Aasia Properties Development Vs Juhu Beach Resorts Limited and On 19 September, 2006

Aasia Properties Development ... vs Juhu Beach Resorts Limited And ...
on 19 September, 2006
Company Law Board

Aasia Properties Development ... vs Juhu Beach Resorts Limited And ... on 19 September, 2006
Equivalent citations: (2007) 1 CompLJ 315 CLB, 2007 74 SCL 153 CLB
Bench: S Balasubramanian
ORDER S. Balasubramanian, Chairman
1. The petitioner herein above, holding 1/3rd of the paid up capital of M/S Juhu Beach Resorts
Limited (the company) has filed this petition under Sections 397/398 of the Companies Act, 1956
(the Act) seeking for a declaration that certain transfer of shares registered in 1983 as null and void
and also that further transfers effected subsequently also as null and void and consequently offer all
these shares to the petitioner and for appointing a nominee of the petitioner on the board and also
for declaring that the management agreement entered into between the company and the 29th
respondent as null and void.
2. The facts in brief are: The company was incorporated as a private limited company in the year
1974. In 1978, the paid up capital of the company consisted of 1900 equity shares of Rs.l00/-each.
Poonamchand Shah group acquired 633 shares representing 1/3rd of the capital and K. Raheja
group acquired balance 1267 shares constituting 2/3rd of the paid up capital of the company. Shah
group had two directors and K. Raheja group had three directors. The company had a sub lease of a
large and valuable piece of land at Juhu Beach, Mumbai. In 1981, the director of the petitioner, Shri
Ashok P. Hinduja (Shri Ashok) was appointed as a director on 26.6.1981. The petitioner acquired
633 equity shares from K. Raheja group to become a 1/3rd shareholder. Since Shah group was not
interested in continuing with the company, it transferred their entire holding of 633 shares to B.
Raheja group (10th to 13th respondents). The main dispute raised in the petition relates to the dates
of transfer of shares from K. Raheja group to the petitioner and Shah group to B. Raheja group.
While the claim of the petitioner is that it became a shareholder on 30.8.1982 before B. Raheja
group became a shareholder on 15.1.2003, it is the contention of the respondents that B. Raheja
group became a shareholder only on 28.1.1983. Article 38 of AOA of the company provides for pre
emption rights to existing members in case of transfer of shares. Therefore, the dale of becoming a
shareholder becomes relevant for application of the provisions of this Article. On the basis that the
petitioner had become a shareholder earlier to B. Raheja group, the petitioner has staked a claim
that no shares could have been transferred to B. Raheja group without out offering to the petitioner
in terms of the preemption right and as such the petitioner has sought for cancellation of the
transfer of shares to B Raheja group and offering the same to the petitioner. Likewise, alleging that
subsequent transfer of shares without following the procedure of pre-emption rights, should be
declared to be invalid and offered to the petitioner. The petitioner has also alleged that its nominee
Shri P Ashok, who was appointed as a director, had been removed as a director and as the petitioner
holds 1/3 shares in the company, proportional representation should be directed.
3. Shri Dave, Senior Advocate, appearing for petitioner submitted: Initially, the paid up capital of
the company comprised of 1900 equity shares of Rs. 100/- each. The petitioner joined the company
on the understanding that the company would be managed in the guise of a quasi partnership and
that is why Shri Ashok was appointed as a director even earlier to the petitioner becoming a
Indian Kanoon - http://indiankanoon.org/doc/285889/
shareholder. When the petitioner, which was then known as Mecca Properties, joined the company
as a shareholder, there were two groups, namely, Shah Group holding 633 shares, K. Raheja Group
holding 1267 shares. K. Raheja Group transferred 633 shares to the petitioner on the understanding
that each Group would continue to hold 1/3rd of the. paid up share capital of the company and that
they would jointly finance and participate in the business of the company. Thus the petitioner joined
the company with the legitimate expectation of equal shareholding and equal participation in the
management. The worth of the company is over Rs. 70 crores but the Rahejas in exclusion of the
petitioner, are enjoying the benefits. Induction of B. Raheja group was completely against the
original understanding and by committing frauds and manipulating the records, B. Raheja group
has been inducted as a shareholder. There was an oral agreement that if any of the original 3 groups
were to exist the company, the shares would be offered to the other group in line with Article 38 of
the Articles of Association and this agreement has been breached by inducting B. Raheja group. The
grievance of the petitioner is that even though it had become a shareholder on 30th August, 1982, as
is evident from the entries in the Share Transfer Register maintained in the company, yet, the
company has shown as if the petitioner became a shareholder only on 28.1.1983 in the Register of
Members. The manipulation done by the company is to deprive the petitioner of the pre-emption
right in respect of transfer of shares held by Shah Group of 633 shares to B. Raheja Group on
15.1.1983. Since the petitioner had actually become a shareholder on 30th August, 1982, when Shah
Group transferred their shares on 15.1.1983, in terms of the pre emptive rights in Article 38 of the
Articles of Association, the petitioner would have opted to buy out the entire shares of Shah Group
and thus would have been holding 2/3rd of the shares i.e. 66.66% shares in the company at that
time. If they had acquired the shares of Shah Group and had become holder of 66.66%, in view of
the subsequent allotment and transfer of shares impugned in the petition, the petitioner would now
be holding 88% shares in the company.
4. The learned Counsel further submitted: All along the petitioner believed that it had become a
shareholder only on 28.1.1983. Only when the petitioner carried out an inspection of the records of
the company sometime in September/October, 2004, it came to know that the respondents had
played a fraud on the petitioner by manipulation of share records. The company maintains a register
known as Shares Transfer Register as prescribed in Article 37 of the AOA. In that register, it is
indicated that the petitioner had become a member of the company on 30.8.1982 and that the
transfer was approved in a board meeting on the same day. In Folio 24 of Register of Members, it is
shown that Bindu Raheja who had transferred the shares to the petitioner had been shown to have
ceased to be a member on 30.8.1982. Likewsie, in Folio 26, Meena S. Raheja is shown to have
ceased to be a member on 2nd June, 1982. She had transferred 200 shares in favour of the
petitioner and 100 shares in favour of L. Raheja. While the name of L. Raheja has been entered in
the register as a member on 2nd June, 1982, the 200 shares transferred in favour of the petitioner is
shown as registered only on 28.1.1983. The register does not show any lodgment of transfer by Shri
Suresh L. Raheja on 2.6.1982 nor the minutes on 30th August, 1982 or 28th January, 1983 show any
approval of registration of the said transfer. Similarly, one Shri G.C.Nichani who had transferred the
shares to the petitioner is shown to have ceased to be a member on 30th August, 1982. If the
transferees had ceased to be members by 30.8.1982, then the petitioner should have become
member on that day as either the name of the transferee or the transferor should be in the register of
members on any day as in terms of Section 150 of the Act, every share should stand in the name of a
shareholder. The folio No. 29 in respect of the petitioner in the Register of Members shows erasure
marks on all the dates by which 30th August, 1982 has been changed to 28.1,1983. Similarly, the
folios relating to the transferors also show erasure marks on all the dates whereby 30th August,
1982 has been changed to 28.1.1983. The very fact that the folio number assigned to the petitioner is
preceding the folio numbers assigned to respondents 10 and 13 of B Raheja group would indicate
that they had become shareholders before these respondents. Further, in the Share Transfer
Register, the correct consideration paid by the petitioner of Rs. 100/-per share has been shown
against entries dated 30.8.1982, but the entries against transfer on 28.1.1983 show the very said
transfers at the rate of Rs. 200/- per share.
5. The learned Counsel further submitted: From the narration of facts, it is abundantly clear that
even though the petitioner had become shareholder on 30.8.1982, the respondents/company had
manipulated the records to show as if the petitioner became a shareholder only on 28.1.2003. The
reason for being so is obvious. In terms of Article 38 of AOA, no share can be transferred to a non
member so long as any member is willing to purchase the same at face value. In the present case, the
admitted position is that B. Raheja group became a shareholder only on 15.1.1983 by acquiring
shares from Shah group. Since the petitioner had become a shareholder on 30.8.1982, Shah group
could not have transferred their shares to B. Raheja group without offering the same to the
petitioner. Just to deprive the petitioner of its pre-emptive rights under Article 38, the
respondents/the company have manipulated the records to show as if the petitioner became a
shareholder subsequent to 15.1.1983. The petitioner came to know of the fraud only in October,
2004 when it took an inspection of the register of transfers. In Dhananjay Pandey v. Dr. Bias
Surgical and Medical Institute Pvt. Ltd.125 CC 626. this Board has held that a person can be a
shareholder even if he is not in a position to show any evidence of having become a shareholder in
the company, if the same could be established from the records of the company. In the present case,
