TIN PLATE DEALERS ASSN. P. LTD. Vs SATISH CHANDRA SANWALKA .
Bench: RANJAN GOGOI,PRAFULLA C. PANT
Case number: C.A. No.-000589-000589 / 2010
Diary number: 31168 / 2006
Advocates: NIKHIL NAYYAR Vs
KHAITAN & CO.
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REPORTABLE
IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 589 OF 2010
Tin Plate Dealers Association Pvt. Ltd. & Ors. ...Appellant (s)
Versus
Satish Chandra Sanwalka & Ors. ...Respondent (s)
With CIVIL APPEAL NO.599 OF 2010
J U D G M E N T
RANJAN GOGOI, J.
1. Both the appeals being against the common judgment
and order of the High Court of Calcutta dated 14th September,
2005 were heard together and are being dealt with by this
common order.
2. The appellant in Civil Appeal No. 589 of 2010 is a private
limited company incorporated in the year 1948 with its
registered office at Calcutta. The appellants 2 to 5 (hereinafter
referred to as the ‘Gupta Group’) had come into control of the
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company by actions and omissions complained of by
respondents 1 to 7 in the said appeal i.e. C.A. No.589 of 2010
which had led to the institution of the company petition under
Section 397/398 of the Companies Act, 1956 (hereinafter
referred to as the ‘Act’). The said respondents may be
conveniently referred to as the “Sanwalka Group”.
3. At the time of its incorporation, the authorised capital of
the company was Rs. 10 lakh consisting of 4,000 redeemable
cumulative preference shares of Rs. 100/- each and 6,000
ordinary shares of Rs. 100/- each. The paid-up capital of the
company before the issue of new, ordinary and bonus shares,
which is the bone of contention between the parties, consisted
of 4132 partly paid ordinary shares and 1868 fully paid
ordinary shares besides 3065 fully paid preference shares.
One M/s. Gupta Brothers originally held the 4132 partly paid
shares. The said shares were forfeited sometime in the year
1966 and thereafter the same were issued to the Sanwalka
Group who paid a total of Rs.45 for each share consisting of
payment at the time of application and allotment and Rs.10/-
per share on a call being made subsequently. Whereas,
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according to Gupta Group, these shares were held by the
Sanwalka Group on behalf of Gupta Brothers, the said fact is
denied by the Sanwalka Group. According to the Sanwalka
Group, the Gupta Group without notice to them had increased
the authorized capital of the company to Rs. 5 crores in an
Extra Ordinary General Meeting of the Company held on
5.7.1994. No notice of the said meeting was given to the
Sanwalka Goup. A Board Meeting was held on the same day
i.e. 5.7.1994 to give effect to the above decision taken in the
E.O.G.M. to increase the share capital of the company. In the
said Board meeting, a follow up decision was taken to allot
bonus shares at the ratio of 60 bonus shares for every fully
paid up preference and equity share held. The said bonus
shares were to be issued against revaluation of the industrial
plot in Okhla Industrial Area, New Delhi which was the only
asset of the company at that time. This was not contemplated
by the Articles of Association of the Company, according to the
Sanwalka Group. In any case, no bonus shares were allotted
to them. Further more, according to the Sanwalka Group,
pursuant to the decision taken on 5.7.1994, in August, 1995
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the company issued 3065 equity shares to the holders of the
preference shares (Gupta Group). In February, 1996, 25,000
ordinary equity shares were again issued to the members of
the Gupta Group against which Rs.40 per share was paid. The
said issue was ostensibly to raise additional capital for the
company. This allotment was, however, to the exclusion of the
Sanwalka Group. Contending that the aforesaid acts had the
effect of reducing the Sanwalka Group, which was otherwise in
the majority, to a negligible minority in the company, the
company petition alleging oppression was filed before the
Company Law Board wherein the act of removing two
members of the Sanwalka Group from the Board of Directors
(w.e.f.1.7.1991) and inducting two others of the Gupta Group
in their place was also called into question.
