Mr. Jayant Patel, J.

1. The main O.J. Appeal is directed against the judgment and order dated 10.12.2008 passed by the Company Law Board, Principal Bench, New Delhi [hereinafter referred to as CLB] in Company Petition No. 79 of 2007 whereby the Board passed a detailed order, the operative portion of which reads as under :-

13. There are allegations and counter allegations. Considering the allegations of siphoning off of funds by the petitioners which remain uncontroverted, I hereby direct the R-1 Company to appoint an independent auditor to ascertain the amount siphoned off between the period 1.4.06 to 13.3.07, the amount so ascertained shall be deposited back by the petitioners into the account of the respondent Company within two months of such audit. If the petitioners fail to deposit the ascertained amount within the prescribed period, the respondents shall be at liberty to buy the shares of the petitioners at the value to be ascertained by an independent valuer for the purpose to be appointed by the parties consent.

14. Considering the facts and circumstances of this case, to do substantial justice between the parties and to regular the conduct of the Companys affairs in future, I hereby order as under :-

I. The illegal increase in the share capital and thereafter illegal issue and allotment of 40,000 shares to the respondents is hereby declared null and void and status quo ante as on 11.12.06 is hereby restored. The R-1 Companys authorized capital shall stand restored to as on 11.12.06 and same with the shareholding as on 11.12.06. All resolutions passed and statements filed with the ROC in this respect subsequent to 11.12.06 are hereby declared as null and void and stand cancelled.

II. P-1 and P-2 shall continue to be the directors in the Company, their illegal removal is hereby declared as null and void.

III. R-4 is hereby directed to allow operation of the Bank Accounts of the R-1 Company as it existed prior to 11.12.06.

IV. The respondents are hereby directed to restore excess dividend received to the account of the respondent Company to be distributed as per shareholding as on 11.12.06.

i. The relevant facts leading to the filing of the present appeal, which are as under:-

Facts upto the stage of CUB:

On 13.03.1984, Sugam Construction Pvt. Limited [hereinafter referred to as the Company] was incorporated under the provisions of the Companies Act [hereinafter referred to as the Act] having its registered office at 4th floor, Arun Complex, Behind C.U. Shah College, Ashram Road, Ahmedabad with the main object of carrying on business of builders and contractoRs. The promoters of the Company were Shri Ushakant Naranbhai Patel and Shri Naresh P. Modi. The authorized share capital of the Company was Rs. 5,00,000/-divided into 1000 equity shares of Rs. 100/- each and 4000 unclassified shares of Rs. 100/- each and 4000 unclassified shares of Rs. 100/- each. On 11.04.1984, at the first meeting of the Company, Shri Bhailalbhai Bababhai Patel and Shri Surendra C. Patel were appointed as DirectoRs. At that time, Bhailalbhai was doing business at Delhi in the name and style of Nicolian India Pvt. Ltd. and he had his own office at Delhi. Shri Pradip Shringarpure, who had been working with the Company for a long period, was appointed as a Director of the Company on 21.05.1990. One Shri Arun Shantilal Patel was also appointed as a Director of the Company on 16.01.1996. On 18.05.1996, Shri Naresh Modi and Shri Surendra C Patel resigned from the Board of Directors, and Shri Rahul Bhailalbhai Patel was appointed as a Director. On 12.08.1997, the authorized capital was increased from Rs. 5,00,000/- to Rs. 10,00,000/-divided into 8000 equity shares of Rs. 100/- each and 2000 preference shares of Rs. 100/- each. Somewhere in 2001, Bhailalbhai Patel allowed the Company to use his office at Delhi, without charging any rent. On 28.04.2003, Dipen Patel was appointed as a Director of the Company. On 05.08.2003. Shri Arun Patel ceased to be a Director of the Company. To understand the situation well, the above particulars are mentioned here below in a tabulated form as under :-

Date

Appointed as Directors

Ceased to be Directors

List of running Directors

13.03.84

Promoters of the Co. Ushakant Naranbhai Patel, Naresh P. Modi

1. Ushakant Naranbhai Patel

2. Naresh P. Modi

11.04.84

Bhailalbhai Bababhai Patel Surendra C. Patel

1. Ushakant Naranbhai Patel

2. Naresh P. Modi

3. Bhailalbhai Bababhai Patel

4. Surendra C. Patel

21.05.90

Pradip Shringarpure

1. Ushakant Naranbhai Patel

2. Naresh P. Modi

3. Bhailalbhai Bababhai Patel

4. Surendra C. Patel

5. Pradip Shringarpure

16.01.96

Arunshantilal Patel

1. Ushakant Naranbhai Patel

2. Naresh P. Modi

3. Bhailalbhai Bababhai Patel

4. Surendra C. Patel

5. Pradip Shringarpure

6. Arun Shantilal Patel

18.05.96

Rahul Bhailalbhai Patel

Surendra C Patel Naresh P. Modi

1. Ushakant Naranbhai Patel

2. Bhailalbhai Bababhai Patel

3. Pradip Shringarpure

4. Arun Shantilal Patel

5. Rahul Bhailalbhai Patel

28.04.03

Dipen Ushakant Patel

1. Ushakant Naranbhai Pate

2. Bhailalbhai Bababhai Patel

3. Pradip Shringarpure

4. Arun Shantilal Patel

5. Rahul Bhailalbhai Patel

6. Dipen Ushakant Patel

05.08.03

Arun Shantilal Patel

1. Ushakant Naranbhai Patel

2. Bhailalbhai Bababhai Patel

3. Pradip Shringarpure

4. Arun Shantilal Patel

5. Rahul Bhailalbhai Patel

6. Dipen Ushakant Patel

2. As far as the holdings are concerned, Ushakant Naranbhai Patel along with his friends, relatives and associates held 4310 Equity Shares representing 53.88% of the voting rights of the Company whereas Bhailalbhai Bababhai Patel with his friends, relatives and associates and Pradeep G. Shrigarpure held 3690 equity shares representing 46.12% of the voting rights of the Company. Thus, Bhailalbhai Bababhai Patel with his friends, relatives and associates and Pradeep G. Shrigarpure were not holding majority voting power in the Company. Ushakant Naranbhai Patel was in charge of" Gujarat operations of the Company whereas Bhailalbhai Bababhai Patel was in charge of Delhi operations of the Company and Pradeep G. Shrigarpure was in charge of Mumbai operations of the Company. In 2001, the respondent Company opened an account with State Bank of Saurashtra, Connaught Place, New Delhi.

3. Dispute arose between the Directors of the Company. Directors of the Company were divided into factions and to put the facts more clearly, it would be appropriate to state that two factions emerged, which may be called as (i) Ushakant faction and (ii). Bhailalbhai faction.

Allegations and counter allegations were made by the factions against each other. Ushakant faction alleged that the Delhi and Mumbai operations were incurring heavy losses in business, reputation and goodwill of the Company whereas only Gujarat operations were making profits. Bhailalbhai faction alleged that Ushakant faction withdrew large sum of money from the account of the Company during the years 2006 and 2007. Bhailalbhai suspected mismanagement, diversion and siphoning off of the funds of the Company by Ushakant faction and therefore, somewhere in the middle of October 2006, Bhailalbhai Bababhai Patel shifted to Ahmedabad.

Till Bhailalbhai shifted his operations to Ahmedabad, the Bank account of the Company at Ahmedabad was operated by any one from Shri Ushakant Patel. Dipen Patel and Bhailalbhai Patel.

4. A meeting of the Board of Directors was held on 11.12.2006 wherein Ushakant, Bhailalbhai and Pradip Shringarpure attended. Leave of absence was granted to Rahul Patel and Dipen. Various resolutions were passed in the said meeting. As per the resolution passed in this meeting held on 11.12.2006, so far as Bank account is concerned, the same are to be operated jointly by any two Directors, Bhailalbhai, Ushakant and/or Arun. By the said resolution, the bank operating power of Dipen was divested. It was also resolved in the said meeting that Bhailalbhais prior consent was required before tendering for new contracts/sub-contracts/joint ventures and/or agreements with Central or State Government. It was also resolved that no Director of the Company would be allowed to engage himself directly or indirectly in identical or similar nature of business which is in conflict with the interest of the Company. Pursuant to the said resolutions, atleast 200 cheques were jointly signed by Ushakant as well as a Bhailalbhai. However, it is the case of Ushakant faction that actually no board meeting was held on 11.12.2006 and no notice to call any such Board meeting came to be issued. It is the case of Ushakant faction that inspite of these glaring defects, Bhailalbhai chaired the Board Meeting and passed various resolutions, It is further the case of the Ushakant faction that the kind of resolutions passed in this meetings gave sweeping powers to Bhailabhai Patel and that is the starting point of oppression and mis-management in the affairs of the Company by Bhailalbhai.

5. On 15.01.2007 and 01.03.2007, Bhailalbhai wrote letters to Ushakant and Dipen stating not to indulge in any financial commitment without prior instructions and not to do any activities or make any commitments which are not in the interest of the Company. On 08.03.2007, Bhailalbhai wrote a letter to Ushakant stating various instances of high handedness, cheating the Company and calling upon him to show cause within four days failing which he would be removed from the position of Director. On 08.03.2007. Bhailalbhai also addressed a letter to Dipen wherein it is alleged that he has approached the Companys clients, M/s. Reliance Petroleum Limited and requested them to cancel the Companys work order/ contract and transfer it to the name of M/s. Akshar Power Pvt. Ltd. owned by his family. It was also alleged that a cheque for Rs. 64,62,195-00 issued by Reliance Petroleum Limited in the name of the Company was not deposited in the Companys account and he is trying to get the cheque issued in the name of M/s. Akshar Power Pvt. Ltd. In the said letter, Bhailalbhai informed Dipen that he is removed from the Directorship of the Company and advised him not to take any action on behalf of the Company. On 08.03.2007 a resolution is purported to have been passed at the meeting of the Board of Directors of the Company whereby Bhailalbhai was authorized to manage and supervise the overall function of the Company and to sign, execute etc. on behalf of the Company.

6. On 10.03.2007, a notice for convening a meeting of the Board of Directors on 15.03.2007 is issued by Bhailalbhai. The following were the agendas of the notice dated 10.03.2007:-

1. Approve the Minutes of the Last Board Meeting.

2. To decide the mode of operation of Bank accounts.

3. To approve the notice of termination as director of the Company Shri Dipen U. Patel.

4. To review the current progress of working of the Company.

5. To plan the future working of the Company.

6. To decide the mode of finance for the requirement of working capital of the Company.

7. Any other business from the Chair.

The said notice dated 10.03.2007 is addressed to U.N. Patel, P.G. Shringarpure, Mr. Bharat Shah as Alternate Director Mr. Rahul B. Patel.

On 11.03.2007, the Company received two requisitions from M/s. Nicolian India Pvt. Ltd., New Delhi for removal of Ushakant and Dipen from the Directorship of the Company. Both these letters are signed by Bhailalbhai as director of M/s. Nicolian India Pvt. Ltd., New Delhi.

