1. This order relates to two petitions under Sections 111(4), (5) and (6) of the Companies Act, 1956 (hereinafter called "the Act"), in respect of Sidhartha Polyester (P.) Ltd. (hereinafter called "the company") by the respective petitioners. The first petition, being C.P. No. 2/111/94, was filed on September 6, 1993, by nine different petitioners who have a common cause seeking a common relief. The second petition, being C. P. No. 9/111/94, was filed subsequently on January 17, 1994, by Mrs. Shukla Mahajan, wife of Shri Yashpal Mahajan. Both the petitions seek identical reliefs. Since the grievances and grounds for the petitions and reliefs in the petitions and as substantially the respondents are all the same, both the petitions, with the consent of the parties, were heard together and are also being disposed of by this common order. In the case of C. P. No. 2 of 1994, more than one person has joined to file a single petition. Subsequently, on December 27, 1993, an application was filed by the legal heir of one of the petitioners in C. P. No. 2 of 1994, viz., Shri Harish Chandra Baranwal, seeking for substituting his name due, to the death of the petitioner on September 28, 1993. The respondents in C. P. No. 2 besides the company include Shri Arvind Mahajan, Shri D, C. Mahajan and Shri Ajay Mahajan, who are all directors of the company. These persons are also respondents in C. P. No. 9 as well. In addition in C. P. No. 2, Smt.
Shukla Mahajan, who is the petitioner in C. P. No. 9, was also impleaded as a respondent though no relief is sought against her. The additional respondents in C. P. No. 9 include Smt. Rashmi Mahajan, wife of respondent No. 3, and also includes two more organisations, namely, Sidhartha Textiles Mills Ltd. and Sidhartha Textile Agencies, a partnership firm.
2. The background of the dispute is that the two groups, as stated in the petition, namely, the Mrs. Shukla Mahajan group and the Arvind Mahajan group, participated in the company from August-September, 1988, on the premises that : (a) Mrs. Shukla Mahajan (hereinafter called "SM") shall be the principal promoter as a first generation woman entrepreneur with financial assistance from the Industrial Financial Corporation of India (IFCI). SM has been referred to as one of the first directors in Article 55 of the Articles of association ; (b) SM and her group shall contribute to the extent of 50 per cent, of the equity capital and Shri Arvind Mahajan (hereinafter called "AM") and his group shall contribute the other 50 per cent. ; (d) The project will be set-up in Panchkula near Chandigarh and the fact of SM being the main promoter and a first generation woman entrepreneur, will be a strong point for convincing the IFCI to agree to finance the project ; Promoters shareholders' fund (Rs. 11.70 lakhs by each group and Rs. 0.10 by Mrs. Sunita Aggarwal) (g) The entire project which was a high-tech one was developed by SM exclusively as she was living in Chandigarh/Panchkula, whereas respondents Nos. 2 to 4 were living outside.
(h) It was understood and agreed by all concerned that SM shall be the principal promoter in the management and control of the affairs of the company. Based on the capital contribution by both the groups the company was able to approach the IFCI for financing the project as well as various authorities including the banks for approvals and assistance. SM also executed appropriate undertakings for overrun and non-disposal of shares and personal guarantees against the term loans. All steps for timely implementation of the project were taken by SM single handedly.
3. By March, 1990, the project was commissioned and only in 1991, respondents Nos. 2 to 4 who were involved in other businesses and were not involved in the company's work, started participating in the company's affairs. At this time, SM did not suspect any attempt on their part to control the company. However, the contesting respondents evolved a clandestine scheme to refuse issue of share certificates to the SM group to the extent of Rs. 11.70 lakhs and usurped the respondent company for their personal gain and advantage. The share certificates in respect of Rs. 4.9 lakhs were denied to the nine persons who are petitioners in C. P. No. 2 on the ground that the money was not contributed by them and the money belonged to SM's husband and also alleged that this fact was concealed intentionally. Similarly, no allotment was made against the contribution of Rs. 6.8 lakhs by SM also on account of this. Thus, respondents Nos. 1 to 4 illegally denied the rights of the petitioners in respect of their promoters' contribution of Rs. 11,7 lakhs. In perpetuation of these illegal designs letters were sent to the petitioners in, C. P. No. 2 to claim their money back within a time limit in case it belonged to them.
