By means of this appeal the appellant is challenging two orders of the Company Law Board (in short the CLB); first order is dated 12th January 2001 passed in CP No. 16/2000 filed by the appellant herein whereby the appellants petition under Section 397/398 of the Companies Act (in short the Act) alleging oppression and mismanagement on behalf of the majority shareholders, was disposed of by giving certain directions; second order dated 30th August 2001 is passed by the CLB in CA No. 93/2001 seeking review of order dated 12th January 2001. By the impugned order the said review application of the appellant herein was dismissed.

2. It may be noted at this stage that against the order dated 12th January 2001 passed in CP No. 16/2000, the appellant herein had earlier also filed an appeal in this Court being Co.A. (B) No. 4/2001. However, on 25th April 2001 when that appeal came up for hearing the appellant sought leave of the Court to withdraw the said appeal as she was willing to seek review of CLBs order dated 12th January 2001. That appeal was accordingly dismissed as withdrawn without prejudice to the right, if any, of the

appellant to file an application for review of the impugned order before the CLB. Since the earlier appeal against the order dated 12th January 2001 was withdrawn by the appellant, a preliminary objection is raised to the maintainability of this appeal against the same order on the ground that no second appeal is permitted after earlier appeal was dismissed as withdrawn. It is also submitted that in any case this appeal filed against the order dated 12th January 2001 would be hopelessly time-barred.

3. However, few facts necessary for determination of the issues involved in the appeal need to be stated:

4. Respondents No.2, 3 and 4 are the real sisters of the appellant. These four sisters incorporated the company with the name M/s. Manu Maharani Hotels Ltd., respondent No.1 herein and certificate of incorporation dated 6th September 1988 was issued by the Registrar of Companies. Some time in the year 2000, respondents No.2, 3 and 4, that is the other sisters, transferred their shareholding in the company to respondents No.6 to 9 herein. The appellant protested this act of her sisters and thereafter fled CP No. 16/2000 before the CLB under Sections 397/398 of the Companies Act on various grounds. Main grievance was the transfer of shares to outsiders as a sequel to which the management of the company changed hands and three new directors were appointed in a Board meeting held on 10th February 2000. Therefore, these consequential acts of appointment of new directors were also challenged, including the validity of the Board meeting held on 10th February 2000 on the ground that she had not received an notice of this meeting. The CLB by impugned order dated 12th January 2001 held that:

i)The respondents No. 2 to 4 had the right to transfer their shareholding to outsiders as Articles of the company do not contain any provision relating to pre-emption rights. On the contrary, as per Article 30, the company could not even refuse registration of transfer of shares except on certain grounds as specified in the said Article. Therefore, sale of shares without offering the same to the appellant could not be considered as an act of oppression;

ii)there was non-compliance of the statutory provisions while issuing further shares by the company and, therefore, the CLB found substance in this allegation of the appellant, as by issue of further shares on preferential basis, the appellants rights have been affected and her shareholding has come down and, therefore, it was held to be an act of oppression;

iii)the induction of three new directors in the Board meeting held on 10th February 2000 was found to be illegal as the appellant had received the notice of meeting held on 10th February 2000;

iv)the appellant shall continue to be a director so long as she holds 14.7% shares in the company and would not be liable to retire by rotation;

v)since with the issue of further shares her percentage shareholding had come down below 14.7%, which percentage would be restored if she accepts further shares to be offered to her which offer should be made within one month from the receipt of the impugned order and the appellant would be at liberty to accept this offer within three months from the date of this offer by remitting necessary consideration;

vi)in case she does not accept the offer within the aforesaid period, direction in this regard would not survive after that offer;

vii)as and when further shares are issued, she should be offered proportionate shares; and

viii)so long as the appellant is a director, notices for the Board meetings should be sent to her along with the agenda by registered post with seven days clear notice.