Meanwhile, on account of various disputes, it was decided to refer the matter to an Arbitrator and accordingly Mr. Uday Bhatt was appointed as Arbitrator with the consent of the parties on 23.01.2007. It is the allegation of Ushakant faction that Bhailalbhai faction did not co-operate with the arbitration proceedings whereas Ushakant faction agreed to submit all the details asked for by the arbitrator.

It is further alleged by the Ushakant faction that the respondent No. 2 Bhailalbhai Bababhai Patel informed Ushakant Naranbhai Patel that the arbitrator has allowed him to take over the charge and control over the management of the respondent Company, demanded of him to return the vehicle of the Company and threatened him not to attend the office of the Company, Inspite of the fact that Ushakant Naranbhai Patel and associates were major stakeholders, he returned the vehicle of the Company.

7. The Arbitrator Mr. Uday M. Bhatt wrote a letter to Bhailalbhai indicating that Bhailalbhai is trying to usurp all powers to himself without consent of the Arbitrator as well as other Directors of the Company, which is unfair. It is also mentioned that the notice of the Board meeting is not legal because notice has to be issued/served to all the members of the Board on that date while he has issued it to two directors only and name of Mr. Bharat Shah as been shown as an alternate director of Mr. Rahul B. Patel [son of Bhailaibhai] without the consent of the Board as well as the arbitrator.

8. Pursuant to notice dated 10.03.2007, a meeting of the Board of Directors was held on 15.03.2007 wherein Bhailalbhai, Pradeepbhai Shrinagrpure and Dhanjibhai A. Patel attended, and Ushakant and Dipen did not attend. It is required to be noticed that the name of Dhanjibhai A Pate] is not mentioned in the notice dated 10.03.2007. A summary of the decisions taken in the meeting of the Board of Directors was held on 15.03.2007 is as under :-

1. Resignations of Mr. Arun S. Patel and Mr. Bharat K. Shah as Directors of the Company were accepted. [These items were not in the agenda].

2. Dhanjibhai Patel was appointed as alternate director to Mr. Rahul B. Patel during his absence from India. [This item was also not in the agenda].

3. Bhailalbhai was authorized to solely operate the Bank of the Company both at Ahmedabad and Delhi.

4. Pradeep Shringarpure was authorized to solely operate Bank account at Mumbai.

5. Ushakant was removed from the office of the Director of the Company. [This item was also not in the agenda].

6. Dipen was removed from the office of the Director of the Company.

7. Subject to the approval of the share holders in general meeting, the authorized share capital of the Company was increased from Rs. 10 lakhs [divided into 8000 equity shares of Rs. 100/- each and 2000 preference shares of Rs. 100/-each] to Rs. 50 lakhs, divided into 48000 equity shares of Rs. 100 each and 2000 preference shares of Rs. 100/-each. It was also resolved that an Extra Ordinary General Meeting of the Company be held on 10.04.2007.

After the Board meeting was over on 15.03.2007, Ushakant wrote a letter to Bhailalbhai stating that he and Dipen were present at the 4th floor of the office of the Company, that when Ushakant enquired about the Board meeting with Bhailalbhai. Bhailalbhai informed that in view of the letter of the Arbitrator Shri Uday Bhatt, the meeting has been cancelled. In view of these, Ushakant asserted that there was no meeting on 15.03.2007 and requested Bhailalbhai not to take any action on the decisions purported to have been taken in the Board meeting of 15.03.2007. To this letter. Bhailalbhai wrote a letter to Ushakant stating that the meeting was held on 15.03.2007 and why Ushakant and Dipen did not attend the meeting is best known to them. It is further stated in the letter that Mr. Uday Bhatt has no business to stop the board to carry on the business of the Company since Mr. Uday Bhatt has refused to act as an arbitrator and has confirmed the same to him in the presence of Mr. M.S. Chhajed, Chartered Accountant and Mr. P.G. Shringarpure number of times before 13.03.2007.

9. On 15.03.2007, a notice to convene Extra Ordinary General Meeting of the Company on 10.04.2007 is issued and it is dispatched to all the shareholders including Ushakant and Dipen by UPC.

Pursuant to the decisions taken in the Board Meeting on 15.03.2007, Bhailalbhai wrote a letter to the Bank to delete the authorization in favor of Ushakant and Dipen. Ushakant wrote a letter to the Bank on 19.03.2007 stating that Bhailalbhai is not authorized to issue any notice/letter to the Bank and requested not to take any action pursuant to the letter of Bhailalbhai.

On 07.04.2007, Ushakant wrote a letter on the letterhead of the Company to the Bank wherein Ushakant stated that Bhailalbhai is a simple Director of the Company and the Company has not appointed him as Chairman of the Company. Various objections to the meeting dated 15.03.2007 were also raised in the said letter. Ultimately, Ushakant requested the Bank not to renew the facilities without the consent of all the directors and also requested the Bank to release the co-lateral security of his residential property and also release his personal guarantee given to the Bank against the facilities extended to the Company.

As per the notice dated 15.03.2007, Extra Ordinary General Meeting of the Company was held on 10.04.2007. As per the minutes, the following pesons were present :-

1. Bhailalbhai B. Patel

2. Pradeepbhai B. Shringarpure

3. Dhanjibhai A. Patel

4. Other 1 member in person

5. Other member M/s. Nicolian India Pvt. Ltd holding 1020 equity shares present through representative and 4 through proxy.

Shri Bhailalbhai chaired the meeting. Resolutions were passed for removal of Ushakant and Dipen from the Directorship of the Company. The authorized share capital of the Company was increased from Rs. 10 lakhs [divided into 8000 equity shares of Rs. 100/- each and 2000 preference shares of Rs. 100/- each] to Rs. 50 lakhs, divided into 48000 equity shares of Rs. 100/- each and 2000 preference shares of Rs. 100/- each and it was also resolved to amend the Memorandum of Association of the Company accordingly.

10. After the above Extra Ordinary General Meeting, it is alleged that Ushakant and Dipen took away the statutory records of the Company on 13.04.2007. Bhailalbhai, therefore, wrote a letter dated 19.04.07 informing Ushakant that inspite of repeated requests, not only that he has not given accounts but also acted against the interest of the Company. He was further informed that since he has already been removed from the post of Director, he is not authorized to represent the Company in any way before any Authorities. A similar letter was also written by Bhailalbhai to Dipen on 19.04.2007.

11. In a meeting of the Board of Directors purported to be held on 07.05.2007, Ushakant and Dipen were allowed to withdraw their individual personal guarantees and also withdraw their immovable properties given to the Bank as securities.

On 18.05.2007, 4000 shares were issued by the Company as per the decision taken in the Extra Ordinary General Meeting but the shares were not issued proportionately to all existing shareholders of both the fractions/groups.

12. On 06.06.2007, Ushakant and Dipen approached the Company Law Board, New Delhi by filing Company Petition No. 79 of 2007 and the Principal Bench, Company Law Board, New Delhi, after hearing both the sides passed the impugned judgment and order on 10.12.2008, the operative portion of which we have quoted in paragraph No. 1 of this order.

Facts after CLB passed impugned order :-

13. A couple of days after the Board pronounced the aforesaid order. Ushakant and Dipen, in their capacity as Directors of the Company addressed a letter dated 13.12.2008 to AUDA with regard to construction of Nirnayngagar underpass and informing them of the order passed by the Board and also requesting them not to issue any cheque or draft without their consent unless and until any of them or both of them sign. A similar letter was also addressed to RITES, Nagpur with regard to construction of RCC box culvert by push-through technology for proposed canal crossing. A similar letter was also addressed to Gammon India Limited, Mumbai with regard to rebuilding of bridges of Surat-Vadodara Section of Vadodara Division of Western Railway. Ushakant and Dipen also wrote a letter dated 13.12.2008 to State Bank of India, Bhadra, Ahmedabad requesting them to update their records for authorization of operation of Current A/c No. 56005002600 of the Company as it existed prior to 11.12.2006 and also requested the Bank not to act on any instructions issued orally or in writing from any person/employee/ other director of the Company which is not signed by any or both of them. Ushakant and Dipen also wrote a letter to State Bank of India, Cannaught Place Branch, New Delhi in connection with Current Account No. 56139002405 informing them of the order passed by the Board and requesting them to freeze the said account of the Company till the Bank receives a fresh resolution of the Board of Directors for authorization for operation of the said account from the Company under signature of any one or both of them. A similar letter dated 15.12.2008 was also addressed by Ushakant to State Bank of India, Bhadra, Ahmedabad to freeze the current accounts of the Company till the Bank receives a fresh resolution of the Board of Directors for authorization for operation of the said account from the Company under signature of any one or both of Ushakant and Dipen.

14. On 19.12.2008, Ushakant, mentioning himself as the Chairman of the Company, addressed a notice in the letterhead of the Company to Bhailalbhai Patel at his Delhi address calling for a meeting of the Board of Directors on 22.12.2008 at 10.00 AM at Ahmedabad which consisted of the following agenda :-

1. To grant leave of absence, if any.

2. To approve the minute of the last Board meeting.

3. To consider the matter of implementation of Order of the Honble Company Law Board, Principal Bench, New Delhi.

4. To consider the matter of annual accounts for the financial year ended on 30.06.2008.

5. Any other matter that may be put up by the Chairman.

It is the case of Bhailalbhai that he received the notice on 22.12.2008 at about 2.00 PM, i.e. after the scheduled time of the meeting. It is also the case of the Bhailalbhai faction that even Pradip Shringarpure received the notice on 22.12.2008 at about 5.30 PM, i.e. after the scheduled time of the meeting. It is, therefore, the case of Bhailalbhai faction that they could not attend the said meeting. In the meeting of the Board of Directors held on 22.12.2008 pursuant to notice dated 19.12.2008 only Ushakant and Dipen were present and in that meeting, Ushakant appointed two additional directors, viz. Pramukhbhai R. Patel and Ritesh Patch

15. On 19.12.2008, Bhailalbhai moved the present O.J. Appeal No. 165 of 2008 challenging the judgment and order dated 10.12.2008 passed by the Company Law Board, Principal Bench, New Delhi in Company Petition No. 19 of 2007. Initially, this Court [Coram: D.A. Mehta & Smt. Abhilasha Kumari. JJ.] passed the following order on 26.12.2008:-

NOTICE qua respondent Nos. 1, 2 and 4 returnable on 29.12.2008. MRs. Swati Soparkar, learned Advocate, waives service of notice for respondent Nos. 1 and 2. Direct Service qua respondent No. 4.

On 29.12.2008, this Court [Coram: R.M. Doshit & K.M. Thaker, JJ.] passed the following order in the above O.J. Appeal.

Admit.

Learned Advocate Mr. Soparkar appears for and waives service of notice of admission on behalf of respondents No. 1 and 2.

Bhailalbhai had also taken out Civil Application No. 361 of 2008 along with the aforesaid O.J. Appeal, making the following prayers :-

To stay, pending the hearing and final disposal of the captioned Original Jurisdiction Appeal, the operation, implementation and execution of the impugned judgment and order dated 10.12.2008 except the observations and directions contained in paragraph 13 of the impugned judgment and order by the Company Law Board in Company Principal Bench, New Delhi in Company Petition No. 79 of 2007.