since the petitioner has come to know of his having become a shareholder on 30.8.1982 only in
2004, it has every right to agitate against the fraudulent manipulation of the records of the
company. It is to be noted that even in the sur rejoinder, the respondents have not answered as to
how the transferor of shares to the petitioner had ceased to be members as recorded in the
members' register on 30.8.1982 and the petitioner became a shareholder of the same shares on
28.1.1983. This itself would indicate that there have been manipulation in the records of the
company to deprive the petitioner of its pre-emptive rights of the shares transferred to B. Raheja
group only on 15.1.1983.
6. The learned Counsel further submitted: The respondents in their letter dated 29.10.2004 at
paragraph 6, have admitted that there are clerical errors in the register of members. Actually they
are not clerical errors but fraudulent manipulation. Therefore when there is a fraud, the question of
delay or latches do not matter. In Bengal Luxmi Cotton case 35 CC 187, it has been held that delay
cannot be a ground for depriving grant of relief if facts otherwise warrant. The signature of Shri
Ashok in the instruments of transfers cannot bind the petitioner as many transfers had taken place
without offering the shares to the petitioner. In Syed Shah Gulam v. Syed Shah Ahmed , it has been
held that in terms of Section 18 of Limitation Act, the limitation would start from the time of
discovery of the fraud. Since in the present case, the petitioner discovered the fraud only in Oct.
2004 and has tiled the petition in December, 2005, the petition is not barred by limitation. In Smt.
Aparna Ghose v. Shri Sarup Chand 20051 CLJ Cal. it has been held that the pre-emption rights
cannot be defeated by fraud. In S.P. Chengalvaraya Naidu v. Jagannath , it has been held that a
person coming to court with a falsehood should be thrown out at any stage of litigation. In the
present case, having committed a fraud, the respondents have come with a plea of error, which
cannot be accepted. In Bank of India v. Avinash D. Mandivikar , it has been held that in case of
fraud, even reasonable period for initiating proceedings does not arise. In State of Orissa v.
Varindavan Sharma 1995 3 SCC 249, it has been held that even in case of delay of 27 years from the
date of a transaction which was shrouded with suspicious features, since proceedings were initiated
immediately on coming to know of the said transaction, the court set aside the transaction.
7. The exclusion of the petitioners from exercising the pre-emptive rights is not an isolated act
relating only to the transfer of shares from Shah group to B. Raheja group but there were 29 further
such transfers effected by Raheja groups to non members some which are corporate entities,
without offering the shares to the petitioner. Transfers to corporate entities even within the group is
not permissible in terms of Article 44 of the AOA. Thus, there have been series of illegal acts and in
terms of Needle Industries case, such series of illegal acts constitute oppression. Therefore, the
shares transferred to B. Raheja group and all subsequent share transfers should be cancelled and the
shares should be offered only to the petitioner and not to other respondent shareholders as they
have been parties to the fraud committed.
8. The learned Counsel further submitted: The company is in the nature of a quasi partnership and
the petitioner entered the company with legitimate expectations of being in management. Presently,
the value of the hotel is over Rs. 700 crores and to exclude one of the equal partners from the
management is highly oppressive. The petitioner entered the company with the clear understanding
that the petitioner will have a right in the management of the company. He was appointed as a
director in 1981. For claiming that the petitioner ceased to be a director from May, 1982, the
company has not established how Shri Ashok ceased to be a director- whether he was not elected in
the general meeting or whether he resigned from the board or whether he vacated his office in terms
of Section 283(1)(g) of the Act. Even though the petitioner is the largest single shareholder holding
1/3rd of the shares, yet, it has been completely kept out of the management without any
representation. Since the petitioner has an apprehension that the respondents are siphoning of
funds of the company, to have a proper check on the funds and also on the basis of understanding
that it would participate in the management of the company, proportionate representation should
be directed. Further, by handing over the management of the hotel which is the sole undertaking of
the company to Merriot without the approval "of the shareholders, the respondents have acted
against interests of the company and the shareholders. Even though, an agreement was entered into
with Merriot in 2001, the respondents are not disclosing the details of the said agreement.
Obviously, the respondents are siphoning of funds of the company through this agreement. In the
balance sheet, many transactions with the firms and companies in which the respondents are
directors have been indicated. These contracts have not been entered in the register of contracts
under Section 301 of the Act and by these contracts, the respondents are siphoning of funds of the
company. The respondents do not care for the shareholders. Shri Vijay v. Raheja 13th respondent,
was appointed as MD in the board meeting held on 31.12.2003 for the period from 1.1.2004 to
31.12.2004. No intimation was sent to the shareholders about this appointment till 8.9.2004 when
the company sent a notice for the AGM on 30.9.2004 which included the item for his appointment.
Even though the petitioner sought for details about Shri P.B. Raheja by a letter dated 24.9.2004,
since the explanatory statement did not contain required particulars about him, without any reply,
his appointment was approved by the respondent shareholders. Presently, there are two joint
managing directors, one from K. Raheja group and other from B. Raheja group while the petitioner
has no representation.
9. Summing up his arguments, Shri Dave submitted: The allegations of the petitioners relating to
fraud and manipulations are against K. Raheja group. However, it is B. Raheja group which has filed
a detailed reply while K. Raheja group has only adopted the same. In Lohia Properties Pvt Ltd. v.
Atma Ram Kumar, it has been held that every allegation of fact in the plaint, if not denied in the
written statement, shall be taken to be admitted by the defendant. In the present case, since K.
Raheja group has not specifically denied the allegations of fraud etc., they should be deemed to have
admitted the allegations. Since B. Raheja group was not in the picture in 1982, they would have no
personal knowledge and therefore their reply affidavit has to be ignored. In State of Bombay v.
Pureshottam Jognaik 1952 SCR 674, it has been held that when a matter is deposed to is not based
on personal knowledge, the sources of information should be disclosed. In the present case, B.
Raheja group which has filed reply to the application has not done so. It is strange that beneficiaries
of fraud have defended the action while the committer of fraud has only adopted the said defence.
Since the petitioner has established oppression committed by the respondents by practicing fraud,
the relief sought for in the petition should be granted.
10.Shri Sundaram, appearing for Vijay Raheja group submitted: The admitted fact is that the
petitioner came as a 1/3rd shareholder and it continues to hold 1/3rd shares in the company.
Therefore, its claim for 88% shares in the company can never be accepted. Having accepted the
position of 1/3rd shareholder for over 20 years, and after the hotel has become operational, the
petitioner cannot challenge events that took place in 1982/83 on technical grounds. Such a claim
would be highly unjust and inequitable especially when it is the Rahejas who have nurtured the
company all the years including putting up a huge hotel on the vacant land. The sole claim of fraud
as alleged by the petitioner relates to B. Raheja group becoming a shareholder. In page 32 of the
petition, the petitioner has averred that sometime in 1989, the respondents informed the petitioner
that B. Raheja group had acquired the shares before the petitioner became a member of the
company on 28.1.1983. If the petitioner was aware of this in 1989, it should have sought for
enforcing its pre-emptive rights in 1989 but having failed to do so, it should be deemed to have
waived its right and cannot claim any right after 16 years. It is the petitioner's case that its name
should have been entered in the register of members on 30.8.1982 and when Shah group transferred
its shares on 15.1.1983, offer should have been given to the petitioner. Since its name was not in the
register of members on 15.1.1983(Exhibit -3), the question of making any offer to the petitioner did
not arise. Further, if the petitioner were to seek rectification of the register of members, it should
have filed a petition under Section 111 of the Act seeking for entry of its name in the register of
members as on 30.8.1982. Till such time such a rectification is made, the question of its exercising
pre-emptive rights does not arise. In other words, this petition itself is not maintainable as far as the
issues relating to shares are concerned. When shares were transferred from Shah group to B. Raheja
group, all the shareholders of K. Raheja group had given a no objection letter to the company in
terms of Article 38. Likewise, B Raheja group had also given a no objection letter to the company on
28.1.1983(Exhibit-7) when K. Raheja group transferred its shares to the petitioner. Therefore, no
shares could have been transferred in favour of the petitioner before 28.1.1983 without the content
of B, Raheja group. B. Raheja group signed the consent letter on 28.1.1983 after it became a
shareholder on 15.1.1983. The petitioner does not have any document or evidence to show that it
became a shareholder on 30.8.1982 other than basing its claim on errors in the register of