5. As already pointed out above, the core issue is the sale of shares held by respondents No.2 to 4 to respondents No.6 to 9. According to the appellant, a Memorandum of Family Agreement dated 4th May 1999 was arrived at between the parties as per which, it was agreed by all the four sisters that in case any sister wants to dispose of her share, she would first offer the same to the other sisters. It was submitted that the parties clearly understood the implication and import of this family settlement and even acted upon that. In fact, much prior thereto even the Board of Directors in its meeting held on 16th March 1994 had taken the decision to this effect. It would be clear from the minutes of the said meeting that it was specifically recorded that the four sisters were the absolute shareholders of all the shares of the company which was formed with the intention of converting family property into a hotel by them and to run the same jointly with the mutually unanimous consent/decisions as a family

group. The decisions which were specifically taken in the said meeting included the following:-

a) xxxxx

b) In all the policy decisions regarding the hotel, the decisions of the majority will prevail i.e. 3 out of 4 otherwise the decisions will not be carried out in the Board meeting of Manu Maharani Hotels Ltd.

c) The Company will have 2 Managing Directors at all time. The period of office will be for two consecutive years in rotation. The office of the Managing Directors will be held jointly at all times in following combinations.

1)Mrs. Saroj Jamwal and Mrs. Hemlata Singh

2)Mrs. Puspa Katoch and Mrs. Lata Chauhan. In case one MD decides to step down then the 2nd MD will officiate as sole MD for the remaining period. The promoter Directors will loose their rights to officiate as MD if they decide to sell their shares to anyone other than their own immediate family

d)xxxxx

e) xxxxx

f) xxxxx

g) xxxxx

h) In case any of the Promoter Directors wishes to sell any of the shares, the same will be offered to the remaining promoter directors of IBM in equal proportion and only if any one refuses then again it has to be offered to the remaining promoter directors in equal proportion. The IBM members desiring to buy the shares will have to buy 100% of the shares offered within 30 days of the offer.”

6. In this meeting it was also agreed that memorandum of understanding would be signed on the aforesaid lines by the parties. It was, in these circumstances, Memorandum of Family Agreement dated 4th May 1999 was signed by the parties. The parties even acted upon the same inasmuch as respondents No.2 and 3 earlier wrote letter dated 17th October 1997 to the appellant and her sister Mrs. Saroj Jamwal (respondent No.4) offering to sell their shares @ Rs.14.50 per share. They had even mentioned that they ad received an offer from an outside party, but as they were bound by the family settlement and as per the minutes of meeting dated 16th March 1994 they would like to sell their shares within the family. Since the company was suffering losses at that time, the appellant and the respondent No.4 replied vide letter dated 17th October 1997 and objected to the sale of shares to outsiders and requested for time to attain some smooth transition. Thereafter in the Board meeting held on 6th November 1998 it was resolved that two promoter Directors of the company were selling their shares to the other two promoter Directors and request was also made for giving them some time for completing the transaction. At that time the respondent No.4 even expressed her happiness vide letter dated 20th October 1997 that the appellant had decided to purchase her shares. According to the appellant, thereafter there was some delay on the part of the appellant in arranging the funds, as she got involved in the illness of her daughter-in-law, which was of very serious nature and the respondents No.2 and 3, realising this crisis, never asked the appellant and her sister (respondent No.4) to accept the payment of shares. However, thereafter without informing the appellant, respondents No.2, 3 and 4 sold their shares to outsiders and the appellant came to know of this only after she read a notice dated 12th February 2000 put of in the premises of the hotel informing the staff that the management of the company has changed hands. Mr. Narula, learned counsel appearing for the appellant, on the basis of aforesaid minutes and Memorandum of Family Settlement submitted that the appellant had right of pre-emption which was breached and violated by offering the shares to outsiders. He also urged that the property in question on which hotel was established by the four sisters was a family property and the company was incorporated with the intention that the control thereof remains within the family. Therefore, all the promoters, namely, the four sisters were given equal control in the management. 60% of the shares were with the four sisters in equal proportion and 40% shares were allotted to the financial institutions. To honour this commitment and understanding that the family business should not go to an outsider, the four sisters had taken the decision and even executed the Memorandum of Family Agreement to ensure that even if any of the sisters wanted to sell the shares, she would sell the same to other sisters.