While admitting the appeal on 29.12.2008, this Court [Coram: R.M. Doshit & K.M. Thaker, JJ.] also passed the following order in the said Civil Application :-

Rule returnable on 30th January, 2009. Learned Advocate, Mr. Soparkar appears for and waives service of notice of Rule on behalf of opponents No. 1 and 2.

Pending the Appeal, there shall be ad-interim stay in respect of the direction "R-4 is hereby directed to allow operation of the bank Accounts of the R-1 Company as it existed prior to 11.12.06", on condition that the Bank account of the applicant No. 1 Company with opponent No. 4 Bank will be operated by the applicant No. 2 and the opponent No. 3, directors of the Company, jointly. The applicants will maintain the record of the banking operations scrupulously. In case any cash is withdrawn, the appropriation of such cash amount will be accounted for on the returnable date. It is further clarified that all the four directors of the Company, parties to the present Appeal, will have access to the office premises. However, none of them will be permitted to remove any of the records of the Company from the office premises. The complete account of the banking transactions will be maintained by the applicants and a copy will be furnished to the opponents No. 1 and 2 once every 15 days.

Feeling aggrieved by the order dated 29.12.2008 passed by this Court in Civil Application No. 361/2008, Ushakant preferred Civil Application No. 3 of 2009 for modification of the said order.-

In the said Civil Application No. 3 of 2009 Court passed the following order :-

The opponent Nos. 1 & 2 in Civil Application No. 361 of 2008 have taken out the present Application for modification of the Order dated 29th December, 2008 made on the above Civil Application No. 361 of 2008 [Coram: Ms. R.M Doshit & Mr. K. M Thaker, JJ.].

By the above order, the Court had directed that, "..the bank account of the applicant No. 1-Company [Opponent No 1 herein] with opponent No. 4-bank will be operated by the applicant No. 2 and the opponent No. 3 [Opponent Nos. 2 & 3 herein], directors of the Company, jointly." The applicants have sought modification to the effect that one of the applicants may also join the opponent Nos. 2 & 3 i.e.. the Bank account may be operated jointly by one of the applicants and the opponent Nos. 2 & 3.

The aforesaid order had been made after hearing the parties. The modification, as sought for, cannot be permitted. If the applicants have any grievance, the only remedy open to them is to prefer appeal against that order.

The Applicants have also made grievance that though they are permitted to attend the office, the applicants are not allowed to enter the office premises and are not allowed to have access to the record.

The contention is disputed. Learned Advocate Mr. Mihir Joshi has appeared for the opponents No. 1 & 2. He has submitted that there is absolutely no prohibition against the applicants entering the office premises but they should not interrupt the office functioning. As to the record, Mr. Joshi has submitted that the concerned record was removed by the applicants in the month of April, 2007. The said plea was raised before the Company Law Board also. Mr. Joshi assures that in absence of any other order, none of the opponents shall restrain the applicants from entering the office premises. If at all the applicants need inspection of any record, a written communication be given to the opponents No. 1 & 2. The opponents No. 1 & 2 shall furnish such record without any objection. If any record is not available, a communication in writing will be given to the applicants.

In view of the above assurance given by Mr. Joshi, no further order is required to be made on this Application. Application is accordingly disposed of.

16. Feeling aggrieved by the order dated 29.12.2008 passed by this Court in Civil Application No. 361/2008 as well as order dated 04.02.2009 passed in Civil Application No. 3 of 2009, Ushakant preferred Special Leave to Appeal (Civil) No. 6168/09 and 6169/09 before the Honorable Apex Court, and the Apex Court on 05.05.2009 passed the following order :-

After addressing us for some time, learned Counsel for both the parties submit that they will be satisfied if without going into the merits of the two orders impugned in the petitions and rights of the contesting parties to raise all the points raised in the present petitions, an interim arrangement is made for the smooth running of respondent No. 1 Company, pending disposal of the appeal by the High Court. Accordingly, it is agreed between learned Counsels for the parties that except for the Government and other statutory dues including salaries to the staff, payments for purchase of raw materials from any public sector undertaking and to other companies viz. A.C.C. And Tata Steels, no other expenditure, over and above Rupees one lakh will be expanded by the 1st respondent without due intimation and consent of an independent auditor, to be nominated by the High Court. It is also agreed that the Company shall immediately move an application before the High Court for appointment of an auditor. It is further agreed that fortnightly statements, as directed by the High Court vide order dated 4th February 2009, shall continue to be supplied to the petitioners herein. It is directed that in the event of any stalemate with regard to disbursement of any amount either on account of objection by the auditor or otherwise, it will be open to the parties to approach the High Court for appropriate ordeRs.

Both the petitions stand disposed of in the above terms.

Having regard to the nature of the disputes involved in the matter, the High Court is requested to expedite the disposal of the main appeal.

17. As per the aforesaid order passed by the Apex Court, the Company preferred Civil Application No. 219 of 2009 for appointment of an independent auditors, and after hearing both the sides, this Court [Coram: R.M. Doshit & S.D. Dave, JJ.] on 15.06.2009 passed the following order :-

This Application has been taken out by the appellants in above O.J Appeal No. 165 of 2008 for appointment of an independent auditor as directed by the Honble Supreme Court [Annexure-4 to the Application].

Learned Advocates agree that the Chartered Accountant Shri Amal Dhru, having his Office at M/s. Amal Datt & Associates, "Vatsalya", 3, Brahaman Mitra Mandal Society, Mangaldas Road. Ellisbridge, Ahmedabad, be appointed as an. independent auditor. Learned Advocates also agree that the remuneration of the above named independent auditor will be paid by the applicant-Company.

In above view of the matter, this Civil Application is allowed. This Court appoints Chartered Accountant Shri Amal Dhru to act as an independent auditor.

18. Subsequently, Civil Application No. 361 of 2008 was disposed of by this Court [Coram: S.J. Mukhopadhaya, CJ and K.M. Thaker, J.] on 14.07.2010 since the interim order passed by this Court in the Civil Application was modified by the Apex Court, observing that as the parties will be governed by the modified interim order passed by the Supreme Court, no further order is required to be passed in this case.

19. Feeling aggrieved by the observations of the Board in paragraph 13 of its order, Ushakant had also preferred O.J. Appeal No. 5 of 2009 and Civil Application No. 33 of 2009 before this Court, and this Court [Coram: R.M. Doshit & H.B. Antani, JJ.] passed the following order on 12/16-2-2009;-

This appeal, preferred under Section 10(F) of the Companies Act, 1956 [hereinafter referred to as the Act] arises from the judgment and order dated 10th November 2008 passed by the Company Law Board. Principal Bench. New Delhi [hereinafter referred to as the Board] in Company Petition No. 79 of 2007 insofar as the Board has issued directions that :-

the respondent Company to appoint an independent auditor to ascertain the amount siphoned off between the period 01.04.2006 to 30.03.2007, the amount so ascertained shall be deposited back by the petitioner into the account of the respondent Company within two months of such audit. If the petitioners fail to deposit the ascertained amount within the prescribed period, the respondent shall be at liberty to buy the share of the petitioner at the value to be ascertained by the independent valuer for the purpose to be appointed by the parties consent.

Learned Advocate Mr. Pahwa appears for the appellant. He has submitted that the impugned direction issued against the present appellants was unwarranted. The aforesaid direction was issued on the premise that the allegation made by the respondent No. 2 of siphoning of the Companys funds by the appellants was not controverted by the appellants. He has further submitted that it was the appellants who had approached the Board against the respondent Nos. 1 and 2 in respect of allotment of 40,000 shares illegally made by the said respondents to themselves and in collecting excess dividend amount from the Company. He has submitted that in the application made by the appellants, the Board could not have issued direction against the appellants. In the submission of Mr. Pahwa, the direction issued on the wrong premise is a question of law which requires consideration by this Court. In support of his submissions, Mr. Pahwa has relied upon the judgment of the Honorable Supreme Court in & Carrington INVT. (P) Ltd. v. P.K. Prathapan, : (2005) 1 SCC 212 [LQ/SC/2004/1029] , V.S. Krishnan v. Wstfort HI-TECH Hospital Ltd. : (2008) 2 Comp L.J. 1 (SC) and in Sangramsinh P. Gaekwad v. Shantadevi P. Gaekwad : (2005) 11 SCC 314 [LQ/SC/2005/80] .

He has further submitted that in case of counter allegation by the respondent Nos. 1 and 2, the Board had ample power to inquire into the allegations and issue suitable directions. In absence of counter complaint or application made by the respondent Nos. 1 and 2, without any material on record and in the absence of inquiry by the Board, the impugned direction issued against the appellants is without jurisdiction and without the Authority of law.

The Appeal is contested by Mr. Joshi. He has also relied on the above referred judgment in Sangramsinh P. Gaekwad v. Shantadevi P. Gaekwad : (2005) 11 SCC 314 [LQ/SC/2005/80] . He has submitted that the powers of the Board are wide enough to issue directions as may be warranted on the facts situation. The present appeal does not involve question of law, and need not be entertained. He has also relied upon Sections 397, 398 and 402 of the Act and the Company Law Board Regulations, 1991.

16th February, 2009

Mr. Joshi has also submitted that the inquiry ordered by the Board has already commenced. Two Chartered Accountants, independent professionals, have been appointed to hold the inquiry and have been entrusted with all relevant documents.

In reply, Mr. Pahwa has submitted that in the alternative, the appellants be permitted to appoint an independent professional to join the pair of Chartered Accountants appointed by the respondent Nos. 1 and 2.

We are unable to agree with Mr. Pahwa. The jurisdiction conferred upon the Board by Sections 397 and 398 read with Section 402 of the Act is wide enough for the Board to make appropriate ordeRs. It is not necessary that orders can be made in favor of the applicants alone or in answer to the complaint made by the applicants alone. The Board is empowered to make orders to suit the facts situation. In our opinion, the impugned order made by the Board is within its jurisdiction. Besides, the impugned direction, in our view, does not involve a question of law which needs to be entertained in appeal preferred under Section 10.F of the Act.

The suggestion that the appellants be permitted to nominate an independent professional to join the pair of Chartered Accountants already investigating into the matter also cannot be accepted as inquiry has already commenced and appointing another professional would only complicate the situation rather than resolving it. Further, the appellants will have adequate remedy against such report, if adverse.

For the aforesaid reasons, the Appeal is dismissed.

In view of the above order passed in the OJ Appeal, the Civil Application stands disposed of.

20. After filing of SLP No. 6168/09 and 6169/09, Dipen and his mother Kusum Ushakant Patel requisitioned on 12.03.2009 under Section 169 of the Act for an Extra Ordinary General Meeting u/S 169 of the Act to consider the following matters :-

1. To remove Mr. Rahul B. Patel as a Director of the Company.

2. To appoint Mr. Jinal Mahendrabhai Kothari, as a Director of the Company.

3. To appoint Mr. Dhaval Harishbhai Amin as a Director of the Company.

4. To appoint Chandubhai G. Patel as a Director of the Company.

5. To appoint Mr. Vijay A. Patel as a Director of the Company.

6. To appoint Mr. Keshubhai V. Modhvadia as a Director of the Company.

7. To constitute a committee consisting of a Retired Justice of High Court of Gujarat and a senior practicing Company Secretary as per resolution set out in the annexed Notice.