4. From the reply filed by the Gupta Group to the company
petition it transpired that the 4132 partly paid shares held by
the Sanwalka Group stood forfeited. The aforesaid forfeiture
was therefore challenged in the company petition with a claim
that the said shares be restored to the members of the
Sanwalka group. During the subsistence of the company
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petition, supplementary applications were also filed
challenging the action of the Gupta Group in leasing out the
industrial plot to sister concerns on terms claimed to be
prejudicial to the interest of the company and of the
shareholders.
5. The eventual reliefs prayed for in the Company Petition
in the light of the averments made in the said petition and the
supplementary applications were for:
(1) restoration of the names of the members of the Sanwalka Group in the register of members of the company;
(2) cancellation of the allotment of bonus shares;
(3) cancellation of the issue and allotment of 25000 partly paid up ordinary equity shares to the Gupta Group;
(4) cancellation of 3065 equity shares to the holders of the 3065 preference shares;
(5) cancellation of the lease agreement in respect of the industrial plot and
(6) restoration of the names of the concerned members of the Sanwalka Group as Directors of the Company.
6. The Company Petition was opposed by Gupta Group as
not maintainable in law. According to the Gupta Group, the
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shares held by the members of the Sanwalka Group stood
forfeited and the holders thereof had ceased to be members of
the company. Such forfeiture, according to the Gupta Group,
was in the following circumstances.
The said shares were held by the Sanwalka Group as
beneficiaries on behalf of the original holders i.e. M/s. Gupta
Brothers. As the shares held by the Gupta Brothers were
partly paid, the Sanwalka Group as beneficiary holders, was
liable to pay the unpaid value of the said shares along with
interest therein on a call being made by the company. Such a
call, according to the Gupta Group, was made on 05.01.1991
which went unanswered. Consequently, the aforesaid shares
were forfeited. There was an alternative contention advanced
by Gupta Group to the effect that in any event the Sanwalka
Group were holders of partly paid shares and they having not
responded to the call notice dated 5.1.1991, the company
petition was not maintainable under Section 399 of the Act.
7. The claim of the Sanwalka Group that the issue of bonus
shares was not authorized as the same could not have been
issued again the revaluation reserve was resisted by the Gupta
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Group by specific reference to the relevant provisions of the
Companies Act, details of which will be noticed later. It was
claimed that in the Board Meeting dated 5.7.1994
proportionate allotment of bonus shares against the 4132
partly paid shares in which the Sanwalka Group held a
beneficial interest was offered subject to payment of the dues
against the said shares in term of the call notice dated
5.1.1991. Insofar as the issue of 25,000 ordinary shares is
concerned, it was contended by the Gupta Group that the said
shares were issued to infuse badly needed capital into the
company. In view of the clear and expressed disinterest of the
Sanwalka Group in the affairs of the company evidenced by
their long silence and failure to respond to the call notice
dated 5.1.1991 and also to participate in the Board meetings,
it was understood by the Gupta Group that they would not be
interested in allotment of any part of the newly issued share
capital i.e. 25,000 shares. In any case, according to the Gupta
Group, as the members of the Sanwalka Group had ceased to
be members of the company (1995) by the time the 25,000
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shares were issued/allotted (February, 1996) they were not
entitled to allotment of any of the said newly issued shares.
8. Insofar as the lease in respect of the industrial plot is
concerned, it was urged on behalf of Gupta Group that the
same was done in consideration of the funds made available
by the lessees to raise construction on the land which was
necessary to pre-empt an imminent forfeiture of the lease
itself. The actions of the company, therefore, were claimed to
be in the interest of the company.
9. The Company Law Board (CLB) by an elaborate order
dated 1.3.2001 overruled the objections raised by the Gupta
Group to the maintainability of the petition. The CLB
concluded that the shares held by the members of the
Sanwalka Group were in their own right, independent of any
right of M/s. Gupta Brothers all of which stood extinguished
upon forfeiture of the shares held by the said Gupta Brothers.
The CLB further held that under Article 18 of the Articles of
Association of the Company, it is M/s. Gupta Brothers who
were liable to pay the dues, if any, on the said forfeited shares.