7.This very argument was advanced before the CLB also which was, however, rejected by the CLB on the ground that the Articles of Association of the company, which was a public limited company, shall prevail over any such family settlement. In so far as the Articles of the company are concerned, they do not contain any provisions relating to pre-emption right. Article 30, on the contrary, mandated the management of the company to accept registration of transfer which could be refused on specific ground mentioned therein which were not attracted. The CLB further held that it is the Articles of the company which would govern the relationship of the company and the shareholders and for this proposition it referred to the judgment of the Supreme Court in the case of V.B. Rangaraj V/s. V.B. Gopalakrishnani, AIR 1992 SC 453 [LQ/SC/1991/650] . Therefore, concluded the CLB, sale of shares was not an act of oppression and observed:-

“Therefore, sale of shares without offering the same to the petitioner cannot be considered to be an act of oppression. An act to be construed as oppressive, has to be either burdensome or wrongful or it should involve an element of lack of probity and fair dealing to a member in matters of his/her propriety right as a shareholder. Such right could be either by virtue of the provisions of the or the Articles and in some cases could be imputed on equitable grounds. Since the company is a public limited company, as per Section 111A of thewhich is applicable to the company, there could be no fetters on the right of a shareholder to transfer his/her shares. Thus, no statutory right has been conferred on the petitioner to claim the shares for herself. In the same way, in the absence of any provisions in the Articles giving a pre-emptive right to a shareholder, no right has been vested in the petitioner to seek transfer of the shares held by the respondent sisters. (This is not withstanding the legal position that a public company cannot have any provision giving pre-emptive rights to its members). If we consider the right on equitable grounds, it is on record that, in terms of the Articles, when the 2nd and 3rd respondents decided to sell their shares, they offered the same to the petitioner and the 4th respondent, which offer, whatever may be the reasons, was not accepted by the petitioner and the 4th respondent at that time. When the 2nd and 3rd respondents actually sold the shares, even the 4th respondent joined hands with them and sold her shares also.”

8. I do not find any legal infirmity in the order of the CLB on this aspect. Obviously the attempt of the learned counsel for the appellant is to give weightage to the Memorandum of Agreement, which was a private arrangement of the parties, over the Articles of Association. This very argument was rejected by the Supreme Court in the case of V.B. Rangaraj (supra). That was also a case of a closely held family company consisting of families of two brothers. The Court dealt with the position of the Article of Association vis-a-vis private arrangement and made the following pertinent observations:-

“6. Whether under the Companies Act or Transfer of Property Act, the shares are, therefore, transferable like any other movable property. The only restriction on the transfer of the shares of a company is as laid down in its Articles, if any. A restriction which is not specified in the Articles, is therefore, not binding either on the company or on the shareholders. The vendee of the shares cannot be denied the registration of the shares purchased by him on a ground other than that stated in the Articles.

7.xxxxx

8.xxxxx

9. Hence, the private agreement which is relied upon by the plaintiff whereunder there is a restriction on a living member to transfer his shareholding only to the branch of family to which he belongs in terms imposes two restrictions which are not stipulated in the Article. Firstly, it imposes a restriction on the living member to transfer the shares only to the existing members and secondly the transfer has to be only to a member belonging to the same branch of family. The agreement obviously, therefore, imposes additional restrictions on the members right to transfer his shares which are contrary to the provisions of the Art. 13. They are, therefore, not binding either on the shareholders or on the company xxxxx.”