4. The petition also contains details of the drafts sent by the petitioners in 1989, for the amount remitted by them. It is the contention of the petitioners that these amounts were deposited in the bank account maintained by the company and are also duly reflected in the accounts of the company. The petitioners also state that they have filed application forms in the shape of letters for the shares, copies of which were submitted by the company to the income-tax authorities in connection with the income-tax assessment of the company. The respondent company duly used the above funds and had the benefit of the said amount all along. The amount contributed was treated as promoters' contribution in various representations and, accordingly, financial institutions have granted financial assistance for the project. In fact, the IFCI assistance was available only after the promoters had brought in their contribution in cash which was a stipulation for financial assistance. These contributions were shown as shareholders' funds repeatedly in the balance-sheets and annual accounts of the company beginning from March 31, 1989, to March 31, 1992. However, the respondents have attempted to manipulate the balance-sheet of 1988-89 filed along with their reply to show as if in March, 1989, these contributions were treated as unsecured loans. It is the allegation in the petition that AM who is the principal person associated with the affairs of the company was aware of these contributions towards the equity capital. In fact, AM, as director of the company has confirmed, through a letter and a detailed statement to the Assistant Commissioner of Income-tax about the share application money having been received through crossed cheques/demand drafts from various parties. It is submitted by the petitioners that, despite the above factual position, the names of the petitioners have not been entered in the register of members and the company has defaulted and delayed in entering in the register within the meaning of Section 111(4)(b) of the Act.
Accordingly, they have prayed for rectification by deleting the names of other persons from the register of members and entering their names instead.
5. Identical replies have been filed in respect of both the petitions by the contesting respondents. Certain preliminary objections have been raised. The first objection is that the case does not fall under any of the situations covered by Section 111(4), namely, that (a) the name of any person is without sufficient cause entered in the register of members, or (b) after having been entered, is without sufficient cause omitted therefrom. Thus, no cause of action arises as it is an admitted fact that the petitioners had never been admitted as members. The second objection is that under the Act, the petition is hopelessly barred by time. Even under the residuary Article of the Limitation Act, with reference to the date of deposit of the money, the petition is barred by limitation for a civil suit. Thirdly, the petitioners have advanced money by way of deposit for allotment of shares but they cannot enforce allotment as no application has ever been filed for share allotment. As such, the remedy, if at all, does not lie before the Company Law Board. Fourthly, the case is also hit by the Benami Transactions (Prohibition) Act, 1988, and it is illegal as money deposited by different parties has been wrongly reflected in the company as the contribution of SM. In support of this, the reply states that SM, in connivance with her husband, has filed documents with the Department of Income-tax showing as if the money has been paid out of personal savings or borrowings from relations for which full details have not been provided. With regard to Rs. 4.90 lakhs stated to be deposited by the petitioners after scrutiny of the record and after addressing letters to dealers of Swaraj Mazda and Punjab Tractors Ltd., it came to light that the money represents amounts given as kickback to Shri Yashpal Mahajan, husband of SM. According tb the reply, the petitions are also not supported by proper affidavits.
6. Lastly, as per the reply, the allotment of shares is in the discretion of the board of directors and cannot be the subject-matter of a petition under Section 111. The situation for rectification of the register shall arise only after any allotment is made or the name of any alleged allottee has been wrongly included. But, in this case, the Company Law Board does not have any jurisdiction. By merely depositing the share application money one is never entitled to be allotted shares by the company. The scope, power and jurisdiction under Section 111 is to deal with matters of transfer but nowhere has the Company Law Board been given the power with regard to allotment of shares. Thus, the petition cannot be maintained under Section 111 though the allegations may constitute grounds for a petition under Section 397/398.
7. On the merits, the reply states that though SM was associated as a director she was never accepted as promoter-shareholder of the company.
It is stated, that upon investigation it was found that it was SM who showed the amount of Rs. 4.9 lakhs as promoters' contribution in her own name but actually the money does not belong to her. It is further stated that SM failed to satisfy the source of her own contribution in her name, i.e., Rs. 6.8 lakhs, and in any case with such kind of conduct oh her part the board of directors declined to allot the shares in her favour. There was no agreement at any given time by which any two groups shall contribute 50' per cent, of the equity. In fact, the Haryana Government was encouraging projects being set up at Panchkula and at the same time the IFCI was also agreeable to finance the unit.
The entire spadework was carried out by AM, managing director of the company. The question of quasi-equity by virtue of unsecured loan from directors was also denied. The only understanding was that the company shall regain a close-knit one and no outsider shall be inducted.
8. It was denied that there was any effort to exclude any person but whosoever acted against the interest of the company was not retained in the affairs of the company. The respondents have also denied the allegation of non-involvement and stated that they were involved in getting the project cleared from competent authorities and in getting the requisite certificates from certain authorities at Bombay and, thereafter, were involved in placing orders for machinery and getting them installed at Panchkula. There was no group in the company but/it was Shri Yashpal Mahajan who wanted to have a leverage and to step into the company The respondents have also denied that the project was promoted on the involvement of SM. On the other hand, it is stated that she did not have the authority even to file an application for electricity connection. The contention that the IFCI has financed the project because of SM has been denied and, on the other hand, the project was examined for viability and then approved.