The Board also found that the members of the Sanwalka
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Group had paid Rs.45 per share and though there were an
obligation to pay the balance on a call being made the
materials on record did not disclose that any such call was
made at any point of time. In this regard the notice dated
5.1.1991 was held by the CLB not to be duly proved to have
been issued following the procedure under Section 53 of the
Act. It was also held that the said notice dated 5.1.1991 did
not contemplate forfeiture of the shares in the event of failure
to pay the call money as required under Clause 14 of the
Articles of Association of the Company. On the basis of the
said findings the twin objections raised by the Gupta Group to
the maintainability of the company petition was held against
them.
10. The CLB by its order dated 01.03.2001 further held that
the issue of bonus shares against revaluation reserve was
contrary to the provisions of Article 96 of Table A of the Act of
1956. So far as the issue of 25,000 ordinary equity shares is
concerned, the CLB decided the issue in favour of the Gupta
Group. However, as the members of the Sanwalka Group
continued to be members of the company, it was held that
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proportionate allotment of the said equity shares should have
been made to them also. The removal of the two
representatives of the Sanwalka Group from the Board was
also held to be bad on the aforesaid count. Of particular
significance would be the finding of the Board that notice of
the EOGM held on 5.7.1994 in which decision was taken to
raise the share capital of the company was, admittedly, not
given to the Sanwalka Group though they were entitled to
such notice. Insofar as correctness of the issue of 3065
ordinary equity shares against the preference shares is
concerned, the Company Law Board felt that it would be
inappropriate to go into the said question as a related issue
was pending before the Delhi High Court with regard to the
very same preference shares. In fact, the issue before the High
Court involved the question as to whether the said shares did
exist at all or stood extinguished prior to the date of
conversion. Insofar as the lease of the industrial plot is
concerned, the CLB felt that the same should be left open for
an appropriate decision of the company in a General Body
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Meeting to be held on the basis of the revised share holding as
ordered by the CLB.
11. Aggrieved by the aforesaid order of the CLB with regard
to the maintainability of the company petition, issue of bonus
shares and 25,000 ordinary equity shares and also the
re-induction of the members of the Sanwalka Group in the
Board of Directors, the Gupta Group moved the Calcutta High
Court by filing an appeal under Section 10F of the Act.
Challenging the decision of the Board insofar as the issue of
3065 preference shares and the lease in respect of the
industrial plot is concerned, the Sanwalka Group had filed a
separate appeal. The High Court, by its impugned order dated
14.9.2005, dismissed both sets of appeal leading to the
institution of the present appeals before this Court.
12. On the basis of the issues dealt with by the CLB and the
High Court and the arguments advanced on behalf of the
parties the issues arising in the two appeals may be
summarised as follows:
(i) Maintainability of the company petition filed by the
Sanwalka Group before the Company Law Board.
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(ii) Legality of the issue of bonus shares by the company;
(iii) Legality of the issue of 25,000 new ordinary shares ;
(iv) Legality of the removal of the representatives of the
Sanwalka Group from the Board of Directors and the
induction of the members of Gupta Group in their place;
(v) Legality of the lease agreement executed by the company
in respect of the industrial plot;
(vi) Legality of the issue of 3065 ordinary equity shares as
against the preference shares.
13. We have heard Shri Arvind P. Datar learned senior
counsel appearing for the Gupta Group and Shri C.A.
Sundaram learned senior counsel appearing for the Sanwalka
Group.
14. The questions arising, as noticed above, may now be
taken up for consideration.
Maintainability of the Company Petition –
Notwithstanding the very elaborate and persuasive
arguments made by both sides a resolution of the above
question is possible by a close look of the share certificates
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issued to the members of the Sanwalka Group after allotment
of the shares in question following the forfeiture of the same in
the hands of M/s. Gupta Brothers. Some of the share
certificates in question are on record. A reading thereof
discloses that the same constitute a fresh and independent
allotment of the shares by reference to their distinctive
numbers specified therein. The certificates do not contain any
stipulation or condition that the same are being held either on
account of a third person or as beneficiaries on behalf of any
third person. The shares in question were allotted on payment
of Rs.35 being the application money (Rs.25) and allotment
money (Rs.10). A further amount of Rs.10/- per share was
paid against the first call made on 7.8.1986. Therefore, the
share certificates, ex facie, do not support any of the
contentions advanced on behalf of Gupta Group, details of
which have been noticed hereinabove. If the shares were held
by the members of the Sanwalka Group in their own right
without any connection to the erstwhile/forfeited shares held
by M/s. Gupta Brothers, the second question arising i.e.