members/share transfer register. On. the contrary, its becoming a shareholder on 28.1.1983 is
evident from the instruments of transfers executed by Shri Ashok. The transfer forms at Exhibit -5
bear the stamp of ROC dated 8.1.1983 and therefore this instrument could not have been executed
earlier to this date. They were also signed on 28th January, 1983. The endorsement in the share
certificates bears the date of 28.1.1983 and the share certificates are in the possession of the
petitioner and as a matter of fact when the petitioner changed its name, the fact was also noted in
the share certificates. When the primary documents executed by the petitioner and the share
certificates bear the date of transfer as 28.1.1983 which is also reflected in the register of members,
the CLB cannot entertain the claim of the petitioner solely based on the incorrect entries in the share
transfer register. Therefore, there is absolutely no substance in the allegation that by fabricating the
date of its becoming a member to a later date, the petitioner had been deprived of the pre-emptive
rights. In so far as proportional representation on the board is concerned, the petitioner has relied
on legitimate expectation. For over 20 years the petitioner never tried to enforce the said
expectation. Further, the association of the petitioner now on the board would be completely against
the interest of the company as even without being on the board, the petitioner has been creating all
sorts of hurdles in the working of the company. Since neither any act of oppression nor
mismanagement has been established, this petition should be dismissed.
11. Shri Sarkar, Senior Advocate, appearing for Rajan Raheja group submitted: The foundation of a
petition under Section 397 is that the petitioners should hold undisputed shares. Further, according
to its own averment in page 7 of the petition, the petitioner was to have only 1/3rd shares in the
company which arrangement still continues even after further issue of shares. The proprietary rights
of a member start from the date of his becoming a member and cannot arise from an earlier date by
seeking for pre-dating his membership. When the instruments of transfers bear the date of
28.1.1983, the petitioner could never claim to have become a member prior to that date. In terms of
Section 108, the provisions of which are mandatory, the company could not have registered the
transfer without instruments of transfer in 1982 and even if had done so, the same would be void in
terms of Section 108. It is for the petitioner to prove that it had lodged requisite transfer
instruments to the company along with share certificates in 1982 and accordingly the company had
registered the transfer in his favour in 1982 and thereafter had fabricated the documents. The
petitioner has not done so while the company has produced instruments of transfer dated 28.1.1983.
In terms of Section 84 of the Act, it is the share certificate which shall be prima facie evidence of the
title of a member to such shares and since in the present case, the share certificates bear the date of
28.1.1983, the petitioner had become a shareholder only on that date. Even the register of members
indicates only that date as the date of the petitioner becoming a shareholder. Even though, in terms
of Articles, register of transfers has to be maintained by the company, no statutory presumption can
be raised in terms of the entries made therein. There is no prayer in the petition to put the name of
the petitioner as a shareholder in August, 1982 as against January, 1983. Without that prayer, and
granting of the same, no other direction can follow. Even for granting the said relief, there should be
supporting primary documents as per law. It is to be noted that the petitioner has not challenged the
date of 28.1.1983 as recorded in the transfer instruments and as a matter of fact, these instruments
have been signed by Shri Ashok himself as a director of the petitioner. Therefore, neither in law nor
in equity, he can claim that the petitioner had become a shareholder in August, 1982. Since it has
been held in Mannalal Khetan case AIR 1977 SCC 536 that the provisions of Section 108 are
mandatory, in the absence of any primary records, like instruments of transfers executed in 1982,
the petitioner cannot claim membership effective from 1982 even if the company had wrongly
entered the petitioner's name in the register of members as the same would void and the only course
available to this Board is to delete the illegal entry. In Vasudev Ramchandra Shelat v. Pranlal
Jayanand Thakar 1974 SC 728, it has been held that to claim antecedent rights, the transferee
should be in possession of share certificates along with signed blank transfer forms. In the present
case, the petitioner cannot claim the antecedent rights as the transfer instruments are dated only as
28.1.1983. In a petition under Section 397, one cannot ask for relief regarding shares already held.
In terms of Article 38, if members holding 2/3 of the shares approve the transfer to an outsider,
then there is no need to offer the shares to other members. Therefore, even assuming that the
petitioner had become a shareholder as claimed by him on 30.8.1982, for transfer of shares from
Shah group to B. Raheja group, there was approval from 2/3rd shareholders, namely Shah group
and K.Raheja group for transfer of shares to B. Raheja group and therefore, the petitioner could not
have sought for exercising the preemption rights. Further, in terms of Article 38, no vested right is
created in any shareholder in terms of the pre-emptive clause and the said transfer has to only be
cancelled and no other shareholder can ask for the shares as a matter of right. This Board has held
so in In Cruickshank Company Ltd. v. Stridewell Leathers Private Ltd. 86 CC 439.
12. In so far as the claim of the petitioner for a representation on the board is concerned, the
petitioner cannot have any legitimate expectation as it had its nominee on the board even before it
became a shareholder. In other words, its acquiring shares being later in time, such acquisition
cannot create any legitimate expectation of being in management by virtue of the shareholding.
Since the petitioner had already a nominee on the board, it was requested to invest and accordingly
it did so. The nominee of the petitioner, Shri Ashok was appointed as an additional director on
26.6.1981 to hold office up to the date of next AGM. Since he was not elected as a director, he ceased
to be a director effective from 25.5.1982. In page 31 of the petition, it is stated that the petitioner
realized in 1989 that its nominee had been removed as a director. If the petitioner had this
knowledge in 1989, it cannot agitate this issue in 2005. It is on record, as stated by the petitioner in
page 34 of the petition, that disputes had started in 1989 and in spite of that the petitioner
subscribed to the right shares offered in 1990. Even then, in its letter dated 7th September,1989
Annexure A-9), the petitioner while asking for various documents on the ground that it had not
received any notices for any meetings after it had become shareholder of the company, did not raise
the issue of directorship. This letter was replied on 16.9.1989 by the 10th respondent who belongs to
B. Raheja group. Thus, the petitioner was aware that B. Raheja group had become a shareholder of
the company even at that time. If the petitioner had slept over its rights for over 15 years, it cannot
invoke equity in its favour. As a matter of fact, Shri Ashok entered into an understanding with the
10th respondent that the shares held by the petitioner would be transferred to the other
shareholders as is evident from Annexure A-11 and 12. In his letter dated 5.10.1989 (Annexure
A-12), Shri Ashok had questioned the claim of the 10th respondent that the former had agreed to
transfer the shares held by the petitioner, on the ground that Ashok had never been authorized by
the petitioner to negotiate for such a sale. If he had not been authorized, then, the question of any
oral agreement with him regarding participation in the management does not arise. Only in this
letter, Shri Ashok had voiced his grievance that he had not been receiving notices for meetings even
though he was a director of the company. However, in subsequent letters, there was no whisper
about directorship nor about B. Raheja group being a shareholder in the company. In paragraph 4 of
his letter dated 12th Oct. 1989 (Annexure A-14) to Shri Ashok, the 10th respondent had pointed out
that the two Rahejas being 2/3rd owners of the company, Shri Ashok P. Hinduja had agreed earlier
to transfer the shares held by the petitioner so that two Raheja groups could fully own the company.
Therefore, the petitioner was fully aware that B. Raheja group had become a shareholder and it
never enquired as to how and when B. Raheja group become a shareholder since Shri Ashok was
fully aware of the facts. In the same letter, the 10th respondent informed Ashok that the latter was
not entitled to be a director as he did not hold any qualification shares. In its letter dated 22.2.1990,
the petitioner had reiterated that it would continue to maintain 1/3rd shareholding in the company
(Annexure A-16).
13. Dr. Singhvi appearing for Chandu Raheja group submitted: It is for the petitioner to discharge
the burden of proving that it was the transferee of shares in 1982. It has only relied on the
company's non statutory, non prescribed register to claim the right of membership from August,
1982. The company never communicated to the petitioner that it was a shareholder in 1982 nor any
record in the ROC depicts likewise. Neither the respondents nor the company had acted on the basis
that the petitioner had become a shareholder in August, 1982 to claim estoppel against them. The
petitioner cannot claim that half of the entries in the register of transfer are correct while the other
half is wrong. In State of Bihar v. Radhakrishna Sinh , the Supreme Court has held that a petitioner
has to discharge his burden by proving the facts alleged by him, and that the defendants could not