Immediately on the next day, i.e. 13.03.2009, Ushakant, as Chairman of the Company, addressed a notice dated 13.03.2009 to one of the alternate Directors - Dhanjibhai Patel and called a meeting of Board of Directors of the Company on 18.03.2009 at 10.00 AM to transact the following business :-

(i) To grant leave of absence, if any.

(ii) To approve the minutes of the last Board Meeting.

(iii) To consider the matter of convening of Extra ordinary General Meeting on requisition of the shareholders of the Company to transact the matters mentioned in the notice u/S 169 of the Companies Act, 1956.

By filing an additional affidavit in Civil Application No. 361 of 2009, Bhailalbhai brought on record the requisition dated 12.03.2009 and notice dated 13.03.2009. Thereupon, this Court passed the following order on 18.03.2009 :-

Heard the learned Advocates. To be heard with the main Appeal.

Learned Advocate Mr. Pahwa appears for the respondents Nos. 1 and 2. He states that pending the Appeal, the Resolution passed by the Board of Directors in its meeting held on 18th March 2009, pursuant to the requisition made by two Share-holders Mr. Dipen Patel and Smt. Kusum Patel, will not be acted upon.

Pending the Appeal, both the parties are expected not to complicate the matters further.

21. Subsequently, Dipen issued a communication dated 24.06.2009 on the letterhead of the Company calling for a meeting of the Board of Directors of the Company on 30.06.2009 at 10.00 AM for various agenda items enlisted therein. It is required to be noted that a similar requisition dated 12.03.2009 was already made by another member of the Ushakant faction. Bhailalbhai faction therefore filed Civil Application No. 256 of 2009 making the following prayers :-

(A). To restrain, pending the hearing and final disposal of this Civil Application, the opponent Nos. 1 and 2 from acting in any manner whatsoever pursuant to the communication/notice dated 24.06.2009 (annexure-1) and stay the operation, implementation and execution of the said communication/ notice dated 24.06.2009 (Annexure-1).

(B). To stay, pending the hearing and final disposal of the present Civil Application and OJ Appeal No. 165 of 2008, the direction contained in paragraph 14(11) of the final judgment and order dated 10.12.2008 passed by the Company Law Board, New Delhi in Company Petition No. 19 of 2007.

22. In the Civil Application No. 256 of 2009, this Court initially passed the following order on 29.06.2009 :-

Rule returnable on 6th July, 2009. Rule to be issued upon the Opponents No. 1, 2 & 3. Learned Advocate Mr. Pahwa appears for and waives service of notice of rule on behalf of Opponents No. 1 & 2. Direct service to Opponent No. 3 is permitted.

Pending the Application, there shall be ad interim stay in terms of paragraph 19 [A]. The Opponents No. 1 & 2 will, on or before the returnable date, deposit sum of Rs. 10,000/= in the registry of this Court by way of cost of this Application.

Subsequently, on 14.07.2010, this Court passed the following order in the aforesaid Civil Application No. 256 of 2009 :-

Having heard learned Counsel for the parties, the ad-interim order passed on 29.06.2009 is made absolute. O.J. Civil Application No. 256 of 2009 stands disposed of.

23. It is also relevant to note here that the Auditors/ Chartered Accountants appointed by the applicant No. 1 Company pursuant to the observations and directions contained in paragraph 13 of the final judgment of the Board dated 10.12.2008 submitted their report to the Company and as per the said report, the Ushakant faction has siphoned off a sum of Rs. 88,08,494/- from the funds of the Company.

On the other hand. Ushakant faction has filed Civil Application No. 504 of 2009 stating therein that even though the Apex Court in its order dated 05.05.2009 passed in 6168/2009 and 6169/2009 has specifically held that no other expenditure, over and above Rupees one lakh will be expanded by the 1st respondent without due intimation and consent of an independent auditor, to be nominated by the High Court, the respondent No. 1 has made several payments in excess of Rs. 1,00,000/- for which no prior intimation and consent of the independent auditor is obtained. They have annexed various statements along with the Civil Application showing payments in excess of Rs. 1 lakh. In the said Civil Application No. 504 of 2009, this Court on 14.07.2010 has passed the following order :-

Matter will be considered by the Bench at the time of hearing. Further, taking into consideration the fact that the case has already been heard by a Bench and Supreme Court has passed order for early disposal, it is directed to list O.J. Appeal No. 165 of 2008 on 02.08.2010.

24, All these matters having been assigned to this Bench by the Honorable the Chief Justice, we have heard the learned Counsels appearing for both the sides.

25. Before we consider the contention of the learned Counsel appearing for both the sides. It would be relevant to consider the scope and ambit of Sections 397, 398 and 402 of the Companies Act (the "Act" for short).

397. Application to Court for relief in cases of oppression.-(1) Any member of a Company who complain that the affairs of the Company in a manner oppressive to any member or members (including any one or more of themselves) may apply to the Court for an order under this Section, provided such members have a right so to apply in virtue of Section 399.

(2) If, on any application under sub-Section (1), the Court is of opinion-

(a) that the Companys affairs are being conducted in a manner prejudicial to public interest or in a manner oppressive to any member or members; and

(b) that to wind up the Company would unfairly prejudice such member or members, but that otherwise the facts would justify the making of a winding-up order on the ground that it was just and equitable that the Company should be wound up,

the Court may, with a view to bringing to an end the matters complained of, make such order as it thinks fit.

398. Application to Court for relief in cases of mismanagement- (1) Any members of a Company who complain-

(a) that the affairs of the Company in a manner prejudicial to the interests of the Company; or

(b) that a material change not being a change brought about by, or in the interests of. any creditors including debenture holders, or any class of shareholders, of the Company has taken place in the management or control of the Company, whether by an alteration in its Board of directors, or in the ownership of the Companys shares, or if it has no share capital, in its membership, or in any other manner whatsoever, and that by reason of such change, it is likely that the affairs of the Company in a manner prejudicial to the interests of the Company, may apply to the Court for an order under this Section, provided such members have a right so to apply in virtue of Section 399.

(2) If, on any application under sub-Section (1), the Court is of opinion that the affairs of the Company are being conducted as aforesaid or that by reason of any material change as aforesaid in the management or control of the Company, it is likely that the affairs of the Company will be conducted as aforesaid, the Court may, with a view to bringing to an end or preventing the matters complained of or apprehended, make such order as it thinks fit.

402. Powers of Court on application under Section 397 or 398.-Without prejudice to the generality of the powers of the Court under Section 397 or 398, any order under either Section may provide for-

(a) the regulation of the conduct of the Companys affairs in future;

(b) the purchase of the shares or interests of any members of the Company by other members thereof or by the Company;

(c) in the case of a purchase of its shares by the Company as aforesaid, the consequent reduction of its share capital;

(d) the termination, setting aside or modification of any agreement, howsoever arrived at, between the Company on the one hand; and any of the following persons, on the other, namely:-

(i) the managing director.

(ii) any other director,

(v) the manager,

upon such terms and conditions as may, in the opinion of the Court be just and equitable in all the circumstances of the case;

(e) the termination, setting aside or modification of any agreement between the Company and any person not referred to in clause (d), provided that no such agreement shall be terminated, set aside or modified except after due notice to the party concerned and provided further that no such agreement shall be modified except after obtaining the consent of the party concerned;

(f) the setting aside of any transfer, delivery of goods, payment, execution or other act relating to property made or done by or against the Company within three months before the date of the application under Section 397 or 398. which would, if made or done by or against an individual, be deemed in his insolvency to be a fraudulent preference;

(g) any other matter for which in the opinion of the Court it is just and equitable that provision should be made.

26. Section 397 of the Act provides that if the affairs of the Company are conducted in a manner prejudicial to the public interest or in a manner oppressive to any member or members including any one or more of the member, the application may be made by any of the member of the Company to the Court for an order under this Section, and upon such application, if the Court finds that the affairs of the Company were conducted in a manner prejudicial to public interest or in a manner oppressive to any interest of any member or members; it may in order to bring an end to the matters complained of, may pass appropriate orders which may include winding up of the Company if the Court so finds it proper considering the facts and circumstances of the case for making out a case of winding up.

27. Section 398 of the Act provides that any member may make an application for mismanagement which would include conducting of the affairs of the Company in a manner prejudicial to public interest or prejudicial to the interest of the Company and upon application so made, the Court may pass appropriate order to bring an end or to prevent the matters complained of or apprehending, considering the facts and circumstances of the case.

28. Section 402 of the Act provides for various modes for exercise of the power of the Court for regulation in conducting the affairs of the Company, for purchase of shares or interests of the members of the Company by other members thereof or by the Company that provides for purchase of the shares by the Company upon reduction of the share capital, the termination or modification or set aside of any agreement even if arrived at between Company and its Managing Directors or any other Directors or the Manager, if the Court finds that it would be just and equitable in the circumstances of the case. It also provides for power of the Court to terminate or set aside or modification of any agreement between the Company and any person, not referred to in clause (d), but with the rider that such power shall be exercised after due notice to the party concerned, and no such agreement shall be modified except after obtaining the consent of the party concerned. It also provides for the power with the Court to set aside any transfer, delivery of goods or payment, execution or other act relating to the property made or done by or against the Company within three months from the date of the application under Section 397 or 398, if made or done by or against an individual, to be deemed in his insolvency proceedings by a fraudulent transfer and lastly it provides that the Court may exercise the power if it is of the opinion that it is just and equitable to pass such order.

29. In Kilpest Pvt. Ltd. v. Shekhar Mehra reported at 1996 (1) SCC 696, it was observed by the Apex Court that having regard to the wide powers of the Court, very rarely it would be necessary to wind up any Company in a petition filed under Sections 397 and 398 of the Act.

30. In case of Sangramsinh P. Gaekwad and other v. Shantadevi P. Gaekwad and others reported at : (2005) 11 SCC 314 [LQ/SC/2005/80] , it was observed by the Apex Court that the Directors have the powers to issue additional capital shares and in the said process they may obtain some pecuniary gain, but when such pecuniary gain is obtained through ulterior motive, they would be answerable to the share holders but the acts of the Director is to be tested from three angles -

(i) Whether the directors acted in the interest of the Company;

(ii) Whether they acted on a wrong principle; and,

(iii) Whether they acted with an oblique motive or for a collateral purpose.

It was further observed that the action of the Director must be set aside if the same was done oppressively, capriciously or was in some other way malafide. The Apex Court further observed at pars 180, 181, 182, 183 and 184 as under :-

180. The expression oppressive, it is now well-settled, would mean burdensome, harsh and wrongful. Oppression complained of, thus, must relate to the manner in which the affairs of the Company are being conducted and the conduct complained of must be such as to oppress the minority membeRs. By reason of such acts of oppression, it must be shown that the majority members obtained a predominant voting power in the conduct of the Companys affaiRs.