9. The CLB further rightly mentioned that as per the provisions of Section 111A of the Act, there could not be any fetters on the right of a shareholder to transfer his/her shares. It may be noted that the Legislature has made different provisions for transfer of shares in case of private limited company and public limited company. Section 111, which deals with “Power to refuse registration and appeal against refusal”, relates to the private limited companies. On the other hand, provisions of Section 111A dealing with “Rectification of register on transfer” are attracted in the case of public limited companies. While restrictions can be stipulated in the Article of Association so far as transfer of shares of a private limited company is concerned, sub-section (2) of Section 111A of thespecifically provides that the shares or debentures and any interest therein of a company shall be freely transferable. Proviso to this sub-section further stipulates that if a company without sufficient cause refuses to transfer the shares within two months, the transferee may file an appeal to the Company Law Board and “it shall direct company to register the transfer of shares”. Since the respondent No.1 company is a public limited company, the CLB rightly opined that there could be no fetters on the right of a shareholder to transfer his/her shares. We have already noted that there is no such provision giving pre-emptory right to other promoters in the Article of Association. Even if there was such a provision in the Article of Association, it would have been ultra vires the provisions of the, as no company can provide in the Article of Association any matter which offends the specific provision of an act (See Re. Denver Hotel Co., 1893 (1) Chancery Division 495). No doubt, the four sisters promoted the company and their intention was to make the family property as a hotel and run the same. No doubt, in the Board meeting held on 16th March 1994 and the Memorandum of Family Agreement it was recorded that any promoter wanting to sell the shares would first offer the same to other promoters. However, at the same time, while incorporating this company, the promoters decided to have a public company limited by shares rather than a private company. They should have understood the implication and consequences of getting a public company incorporated. If they wanted such an arrangement, as recorded in the minutes of the meeting dated 16th March 1994 and the Memorandum of Family Settlement, they should have been wise enough to incorporate a private company and further to provide such a clause in the Article of Association. After incorporating a public company, it was too late in the day to think of such an arrangement and recording the same in the Board meeting or the family settlement, which could not have any legal basis.

10. At the most the four promoter sisters were morally bound by the arrangement and, therefore, going by the spirit thereof, a promoter before selling her shares could offer the same to other sisters. However, there was no legal binding on any sort in this behalf. Be as it may, in the present case even this moral obligation was discharged by the sisters. As per the appellants own admission, the company was incurring losses ever since its inception. Thus, it was a loss making venture. It has come on record that on account of serious financial crisis, the company had invited and allotted a part of its shareholding to two companies at two different times, in the year 1994 M/s. Holiday Inn Hotels Limited and in the year 1996 M/s. Royal Garden was invited to run the hotel. The company had also issued share equity to financial institutions from whom it had borrowed funds for construction of hotel. Therefore, it was not a case where the outsiders were going to be inducted for the first time. In any case, due to financial crisis the company was unable to repay the borrowings of the financial institutions with the result even notice under Section 29 of the State Financial Corporation Act was issued. Sisters were also not having cordial relations among them. The two sisters (respondents No.2 and 3), in these circumstances, decided to part with their shareholdings and in view of the family arrangement, they offered to sell their shares to the appellant and the respondent No.4 way back in the year 1997, although under the provisions of the Companies Act they were under no such obligation. The fact remains that till February 2000, the appellant could not respond to this offer by taking any positive steps. The appellant has herself admitted the same, although she has tried to explain away by giving her own reasons and stating that she got involved in the illness of her daughter-in-law, which was of serious nature and, therefore, she could not arrange the funds. Be as it may, fact remains that shares were offered to her in the first instances before selling to to the outsiders after waiting for three years and these shares were ultimately sold to the respondents No.5 to 9 in February 2000. Even the respondent No.4 joined other two sisters in selling her shareholding. This significant shift in the attitude of the respondent No.4 would signify that offer of respondents No.2 and 3 to the appellant and the respondent No.4 had fizzled out. Therefore, I am of the view that sale of shares by respondents no.2 to 4 to outsiders is perfectly valid and is not an act of oppression.