be called upon to rebut the claim of the petitioner. Similarly, in Meenakshi Ammal v.
Chandersekharan wherein it was alleged that the Will had been executed under undue influence, the
Supreme Court held that the onus of proving undue influence is upon the person making such
allegation and mere presence of motive and opportunity are not enough. In the present case, while
alleging fraud, the petitioner has not given any proof or evidence to substantiate the same. The very
fact that the company has produced all the registers would indicate that it had nothing to hide. The
retention of the old registers alleged to have been fabricated itself is the best proof of the honesty of
the respondents. Further, the petitioner knew at least in 1989 that B. Raheja group had become a
shareholder. There is no explanation as to why the petitioner waited for so long to allege fraud etc.
Knowledge coupled with the silence and inaction would amount to latches, waiver and estoppel.
When one does not assert his right even when there was a fraud, he has no remedy. Third party
rights enjoyed for over 20 years cannot be undone on the plea of unsubstantiated fraud. In case of
bilateral relationship, latches will squarely apply and there is no larger public interest to ignore the
latches. Likewise, equitable consideration does not override latches and discretion should not be
exercised in favour of a person who has not asserted his alleged rights. In Ferro Alloys Corporation
Ltd. v. Union of India , the Supreme Court has held that once a party acquiesces and has consciously
waived its rights, the party can be non suited on the ground of estoppel.
14. Shri Devitre appearing for K. Raheja group submitted: To claim the principles of quasi
partnership, the petitioners have not produced any written agreement to that effect. The person who
has affirmed the petition joined the 1st petitioner company only in 2004 and as such he cannot
claim any oral agreement that the company would be managed in the guise of a quasi partnership
when the petitioner entered the company in 1982/1983. Even the subsequent-conduct that the
petitioner never asserted its right of joint management for over 20 years would indicate that even
the alleged oral agreement had never been insisted or acted upon. The very fact that in para 6.4 of
the petition it is averred that right from the beginning, the representative of the petitioner has been
kept out of the management would indicate that there could have been no agreement of joint
management. As a matter of fact, this averment itself could be destructive of the alleged oral
agreement. Shri Ashok was appointed as a director in June, 1981 and ceased to be so in May, 1982.
Thereafter, he never took any interest in the company even after being categorically informed in
1989 that he was not a director. The prayer of the petitioner at "L" at page 69 that his removal as a
director in 1982 should be declared as illegal cannot be granted in the year 2005. Therefore, the
petitioner cannot seek proportional representation and rejection of the same is not an act of
oppression. Further, there is no deadlock in the board and the company has been making profits
and it has also declared dividend which has been accepted by the petitioner. The very fact that the
petitioner's holding of 1/3ld right from the beginning has not been disturbed itself would show that
the respondents have been acting fairly. In so far as the alleged fraud relating to the entry of the
petitioner as a member is concerned, mere entry in the register of transfer de-hors the factual
aspects of the dates in the transfer forms/share certificates and register of members cannot give the
petitioner to right to claim membership effective from 30.8.1982. In terms of Section 164, entry in
the register of members in terms of Section 150 is prima facie evidence of the date on which a
person becomes a shareholder and in terms of Section 184, the share certificate shall be prima facie
evidence of the title of the member to such shares. In the present case, both the register of members
and the share certificates bear the date of 28.1.1983 which prima facie establishes that the petitioner
became a shareholder only on that date. Further, both the main allegations relating to date of entry
as a member and removal as a member are hopelessly time barred. In paragraph 6.6, the petitioner
has averred that in a meeting held on 27.8.1989, Shri Ashok came to know that Shah group had
exited and Rahejas had taken over the estates. Further, it is also stated in the last line of that
paragraph that the respondents had misled the petitioner that he would not succeed in obtaining
legal redress and therefore had to remain silent and continuously subscribe to the shares offered to
maintain its share in the venture and appreciation of value in the assets. This itself would show that
the petitioner had acquiesced to the state of things and remained content with 1/3rd shares in the
company. There were 5 subsequent right issues which were all subscribed to by the petitioner
knowing frilly well that Raheja group as a whole held 2/3rd shares in the company. The very fact
that the petitioner never took interest in the company would indicate that it is nothing but an
investor and it is Rahejas who had all along nurtured the company to build a 5 Star Hotel. In spite of
the fact that in terms of Article 9 of the AOA, the board has full powers to allot shares, the
respondents never varied the shareholding of the petitioner and were offering right shares all the
time. This itself would show the bonafide of the respondents. One another important aspect to be
noted is that the authorized representative of the petitioner took inspection of various records of the
company in 1993, including the register of members and obtained a copy of the same and therefore
the petitioner was aware that B. Raheja group had become a shareholder. Further, the affidavit filed
by the deponent of the petitioner is not in conformity with the CLB Regulations. The very fact that
the deponent has relied on an alleged oral agreement to which he could not have been a party since
he joined the company only in 2004, on this sole ground that the petition deserves to be dismissed.
The petitioner has not established discovery of any new material which was not available in
1989/1993 to file the petition belatedly in 2005. This undue delay has actually prejudiced the
respondents in the sense that they are not in a position to provide any relevant evidence to
substantiate their stand. Further, as held in Sangram Sink P. Gaekwad v. Shantadevi P. Gaekwad
and Bagri Cereals case 105 CC 465, the petitioner should establish that the company deserves to be
wound up on just and equitable grounds.
15. Shri S.N. Mookherjee, Sr. Advocate for A. Raheja group submitted: On the basis of the averments
of the petitioner in the petition itself, the petition deserves to be dismissed with cost. From the
averments of the petitioner in paragraph 6.3.2 to 6.3.6, it is evident that the petitioner knew that the
transfer to its name was effected on 28.1.2003 at which time Shah group was not a shareholder. If
the claim of quasi partnership was with Raheja group and Shah group, then, he should have
protested at that time itself. Therefore, the petitioner has not come with clean hands. In the petition,
the petitioner conveniently omitted to disclose the share certificates. The petitioner deliberately
withheld the document. Further, when the transfer instrument bears ROC stamp as of 8.1.1982, no
transfer could have been effected before that date. Therefore, the claim of the petitioner that there
was delay in registering the transfer of shares is baseless. In Needles case AIR 1981 SC 1898 the
Supreme Court has held that a person who comes to equity must come with clean hands and if he
does not, he cannot ask for relief on the ground that the other man's hands are unclean. Likewise, in
S.P. Chemgalvaraya Naidu v. Jagannath, it has beenheld that non disclosure of relevant and
material documents with a view to obtain advantage amounts to fraud. The aim of the petitioner, on
the basis of entries in the share transfer register that he should have been entered as a member in
August, 1982 cannot be accepted in view of primary documents indicating otherwise. In terms of the
entries in share certificates, the petitioner became a shareholder only on 28.1.1983. In Satish
Chandra Sanwarka v. Tinplate Dealers Assn. Pvt. Ltd. 1998 2 CLJ 354, this Board has held that even
in case of dispute between the entries in the share certificate and the share register, the prima facie
evidence through share certificates under Section 84 gets precedence over prima facie evidence of
register of members under Section 164 for the reason that the register of members being under the
control, of the company is susceptible to manipulations. In Maneckji v. Wadilal AIR 1926 PC 38, it
has been held that the title to get on the register consists in the possession of a certificate together
with a transfer instrument signed by the registered holder. In the present case, the instrument of
transfer has been signed only on 28.1.1983 and therefore the petitioner could get the right to get into
the register of member on that day or later and not before. Having all along exercised rights as a
1/3rd shareholder, he cannot claim anything higher now on flimsy grounds. It is to be noted that
even after carrying out inspection in September, 2004, in the letter dated 20.5.2005 (Annexure
A-55), the petitioner has sought for a representation on the board on the ground that it was holding
33% shares in the company. In other words, even after finding out the alleged fraud in September,
2004, the petitioner did not assert its alleged right. Even when dividend was declared in accordance
with entries in the register of members, the petitioner never protested. It is not in dispute that it is
the respondents who have nurtured the company and have given personal guarantees. No
mismanagement has been alleged. Presently, the hotel has been given on management contract to
10
Marriot and none of the directors is getting any remuneration.