failure to respond to the call notice dated 5.1.1991 really does
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not arise. Be that as it may, the said notice required the
members of the Sanwalka Group to pay the unpaid value of
the forfeited shares (which coincidentally was also Rs.55/- per
share i.e. same as the unpaid amount of the shares at the time
of forfeiture when held by M/s. Gupta Brothers) along with
interest. In this regard it was found by the CLB as well as the
High Court that even issue of notice of the call in terms of
Section 53 of the Act had not been proved by the Gupta
Group. That apart, the call notice dated 5.1.1991 and
forfeiture of the shares held by the Sanwalka Group, upon
alleged failure to comply with the said notice, does not appear
to be inconformity with Clauses 14 to 18 of the Articles of
Association of the Company, which are extracted below:–
“14. If any member fails to pay any call or instalment on or before the day appointed for the payment of the same the Directors may at any time thereafter during such time as the call or instalment or any part thereof remains unpaid serve a notice on such member requiring him to pay the same together with any interest that may have accrued and all expenses that the company may have incurred. They may also write in any such notice that in the event of failure to pay the amount so due before a particular date the Directors shall proceed to forfeit the shares.” (emphasis is ours)
15. If the amount still remains unpaid the Directors may proceed to forfeit the shares.
16. A notice of the resolution of forfeiture shall be given to the member whose shares have been forfeited.
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17. Any shares so forfeited shall be deemed to held the property of the company and the Directors may sell, reallot annul the forfeiture or otherwise dispose of the same in such a manner as they may think fit.
18. Any member whose shares have been forfeited shall notwithstanding such forfeiture be liable to pay, and shall forthwith pay to the company all calls instalments, interest and expenses owing upon or in respect of such shares at the time of forfeiture/together with interest thereon, from the time of forfeiture until payment at nine per cent per annum and the Director may enforce the payment of such moneys or any part thereof if they think fit, but shall not be under any obligation to do so. The member whose shares have been forfeited shall not be entitled to claim the sale proceeds of such shares.”
15. Not only the call notice dated 5.1.1991 had not been
proved to have been issued in the matter required under
Section 53 of the Act, the notice also does not mention the
consequences of non-payment i.e. forfeiture. Also the
fastening of the liability on the Sanwalka Group to pay the
unpaid amount of the forfeited shares along with interest is
plainly contrary to the provisions of Article 18 of the Articles of
Association, extracted above. Besides, the date of the forfeiture
also is not clear though it appears that in a Board Meeting
held on 2.8.1995 a decision was taken to restore the said
shares to M/s. Gupta Brothers. The reason for the said
decision appears to be to comply with an order of attachment
of the shares passed earlier by the Civil Court. All these would
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demonstrate the apparent falsity of the claim now made that
the forfeiture was due to failure of the Sanwalka Group to
comply with the terms of the call notice dated 5.1.1991.
16. To overcome the aforesaid difficulties, an argument has
been made on behalf of Gupta Group that even if the call
notice dated 5.1.1991 is not to be relied upon, in the Balance
Sheet dated 31.3.1992 the amounts due have been shown as
calls-in-arrears. The said document was duly circulated. The
Sanwalka Group, therefore, had full knowledge that unpaid
call money is due.
17. Besides the fact that there is no co-relation between the
amounts mentioned in the call notice dated 5.1.1991 and the
Balance Sheet dated 31.3.1992, the members of the Sanwalka
Group were removed from the Board of Directors on 1.7.1991
i.e. before the finalisation of the Balance Sheet dated
31.3.1992. In any case, the procedure for forfeiture of shares
as a consequence of failure to respond to a call notice are
unambiguously set out in details in the Articles of Association
of the Company, extracted above. A balance sheet does not
and cannot operate as an alternative to a call notice.
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18. If the primary question i.e. maintainability of the
company petition has to be answered in favour of the
Sanwalka Group, as we are inclined to, the other issues
highlighted in the earlier part of this order would now have to
be considered.
