Respondent no. 26 and 28 are in fact controlled by Respondent no. 2. Furthermore, it is also relevant to note that even though the transaction between the Petitioner herein and Respondent no. 26 took place on 19th April 1988, however, a substantial consideration for this transaction was paid by Respondent no. 26 only on 02.05.1988, i.e., few days after the Respondent no. 2 advanced the loan of Rs. 25 lacs to Respondent no. 26. Therefore, it appears that the amounts advanced by Respondent no. 2 to Respondent no. 26 was in fact to buy shares of Respondent no. 1 Company from the present Petitioner. Again, it is admitted that Respondent no. 1 company had made a fixed deposit of Rs. 50 lacs in May 1988 with Standard Chartered bank. It is also admitted that the Respondent no. 2 had taken a loan of Rs. 40 lacs from the same bank.

68. The reason for the Company depositing money with the Bank at times when personal loans were being taken by the Respondent no. 2 from same bank, and the proximity of these transactions with the purchase of shares by Respondent no. 26 etc. from the present petitioner leads us to believe that the transactions were not independent of each other. We find that there are several such transactions which seem to be closely linked. Only full disclosure of sources of funds of various Respondents for purchase of shares in question could have put an end to this. The Respondents have, however, been miserly in this regard and have not produced the entire facts and material. It does not seem that the transactions were independent of one another. They seem to be falling foul of the provisions of Section 77 of the Companies Act, 1956. We thus, have no other option but to hold that these transactions were barred under Section 77 of the Companies Act, 1956.

i. A reading of Section 77 would show that no public or private company can give directly or indirectly or by means of a loan or guarantee any financial assistance for the purpose of or in connection with a purchase or subscription of any shares in a company or its holding company. The objective of the said restriction was to prevent "trafficking of shares". In the present case, the purchase of shares by Respondent no. 26 and the direct monetary assistance provided by Respondent no. 2 clearly leads us to believe that the exercise resulted in the trafficking of shares by the Respondent no. 2.

ii. On the issue of applicability of Section 30(b) of the MRTP Act on the aforementioned transaction, it would be helpful to read the provision.

"30-B Restrictions on the acquisition of certain shares. "(1) Except with the previous approval of the Central Government, no individual, firm, group, constituent of a group, body corporate or bodies corporate under the same management, shall jointly or severally acquire or agree to acquire, whether in his or its own name or in the name of any other person, any equity shares in a public company, or a private company which is a subsidiary of a public company, if the total nominal value of the equity shares intended to be so acquired exceeds, or would, together with the total nominal value of any equity shares already held in the company by such individual firm, group, constituent of a group, body corporate, or bodies corporate under the same management, exceed twenty-five per cent, of the paid-up equity share capital of such company."

iii. Although Section 30B of the MRTP Act stands omitted by virtue of The MRTP (Amendment) Act, 1991, however, at relevant point in time when the transaction took place Section 30B was very much in force. A reading of Section 30B would show that it has a wide ambit, which not only covers transactions done in an individual's name, but also includes acquisitions made in someone else's name. Since we have already held that Respondent no. 26 and 28 are in fact controlled by Respondent no. 2 and they have a strong nexus with each other, we cannot but reach the conclusion that the acquisition made by Respondent no. 26 and 28 of 15,626 shares of Respondent no. 1 Company was hit by Section 30B of the MRTP Act. The said Respondents ought to have taken prior approval of Central Government before buying the shares in the name of Respondent nos. 26 and other Respondents. The argument of the Respondent that MRTP Act is not applicable on Respondent no. 1 has already been dealt by this Tribunal in the earlier part of this judgement. Pertinently, violation of Section 30-B of the MRTP Act has penal consequences under Section 48B(1) of the MRTP Act

iv. On the issue of applicability of Securities Control (Regulation) Act, 1988 ("SCRA"), we find that the share certificates for the whole transaction were given on 19.04.1988. However, it is an undisputed fact that part payment for the transaction was done much later, i.e., on 02.05.1988. In this regard, Section 2(i) of the SCRA provides for definition of 'Spot Contract'. As per the said definition, in such contracts, the delivery as well as the payment of the securities have to be on same day or the next day. The facts of the case would show that the parties agreed that the transaction would be a 'spot delivery contract' for the reason that Mr. Parasmal Lodha and the Petitioner delivered the share certificates on the very same day. Had it been not the case of spot contract, Mr. Lodha and the Petitioner would also not have transferred the share certificates before receiving the payments in full. Therefore, we are of the opinion that by not making full payment on the same day, the transaction by way of which the Respondent no. 26 has acquired the shares of Mr. Parasmal Lodha and of the Petitioner is hit by provisions of Securities Contract (Regulation) Act. Reference in this regard was made by the petitioner to the decision of the Hon'ble Supreme Court in the case of Bhagwati Developers Private Limited vs Peerlessn General Finance and Investment Company Limited & Anr. reported in (2013) 9 SCC 584, [LQ/SC/2013/748] which supports the conclusion that we have reached.

From the record it appears that the company issued bonus shares in the ratio of 1:1 in the year 1987 and 1991 and bonus shares in the ratio of 15:1 in the year 1994. Since, the initial purchase was void any action subsequent thereto must naturally be void as well.