181. The jurisdiction of the Court to grant appropriate relief under Section 397 of the Companies Act indisputably is of wide amplitude. It is also beyond any controversy that the Court while exercising its discretion is not bound by the terms contained in Section 402 of the Companies Act if in a particular fact situation a further relief or reliefs, as the Court may deem fit and proper, is warranted. (See Bennet Coleman & Co. v. Union of India and Others and Syed Mahomed Ali v. R. Sundaramurthy and otheRs. ) But the same would not mean that Section 397 provides for a remedy for every act of omission or commission on the part of the Board of DirectoRs. Reliefs must be granted having regard to the exigencies of the situation and the Court must arrive at a conclusion upon analyzing the materials brought on records that the affairs of the Company were such that it would be just and equitable to order winding up thereof and that the majority acting through the Board of Directors by reason of abusing their dominant position had oppressed the minority shareholdeRs. The conduct, thus, complained of must be such so as to oppress a minority of the members including the petitioners vis-a-vis the shareholders which a fortiori must be an act of the majority. Furthermore, the fact situation obtaining in the case must enable the Court to invoke just and equitable rules even if a case has been made out for winding up for passing an order of winding of the Company but such winding up order would be unfair to the minority membeRs. The interest of the Company vis-a-vis the shareholders must be uppermost in the mind of the Court while granting a relief under the aforementioned provisions of the Companies Act, 1956.

182. Mala fide, improper motive and similar other allegations, it is trite, must be pleaded and proved as envisaged in the Code of Civil Procedure. Acts of mala fide are required to be pleaded with full particulars so as to obtain an appropriate relief.

183. The remedy under Section 397 of the Companies Act is not an ordinary one. The acts of oppression must be harsh and wrongful. An isolated incident may not be enough for grant of relief and continuous course of oppressive conduct on the part of the majority shareholders is, thus, necessary to be proved. The acts complained of may either be designed to secure pecuniary advantage to the detriment of the oppressors or wrongful usurpation of Authority.

184. In Halsburys Laws of England, 4th Edition, Volume 7, para 1011, it is stated:-

1011. Conduct amounting to oppression. In this context, "oppressive" means burdensome, harsh and wrongful. It does not include conduct which is merely inefficient or careless. Nor docs it include an isolated incident: there must be a continuing course of oppressive conduct, which must be continuing at the date of the hearing of the petition. Further, the conduct must be such as to be oppressive to the petitioner in his capacity as a member: whatever remedies he may have in respect of exclusion from the Companys business by being dismissed as an employee or a director, he will have none under the provisions relating to oppression.

On the other hand, these provisions are not confined merely to conduct designed to secure pecuniary advantage to the oppressors; they cover the case of wrongful usurpation of Authority. even though the affairs of the Company prosper in consequence.

(Emphasis supplied)

It was further observed by the Apex Court in paras 196 to 199 as under :-

196. The Court in an application under Sections 397 and 398 may also look to the conduct of the parties. While enunciating the doctrine of prejudice and unfairness borne in Section 459 of the English Companies Act, the Court stressed the existence of prejudice to the minority which is unfair and not just prejudice per se.

197. The Court may also refuse to grant relief where the petitioner does not come to Court with clean hands which may lead to a conclusion that the harm inflicted upon him was not unfair and that the relief granted should be restricted. (See Re London School of Electronics)

198. Furthermore, when the petitioners have consented to and even benefited from the Company being run in a way which would normally be regarded as unfairly prejudicial to their interests or they might have shown no interest in pursuing their legitimate interest in. being involved in the Company. (Sec Re RA Noble & Sons (Clothing) Ltd.)

199. In a given case the Court despite holding that no case of oppression has been made out may grant such relief so as to do substantial justice between the parties.

(Emphasis supplied)

31. In the case of Dale & Carrington Invt. (P) Ltd. and others v. P.K. Prathapan & ORs. reported in : (2005) 1 SCC 212 [LQ/SC/2004/1029] , the view taken in the case of Tea Brokers (P) Ltd. v. Hemendra Prosad Barooah reported in (1998) 5 Comp LJ 463, was reiterated and the Apex Court had extracted the view taken by Justice A.N. Sen-

It is well settle that the directors may exercise their powers bona fide and in the interest of the Company. If the directors exercise their powers of allotment of shares bona fide and in the interest of the Company, the said exercise of powers must be held to be proper and valid and the said exercise of powers may not be questioned and will not be invalidated merely because they have any subsidiary additional motive even though this be to promote their advantage. An exercise of power by the directors in the matter of allotment of shares, if made mala fide and in their own interest and not in the interest of the Company, will be invalid even though the allotment may result incidentally in some benefit to the Company.

(Emphasis supplied)

It was further observed at paras 24 and 25 as under :-

24. Further it was held that if a member who holds the majority of shares in a Company is reduced to the position of minority shareholder in the Company by an act of the Company or by its Board of Directors malafidc. the said act must ordinarily be considered to be an act of oppression to the said member. The member who holds the majority of shares in the Company is entitled by virtue of his majority to control, manage and run and affairs of the Company. This is a benefit or advantage which the member enjoys and is entitled to enjoy in accordance with the provisions of Company law in the matter of administration of the affairs of the Company by electing his own men to the Board of Directors of the Company.

25. On the question of relief, the Court observed :-

A majority shareholder should not ordinarily be directed to sell his shares to the minority group of shareholders, if per chance through fortuitous circumstances or otherwise, the minority group of shareholders come into power and management of the Company. The majority shareholders by virtue of their majority will usually be in a position to redress all wrongs done and to undo the mischief done by the minority group of shareholders, as it will always be possible for the majority group of shareholders to regain control of the Company so long as they remain in majority in the Company by virtue of the majority. Except in unusual circumstances, the majority group of shareholders, in my opinion, should never be ordered or directed to sell their shares to the minority group of shareholdeRs. An orders directing the majority group of shareholders to sell his shares to the minority group of shareholders will not redress the wrong done to the majority group of shareholders and will not give him sufficient compensation or relief against the act of oppression complained of by him, and, on the other hand, may add to his suffering and grievance and cause him greater hardship Such an order will not further the ends of justice and indeed the cause of justice may he defeated.

(Emphasis supplied)

32. In the case of V.S. Krishnan v. Westfort Hi-Tech Hospital Ltd., reported in : 2008 (3) SCC 363 [LQ/SC/2008/436] , the Apex Court after considering its earlier decision as to when a clear case of oppression would be made out, observed at paragraph 14 that-

(a) Where the conduct is harsh, burdensome and wrong.

(b) Where the conduct is mala fide and is for a collateral purpose where although the ultimate objective may be in the interest of the Company, the immediate purpose would result in an advantage for some shareholders vis-a-vis the otheRs.

(c) The action is against probity and good conduct.

(d) The oppressive act complained of may be fully permissible under law but may yet he oppressive and, therefore, the test as to whether an action is oppressive or not is not based on whether it is legally permissible or not since even if legally permissible, if the action is otherwise against probity, good conduct or is burdensome, harsh or wrong or is mala fide or for a collateral purpose, it would amount to oppression under Sections 397 and. 398.

(e) Once conduct is found to be oppressive under Sections 397 and 398, the discretionary power given to the Company Law Board under Section 402 to set right, remedy or put an end to such oppression is very wide.

(f) As to what are facts which would give rise to or constitute oppression is basically a question of fact and therefore, whether an act is oppressive or not is fundamentally/ basically a question of fact.

(Emphasis supplied)

On the scope of appeal to this Court against the decision of the Company Law Board, it was observed by the Apex Court at paragraph 16, which reads as under :-

It is clear that Section 10E permits an appeal to the High Court from an order of the Company Law Board only on a question of law i.e., the Company Law Board is the final Authority on facts unless such findings are perverse based on no evidence or are otherwise arbitrary. Therefore, the jurisdiction of the appellate Court under Section 10F is restricted to the question as to whether on the facts as noticed by the Company Law Board and has placed before it, an inference could reasonably be arrived at that such conduct was against probity and good conduct or was mala fide or for a collateral purpose or was burdensome, harsh or wrongful. The only other basis on which the appellate Court would interfere under Section 10F was if such conclusion was (a) against law or (b) arose from consideration of irrelevant material or (c) omission to construe relevant materials.

(Emphasis supplied)

33. Having considered the aforesaid legal position, it would lead us to examine the facts of the present case to be considered with the contention raised on behalf of both the sides by the rival parties.

34. The basis of the application made before the Company Law Board ("CLB" for short), is various occasions of misuse of power and oppression inasmuch as per the respondent, (Ushakant faction/group) though it is group of majority shares in the Company, the power is wrongfully usurped by removal as the Director and thereafter, by increase of the authorized share capital and allotment of the shares by the appellant the majority group is reduced into minority and consequently the action of oppression, mismanagement and therefore, the CLB was approached for appropriate relief. We need not reproduce the details of the holding of both the groups since they are already given in the earlier paragraphs. However, the gist and substance of the case of the original applicant-respondent herein before the CLB was as stated hereinabove.

35. Whereas the original respondent-appellant herein before the CLB contended that there was mismanagement by some of the Director of the group of the applicant before the CLB and therefore in the Board meeting, it was decided to appoint other DirectoRs. It was also submitted that the action has been taken in accordance with law for the interest of the Company and therefore, it is not a case of mismanagement, but on the contrary a case of proper exercise of the power in the interest of the Company at large.