Issue of 25,000 ordinary equity shares -
19. There is no denial of the fact that notice of the E.O.G.M.
dated 5.7.1994 was not given to the members of the Sanwalka
Group though they, admittedly, continued to be members of
the company on the date of the meeting. It is pursuant to the
decision taken in the said E.O.G.M. dated 5.7.1994 to raise
the share capital of the company from Rs.10 lakh to Rs.5
crores that the other decisions with regard to bonus shares;
the issue of 25,000 ordinary equity shares and the conversion
of preference shares to equity shares were made subsequently.
Such notice is mandatory under Section 172(2) read with
Section 41 of the Act. This is, ex facie, apparent from the
reading of the said provisions of the Act. Reference to the
elaborate case laid before us on this score would, therefore,
not be required.
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20. Specifically, so far as the issue of bonus shares is
concerned, the arguments laid down before us would require a
consideration whether Section 205(3) of the Act, particularly,
the proviso thereto permits issue of bonus shares out of
revaluation reserves of a company. The further question that
would arise is the correct interplay between the provisions of
the Act and those contained in the Articles of Association of a
Company. So far as the issue with regard to utilization of
reserves arising from revaluation of assets for the purpose of
issuing fully paid bonus shares is concerned, the same has
been held to be permissible in Bhagwati Developers Vs.
Peerless General Finance & Investment Co. & Ors. 1.
However, it has to be noticed that in Bhagwati Developers
(supra) the Articles of Association (Article 182) specifically
permitted/contemplated such a course of action. In the
present case, the Articles of Association of the Company do
not empower the Directors to so act. No such situation i.e.
issue of bonus shares out of revaluation reserve is
contemplated. When the Articles of the Company do not
confer any such power in the Board exercise thereof on the
1 (2005) 6 SCC 718
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basis that the Act so provides would be impermissible.
Enabling provisions under the Act would require incorporation
in the Articles of a company. To the above effect the view of
this Court in Para 25 of the Claude-Lila Parulekar (Smt.) Vs.
Sakal Papers (P) Ltd. & Ors. 2 is relevant –
“25. Section 36 of the Companies Act, 1956 makes the memorandum and articles of the company, when registered, binding not only on the company but also the members inter se to the same extent as if they had been signed by the company and by each member and covenanted to by the company and each shareholder to observe all the provisions of the memorandum and of the articles. The articles of association constitute a contract not merely between the shareholders and the company but between the individual shareholders also. The articles are a source of power of the Directors who can as a result exercise only those powers conferred by the articles in accordance therewith. Any action referable to the articles and contrary thereto would be ultra vires.”
21. That apart, the resolution of the Board dated 5.7.1994
pursuant to which bonus shares were issued indicates that
the real purpose for issue of the bonus shares is to raise funds
which were badly needed by the company at that point of time.
On the very face of it, the purpose indicated in the resolution
is a sham and a pretence inasmuch as revaluation of the
existing assets of the company and issuance of bonus shares
against such revaluation could not and did not generate any
2 (2005) 11 SCC 73
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additional funds as the additional capital available is purely
fictional or notional. A self serving interest of the Gupta
Group (who received all the bonus shares issued) in issuing
the bonus shares, therefore, is evident.
22. So far as the issue of 25,000 equity shares is concerned,
there can be no manner of doubt that the decision of the
Board to issue the said shares has to be tested in the light of
the wide powers of the Board to act in such matters as has
been laid down by this Court in Needle Industries (India)
Ltd. & Ors. Vs. Needle Industries Newey (India) Holding
Ltd. & Ors. 3. The power of the Board of Directors of the
Company to issue fresh shares must always be viewed as an
adjunct of its extensive powers under the Act and the bona
fides of such an exercise cannot be called into question by
construing the power to issue fresh shares to be limited by any
particular purpose or purposes. This was the view of the
Company Law Board also. However, the same would not
detract from the fundamental principle of fair play that is to be
expected from the Board of Directors in making a fair and
proportionate distribution/allotment of such fresh shares.
3 (1981) 3 SCC 333
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The direction of the Company Law Board upheld by the High
Court, namely, that allotment from the aforesaid 25,000 newly
issued ordinary equity shares should be proportionate to the
share holding of the two groups taking the members of the
Sanwalka Group as having continued to be members of the
company, will, therefore, not require any interference.