9. It is further stated that the entire project was carried out under the stewardship of AM with the support of the Reliance group and in fact Reliance appointed the company as the agent for the Northern Region through the efforts of AM who has done all the spade work.
10. SM had no knowledge or experience in the line. The reply also states an instance in connection with the inspection by the ROC, Jullundhar, when she was not able to give any details about her investment excepting to reply that, this may be known to her husband.
She was brought into the company at the instance of Shri Yashpal Mahajan to have a foothold and SM being the elder sister was inducted.
This relationship, however, was exploited by SM and her husband. Thus, the question of any understanding that SM shall be controlling the company is a misnomer. SM did not disclose the fact of having taken a loan from a dealer of Punjab Tractors to the extent of Rs. 2.9 lakhs against Rs. 6.80 lakhs shown in her account though she showed a loan of Rs. 70,000 in smaller bits for income-tax purposes. The reply also alleges misuse of relationship by Shri Yashpal Mahajan through various authorities to harass the respondents. It is further mentioned that SM was more involved in her own affairs and in the construction of her house and was also serving as a teacher in a school. As such, she could not have made any contribution to the project. The various parties who are shown as the petitioners in C. P. No. 2 of 1994 have sent joint letters when they were living at separate places miles apart which shows that this has all been done by a single person, viz., Shri Yashpal Mahajan.
11. The respondents have admitted that the accounts of the company were being looked after by the accountant of Swaraj Mazda and this indulgence was given as per the suggestion of Shri Yashpal Mahajan. The money amounting to Rs. 4.9 lakhs was deposited through separate remittances as traced from the relevant vouchers show that it was done through an official of Swaraj Mazda. By a written communication dated November 29, 1989, the personal assistant of Shri Yashpal Mahajan stated that the money should be credited in SM's account towards promoters' contribution pending allotment. The petitioners have, however, denied this letter. The balance-sheets for the various years are misrepresented by the petitioners and at no time the petitioners' contribution pending allotment could be reflected as share capital.
Though the amount of Rs. 23.5 lakhs when contributed wag reflected under the head "promoters' contribution" pending allotment, after acceptance and allotment of shares in January, 1993, the amount of Rs. 11.70 lakhs is being reflected as current liability and despite communication dated June 2, 1993, none of the persons has come forward to collect the money back.
12. As regards the papers available in the Income-tax Department, it is stated that it was the result of a misrepresentation by a chartered accountant who was looking after the affairs of Shri Yashpal Mahajan and Shri Yashpal Mahajan had obtained the signatures on blank paper from AM. This, however, has been misused by SM and her husband. By this, process, the couple only tried to prove that the investment of the nine persons was to the knowledge of AM. This is a criminal act on their part.
13. In conclusion, the respondents have prayed for dismissal of the petition with costs.
14. During the hearing of the case, Shri J. S. Narang, advocate, submitted on behalf of the respondent company, that in the case of C.P. No. 2 of 1994, a joint petition has been filed by nine petitioners.
Such a petition is not maintainable under Regulation 14(4)(b) of the Company Law Board Regulations, 1991, and specific permission has to be granted by the Bench under Sub-regulation (4)(b). The Company Law Board cannot grant permission in this case because Sub-regulation (4)(b) states that "such permission shall be granted where the joining of the petitioners by a single petition is specifically permitted by the Act".
Another objection raised was that in order to substitute a deceased petitioner by his legal representatives, an application has to be made within 30 days of the date of death and where no application is received, proceedings against the deceased party shall abate. In the present case, in C. P. No. 2 of 1994, after the death of petitioner No.8, the legal representatives have applied for substitution much beyond the 30-day period. As such the petition has to abate. But, since it is a joint petition, the petition cannot abate for one petitioner alone.
As such, the entire petition in respect of all petitioners has to abate.
15. It was also submitted that in respect of both the petitions the rule of limitation under the Limitation Act will apply. This rule is strictly applied even in respect of writ matters by the High Courts and the Supreme Court. According to learned counsel, payments were made in 1988 and 1989, whereas the petitions were filed in September, 1993, and January, 1994. Yet another objection with regard to the joint petition is that the petition is dated September 6, 1993, whereas the affidavits are on various dates in August, 1993, and as such on the date of affidavit there was no petition. An objection was also raised that the affidavits have not been drawn as per the prescribed form which should spell out the source of information in respect of matters in the petition.