11. The grievance about induction of three new Directors in the Board meeting held on 10th February 2000 also does not hold any water. Once new management took over the control, recast of the Board was inevitable. The controlling group had the requisite power and authority to appoint its own directors. Non-interference by the CLB is, therefore, justified.

12. It may also be noted that when Co.A. (B) No. 4/2001 was filed earlier against this order, which was dismissed as withdrawn on 25th April 2001, the reason given by the appellant was that after filing the appeal the appellant had obtained a certificate dated 23rd March 2001 from the Superintendent Post Master, Mukand Nagar Post Office stating that RL No.3743 dated 24th January 2000 (which is the purported notice sent by company to the appellant for the Board meeting dated 10th February 2000) was not booked at the said post office and that the date stamp on the receipt was not of Mukand Nagar Post Office. The appellant wanted to file review on this ground as this document was obtained after the order of the CLB and withdrew the earlier appeal. In the order dated 30th August 2001 while dismissing the review petition, apart from holding that the CLB did not have powers to review its own order, it still decided to consider the review application on merits and found that none of the findings recorded in the order dated 12th January 2001 were based on the alleged non-receipt of the notice for the Board meeting dated 10th February 2000. Relevant observations are contained in para-7 and it would be apposite to reproduce the same:-

“The allegations of the petitioner as indicated in para 8 of the order of this Bench dated 12.01.2001 related to sale of shares by her sisters to an outsider group in contravention of the MOU, that new directors have been appointed without notice to he, that further shares had been issued to new shareholders and that she had been sidelined from the management of the affairs of the company. In respect of the first allegation relating to sale of shares in contravention of the MOU, we had held that in doing so the sisters of the petitioner had not acted in an oppressive manner. In regard to the allotment of further shares, this Bench found some substance in the allegation and had directed that she should be offered proportionate shares. In regard to the allegations of sidelined in the management, this Board had directed that she should continue as a director as long as her shareholding continued to be 14.7% shares and in respect of appointment of additional directors we had held that in terms of Article 89, the incoming shareholders had the power to appoint additional directors. The only reference to the receipt is in para 10 of that order that in view of the said receipt the petitioner cannot complain of non receipt of the notice for the meeting dated 10.02.2000. Thus, it is apparent that none of these finds on the main allegations of the petitioner is based on the alleged fabricated postal receipt. This being the position, the question of reviewing our order dated 12.01.2001 does not arise and accordingly we dismiss this application.”

13. I do not find any infirmity in the aforesaid approach of the CLB. As noted above, the basic premise of the entire petition was the transfer of shares by respondents No.2 to 4 to outsiders which was impalatable to the appellants who wanted right to re-emption. This challenge of the appellant failed before the CLB and I also do not find any merit therein. Once the majority shareholding has come to respondents No.5 to 9, who have the control of the company, they would naturally appoint their director as well. The CLB has, nonetheless adopted a fair approach in not only maintaining the same shareholding pattern qua appellant by directing that she be given offer to buy further shares so as to restore shareholding worth 14.7%. Even she is allowed to remain director so long as she continues to be the shareholder, although she could be retired by rotation as per the Articles. Therefore, the CLB has passed necessary directions to secure the interest of the appellant. It is a different matter that the company had offered additional equity shares to the appellant on 25th January 2001 as per the directive of the CLB, but till date she has not chosen to accept the same. I, therefore, do not find any merit in this appeal. An objection was taken to the maintainability of the appeal against order dated 12th January 2001 on the ground that this order was challenged earlier and as the said appeal was withdrawn, no fresh appeal is permissible to impugn the same order. However, as the appeal is dismissed on merits, I do not propose to go into this question.

14. The appeal is accordingly dismissed. However, as the appellant has not given any option for purchase of further equity as offered to her presumably because of the pendency of this appeal, I give further four weeks time to the appellant to signify her intention in this behalf failing which the said offer shall be treated as lapsed.

15. No costs.