23. Insofar the issue of 3065 ordinary equity shares in lieu of
3065 preference shares is concerned, the CLB and the High
Court had thought it proper to leave the matter for a just
determination by the Delhi High Court in view of the suit filed
by the Sanwalka Group contending that the said shares had
ceased to exist in the year 1967 and therefore no equity shares
could have been issued in lieu of the said preference shares as
has been done. The suit in question which is of the year 1996
may take some further time for resolution. In such
circumstances, the apprehension of the Sanwalka group is
that if the equity shares issued against the said preference
shares are allowed to remain alive and valid the balance would
still tilt in favour of the Gupta Group.
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24. It is not known whether the High Court had been
requested by the parties to make an interim arrangement and
if so the result thereof. However, before us, the Gupta Group
has sought to contend that the above apprehension of the
Sanwalka Group is unfounded. It is claimed that it is not
correct that by virtue of the conversion of the 3065 preference
shares into equity shares the Gupta Group has emerged in the
majority for the first time. Even prior to such conversion, the
Gupta Group was in a majority inasmuch as the preference
shares always carried a right to vote. Therefore, even on the
basis of the original share holding, the Gupta Group was in
majority.
25. We cannot countenance the aforesaid submission
advanced on behalf of the Gupta Group in view of the
provisions of Section 87 of the Act particularly sub-section (2)
thereof which is in the following terms:
“(2) (a) Subject as aforesaid and save as provided in clause (b) of this sub-section, every member of a company limited by shares and holding any preference share capital therein shall, in respect of such capital, have a right to vote only on resolutions placed before the company which directly affect the rights attached to his preference shares.
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Explanation. : Any resolution for winding up the company or for the repayment or reduction of its share capital shall be deemed directly to affect the rights attached to preference shares within the meaning of this clause.
(b) Subject as aforesaid, every member of a company limited by shares and holding any preference share capital therein shall, in respect of such capital, be entitled to vote on every resolution placed before the company at any meeting, if the dividend due on such capital or any part of such dividend has remained unpaid :
(i) in the case of cumulative preference shares, in respect of an aggregate period of not less than two years preceding the date of commencement of the meeting ; and
(ii) in the case of non-cumulative preference shares, either in respect of a period of not less than two years ending with the expiry of the financial year immediately preceding the commencement of the meeting or in respect of an aggregate period of not less than three years comprised in the six years ending with the expiry of the financial year aforesaid.
Explanation. : For the purposes of this clause, dividend shall be deemed to be due on preference shares in respect of any period, whether a dividend has been declared by the company on such shares for such period or not,
(a) on the last day specified for the payment of such dividend for such period, in the articles or other instrument executed by the company in that behalf ; or
(b) in case no day is so specified, on the day immediately following such period.
(c) where the holder of any preference share has a right to vote on any resolution in accordance with the provisions of this sub-section, his voting right on a
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poll, as the holder of such share, shall, subject to the provisions of section 89 and sub-section (2) of section 92, be in the same proportion as the capital paid up in respect of the preference share bears to the total paid-up equity capital of the company.”
26. A reading of the aforesaid Section 87 (2) would clearly
indicate that except in situations where dividends have not
been paid, holders of preference shares do not have a right to
vote except in matters which directly affects the rights
attached to the preference shares.
27. Reliance has been placed on Articles 20, 21 and 22 of the
Articles of Association of the Company to claim voting rights
against the preference shares held by the Gupta Group. It will
therefore be necessary to take note of the said Articles which
are in the following terms:
“20. The following rights are attached to these shares as regards dividends, voting rights and redemption –
(a) Preference shares shall carry a fixed cumulative free of Income-tax dividend @ of 6% per annum in preference to ordinary or any other class of shares.
(b) Preference shares shall be redeemable at any time after a period of 5 or 10 years from the date of allotment at the option of Directors of the company or at the option of the holder thereof respectively, provided a notice of three months in writing is given by the company to the holders thereof or vice-versa as the case may be.
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(c) After payment cumulative dividend of 6% free of tax on preference shares, the balance of the net divisible profits (as may be recommended by the directors) shall be utilized for payment of dividend @ 9% on ordinary shares.