16. Appearing on behalf of the petitioners, Shri M. G. Ramachandran, advocate, replied, to these objections. He stated that the regulations are subject to, the inherent powers of the Bench. Further, as per regulation 48, the Bench has the power to dispense with the requirements of any of the regulations. He stated that when the grounds and the prayers are the same, it is a mere technicality whether the petitioners file a single petition or nine separate petitions. As regards the abatement of the joint petition, he stated that due to religious rites, etc., the, legal representatives could not keep to the time schedule. Further, each petitioner has got his own claim and the claims are not interlinked. Regarding the limitation question, it was contended that when the company has not made any allotment including for the respondents, no cause of action arose till such time. The allotment to the respondents was done in January, 1993, and as such if at all, the limitation should apply from that date. As regards the discrepancy in dates between the petition and the affidavits, as a counsel he himself confirmed by his own signature that the petition was filed on September 6, 1993, and the objections are mere technicalities.
As regards averments regarding source of information he stated that the petition itself makes clear the source in each para and hence it is immaterial if it is not disclosed separately. The parties were informed that we in the Company Law Board decide on the preliminary objections along with the main petition.
17. Shri M. G. Ramachandran, while moving the petition, submitted that what is required to be shown by the petitioners for the purpose of Section 111(4) is a prima facie evidence of membership from the records of the company. In this connection, he cited the judgment of the Karnataka High Court in Shri Balaji Textile Mills Pvt. Ltd. v. Ashok Kavle [1989] 66 Comp Cas 654. It is not necessary to establish membership that the persons have applied in writing to become members as per Section 41(2) of the Act which is only intended to control any mischief of involving someone as a member for fastening liability on him without his consent. Counsel also raised a legal issue with regard to the term "having become a member" as occurring in Section 111(4).
The meaning of this term cannot be the same as contained in Section 41(2) because if it is so, no aggrieved person can come before the Company Law Board under Section 111(4). He also relied on the following cases : (i) Shri Gulabrai Kalidas Naik v. Shri Laxmidas Lallubhai Patel of Baroda [1978] 48 Comp Cas 438 (Guj) to state that complicated questions can be taken up under Section 155.
(ii) Nazamunnessa Begum v. Vidya Sagar Cotton Mills Ltd., AIR 1962 Cal 380 ; [1963] 33 Comp Cas 36 (Cal).
18. It was his contention that the records of the company, the balance sheets, the directors' report, the income-tax assessment details as certified by the tax authorities all show that the petitioners did deposit the money. The records also show that SM was treated as a promoter-director by the IFCI and as all promoters were required to make their contribution towards the share capital and as such the fact of membership is established. When the records of a company show the entitlement of the petitioners to the shares and if the shares were not allotted, the Company Law Board has to intervene and provide relief to the petitioners. To support this contention he cited the Company Law Board decision (Eastern Region Bench) in Dr. Jitendra Nath Saha v.Shyamal Mondal [19931-1 Comp LJ 76 ; [1995] 82 Comp Cas 688. According to him, even the reply of the company admits that SM did deposit Rs. 6.8 lakhs and the other applicants Rs. 4,9 lakhs and since there were doubts about the source of funds with regard to Rs. 4.9 lakhs, no allotment was made against the entire Rs. 11.7 lakhs.
19. Continuing his arguments, Shri Ramachandrari -stated that the petitioners' case squarely falls under Section 111(4)(b). This sub-clause specifically deals with the "unnecessary delay" in entering the name in the register of members. The fact of the petitioners having become members has been acknowledged in the directors' report and the same has been established from the balance-sheets for 1991 and 1992.
The balance-sheets for some of these years also indicate by name the amount contributed by the petitioners as part of the promoters' contribution by a separate unsigned statement. Attention was also drawn to page 127 of the first petition wherein there is a statement relating to Rs. 4.9 lakhs contributed by the various petitioners in the first petition. It has also been verified by the Deputy Commissioner of Income-tax, Solan, Himachal Pradesh. Attention was also drawn to page 138 of the first petition which contains a statement forming part of the balance-sheet of the company for the year,1991-92. This contains complete details of all moneys received from the promoters towards equity capital. Attention was also drawn to page 114 onwards till page 123 of the second petition which contains the covering letter addressed to the Income-tax Department from the company signed by AM along with the reference numbers of the demand drafts. All these documents are attested by the Deputy Commissioner of Income-tax, Solan, Himachal Pradesh. With regard to the assessment for the year 1990-91 evidence of capital contribution by the petitioners was also submitted. He further referred to page 139 of the first petition, being a letter dated August 24,1992, addressed to the earlier auditors by AM which answers a query from the auditors to the effect that the amount of Rs. 23,49,800 being the promoters' contribution is not in the nature of a deposit. Counsel also drew our attention to Article 55 of the Articles of association of the company to state that SM is one of the promoter-directors of the company. Attention was also drawn to the documents executed in connection with the IFCI loan Which includes undertakings and guarantees from SM as a promoter.