16. In rejoinder, Shri Dave submitted: When the petitioner entered the company, it was with certain
understanding and expectation. Therefore, when the understanding has been breached and the
expectation has not been fulfilled, the petitioners can always allege oppression and mismanagement.
Even in the register of members, the transferors of the shares transferred to the petitioner had been
shown to have ceased to be members on 30.8.1982. If so, then, the petitioner being the transferee
should also have been entered as a member on that date. There is no explanation from the
respondents as to how the shares could be in limbo during this period. However, its name has been
entered in the register of member only on 28.1.1983 notwithstanding the fact that in the share
transfer register the transfer is shown to have been effected on 30.8.1982. Whether it is a fraudulent
manipulation as claimed by the petitioner or a mistake as claimed by the respondent has to be
decided on the basis of the motive of the respondents. It is to be noted that neither the K. Raheja
group nor the company in the affairs of which the allegations have been made has filed any reply. In
Charanjit Lal Choudhary v. Union of India , it has been held that in case of allegations against the
company, it should defend.. In Dhananjay Pande v. Dr. Bias Surgical & Medical Institute Pvt. Ltd.
125 CC 626, this Board has held that even when the petitioner was not in a position to establish that
he had been allotted shares by producing any documentary proof, yet, the Board on the basis of the
circumstances held that there was a pre- ponderance of probabilities that shares had been allotted to
the petitioner. When the share records indicate that the petitioner had become a shareholder on
30.1.1982, the same should be taken as conclusive proof of the petitioner having become a share
holder on that date. In a quasi partnership, directors owe duty to all the members. Since the
petitioner is an outsider, with a view to grab the control of the company by way of manipulation of
the records, the shares held by Shah group had been transferred to other Raheja group. In terms of
Article 2(o) of AOA, shareholder or members mean duly registered holders from time to time of the
shares of the company. In view of the entry in the shares transfer register indicating the date of
transfer as 30.8.1982, the petitioner had become registered holder on that day and therefore
pre-emptive rights in respect of all subsequent transfers vest in the petitioner. The contention of the
respondents that if shareholders holding not less than 2/3rd of the share capital approves the
transfer, there is no need for offering to other shareholders cannot be accepted as transferor cannot
be a party to such an approval. The 2/3rd approval would arise only when no other member willing
to purchase the shares. The Raheja groups have subsequently transferred substantial number of
shares to entities within their control which could not have been done without making an offer to
the petitioner as in terms of Article 44, the transfer could be among close relations and individuals
and not to corporate entities. Since fraud has been established beyond doubt, even though petitioner
would be entitled to 88% shares in the company, yet, the petitioner is prepared to accept 50% shares
so that there is equality between Rahejas and the petitioner. Similarly, the petitioner should also get
equal representation on the board.
17.Shri Sarkar, in rejoinder, submitted: It is strange that having agreed to be 1/3'd shareholder and
thereafter claiming 88% shares in the company and now the petitioner claims 50% shares. The
petitioner has not produced any evidence that there was an agreement that if one group were to go
out of the company, the other two groups would have equal shares. Even assuming that the claim of
the petitioner that it had become a shareholder on 30.8.1982, in the absence of any instrument of
11
transfer, the entry in the register would be void in terms of Section 108 of the Act. Right to title to
property has to be in accordance with law and any lapses or mistake or even assuming fraud on the
part of the company cannot give a title to the petitioner. Since the petitioner derives his title from
the transferor, only the date on which the transferor signs the instruments of transfer, the petitioner
could get title from that date. It is on record that the transfer instruments bear the stamp of ROC as
8.1.1983 and the instruments could have been signed by the transferors only on that day or
thereafter. In so far as the allegation relating to entries in the minutes book is concerned, the person
writing the minutes expired in 1992 and therefore, it is not possible to ascertain the reasons for the
difference. Further, the minutes book is a bound one and not maintained in loose leaf form which
could be manipulated/fabricated. Article 38 refers to 2/3r shareholder and does not exclude the
transferor in computing the 2/3rd shares.
18. I have considered the pleadings, arguments and written submissions. After the conclusion of the
hearing on 12.4.2006, the petitioner filed an application CA 138 of 2006 dated 8.5.2006 pointing
out that the photocopies of page numbers 99 and 100 of the minutes book were got verified from a
handwriting expert who has given the opinion that the writings in the two pages are not of the same
person clearly indicating that there has been manipulation. In the written submission, it has been
submitted that in page No. 99 it is recorded that the notice calling for the meeting was read and in
page No. 100, the minutes record the termination of the meeting. No meeting would be called
without having some business to transact. When in the register of members, it is recorded that the
transfer of shares to the petitioner was approved in the board meeting held on 30 th August, 1982
and when the minutes do not show any business having been transacted, it is quite obvious
considering the fact that page No. 99 and 100 are not in the same handwriting and that page No. 101
has been scored out would indicate that the business transacted on that day approving the transfer
has been erased. It is also submitted in the application that if necessary, this Board should obtain a
handwriting expert opinion afresh to ascertain whether the handwriting in page No. 99 and 100 are
of the same person. In the reply to this application, the respondents have contended that the
petitioner has not made out any case of manipulation of records and that the allegation relating to
the minutes are inconsequential and incorrect and does not amount to "tampering" and that even
the hand writing experts opinion only shows difference in the hand writing and it does not even
whisper of "tampering."
19. Before I deal with the merits of the case, the issue of limitation raised by the respondents has to
be dealt with. It is contended that since Shri Ashok himself has admitted that in 1989, he was
informed of the entry of B. Raheja group as members and he had also been corresponding with the
10th respondent who is a member of B.Raheja group, the petitioner cannot challenge admission of
the B.Raheja group now after a delay of over 15 years. It is also contended that the petitioner had
taken inspection of the records of the company in 1993 and therefore must have been aware of the
alleged manipulation of records and therefore, its silence during all these years, would amount to
waiver, acquiescence and would act as estoppel. As against this, the petitioner contends that it came
to know of the manipulations in the share records of the company only in 2004 and therefore, there
is no delay in approaching this Board. In paragraph 6.6 of the petition, the petitioner has averred It
also transpired at this meeting that Shah group has exited and the Raheja group had taken over
their shares and effective control over the company contrary to and in breach of the agreement and
12
understanding referred to above. Mr. Ashok P. Hinduja was also informed by the said respondents
that the shares of Shah group have been transferred and registered in favour of Raheja group even
prior to transfer and registration of even a single share in favour of the petitioner and that, in view
thereof, the petitioner has no remedy in view of the restrictive provisions regarding transfer of
shares contained in the Articles of Association of the respondent company. The petitioner was
misled by the statement of the said respondents and was misled into believing that the petitioner
will not succeed in obtaining legal redress and therefore had no choice but to remain silent and to
continuously subscribe to the rights offer to maintain its shares in the venture and appreciation of
the value in assets . According to the respondents, this averment would indicate that the petitioner
was aware of the entry of B. Raheja group as members of the company and since it had not
challenged the same for over 15 years, it would amount to waiver, acquiescence and estoppel. I am of
the view that this averment would in no way prejudice the right of the petitioner to file this petition
as only after inspection of the share records of the company in 2004, he has alleged that B. Raheja
group had entered the company by manipulation of records which knowledge the petitioner did not
definitely have in the year 1989. Further, I have seen the report of the inspection carried out by the
petitioner in January, 1993. While the report shows that register of members had been inspected,
neither the share transfer register nor the board minutes had been inspected which are the primary
records on the basis of which, after taking inspection of the same in 2004, the petitioner alleges
fraudulent manipulation. Therefore in so far as the challenge to the transfer of shares to B. Raheja
group is concerned, I do not find that this petition is time barred as the cause of action for the
petitioner to file this petition has arisen only after inspection in 2004. The cases cited by the learned
Counsel for the petitioner viz Syed Shah Gulam, Bank of India and State of Orissa (supra) are
applicable, while the case of Fero Alloys Corporation Ltd. cited by the respondents is not applicable.
20. Before dealing with the main allegations, I consider it proper to deal with certain peripheral
issues raised by the petitioner. According to the petitioner, the company could not have entered into