(d) Any net divisible profits as may be recommended by the Directors remaining after payment of cumulative dividend or preference shares and dividend on ordinary shares as mentioned above shall be divided between the preference and ordinary shares equally on the basis of paid up capital in the company.
(e) Preference shares shall also have a preference for repayment of capital at the time of the winding up of the company in preference to any class of shares.
21. On show of hand every shareholders present in shall have one vote and upon poll every shareholder present in person or any proxy shall have one vote for each share held by him or her. A poll may be demanded in accordance with law.
22. A holder of any shares shall not be entitled to a vote either by show of hand or at poll unless there have been paid to the company all sums of money then due from that holder in respect of these shares.”
28. The aforesaid Articles must necessarily have to be
understood in the light of the provisions of Section 87
particularly those contained in sub-Section (2). The meaning
sought to be given to Articles 20, 21 and 22, extracted above,
namely, that every share holder including the holder of a
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preference share has a right to vote cannot be readily
accepted. The resolution of the Board dated 5.7.1994 relating
to the conversion of preference shares into equity shares
proceeds on the basis that dividends in respect of the 3065
shares have not been paid and in lieu thereof the shareholders
had agreed to receive an equivalent number of equity shares.
The above statement of fact is difficult to accept. Neither is the
period during which dividends had not been paid is specified,
nor is the amount due indicated. No material has been laid to
show that the 3065 equity shares represent a fair value of the
dividends claimed to be unpaid. What cannot also be lost sight
of is that the preference shares in question were held by the
Gupta Group who was in control of the company at that point
of time. A number of self serving decisions by the Gupta Group
and its conduct of the business of the company in a manner
detrimental to the interest of the company, as discussed
hereinabove, would make it extremely perilous to rely on the
version available in the resolution of the Board for allotment of
3065 equity shares in place of the preference shares in
question. In the above circumstances it would be just and
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proper to strike down the conversion of the 3065 preference
shares into equity shares and revert the preference shares to
its earlier status to be dealt with in the future in accordance
with law. This is, of course, subject to the orders of the Delhi
High Court in the appeal pending before it.
Lease of the Industrial Plot
29. If the forums below have left the above matter for a just
determination in an Extra Ordinary General Meeting of the
Company, in view of the directions hereinabove, we do not
consider it necessary to deal with the said aspect of the case
any further.
30. Before parting, certain subsidiary issues raised on behalf
of the parties may be briefly noticed if only to make the
discussion complete.
The failure of the High Court to frame a substantial
question of law to hear the appeal before it can hardly
invalidate the order passed. The order of the High Court is an
order of affirmation; further there is no provision in Section
10F of the Act which is akin to the provisions contained in
Section 100 (4) of the Code of Civil Procedure, 1908.
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31. The argument that having regard to the conduct of the
Gupta Group in managing the affairs of the Company and all
decisions taken being in the best interest of the Company, no
case for winding up is made out so as to justify the exercise of
powers under Section 397/398 of the Act by the CLB, would
hardly require a detailed consideration in view of the specific
findings of the High Court in this regard, which are wholly
adverse to the Gupta Group. The said view and the
conclusions reached have our approval, as already indicated.
Besides, the High Court in the order under challenge has
taken into account that apart from the industrial plot in
question the Company has no subsisting business and that
the terms of the lease entered into by the Gupta Group in
respect of the said property are wholly adverse to the
Company’s interest.
32. The question whether a single act of oppression would
enable the CLB to intervene or oppression must be the
cumulative result of continuous acts should not require any
debate in the facts of the present case which demonstrate a
series of unacceptable decisions and actions on the part of the
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Gupta Group. In the last resort, satisfaction that oppression
has been committed has to be reached in the facts of each
case.
33. In view of the above discussions and for the reasons
alluded, Civil Appeal No.589 of 2010 filed by the Gupta Group
is dismissed whereas Civil Appeal No.599 of 2010 filed by the
Sanwalka Group is disposed of with directions, as contained in
the present order.
….……......................,J. [RANJAN GOGOI]
….……......................,J. [PRAFULLA C. PANT]
NEW DELHI; OCTOBER 07, 2016.