20. On February 9, 1995, Shri J. S. Narang, learned counsel for the respondents, argued that it is an admitted case that the petitioners had not been admitted as members of the company and as such the Company Law Board has no jurisdiction with regard to the refusal to allot the shares. In this connection, he cited the Kerala High Court decision in Kumaran Potty v. Venad Pharmaceuticals and Chemicals Ltd, [1989] 65 Comp Cas 246. In that case, if was held that (headnote): "persons having monetary claims against a company by way of loans or otherwise could not come under Section 155 of the Companies Act seeking to be made shareholders by conversion of their credit into shares. Claims for money could only be made in the civil court, which the petitioner in this case had to approach for realisation of his loan." It was contended by Shri Narang that the petitioners may have to resort to civil court proceedings. There also there is a bar due to the period of limitation.
21. Though the respondent's counsel started his reply on the merits, on our suggestion a consensus emerged that the matter under dispute should be resolved amicably between the parties. Accordingly, it was agreed that respondent No. 2 will indicate before us at the next hearing a figure at which either he will Require the interest of the petitioner's group or give up his group's intercut, assuming 50 ; 50 ratio. The modalities were also agreed upon for final parting of ways. In the subsequent hearing, however, the respondents retraced their steps and sought time for their further submissions in the case through another counsel.
22. On a subsequent date, once again, arguments were advanced on behalf of the respondents by Dr. A. M. Singhvi, senior advocate. Shri Singhvi conceded that money received from various places by DD was credited in the share application account on different dates during 1989. However, the petitioners have chosen to remain silent till 1993, even after the removal of SM as a director in becember,1992. Shares were allotted to the respondents in January, 1993, and letters were written in May-June, 1993, to SM and others about the money lying unclaimed by them.
According to Dr. Singhvi, the relevant issues are : (a) whether the Company Law Board has jurisdiction in the facts and circumstances of the case ; (b) whether the petition is barred by limitation ; and (c) the scope of adjudication under Section 111. As regards the first issue, it was the contention of learned counsel that the Company Law Board has no jurisdiction at the pre-allotment stage. According to him, without a pre-existing legal right the cause of action arises only after a person becomes a member or shareholder. Based on the present facts, there cannot be a petition under section 111 or even under Section 397 before the Company Law Board. The present petition cannot also be considered as one for specific performance. According to learned counsel, proceedings under Section 111 presuppose the existence of shares. In this connection, he cited Morgan Stanley Mutual Fund v.Kartick Das [1994] 81 Comp Cas 318 (SC)'; AIR 1994 SC 225. He further stated that the petition under Section 111 cannot be moved to create fresh share certificates and for the existing shares, owners are already identified. As regards limitation, Dr, Singhvi referred to the residuary clause under Article 137 of the Limitation Act, 1963, by which for all proceedings for which no period is prescribed, the 3-year limitation shall apply. Even otherwise, the limitation of two months and four months under Section 111 if applied would make this petition non-maintainable. According to him money has come from nine places in August, 1988, and in the case of SM during the period November 1989, to February, 1990. However, the petitions came to be filed after five years in the first case and four years in the second case. No extension of limitation is possible when the petitioners have kept silent for this long spell. In this connection, he cited Anil Gupta v. Delhi Cloth and General Mills Co. Ltd. [1983] 54 Comp Cas 301 (Delhi). As regards the scope of adjudication under Section 111, the Company Law Board has to go into the question whether there was an understanding between SM and the respondents as stated by the petitioner. The Company Law Board has also to examine whether the matter falls under the provisions of the Benami Transactions (Prohibition) Act, 1988. Besides, complicated facts like the genuineness of the declaration before the income-tax authorities, the nexus between dealers of Swaraj Mazda and Punjab Tractors with SM and the genuineness of the source of funds have all to be examined. These matters cannot be gone into by the Company Law Board as these are complicated questions.
23. Relying to the above arguments, Shri M. G. Ramachandran, counsel for the petitioner, stated that the petitioner's entitlement to become a member has to be judged from representations to the Income-tax Officer, covenants entered into with the IFCI and also from the directors' report and audited accounts which all go to show that money was contributed as part of the promoters' contribution. There was also a non-disposal undertaking given by SM with regard to her shares.