a contract with Marriott without the approval of the members in a general meeting as in terms of
Section 293(1)(a), the approval of the shareholders is necessary. Provisions of Section 293 are
attracted only in cases of sale, lease or otherwise disposal of an undertaking. In hotel industry, it is
common to enter into a management contract with reputed international hotel chains, which uses
its expertise in manning and managing the hotel for an agreed consideration as management fees.
The entire revenue accrues to the company. The property does not vest in the hotel chain. Therefore,
in such contracts, no sale or lease is involved to apply the provisions of Section 293(1)(a). From the
balance sheets of the company for the past two years, I find that the hotel has done exceptionally
well under the management contract, which enabled the company to declare handsome dividends.
Except expressing an apprehension that that by this contract, the respondents might be siphoning of
funds of the company, no other instances of mismanagement is alleged except that certain statutory
records are not maintained property. In so far as the allegation that the petitioner is not allowed
access to records of the company is concerned, from the documents attached with the petition itself,
I find that the petitioner has been repeatedly asking for information and on every occasion, the
company has provided the same. The petitioner has also complained that since it had made
allegations of fraud etc against K.Raheja group and the company, they have not filed any counter but
the counter has been filed only by B.Raheja group. It is to be noted that the entire petition is based
on an understanding with Shri Ashok, but, he has not filed the petition, but the petition has been
13
filed by an employee who has joined the petitioner only in the recent past, who would have no
personal knowledge of the alleged oral agreement. Thus the decision in Purshotam Jognath, cited by
the learned Counsel against the K.Raheja group is squarely applicable to the petitioner also.
However, even though the main counter has been filed by B.Raheja group, yet all other respondents
have filed affidavits adopting the said counter and all of them were also represented during the
hearing. Therefore, the decision in Lohia Properties Ltd. that if allegations are not denied by the
persons against whom the same are made, then the allegations should be taken as admitted, is not
applicable. The petitioner has made allegations against the appointment of MD, which I do not
consider necessary to deal with as the said appointment has been approved in a general meeting
attended by the representative of the petitioner.
21. In so far as the merits are concerned, the entire claim of the petitioner in regard to shares rests
on two premises. One is that in terms of Article 38, the petitioner had pre-emption rights and the
second is that to deprive the petitioner of the said pre-emptive rights, the respondents had
fraudulently manipulated the share records. Article 38 reads A share may be transferred by the
member or other persons entitled to transfer the same to any member selected by the transferor or a
person approved by the holders of not less than 2/3rd of the issued capital of the company, but save
as aforesaid, and save as provided by Articles 42 to 45 hereof, no share shall be transferred to a
person who is not a member so long as any member is willing to purchase the same at the face value.
From this Article, it is apparent that shares could be transferred by a member to another member
selected by him and that unless shareholders holding not less than 2/3rd of the issued capital
approve, shares cannot be transferred to a non member but has to be offered to a willing existing
member. In other words, except in case of transfer of shares from a member to another member and
transfer to an outsider with the approval of holders of 2/3r of the shares, no transfer can be
transferred without offering the shares to the existing members. In other words, the existing
members have a right of pre-emption and if the procedure prescribed under Article 39 and 40 is not
followed in terms of the pre-emption right, any transfer effected shall be invalid.
22. Now, the claim of the petitioner relating to pre-emption right in respect of shares transferred
from Shah Group to B Raheja Group. This claim is based on the allegation that there had been
fraudulent manipulation in the share records of the company i.e. share transfer register and register
of members. Additionally it is also claimed that the minutes of the board meeting on 30.8.1982 have
been fabricated by removing/erasing the decision of the board approving the registration of transfer
of shares in favour of the petitioner on that date. Four shareholders belonging to L. Raheja group
had transferred their shares to the petitioner. A perusal of the share transfer register shows that
there are two different sets of entries in respect of the shares transferred by that Group to the
petitioner. On 30.8.1982,there are three entries indicating transfer of shares to the petitioner noting
the consideration at Rs. 100/- per share. The serial numbers of these transfers are 22,23 and 24. It is
also indicated against these entries that the board had approved the registration on 30.8.1982.
However, there is no entry relating to transfer of 33 shares from Ms Kaushlya Raheja to the
petitioner on 30.8.1982. In serial numbers 35 to 38 of the share register, again entries are found
relating to transfer of the same shares on 28.1.1983 with consideration noted at Rs. 200/- per share.
The transfer of 33 shares from Ms Kaushalya Raheja to the petitioner also finds a place. Similarly, as
pointed out by the petitioner, in the members' register, the transferors of the shares to the petitioner
14
have been shown to have ceased to be the members on 30.8.1982. In the register of members, in
Folio number 29 relating to the petitioner, the corrections, in the dates of transfer are clear and
distinct. From the photo copy of the minutes of the board meeting held on 30.8.1982, it is seen that
the handwritings in page 99 and 100 are apparently different and no Board would meet to transact
"NIL" business. In other words, the petitioner has established that there are discrepancies in the
nature of corrections, additions, alterations, deletions and omission in the register of members,
share transfer register as also in the minutes. The respondents do not contest these discrepancies.
The only difference in the stand of the petitioner and that of the respondents is that the petitioner
claims fraudulent manipulation of records while the respondents contend that they are correction of
errors. Errors could occur by mistake on one or two occasions and in one record or two records but
multiple corrections in many records like register of members, share transfer register and the
minutes of the Board meeting etc could justifiably give rise to the claim of fraud as alleged by the
petitioner.
23. Whether the respondents have made the changes in the share records fraudulently is the issue to
be considered. Fraud means cheating or deceiving a person to his injury and it aims at the
disadvantage of another. Likewise, to defraud means to deprive one of his some rights, interests in
or of property by deceitful devices. Therefore, in the present case, to claim fraud on the part of the
respondents, the petitioner has to establish that it had been deprived of certain rights or interests
which it had and which has been affected by the alleged fraudulent manipulation of records.
24.The entire case of the petitioner regarding its rights is based on the share records of the
company. To rely on the share records of the company that the petitioner had become a shareholder
on 30.8.1982, it has to establish, if not categorically, atleast prima facie, that the original share
records reflected the true state of affairs on that date i.e. the petitioner was entitled to be a member
on that date and therefore, the records reflected the same. In other words, it has to corroborate this
fact independently of the share records. When a person alleges the existence of a particular state of
affairs, it is for him to establish the same by proper material/evidence and the burden to do so is on
that person. Radhakrlshna Sinh casesupra Legally a person is entitled to become a shareholder on
transfer only if he has paid the consideration for the shares and is in possession of share scripts
together with instrument of transfer and has lodged the same with the company. In the present case,
the petitioner has not established any of the above as on 30.8.1982. It has not even averred in the
pleadings that it had paid the consideration on or before 30.8.1982 or that it had received the share
scripts from the transferors or that the transferors had executed transfer instruments in favour of
the petitioner before that date and they were lodged with the company. Unless and until its
entitlement to the shares on 30.8.1982 is established, it can not allege fraudulent manipulation of
records since this alleged manipulation of records has not deprived the petitioner of its rights or
interests in the shares to which the petitioner has not established that it was entitled to on
30.8.1982. On the contrary, the details available in the instruments of transfer indicate that the
petitioner could not have become a shareholder earlier than 8.1.1983, since the ROC seal as found
on all the four instruments of transfer bears the said date. In other words, transfer instruments
could not have been executed before that date. The date of execution is shown as 28.1.83 and it has
been signed by Shri Ashok on behalf of the petitioner as the transferee. The share scripts as available
with the petitioner bear the date of transfer as 28.1.1983. Further, even though in the petition, it has
15
been averred that the correct consideration pain for the shares was Rs. 100/- per share, the
instrument of transrer indicate that the consideration paid was Rs. 200/- per share and the same
has been noted in the register of transfer on 28,1,1993. Thus, how the petitioner has averred in
paragraph 6.3.6 of the petition that there was a deliberate time lag in completion of formalities for
transfer and registration of the shares in the name of the petitioner and intimation thereof came in
January 1983 is not clear. Even though no statutory pre-emption is provided in the Companies Act