CONCLUSION

69. Respondent No. 2 passed away and his legal heirs have been brought on record and who are represented by Mr. Jishnu Choudhury, Advocate. The ld. Counsel appearing for LRs of the deceased supported/adopted the arguments on behalf of Respondent number 1. In addition, ld. Counsel argued that by efflux of time the petition and the reliefs asked for have become infructuous for all intents and purposes. The reliefs prayed for even if granted shall be of no purpose as such.

70. Respondents have finally tried to persuade this Tribunal by raising an argument that even assuming the allegations levied by the Petitioner in the present case are true and are taken on its face value, even then no case for oppression and/or mismanagement is made out. For this, the Respondents have relied on the following judgements:

• S.M. Ganpatram vs. Shri Sayaji Jubilee Cotton and Jute Mills Co. Ltd.[1964] 34 Comp Case 777;
• S.P. Jain vs. Kalinga Tubes Ltd., (1965) 35 CComp Cas 351
• Needle Industries (India) Ltd. and others vs. Needle Industries Newey (India) Holdings Ltd. and Ors. (1981) 3 SCC 333 [LQ/SC/1981/275] .

71. The law relating to Oppression and Mismanagement in India is well settled by various judicial precedents. In this regard reference may be made to the following cases and the observations made therein-

In the matter of Kshounish Chowdhury vs. Kero Rajendra Monolithics Ltd., it was observed that issue of further shares for the purposes of converting a majority into a minority is a grave act of oppression.

72. Furthermore, it is a well settled principle that increasing share capital without any need is an act of oppression and also, a director/management cannot utilize the fiduciary powers over the shares purely for the purpose of destroying an existing majority or creating a new majority.

73. In the matter of Satish Chandra Sanwalka v. Tinplate Dealers Assn. P. Ltd. (2001) 107 Comp Cases 98 (CLB-PB-New Delhi), it was held that where bonus and equity shares were issued against revaluation reserve account which was against the articles of the company and the manner of issue also had the effect of reducing the petitioners to minority position, the allotment was invalid.

74. In the matter of Needle Industries (India) Ltd. vs. Needle Industries Newwy (India) Holdings Ltd., AIR 1981 SC 1298 [LQ/SC/1981/275] , the Hon'ble Supreme Court observed, "The true position is that an isolated act, which is contrary to law, may not necessarily and by itself support the inference that the law was violated with a mala fide intention or that such violation was burdensome, harsh and wrongful. But a series of illegal acts following upon one another can, in the context, lead justifiably to the conclusion that they are a part of the same transaction, of which the object is to cause or commit the oppression of persons against whom those acts are directed."

75. In the present case, it is amply clear that there have been a series of with ulterior motives with a view to confer undue benefit to the beneficiaries of the allotment of share which was against the interest of the Company and which has prejudicially affected the operations of the Respondent no. 1.

76. From the facts of this case, it is clear that Respondent nos. 2 and 3 had allotted shares of Respondent no. 1 Company to either their relatives, or the Companies indirectly controlled by them. This was done without disclosing the full facts, inter alia, to the Petitioner in the manner indicated above. The attempt appears to have been to takeover the Company surreptitiously. Such acts in our view are oppressive to Petitioner.

77. Therefore, we are of the considered opinion that it is a fit case to exercise powers conferred on this Tribunal under sections 397, 398 and 402 of the Companies Act, 1956, or for that matter, under section 241-242 of the Companies Act, 2013.

78. For the reasons stated above, the Transfer Petition bearing TP/38(KB)/2021 deserves to be allowed. Accordingly, the Company Petition is allowed with following directions:

a. The issuance and allotment of 30,000 no. of shares made to the Respondents pursuant to the 54th Annual General Meeting dated 30.12.1987 are declared to be void. The dividend received by the allottee shareholders and/or their nominee or assigns be cancelled and be directed to be returned back to the respondent company No. 1 within 30 days.

b. Issuance and allotment of 15,626 shares to Respondents no. 26 & 28 of Respondent no. 1 Company is declared as null and void. The holders of these shares are directed to return the shares, bonus shares and accrued dividend thereon to previous shareholders i.e. the transferors within 30 days.

c. Any subsequent actions taken pursuant to the aforementioned allotments are declared as void ab initio.

d. We find this is a fit case for appointment of a Special Officer given the serious nature of the breaches and our findings regarding financial mismanagement also. We thus, hereby appoint Mr. Krishna Kumar Chhaparia, Regn No. IBBI/IPA-001/IP-P00400/2017-2018/10718, email i.d.- kkchhaparia@hotmail.com, who is also Insolvency Practitioner as a Special officer in Respondent no. 1 Company to make sure that consequential acts of changes in register etc. are undertaken to comply with our directions that the allotment of shares made pursuant to 54th AGM dated 30.12.1987 as well as transaction regarding purchase of the said 15626 shares are cancelled immediately. The auditors may also look into the subsequent accounts of the company up to date. They will prepare a report of the same. The said report has to be filed with this Tribunal within a period of 3 months from the date of passing of this order.

79. There will be no orders as to costs.

80. Since the T.P. 38/KB/2021 has been allowed, all connected applications are disposed off.

81. Certified copy of this order be issued on demand to the concerned parties, upon due compliance.