Reacting to the arguments on possible complicated questions, learned counsel said that the fact of acceptance of the contribution and the company having taken advantage of the money for its project are admitted facts and there is no complexity involved. As regards limitation, he contended that the cause of action arises on the date of allotment. The right to sue has accrued only on the failure of the company to make allotment. In this connection, he cited Rukhmabai v.Lala Laxminarayan, AIR 1960 SC 335, para 33. He also referred to B. B.Mitra on Limitation, page 1712, where it is stated that when a record is to be corrected, the limitation runs from the date of the wrong entry.
24. After perusing the pleadings and hearing the arguments on behalf of the parties, the following five issues emerge for our consideration : (i) whether the petition is maintainable keeping in view of the Company Law Board Regulations, 1991, and the law regarding limitation ; (ii) whether it is a pre-requisite that one has to be a member to file a petition under Section 111(4) ; (iii) whether the Company Law Board has jurisdiction to decide on matters relating to allotment/non-allotment of shares ; (iv) whether complicated questions of law and facts are involved in the case and if so whether our discretion should be exercised ; 25. The maintainability of a joint petition has been questioned in view of regulation 14(4)(b) of the Company Law Board Regulations, 1991. This objection specifically relates to C. P. No. 2 of 1994 being a joint petition filed by nine petitioners. According to regulation 14(4)(a), such joint petition can be permitted if we are satisfied having regard to the cause of action and nature of relief prayed for that they have a common interest in the matter. In other words, if, having regard to the nature of relief and the interest of the petitioners in the matter, we come to the conclusion that a joint petition is not permissible then such a joint petition cannot lie. In the present case, it is quite clear that all the petitioners have a common interest and the relief is also identical. It was argued on behalf of the respondents that regulation 14(4)(b) contemplates permitting joint petitions only when specifically permitted by the Act. In our opinion, this is not the correct interpretation of regulation 14(4)(b). In our view, though regulation 14(4)(a) gives us a general discretion to allow or disallow joint petitions, regulation 14(4)(b) takes away that discretion when the Act specifically permits joint petitions. Thus, the discretion is available in this case and keeping in view the common cause of action and relief we find that the joint petition should be allowed.
26. The next objection is, under regulation 28, with Regard to the substitution of legal representatives in the same petition. The regulation prescribes that the legal representatives of a deceased party may apply within 30 days of such death for being brought on record, The regulation also provides that if no application is received within 30 days, the regulation by means of a proviso also permits the Company Law Board to even set aside the order of abatement and allow substitution. In the present case, learned counsel for the petitioner stated during the hearing that due to religious rites the legal representatives of one of the joint petitioners could not keep up the time schedule. It is further argued that under regulation 48, we have the discretion with regard to compliance with the regulations. Keeping in view the reasons adduced and the delay being a couple of months, we only consider it appropriate to permit substitution of the legal representatives in exercise of the power vested in us as the objection is purely technical.
27. The next objection relates to the defect in the affidavits in both the petitions that they have not been drawn in the prescribed form and that there has been a discrepancy in the dates. Against this, we accept the contention of learned counsel for the petitioner that the source of information though not disclosed in the affidavits is available in the relevant paragraphs. As regards the dates, counsel himself has assumed full responsibility and has also signed the petition. In view of these we consider the above objections as mere technicalities and as a tribunal we do not propose to be strictly formal in these matters particularly when these questions do not go to the root of the subject-matter under consideration.
28. The next major objection is with regard to limitation. This objection was raised on behalf of the respondents by Dr. A. M. Singhvi, senior advocate, who stated that under the residuary Article 137 of the Limitation Act, to all proceedings for which no period of limitation is prescribed, the three-year limitation shall apply. It was emphasised by Shri J. S. Narang also that this rule is strictly applied even in respect of writ matters by the High Courts and the Supreme Court. Since the payments were made in 1988 and 1989, a petition cannot lie in 1993, i.e., after a lapse of more than four years. The petitioners' counsel has rested his arguments on the question regarding when the cause of action arises. According to him, he had nothing to complain of till the company was showing the amount as promoters' contribution. According to him, the cause of action has arisen on the date of allotment, i.e., the date when the allotment was made to the other respondents but denied to the petitioners. A similar issue has been dealt with by the Supreme Court in Sha Mulchand and Co. v. Jawahar Mills Ltd. 1. This is a case under the erstwhile Indian Companies Act of 1913, wherein the apex court has dealt with the question "when the right to apply accrues" in determining the period of limitation under the Indian Limitation Act, 1908. Dealing with the case of forfeiture, the court has stated (at p. 17) "it is difficult to see how a person whose share is forfeited and whose name is struck out from the register, can apply for rectification of register until he comes to know of the forfeiture." This implies that the count down for limitation should start from the date of knowledge. In the case before us the petitioners' grievance has arisen from non-allotment or failure or default on the part of the company to make the allotment to them.