in respect of entries in the register of transfers, assuming that since Article 37 provides for
maintenance of a register of transfer, this Board has taken a decision in Tinplate Dealers Association
case (supra) that in case of disputes in relation to entries in the register of members and share
certificates, the prima-facie evidence in respect of share certificates under Section 84 gets
precedence over prima-facie evidence of register of members under Section 164 for the reason that
the register of members being under the control of the company is susceptible to manipulation. In
the present case, admittedly the share certificates indicate the date 28.1.1983 as the date of entry of
the petitioner as a member. If the petitioner were to challenge that the share certificates should bear
the date of its entry as 30.8.1982, then, as I have already pointed out, it should establish the same
with proper 'evidence with independent materials, which the petitioner has not done. Even
assuming that the Board had in fact approved the transfer on 30.8.1982 and accordingly entries
were made in the register of transfers on that day, in the. absence of any proof that the petitioner
had lodged the transfer instruments along with the share scripts, even the approval by the Board
would be void in terms of Section 108. The main contention of the petitioner is that it had been
deprived of preemption rights. There is nothing in record to show that when the entries were made
in the register of members on 30.8.1982 indicating that the petitioner had become a shareholder on
that date, Shah group, being the other shareholders on that day, had given a no objection as it would
been entitled for the pre-emptive rights. However, in respect of the transfer on 28.1.1983, B Raheja
Group had given a no objection for transfer of shares by L Raheja Group to the petitioner. The
petitioner has relied on the decision of this Board in Dr. Bais case, wherein, even though the
petitioner was not a registered member of the company, yet, this Board treated him as a share
holder for the purposes of maintaining the petition in terms of Section 399, when his locus standi
was challenged. It was a case of allotment of shares and the petitioner had paid application money of
Rs 148 lakhs and the dispute was whether he had become a member by allotment of shares or not.
In a civil suit against the company, the petitioner claimed the money invested by him as share
application money but the company contested the same on the ground that since shares had been
allotted to the petitioner, he could not seek refund of his investment. In the present case, there is
nothing on record to show that either the respondents or the company had treated petitioner as a
shareholder before 28.1.1983. Therefore, the decision in that case has no application. Thus, on an
over all assessment of the facts, I find that the allegation of the petitioner that there had been
fraudulent manipulation of share records of the company with a view to deprive of the petitioner of
its pre-emption rights has not been established. Even otherwise, transfer of shares in breach of the
pre-emption clause would only invalidate the transfer, and the shares transferred shall revert back
to the transferor and no other shareholder, as a matter of right, can seek for acquiring the shares
unless the transferor once again makes an offer. In other words, no vested interest is created in any
member to seek for acquisition of shares, the transfer which has been declared to be bad due to
non-compliance with the provisions of the pre-emption Clause (Cruickshank casesupra).
16
25.In this connection, I may only point out that in the petition itself, other than discrepancies in
relation to the impugned shares, the petitioner has also pointed out various other deficiencies both
prior to and after the transfer of the impugned shares and in relation to transfer of shares to other
members also. This would only indicate that the records maintenance in the company isnot up to
the mark.
26. Assuming, that the contention of the petitioner that it had become a shareholder on 30.8.1982 is
correct, the next issue for determination is whether it would have got the entire 633 shares
transferred by Shah group in exercise of the pre-emptive rights. In the matter of transfer of shares,
the provisions of the Articles have to be strictly followed. In terms of Article 39, the transferor has to
issue a transfer notice to the company and in terms of Article 40, the company has to find a
purchasing member. It would mean, that to find out a purchasing member, the company has to
issue notices to all the existing members. The Articles do not specify the modalities to be adopted if
there were more than one willing/purchasing member. This being the case, an equitable way of
distribution would be to offer the shares in proportion to the shares applied for. It is on record that
even after K. Raheja group had transferred 633 shares to the petitioner, 3 other shareholders
belonging to K. Raheja group continued to hold shares as on 15.1.1983 when Shah group transferred
their shares. They are Kausalya Raheja, Sheela Raheja and Joyti Raheja. Since group concept has
not been provided in the Articles, everyshareholder, irrespective of the group, would have to be
treated as a member for the purposes of pre-emptive rights, as, in the matter of transfer of shares
the provisions in the Articles override any private agreement regarding the same. (V.B. Rangaraj
case73 CC 201). If all the thred had applied, then, the petitioner would have been entitled to only
1/4th of the shares transferred by Shah group. Therefore, to consider that the petitioner was entitled
to all the shares, it has to be presumed that the petitioner alone would have applied for all the shares
and that the other three shareholders would not have applied for any share. No one can claim a right
on the basis of assumptions and presumptions. Therefore the foundation on which the petitioner
has staked its claim that if its name had been entered in the register of members on 30.8.1982, it
would have acquired the entire shares of Shah group, is not only very weak but also unsustainable.
27. One important aspect which I would like to mention is that it is the averment of the petitioner
itself that before it became a shareholder, it was K. Raheja Group which held 66% of the shares of
the company and it had agreed to transfer 33% shares to the petitioner so that it could have 1/3r
shares in the company. Presently also, the petitioner holds 1/3rd shares and Raheja group as a
whole holds 2/3rd shares. At every time, when further shares were issued, the petitioner was offered
and allotted shares on a right basis to ensure that it continues to hold 1/3rd shares in the company.
In other words, the respondents have not acted in any manner prejudicial to the shareholding
interests of the petitioner and as per the understating as claimed by the petitioner, it continues to
hold 1/3rd shares. Therefore, its prayer during the hearing that both the petitioner and the Rahejas'
should hold 50% shares each is not supported either by the alleged oral understanding or in terms of
the Articles.
28. The petitioner has also challenged subsequent transfers of shares by both the Raheja groups
alleging that the provisions of Article 38 had not been followed and therefore all these shares should
be offered to the petitioner after declaring these transfers as invalid. The stand of the respondents is
17
that all these transfers were within among the Raheja groups and not to any outsiders and therefore
covered under the provisions of Article 44. This Article reads Any share may be transferred by a
member to any child or their issue, father or mother of such member and any share of a deceased
member may be transferred by his executor or administrators or other legal representatives subject
to the approval of directors to any child or other issue, father or mother of such deceased member to
whom such deceased member may have specifically bequeathed the same and where there has been
no bequeathal of his share by a deceased member, such shares may be transferred to the legal
representative of such member From this Article, it is evident that a living member can transfer his
shares only to his child, father or mother without attracting the pre-emptive provision. No transfer
is permissible to any other non member without offering the shares to other existing members in
terms of Article 38 and following the procedure prescribed in Articles 39 and 40. There have been a
number of transfers within Rahejas group including transfers to a number of companies under their
control. A strict application of Article 44 would result in a declaration that transfers other than to
the children of the members or their father or mother are invalid resulting in the shares reverting
back to the original transferors. As I have already held, the petitioner would not have a vested right
in acquiring those shares declared as invalidly transferred. Considering the fact that the shares
would continue to be within Rahejas group even after declaring the transfers as invalid, such a
declaration and reversion back to the original transferors would be a fruitless exercise and therefore
I do not propose to do so as the petitioner is not going to be in any way benefited by declaring these
transfers as invalid. In this connection, I note that the respondents have contended that holders of
not less than 2/3rd of the issued capital can approve the transfer to a non member in terms of
Article 38, and since Raheja group as a whole holding 2/3rd of the issued capital have approved the
transfer, the transfers cannot be declared as invalid. Even though it is only academic since I have
already held that I do not propose to cancel the transfers, I am to point out that there is nothing on
record in writing that the Raheja group had given their consent in writing for such transfers, as they
did in the case of transfer of shares to the petitioner and to B. Raheja group. Thus, in so far as the
allegations relating to the shares and the consequent relief sought, I do not find any scope to support
the petitioner.
29.In so far as the claim of the petitioner to have a representation on the Board of the company on
the ground that it had entered the company with an understanding and legitimate expectation of