36. The CLB recorded the reasons, for ready reference can be reproduced as under :-

12. Considering the pleadings and annexure thereto, the arguments and the case laws relied upon by the parties and the facts and circumstances of the case I find that the petitioners in C.P. No. 79/07 have the requisite qualifications under Section 399 of the Act, the respondents case that the petitioners shareholding as on the date of filing C.P. Was only 2.79% has no bearing on the maintainability of the case in view of the petitioners allegation of the act of oppression of reduction of their shareholding which was 37.83% before illegal increase in the authorized share capital from Rs. 10 lakhs to Rs. 50 lakhs and further allotment of 40,000 equity shares to the respondents because for ascertaining the right to apply under Sections 397 and 398 of the Act the shareholding before illegal reduction is to be considered, and even otherwise the petitioners have the requisite number to maintain the C.P. In order to maintain a petition under Section 397/398 of the Companies Act, 1956, the petitioners should hold either ten per cent or more of the subscribed capital or should constitute ten per cent or more of the total members in the Company. If the shareholding of the petitioners is reduced below ten per cent on account of further issue of shares and if the issue of further shares is also challenged in the petition, the petition will not be dismissed as not maintainable in terms of Section 399. The respondents further contention that the petitioners have not obtained any consent of their friends and relatives to substantiate their statement that their shareholding is 53.88% also does not have any bearing on the maintainability of the C.P. in this case. When considered on merits, it is noted that the respondents have failed to refute the petitioners allegation of illegal increase in the authorized share capital and illegal allotment of 40,000 shares to the respondents which has been done without complying with the provisions of the Act and the Articles of Association, there was no quorum for holding Board Meetings, the due procedure was not followed, the petitioners did not receive notices of the Board Meetings and the General Meetings, the requisition for meetings were obtained from the respondents companies holding shares in the Respondent Company with an ulterior motive to remove the petitioners from the management and reduce them and their relatives from their shareholding of 53.88% to hopeless minority leaving them with shareholding of 8.98% (and if the shareholding of their relatives is taken out it remains 2.79% only), the notices of Annual General Meetings mentioned as having been served pertain to the subsequent period only, this C.P. which was filed on 6.6.07 was mentioned on 19/6/07 whereas the meetings with regard to which notices having been served are for the General Meeting held on 26.9.07 and 29,12.07. Even despite the Company Law Boards order dated 19.6.07 directing the respondents to give copies of agenda for all future Board Meetings, the agenda for the Board meeting held on 28/3/08 was received by the petitioners on 11/4/08 after the meeting which was held on 28/3/08. The respondents have not been able to justify the acts showing repeated removal of the petitioners from directorship. First P-1 was removed by the other Director by merely issuing a letter stating that he is removed from directorship. The P-2 was sought to be removed by giving notice under Section 284 of the Act, but the resolutions passed included the name of P-1 also for removal from directorship without there being any agenda and notice of removal of P-1. The petitioners repeated removal sought to be shown in the records of the R-1 strengthens the petitioners allegation of fabrication and manipulation of records of the R-1 and exposes the Respondents mala fides and ulterior motives. The respondents have failed to make out a case of removal of the petitioners in properly convened meetings. Admittedly, the petitioners were in the management of the R-1 till 11.12.2006 only. The Respondent Companys affairs subsequent to that date were managed by R-2 and R-3 without letting 53.88% shareholders any participation in the management and without letting the petitioners any access to the accounts and statutory records of the Company. Even the fortnightly bank statements required to be given to the petitioners as per the directions of the Company Law Board were discontinued by the Respondents without getting the orders modified. New Bank Accounts were opened. The respondents proceeded to issue dividends on illegally allotted shares during the pendency of the C.P. causing further loss to the petitioners It is noted that the illegal allotment of 40,000 equity shares to the respondents has resulted in illegal increase in the respondents shareholding to 91.12% from 46.12% causing continuous oppression to the petitioneRs. Even the return of allotment was filed with the Registrar of Companies subsequent to the date of filing and mentioning of C.P. No. 79/07. Before counter affidavit to C.P. was filed, the respondents made sure to legalize their acts of oppression and mismanagement. It is settled law that it is not open to the directors of a Company to issue and allot shares in a manner by which an existing majority of shareholders are reduced to a minority. The respondents have failed to make a case that such issue and allotment was unavoidable and was resorted to as an express and urgency measure with an object of fundamental importance, for instance saving the existence of the Company. The existing balance of power of a Company cannot be allowed to be disturbed illegally. Directors are in a position of a trust. They must confirm to the probity and their conduct should be above suspicion. The directors of a Company are not entitled to use their power of issuing the shares merely for the purpose of maintaining the control. In the present case shares have been issued by the respondents not for the general benefit of the Company but for the purpose of controlling the holders of the greater number of shares by obtaining a majority of voting power. Creation of a new majority is an act of oppression. Issue of additional shares for an extraneous purposes like maintenance or acquisition of control over the affairs of the Company cannot be upheld.

Thereafter as reproduced in first para the orders have been passed by CLB.

37. The aforesaid shows that the CLB found that the respondent Company has acted with an ulterior motive to remove the petitioners from the management and to reduce them and their relatives from their share holding of 53.88% to hopeless minority leaving them with shareholding of 8.98% (and if the shareholding of their relatives is taken out it remains 2.79% only). It was also found that the respondents were not able to justify the case of showing removal of the petitioners from the Directorship. It was further found that the repeated removal of the petitioners sought to be shown in the records of the Respondent No. 1 strengthens the petitioners allegation of fabrication and manipulation of records of the Respondent No. 1 and exposes the Respondents mala fides and ulterior motives. CLB further found that until 11.12.2006, the petitioners were in management and without participation of 53.885 of the shareholders in the management, the respondents proceeded to issue dividend on illegally allotted shares during the pendency of the Company Petition. It was found that illegal allotment of 40000 equity shares to the respondents has resulted into increase in the respondents shareholding of 91.12% from 46.12% causing continuous oppression to the petitioners and thereafter, the respondents made sure to legalize the acts of oppression and management though in law, it was not open to the Directors of the Company to issue and allot shares in the manner by which the existing majority of the shareholders are reduced into minority. The CLB found that the respondents have failed to make out a case that such issue and allotment was unavoidable and was resorted to as an excess and urgency measure with an object of fundamental importance for instance saving the existence of the Company.

38. CLB found that the exercise of the power of a Company cannot be allowed to be disturbed illegally. It also found that the Directors of the Company are not entitled to use their power of issuing shares merely for the purpose of maintaining control and creation of new majority is an act of oppression. It also found that the issue of additional issues for extraneous purpose like maintenance or acquisition of control over the affairs of the Company cannot be upheld.

39. However, simultaneously while accepting the contention of the petitioners on the ground of oppression, as there was allegation of siphoning of the fund by the petitioners which remained uncontroverted, CLB directed for appointment of an independent auditor to ascertain the amount siphoned between 01.04.2006 to 13.03.2007 and further directed that the amount so ascertained shall be deposited back by the petitioners into the account of the respondent Company. It was also observed that if the petitioners failed to deposit the ascertained amount within the prescribed period, the respondents shall be at the liberty to buy the shares of the petitioners at the value ascertained by the independent valuer for the purpose to be appointed by the parties consent.

40. Thereafter, the CLB has issued direction to set aside the illegal action for illegal increase of share capital by restoration of the status quo ante as on 11.12.2006. Thereafter, it has set aside the subsequent resolution and statement filed for such purpose. CLB has also declared that P1 and P2 shall continue to be the Directors of the Company by declaring that the action taken for removal as a Director is null and void. It is further observed by the CLB that operation of bank account of the respondent No. 1 Company as existed prior to 11.12.2006 be continued and there is also consequential direction of restoration of the excess dividend received on account of the increase of the share capital. In fact, the CLB has issued all consequential directions for restoration of the status in the management of the Company as existed on 11.12.2006.

41. Mr. Joshi, learned Counsel appearing with Mr. Vakil raised the first contention that the individual action of removal of the Director per se cannot be said to be an act of oppression or mismanagement as per the provisions of Section 397 and 398 of the Act. In furtherance to his submission, he contended that the CLB having found that the allegation of siphoning of the fund remained uneontroverted, it ought not to have declared the action of removal as the Directors of the Company as illegal. He also submitted that thereafter, pending the appeal before this Court, the direction for appointment of the auditor was challenged by the respondent by separate appeal before this Court and this Court did not interfere with the same and consequently as the direction operated, the auditor was appointed and it has been found that huge amount of money has been siphoned away by preferring two separate appeals being OJ Appeal No. 5/09 and it has been found as per the report of the auditor that the respondents 1 and 2 have siphoned of a sum of Rs. 88,08,494/-. However, as against the order of this Court for dismissal of the appeal No. 5/ 09, SLP was preferred and the interim stay was granted. Hence, the same is not implemented and no further action is taken. It was therefore, submitted that no relief could be granted by CLB in favor of the original petitioners or in any case in view of the present fact situation, this Court may consider the said aspects and may set aside the power exercised by CLB in the impugned ordeRs. He also contended that the increase in the share capital which has been undertaken after following the lawful procedure as per the Articles of Association read with the requirement of the CLB, cannot be termed to be oppressive since it was found that the capital deserves to be increased as the Company was requiring fund.

42. Whereas on behalf of respondent, it was submitted that the allegation of siphoning of the fund is baseless and without any substance and the auditor is appointed by the appellant and he has not properly inquired into the matter. It was also submitted that the recovery is stayed as per the order of the Apex Court. It was submitted that on the contrary, there was interim arrangement made as per the directions of the Apex Court, huge fund running into crores of rupees have been diverted and wrongly utilized by the appellants by taking undue benefit of the pendency of the present appeal. It was submitted that no requisite procedure has been followed for removal as Director. Therefore, the action is bad in law. It was also submitted that no requisite procedure has been followed for increase of the share capital by the appellant and therefore, the CLB has rightly found that the action is illegal. Alternatively, it was submitted that mere following of the procedure is not sufficient when the action is tainted with ulterior motive reducing the majority into minority. No shares out of the increased share capital have been offered to the respondent and their relatives. Under the circumstances, it was a clear case of usurpation of power of the Company by one way or the another and therefore, the CLB has rightly exercised the power. It was also submitted that since the directions passed by this Court read with the orders of the Apex Court have been defied, while disposing of the present appeal, this Court may also direct for suitable action and measures to be taken in this regard.

43. The first aspect is the question of removal and the second aspect is the increase of share capital. As such from the facts and circumstances of the case, it appears that it is a stepwise exercise and also to some extent can be said as interconnected and hence they are being dealt with together.

44. It appears that the dispute amongst both the group started after 11.12.2006. However, there are basic infirmities in the action of removal as the Director and the same can be broadly classified as under :-

1) On 08.03.2007, a notice has been issued by Bhailalbhai Patel styling himself as Chairman to Shri D.U. Patel wherein the language is "I regret to remove you from the Directorship". This shows an action as if already taken for removal as Director though there is no material to show that any statutory procedure is followed prior thereto, but on the contrary, even as per the appellant, the resolution is passed in the so called meeting of the Board of Directors dated 15.03.2007 with the so called extra ordinary general meeting dated 10.04.2007.

2) The agenda in the meeting of the Board of Directors is stated to have been issued on 10.03.2007 whereas as per the Ushakant Patel, Shri Sringarpure, Shri Dipen Patel and Shri Arun Patel, they have not received any agenda for the meeting. Such creates doubt about the genuineness of the action of issuance of the agenda by Bhailalbhai Patel and his group.

3) The alleged requisition of Nicolian India Pvt. Ltd. is dated 11.03.2007 and is addressed by Bhailalbhai Patel himself, but as Director of the said Company. This shows that Bhailalbhai Patel in capacity as the Director of the another Company Nicolian India Pvt. Ltd. which was stated to have 10% of the share capital desired to call for extra ordinary general meeting for moving the resolution of removal of Dipen Patel and Ushakant Patel. The factum of requisition is later to the date of issuance of agenda dated 11.03.2007 for the meeting of the Board of Directors scheduled to be held on 15.03.2007.

4) The arbitrator who was appointed by the both the sides had addressed a communication dated 13.03.2007 stating that Bhailalbhai Patel is trying to get full powers to manage the affairs of the Company in his sole discretion which is totally unfair and clear interference in the affairs of the Company with malafide intention. He further intimated to stop this type of acts and behavior and to resolve matter by mutual understanding in the best interest of the Company.