Though in a case of application by the general public, failure to allot could not be questioned, in the circumstances of this case where the contribution is part of promoters' equity and the petitioner was part of the management till December, 1992, the denial of allotment in January, 1993, to one co-promoter to the exclusion of others stands on a different footing. So long as no one is allotted, there is no grievance for the petitioners. The petitioners' counsel has reasonably justified that the count down for limitation should start from the date of allotment. In view of the above cited decisions, we could have even shifted the count down to the date of knowledge of non-allotment. As such, even if the Limitation Act is applicable to these proceedings, the period of limitation has not yet expired.
29. We are, however, on a more fundamental issue with regard to the very applicability of the Limitation Act, to the proceedings before the Company Law Board. We had occasion to deal with this matter at great length very recently in A. V. Sampat, Official Liquidator v. Dunlop India Ltd. [1996] 87 Comp Cas 398 (CLB). In this case, we have relied on certain decisions of the Supreme Court in the context of the applicability of the Limitation Act, namely, Nityanand M. Joshi v. Life Insurance Corporation of India, AIRTown Municipal Council, Athani v. Presiding Officer, Labour Court, AIR 1969 SC 1335, and came to the conclusion that the Company Law Board is not a court for the purpose of the Limitation Act and as such the limitation under Article 137 of the Limitation Act, 1963, does not apply to the proceedings before us. Accordingly, we hold that,the petition is not hit by the limitation prescribed under the Limitation Act, 19&3.
30. Dr. A. M. Singhvi also argued that the petition is further hit by the time limits prescribed in Section 111(2) of the Act. This argument cannot be sustained at all in view of the admitted position that this is not a case of transfer or transmission but a petition under Section 111(4)(b), i.e., a case of default in entering in the register the names of the petitioners. This specific issue has also been dealt with by us recently in City Bank NA v. Power Grid Corporation of India Ltd. [1995] 83 Comp Cas 454 (CLB), wherein we have held that a petition under Section 111(4) is not governed by the limitation of two months and four months as contained in Section 111(3). In view of the above, our conclusion is that both the petitions are maintainable as per the Company Law Board Regulations and are not hit by any time limits.
31. Another preliminary objection raised on behalf of the respondents is that in order to file a petition under Section 111, one has to be a member since Section 111(4)(b) states that the default is regarding the fact of any person having become a member not being entered in the register. The definition of a member under Section 41(2) contemplates two conditions, namely, there should be an agreement in writing and there should be an entry in the register of members. In the case of the petitioners, there is nothing in writing to the effect that they have agreed to be members. In fact, the grouse is that there is no information in the books of the company as to who actually has remitted the money. In our view, this question is a vicious question. If a petition can lie only after a person becomes a member, then there cannot be any grouse on this score at all. The grouse is that though the petitioners are entitled to become members, their names have not been entered in the register. The question whether a petitioner should be already a member to be eligible to file a petition has been squarely dealt with in Coronation Tea Co. Ltd., In re [1962] 32 Comp Cas 568 (Cal). It is stated therein that Section 155 clearly provides that if default is made or unnecessary delay takes place in entering on the register, the fact of any person having become a member, the person aggrieved may apply to the court for rectification of the register. The argument that unless a person is a member of the company he cannot make an application under Section 155 and his remedies are only under Section 111 and he may prefer an appeal to the Central Government as provided by subsection (3) of that Section is untenable. A similar view has been expressed by the Kerala High Court in Joseph Michael v.Travancore Rubber and Tea Co. Ltd. [1989] 66 Comp Cas 491, wherein it is stated that a person claiming title to shares can ask for rectification of the register even if he is not a member.
32. The requirement of an agreement in writing to become a member has also been considered in Ram Kishan v. Kanwar Papers P. Ltd. [1990] 69 Comp Cas 209 (HP) and this requirement was dispensed with. It was held that this definition is for the benefit of the shareholder and can be waived when he himself seeks membership.
33. Counsel for the petitioners has rightly relied on the Division Bench judgment of the Karnataka High Court in Shri Balaji Textile Mills (P.) Ltd. v. Ashok Kavle [1989] 66 Comp Cas 654 to the effect that the word "member" has to be understood in the context in which it is used.
In that case, the court has specifically ruled out Section 41(2) in construing the meaning of the word "member" in Section 399 of the Act.
It was further held that if a company by its own conduct had treated the parties as shareholders and if it is prima facie established from the documents maintained by the company that the petitioners had been parties in one way or the other as members, the prima facie test is satisfied. Applying the same logic it can be concluded that the words "the fact of any person having become a member" as used in Section 111(4)(b) indicates not the actual membership but the eligibility of the petitioners to become members. This eligibility may be as a consequence of obtaining title to the shares on transfer or transmission or on the basis of estoppel based on facts by which membership is claimed. This interpretation of Section 111(4) can only give real meaning and purpose to the provisions of that Section .