being in joint management, is concerned, I do not find any substantive material to establish the
same other than the alleged oral understanding. It is on record that after having been appointed as
an additional director on 26/8/81, Shri Ashok not did not bother to find out whether he continued
as a director, but raised issue of directorship only in 1989 and thereafter, now doubt, he has been
agitating about the same by. correspondence off and on. The question of legitimate expectation
would arise only if a person who has been exercising/enjoying legitimate rights and suddenly finds
himself deprived of the same. Once a person has abandoned his rights and legitimate expectation for
years, he can not revive the said expectation on the basis of certain understanding 20 years back.
Therefore, the question of declaring his cessation of office as invalid or directing any representation
of the petitioner on the basis of legitimate expectation does not arise. However, such a claim can
always be considered on equitable grounds. It is an admitted fact that the petitioner is the single
largest shareholder holding 33% shares in its own name. The share capital has been increased five
times and on every occasion, the petitioner has subscribed to the shares offered and it has
18
continuously maintained the position of holding 1/3rd shares. In addition to investing Rs 26 crores
in the share capital, it had also subscribed to redeemable debentures to the tune of Rs 41 crores
(which now stand redeemed now). There are only two other groups in the company and both have
representation on the board. In the recent past the petitioner is also seeking a representation on the
Board. It will be highly inequitable to deny one out of three groups, any representation on the board
on the ground that that group has not taken any interest in the affairs of the company. On the one
hand, the respondents deny any representation on the Board and on the other hand they allege that
the petitioner is not taking any interest in the affairs of the company. The very fact that the
petitioner had funded the company to the tune of more that Rs 65 crores at the time when the
company needed funds while the hotel was under construction, would indicate the interests of the
petitioner in the company. The respondents have alleged that the petitioner has been putting spokes
in the functioning of the company but have not elaborated the same. From the various
correspondences exchanged between the petitioner and the respondent/company, I find that the
petitioner has been asking only the details regarding the affairs of the company which, as a 1/3rd
shareholder, the petitioner is entitled to and this cannot be considered to be of hindrance to the
functioning of the company. One other ground of not associating the petitioner is that it is only a
financier. Even a financier, if it holds 1/3rd of the shares, can legitimately seek for a position on the
Board to protect its interest. Therefore, considering the facts of the case, that the petitioner has been
associated with the company for a long time and that it is the largest single shareholder holding
1/3rd shares in the company and that it has helped the company in providing finance in times of
need, the denial of its equitable right to have a nominee on the Board is definitely an act of
oppression. Relying on Needles Industries case, the respondents have contended that to allege
oppression there should be continuous course of acts amounting oppression for grant of relief and a
single act cannot give rise to a claim of oppression. Denying the request of the petitioner, inspite of
its being the largest single shareholder for a representation on the Board has a continuous effect of
deprival and as such the said grievance could be redressed in terms of Section 402 of the Act. It is to
be noted that the support of the petitioner is necessary for passing any special resolution. Therefore,
I am of the firm view that having a representative of the petitioner would not only be in the interest
of the company but also is likely put an end to the disputes paving way for restoration of the earlier
cordial relationship. The petitioner has sought for proportional representation, which in facts of the
case is not warranted, as even at the initial stage, only one director, viz Shri Ashok represented the
petitioner. Further, in addition to holding 2/3rd of the shares in the company, Rahejas have given
their personal guarantees and have been instrumental in brining the project into fruition. Therefore,
proportional representation is not justified. Therefore, I am of the view that ends of justice and
equity would be met, if I declare that the petitioner is entitled to nominate one director on the Board
of the company. Accordingly, I declare that as long as the petitioner holds 1/3rd shares in the
company, it will have the right to nominate one non functional director on the Board who does not
have to hold any qualification shares. The petitioner will communicate the name of its nominee to
the company at the earliest and thereafter, the company shall send notices for all Board meetings to
that nominee without fail Only the petitioner will have the right to change the said nominee.
30. Before parting with this order it is necessary to note that the respondents have urged that unless
the petitioner makes out a case oppression or mismanagement and establish that the company is
liable to be wound up on just and equitable grounds, no relief can be granted. The counsel have
19
relied on the decision of the supreme Court in Bagree Cereals and Geakwad cases in this regard. The
decision in Needles Industries case, that even if oppression is not established, the Court is not
powerless to do justice between the parties, which held the field for a long time and which had been
applied by many High Court and this Board also in a number of cases, has been somewhat upset by
the decision in Bagree Cereals case. In Gaekwad case it has been held on the one hand Further more
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 member.(para 187) and on the other hand, it has
also been held 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 (para 207). In this
connection I may refer to a recent judgment of the Supreme Court in Kamal Kumar Gupta v. Ruby
General Hospital 2006 7 SCALE 668. It was a case, wherein the promoter of the company was
declared to have vacated his office as a director in terms of Section 283(1)(g). In a petition filed by
the said promoter under Sections 397/398 alleging oppression not only in regard to his removal but
also on other allegations, this Board held that his removal was an act of oppression as the company
could not establish that notices were sent to him for the Board meetings which he had not allegedly
attended, to attract the provisions of Section 283(1)(g). Accordingly this Board directed restoration
of his directorship in regard to this allegation and granted reliefs in respect of other allegations. 108
Conucases 312) When the matter went on appeal, the Calcutta High Court set aside the order of this
Board on the ground that the petitioner should have moved the civil court in regard to his
directorship and also applied the decision in Bagree Cereals case that this Board had not given a
finding on the just and equitable clause. The Supreme Court set aside the order of the High Court
and restored the order of this Board. This judgment would indicate that even directorial complaints
can be entertained in a petition under Sections 398/398 if the circumstances so warrant and that it
is not necessary that in every case relief of winding up should be made. The Court held Therefore
what transpires in the present context is, we have to examine whether the acts of the company were
oppressive to any member or members justifying the winding up as just and equitable. It is not
necessary that in every case, the relief of winding up should be made. It is an option with the
tribunal if considers that in order to bring an end to the matters complained of it can pass orders on
winding up if it is just and equitable or it can pass such order as it thinks fit. It does not necessarily
mean that in every case such winding up Order need to be passed. In the present case, I have held
that by not associating the petitioner in the management, the respondents have acted in an
oppressive manner against the petitioner. A careful analysis of Section 397 would show that once
oppression is established, the winding up on just and equitable grounds would be automatic and this
Board has to only form an opinion that such winding up would not be in the interests of the
company/shareholders and accordingly to mould relief with the view to put an end to the matters
complained of. In the present case, the company has been doing extremely well declaring handsome
dividends and the question of winding up of the company does not arise. That is why, with the view
to put an end to the complaint regarding participation in the management, I have directed a
representation for the petitioner on the Board.
31. The petition is disposed of in the above terms with out any order as to costs.
20
CORRIGENDUM I have disposed of the above petition by my order dated 19th September, 2006.
since there are some errors in that order, the following corrections are made:
(1) In the Heading "New Deli" be read as "New Delhi"
(2) Under "Present on behalf of parties", Serial No. 7 be read as Shri S.N.Mukherjee, Sr. Advocate.
(3) In the penultimate line of para 29, the words "and he shall in terms of the Act/Articles" be
omitted.
21

Aasia Properties Development Vs Juhu Beach Resorts Limited and On 19 September, 2006

Transféré par

Informations du document

Titre original

Copyright

Formats disponibles

Partager ce document

Partager ou intégrer le document

Options de partage

Avez-vous trouvé ce document utile ?

Ce contenu est-il inapproprié ?

Droits d'auteur :

Formats disponibles

Aasia Properties Development Vs Juhu Beach Resorts Limited and On 19 September, 2006

Transféré par

Droits d'auteur :

Formats disponibles

Aasia Properties Development ... vs Juhu Beach Resorts Limited And ...

Company Law Board

Indian Kanoon - http://indiankanoon.org/doc/285889/

Marriot and none of the directors is getting any remuneration.

Indian Kanoon - http://indiankanoon.org/doc/285889/

Indian Kanoon - http://indiankanoon.org/doc/285889/

Indian Kanoon - http://indiankanoon.org/doc/285889/

Vous aimerez peut-être aussi