5) There is no notice giving opportunity to Dipen Patel and Ushakant Patel issued by the Company for making any representation against the removal nor it is a case of the appellant that the requisition of Nicolian India Pvt. Ltd. was ever informed to both the Directors who were to be removed. Copy of the agenda dated 10.03.2007 which is stated to have been issued by Bhailalbhai Patel for convening of the meeting of the Board of Directors includes only item No. 3 to approve the notice of termination as Director of the Company of Shri Dipen Patel. There is no reference for removal of Ushakant Patel as Director nor there is any reference about the so called requisition of Nicolian India Pvt. Ltd. and rather could not be because they are dated 11.03.2007 even as per the appellant. Whereas in the proceeding of the meeting dated 15.03.2007, the aspect of removal of Director is based on the requisition of Nicolian India Pvt. Ltd. and not based on any notice dated 08.03.2007 issued by Bhailalbhai on the basis of which the said item was included in the agenda dated 10.03.2007. Hence, it is the case of the appellant that item of removal of Dipen Patel and Ushakant Patel came to be considered and discussed based on the requisition of Nicolian India Pvt. Ltd., which came to be considered by the Director of group comprising of Bhailalbhai Patel without their being any item on the agenda.

6) Even if the proceedings are accepted as genuine for the sake of consideration, the Board of Directors have not given specific opportunity against the proposed dissolution or rather requisition of Nicolian India Pvt. Ltd.

7) Ushakant Patel as well as Dipen Patel could be said as deprived by the opportunity of moving representation against their removal in the extra ordinary general meeting of the share holdeRs.

8) The aforesaid action of removal as the Director results into not only removal of the Director of the group of majority share holders but consequently results into the Directors of the group of Bhailalbhai Patel himself and his son.

45. There are basic infirmities in the so called action for increase of the authorized capital and they are as under :-

1) Increase of authorized capital is one of the important aspect to be considered by the Board of Directors as per the provisions of Section 94(1)(9) of the Act and in spite of the same, such item has not been included in the so called agenda dated 10.03.2007 issued by Bhailalbhai styling himself as the Chairman.

2) As per the respondent, Ushakant Patel and Dipen Patel have not received the agenda even without such item. In the so called proceeding of the meeting dated 15.03.2007, such item of increase in the authorized capital is moved from the chair by Bhailalbhai and in a one sided manner, without considering the view of the other majority group of Ushakant Patel and his group, the decision is taken to approve the share holding from 8000 shares to 48000 shares.

3) There was no item in the agenda dated 10.03.2007 to take decision of convening of extra ordinary general meeting may be on the aspect of removal of the Directors or on the aspect of increase of the authorized share capital.

4) As per Ushakant Patel and Dipen Patel, they have not received any agenda notice for convening of the extra ordinary general meeting on 10.04.2007.

5) The notice for convening of the extra ordinary general meeting dated 10.04.2007, as stated by Ushakant Patel and Dipen Patel and his group, have not been received by them in their capacity as Director or any shareholder of their group. The notices have not been issued by registered post or by its publication in the newspaper having circulation but are stated to have been issued through UPC which is the proof for forwarding of the communication and not the proof of the receipt thereof. In view of the specific statement made for non receipt of the agenda by Ushakant and his group comprising of the majority share holding of 3670 shares out of 8000 shares, it would be reasonable not to draw any presumption of post having been received by the share holders of the group of Ushakant Patel and the said aspect is coupled with the circumstances that none of them attended the meeting.

6) No justification by facts and figures have been shown by the appellants demonstrating the compelling circumstances to the increased share capital that too about 6 times than the existing share capital.

7) The issuance of the share capital after increase as per the so called resolution of extra ordinary general meeting is not in proportion to the existing holding of the share holdeRs. But all the shares are issued to only one group of Bhailalbhai Patel, whereas the other majority group comprising of Ushakant Patel and his group as well as Shri Arun Patel and his group are not offered any share capital out of the increased share capital.

8) The so called proceedings of the extra ordinary general meeting shows the presence of only three persons, namely, Bhailalbhai Patel, Pradeep Shringarpure and Dhanjibhai Patel and one proxy of Nicolian India Pvt. Ltd.(who is also of the group of Bhailalbhai Patel and through proxy).

9) This has to be appreciated in light of the alleged dispatch through UPC and the fact of non receipt of any agenda by two Directors, viz., Ushakant Patel and Dipen Patel and other share holders of his group.

10) The consequence is that the share holding of Bhailalbhai Patel and his group gets increased from 46.12% to 91.12%.

46. The aforesaid both the actions on the part of Bhailalbhai Patel and his group which was earlier in minority group against the majority group of Shri Ushakant Patel and Shri Dipen U. Patel is not only harsh and wrongful but it is a classic case of minority group oppressing majority group and thereby, usurpation of power or Authority. At this stage, we may recall the observations made by the Apex Court in the case of Dale & Carrington Invt. (P) Ltd. (supra) and more particularly at para 24 which has already been reproduced earlier in the present judgment at para 31, wherein the view expressed by the Apex Court is that if a member who holds the majority of shares in a Company is reduced to the position of minority shareholder in the Company by an act of the Company or by its Board of Directors malafide, the said act must ordinarily be considered to be an act of oppression to the said member-Further, it appears that if a group of the members holding majority shares if reduced to minority, it would be a case of oppression with more degree of "harshness".

47. The contention was raised that in a case of increase of capital by any Company on account of requirements of finance or capital, such consequence may follow of alteration in the holding and it could also be resulting into minority into majority and therefore, merely because there is a consequence of reduction of majority into minority, it may not be termed as an act of oppression.

48. The contention made prima facie appears to be attractive, but has to be examined with the view expressed by the Apex Court in the case of Dale & Carrington Invt. (P) Ltd. (supra) already reproduced at paragraph 31 of the present judgment wherein the Apex Court has extracted the view that the exercise of power of the Directors in the matter of allotment of shares could be tested on the anvil of malafide and in their own interest or in the interest of Company. As observed by the Apex Court in the case of Sangramsinh P. Gaekwad (supra) reproduced at para 30 of the present judgment the said gain is to be tested in three angles, one is whether the Directors acted in the interest of the Company, the another is whether they acted on wrong principle and third is whether they acted with an oblique motive or for a collateral purpose. No material is substantially and satisfactorily demonstrated before this Court by showing facts and figures requiring unavoidable circumstances to increase more share capital. Further, if the action is tested on the aspects of oblique motive or collateral purpose, it is not even the case of the appellants nor it is reflected by any resolution of the Board of Directors or any resolution of the general meeting nor it is a case of the appellants that increase in the share capital was allotted proportionately to the existing share holders in the same patent or even any option were given to the existing share holders to subscribe increased share capital in a fair manner. On the contrary, it is a fact which has come on record that all increased share capital have been allotted to the group of Bhailalbhai and not a single share has been issued nor any opportunity of subscribing the share capital has been given to the group of Ushakant Patel whose group was in majority and not even any other shareholdeRs. This aspect if considered with the aforesaid basic infirmities in the action of issuance of increase of share capital with the simultaneous action of removal of the Directors representing the majority group of Ushakant Patel and others, in our view the action speaks for itself with an oblique motive and with collateral purpose of removal of the Directors of the group of Ushakant Patel and with the collateral purpose of usurpation of the Authority which itself is not only unfair but can be said as malafide and hence, we find that the action of Bhailalbhai Patel and his group is against the probity and good conduct

49. At this stage, we may recall the observations made by the Apex Court in the case of V.S. Krishnan (supra) which have already been reproduced at para 32 of the present judgment wherein the view expressed is that even if the action is fully permissible in law, but such action may yet be oppressive. The Apex Court had further observed at para 14 (clause d) that even if legally permissible, if the action is otherwise against probity, good conduct or is burdensome, harsh or wrong or is mala fide or for a collateral purpose, it would amount to oppression under Sections 397 and 398 of the Act. It was further observed that once the conduct is found to be oppressive, the discretionary power given to the Company Law Board under Section 402 to set right, remedy or to put an end to such oppression is very wide. Hence, considering the facts of the present case, the aforesaid action on the part of the Bhailalbhai and his group which was earlier in minority on 11.12.2006, for removal of Ushakant Patel and Dipen U. Patel as Directors of their group and the action of increasing the share capital and allotment of the increased share capital to his own group, viz., group of Bhailalbhai, could clearly be said as oppressive, against probity, good conduct and is harsh and is also with malafide and collateral purpose of usurpation of the Authority on wrong principles. Therefore, the action as sought to be canvassed by the learned Counsel for the appellants is not a case of individual action of removal as Directors, but is rather a designed action on the part of Bhailalbhai and his group to remove the Directors and to create a majority and thereby usurp the Authority in the Company, though earlier prior to the impugned actions, the group was in minority. Therefore, we cannot accept the contention of the learned Counsel for the appellants that it was not a case of oppression governed by the provisions of Sections 397 and 398 of the Act.

50. Much grievance was raised by the learned Counsel for the appellants contending that the power under Section 482 of CLB is discretionary power and has to be applied on equitable consideration. CLB having found that the allegation of siphoning of the fund remained uncontroverted, it ought not have exercised power in favor of Ushakant Patel and his group and therefore, the action of CLB deserves to be interfered with.

51. The contention prima facie may appear to be attractive. However, the pertinent aspect is that it is not on account of the fact that CLB found on facts the action of siphoning of the fund and therefore, directed for appointment of the auditor, but as the allegations remained uncontroverted, CLB issued direction for appointment of the Auditor and inquiry. If any Director has caused any loss to the corpus of the Company, he is accountable to the share holdeRs. Therefore, the direction per se in absence of any denial on the part of the said Director by CLB could not be faulted with. However, the attempt to further contend and canvass by the learned Counsel for the appellants that this Court having dismissed the appeal and the Auditor having found the siphoning of the money for a sum of Rs. 88,08,894/-, this Court may proceed on the basis that the amount was actually siphoned away by respondents 1 and 2 and therefore, no equitable relief could be granted in favor of respondents 1 and 2 neither by CLB nor by this Court deserves to be considered with the fact that the appointment of the Auditor is not by the consent of both the groups, but is by Bhailalbhai Patel and his group after having usurped the Authority as per the aforesaid oppressive action. The respondents 1 and 2 have raised serious grievance against not only the appointment of the auditor, but also the functioning of the auditor. Further, at the time when CLB exercised the power, there was no auditor report with the finding that there was siphoning of the money by respondents 1 and 2. At that stage, there were allegations which remained uncontroverted. This Court declined the appeal against the inquiry to be made through the auditor cannot mean to accept the contention that the money is siphoned away. But at the same time, if the direction is made by the CLB for maintenance of status quo on 11.12.2006, the group of both the persons would decide about the further action to be taken and at that stage, the aspect of reliance upon the auditor report or further scrutiny through other auditor or any other action as may be permissible would be required to be undertaken. But in our view, such should not result into the denial of the right to invoke the power of the CLB by the majority group who has been oppressed by the minority group and the minority group having wrongfully usurped the Authority in the Company. We leave the matter at that stage without observing further on the said aspects leaving to the wisdom of the Directors, who are accountable to the shareholders of the Company. Hence, we find that the contention as sought to be canvassed on behalf of the appellant cannot be accepted.

52. It was next contended by the learned Counsel for the appellants that CLB ought not to have directed for restoration of the status quo ante as on 11.12.2006 and therefore, it was sought to be canvassed on behalf of the appellants that the exercise of the power is beyond the scope and in any case was not called for in the facts of the present case by setting at naught the action taken after 11.12.2006.

53. The examination of the said aspect shows that the tenor and the spirit of the order of the CLB makes it clear that it is only after 11.12.2006 the dispute amongst both the groups started and thereafter various oppressive actions as referred to hereinabove. Therefore, the CLB directed for maintenance of status quo as on 11.12.2006. At this stage, we may refer to the observations made by the Apex Court in the case of Sangramsinh P. Gaekwad (supra) at para 181, the relevant of which is already reproduced at para 30 of the present judgment which makes it expressly clear that the Court while exercising the power is not bound by the terms contained in Section 402 of the Companies Act if in a particular fact situation a further relief or reliefs, as the Court may seem fit and proper, is warranted.

54. We may recall the observations made by the Apex Court in the case of V.S. Krishna (supra) at paragraph 14 (clause 2), the relevant of which is already reproduced at para 32 of this judgment, wherein the Apex Court has expressed the view that once the conduct is found to be oppressive under Sections 397 and 398 of the Act, the discretionary power given to the CLB under Section 402 to set right, remedy or to put an end to such oppression is very wide. The CLB having found and as observed by us, there were actions of oppression and therefore, if CLB exercised the discretion for directing status quo ante prior to the complained action of oppression, i.e., 11.12.2006, it could not be said as the exercise of the power in a perverse manner nor can it be said as beyond the power since such direction would lead to wipe out the effect of oppressive acts of the group of Bhailalbhai Patel. Hence, the said contention is merit less.

55. The learned Counsel for the appellants lastly contended that so far as the share holding of the group of Arun Patel is concerned, the interim order has been passed, they had transferred the shares without consent of the Company pending the present appeal and therefore, the appellant have preferred petition under Section 397 having transferred the share to third party without consent of the Company and therefore, the appellants have preferred petition under Section 397-398 before the CLB and in the said matter on 03-09.2009, CLB has passed interim order restraining Arun Patel and his group as well as the transferee of his shares from exercising the poweRs. It was therefore submitted that if the said aspect is considered now by this Court, the situation would be that the group of Bhailalbhai Patel may have majority and consequently, the action may not be termed as oppressive action.

56. It is an admitted position that on the date when CLB exercised the power such circumstances did not exist. On the contrary, on that date, the shares were held by Arun Patel and his group supporting the group of Ushakant Patel and his group. The action is to be tested on the date when the oppression started by Bhailalbhai Patel and his group. At the relevant date, when such action of oppression started by Bhailalbhai Patel and his group, they were in minority as against Ushakant Patel and his group. Therefore, a subsequent action that too by way of a temporary interim order for which the main petition is pending at large before the CLB would not change the nature and the character of the oppressive action by Bhailalbhai Patel and his group who were in minority at the relevant point of time. Further, the issue in the said petition is for transferring of certain shares without consent of the Company. Therefore, it can hardly be accepted that Bhailalbhai Patel and his group would be entitled to earn any premium on account of such litigation which is pending before CLB, subsequently pending the appeal before this Court. We would have examined the said aspect. However as the petition is pending before the CLB, we leave it at that stage by observing that the relevant date for examining the action is prior to the removal of Ushakant Patel and Dipen Patel and prior to the increase of share capital which was the subject matter of petition before the CLB. Therefore, we find that the appellants cannot earn any benefit out of the interim order passed by CLB in the petition preferred by the Company under the control of Bhailalbhai Patel and his group. Hence, the said contention cannot be accepted.

57. It was next contended by the learned Counsel for the appellant that because of the span of about four years, the Company has reached to the stage where neither there is a chance of settlement nor any scope for working together by both the groups. Therefore, the CLB ought to have directed for sale of shares by the group of Ushakant Patel to the group of Bhailalbhai Patel at a price which may be fixed by any independent agency or this Court may so direct in the present appeal since the appeal is a continuous proceeding of the proceeding before the CLB.

58. Had it been a case where this Court found that there was no oppressive act on the part of Bhailalbhai Patel and his group, and inspite of that, the dispute is to survive between both the groups, it might stand on different footing. Further, if an action is found to be oppressive by Bhailalbhai Patel and his group as observed earlier, and thereafter, if there is exercise of the power of directing Ushakant Patel and his group to sell shares to Bhailalbhai Patel and his group, it may result into not only perpetuating illegality, but it may also result into allowing the appellants wrong doers to earn premium of their own action which is found to be oppressive against probity and good conduct. In our view, if such an exercise of power is made in favor of Bhailalbhai Patel and his group, it would frustrate the very object of the statute. The power so vested to CLB and thereafter with this Court in appeal is to set right, remedy and to put an end to such oppression, but such power is not to be exercised to earn the wrong doer whose action is found to be oppressive a further benefit there from. It is true that CLB could exercise the power to consider the question of directing the minority group to sell the share to the Company, but it appears that as it was neither contended nor pressed at the time of hearing, there is no reference to the same nor consideration thereof on the said aspect. As observed by the Apex Court in the case of Sangramsinh P. Gaekwad (supra) at para 181, which has already ben reproduced at para 30 of the present judgment, the Court while exercising the discretion is not bound by the terms contained in Section 402 of the Act and if in a particular fact situation a further relief or releifs as the Court may think fit and proper is to be granted, the same can be granted. We may also recall the observations made by the Apex Court in the decision in the case of Dale & Carrington Invt. (P) Ltd. (supra) at para 25, the relevant of which is already reproduced at para 31 of the present judgment hereinabove, wherein the view expressed by the Apex Court is that majority shareholder should not ordinarily be directed to sell his shares to the minority group of shareholders, if per chance through fortuitous circumstances or otherwise, the minority group of shareholders come into power and management of the Company. It was further observed that such an order will not further the ends of justice but, indeed the cause of justice may be defeated. Hence, we find that if such a prayer for directing the Authority to sell the share holding to the Company is to be considered, the same at the most could be considered for giving option to Bhailalbhai and his group (minority group) prior to the oppression to sell the shares to the Company at price which may be prescribed by any independent agency. In the event of such option is not accepted, Bhailalbhai and his group have to continue with the existing shares prior to the oppressive action. This could be said as in the interest of the Company and its shareholders in general.

59. The learned Counsel appearing for the respondent made the grievance that crores of rupees have been withdrawn and transferred by Bhailalbhai and his group in favor of other Companies, which is owned by them and the same has resulted into also a huge financial loss to the Company and it has resulted into a situation of contravening the directions of the Apex Court and therefore, this Court may suitably take care of the said aspect.

60. In our view, the directions of the Apex Court as they were already in operation. Further, the aspect of alleged breach by finding out the genuineness of each and every transactions cannot be gone into by this Court and such can be assigned to any expert on the said subject, viz., an independent Chartered Accountant and thereafter, if any breach is found, the respondents may move for suitable action, but until such report is on record, it is not possible to issue any direction in this regard. Hence, we leave the said aspect open with the only observation that if any party to the proceeding, pending the appeal, has committed breach of any directions, it should not be allowed to go scot-free and has to be accountable for such purpose and has also to face consequence in law for defiance or breach of the directions.

61. In view of the aforesaid observations and discussions, if the order of the CLB is further examined, in light of the observations made by the Apex Court in the case of V.S. Krishna (supra), the relevant of which is at para 16, which has been reproduced at para 32 of the present judgment hereinabove, it could not be said that CLB committed error in reasonably arriving at the finding that the conduct of Bhailalbhai and his group was against probity and good conduct and was malafide or was with a collateral purpose and harsh and wrongful and therefore, call for exercise of the power of this Court. It could also not be said that the conclusion was against the law or arose from any irrelevant material or there was any omission to construe any relevant material. Even if the aforesaid aspect is leniently viewed, we have already considered the material on record and additionally the material produced by both the sides and we find that the conclusion recorded by the CLB could not be said as unwarranted in law, but was rather warranted in law and in the facts of the present case to put an end to the oppressive action.

62. Hence, the direction given at para 14 against which the appeal is preferred by the appellants does not call for any interference. But additionally, as observed earlier, considering the facts and circumstances, Bhailalbhai Patel and his group shall have option to sell the share held by them prior to 11.12.2006 to the Company or Ushakant Patel and his group.

63. It is further observed and directed that pending the appeal, as there was operation of the Company by Bhailalbhai and his group in exclusion of Ushakant Patel and his group, it will be for the Board of the Directors of the Company and if the option is not exercised by Bhailalbhai Patel and his group to sell the shares of their Company, it will be open to the Board of Directors of the Company comprising of both the groups, to reconsider such action and thereafter, to take appropriate decision in accordance with law with the clarification that the rights of any third party shall remain unaffected by the present directions and right of the Company vis-a-vis the rights of such third party in accordance with law shall remain open.

64. OJ Appeal No. 165/08 shall stand disposed of accordingly. The interim relief is vacated.

ORDER IN OJ CA 504/09

In view of the aforesaid order in the main OJ Appeal, the prayer made in the application for vacating of the interim relief would not survive. The another prayer made for directing initiation of action against respondents No. 2 and 3-appellants in OJ Appeal No. 165/08, shall also stand covered by the observations made in the present judgment, hereinabove.

In view of the aforesaid observations and directions in the present judgment, including qua alleged breach of the direction, the present application shall stand disposed of at this stage.

ORDER IN OJ CA No. 143/10

In view of the aforesaid judgment and order passed in the main OJ Appeal, the rights of the parties shall stand governed accordingly. Hence, the present interim application in the OJ Appeal No. 165/08 shall not survive and shall stand disposed of accordingly.

ORDER IN OJ MCA No. 75/11 WITH STAMP No. 409/10

In view of the aforesaid judgment and order in the main OJ Appeal, the rights of the parties shall stand governed accordingly.

Hence, the applications shall stand disposed of accordingly.

FURTHER ORDER IN OJ APPEAL No. 165/08

After the pronouncement of the judgment, Mr. Mihir Joshi, learned Counsel appearing with Mr. Vakil for the appellants, pray for suspension of the order or to keep the order in abeyance for some time to enable his client to approach before the higher forum.

The said prayer is objected by Mr. Pahwa appearing for the contesting respondents and he states that any financial operation may be done with the joint signature of the representative of both groups and once this Court having found that the action was oppressive and there was allegation of breaches of the direction such prayer may not be granted.

Considering the facts and circumstances and more particularly in view of the reasons recorded and the finding of fact, it appears to us that the appellants who are representing the minority group should not be allowed to continue with the affairs of the Company without participation of the respondent No. 1 and his group who was having majority. Further, at the same time, the day to day operation of the Company has to continue so as to avoid stalemate in the functioning of the Company. Hence, it is directed that for a period of four weeks, Bhailalbhai Patel (representing the group of appellant) and Ushakant Patel (representing the group of respondent) shall jointly operate the Bank account of the Company, viz. Sugam Construction Pvt. Ltd. But such operation of the Bank account shall be limited to day to day routine transactions of the Company and not for any policy decision for purchase or transfer of any immovable property.