34. Under the earlier Section 111, the Central Government was empowered to hear appeals on the routine complaints regarding non-transfer/transmission of securities whereas the High Courts were vested with jurisdiction under Section 155 (which now has been vested in the Company Law Board with effect from May 31, 1991) on wider questions which had implications on the register of members. The powers were wider and hence it has been often held that this jurisdiction is a discretionary and equitable jurisdiction. It is also reflected by the fact that the court was empowered under the erstwhile Section 155(5) to decide any question relating to the title of any person and generally to decide any question in connection with the application. In an appeal, under Section 111, these wider jurisdictions were not available. In view of this, it is appropriate to conclude that based on the facts and circumstances of the case, the Company Law Board can go into the question whether the petitioners are eligible or qualified to become members of the company and whether default has been committed by the company in entering their names in the register of members. It should be noted that only by not making membership a pre-requisite for filing petition under Section 111(4), it shall be possible for any aggrieved person to invoke the provisions of Section 111(4) to claim membership. In other words the provisions cannot be invoked by an aggrieved person claiming membership and the provisions would become a dead letter in case the pre-requisite of membership is imposed on such a person. In such a situation, the very objective of Section 111(4) will be defeated. In view of the above, we find that the argument that membership is a pre-requisite for a petition under Section 111(4) is not tenable. We hold accordingly.
35. The next major preliminary objection is with regard to jurisdiction on which we should be absolutely clear. The essence of the argument of the respondents on this score is that matters relating to allotment of shares or matters prior to the allotment cannot be the subject-matter of a petition under Section 111(4). Dr. A. M. Singhvi, learned counsel for the respondents, stated that without a pre-existing legal right, no cause of action can arise. He cited the Supreme Court decision in Morgan Stanley's case [1994] 81 Comp Cas 318 ; AIR 1994 SC 225, to state that the shares themselves not having come into existence, the claim of the petitioners cannot sustain. The arguments of the respondents are based on the normal preception that there should be a subsisting legal right and generally in the case of an application for shares, the allotment or refusal to allot is at the discretion of the board of directors and no one can claim it as a matter of right. No applicant can raise a dispute under Section 111(4) of the Act for non-allotment. This objection on the part of the respondents is well taken. In reply to this the substance of the petitioners' argument is that as a promoter and as one who has executed covenants on behalf of the company as well as on her own behalf which are all part of the records of the company the case stands on a different footing. The respondents are aware and have admitted the petitioners as promoters and their contribution accepted as part of the promoters' contribution meaning thereby that the petitioners have been treated as if they are members. In our view, we have to distinguish between an offer for purchase in general and acceptance of the offer by the board from a case of a person enforcing his rights linked to any facet or express understanding by which the right accrues and to which understanding the company is also a party. It shall not be appropriate for the Company Law Board to entertain any objection for mere non-allotment of shares per se. However, the Company Law Board can look into the case for rectification in case a person being entitled to the shares is denied entry in the register of members. The respondents have also tried to draw a parallel with a creditor enforcing his right to convert an unsecured loan which was upheld by the Kerala High Court in Kumaran Potty v. Venad Pharmaceuticals and Chemicals Ltd. [1989] 65 Comp Cas 246. The circumstances in that case are different where the vice chairman of the company made a commitment for conversion of loan without the backing of the resolution of the board but that case has no applicability to the circumstances before us. In the present case, the records of the company bear adequate evidence that the money was accepted and used for the purpose of the company, as part of the promoters' contribution.
36. There is a catena of judgments of various High Courts and the Supreme Court with regard to the scope of inquiry under Section 111(4) read with Section 111(7) which were exactly incorporated from the erstwhile Section 155 of the Act. The only difference is that instead of the company court, the jurisdiction is vested in the Company Law Board. Subsection (7) gives very wide jurisdiction to the Company Law Board to decide any question relating to rectification of the register and in this process it is open to the Company Law Board to decide questions of allotment/non-allotment/forfeiture which have a bearing on the register of members. It is appropriate to cite in this connection a decision of the Gujarat High Court in Shri Gulabrai Kalidas Naik v.Shri Laxmidas Lallubhai Patel of Baroda [1978] 48 Comp Cas 438 in which the court has stated that the jurisdiction which enables the court in an application under Section 155 to examine all questions, complex, intricate or otherwise relating to title to the shares, further enlarges the jurisdiction of the court set up under the Companies Act to decide all those questions which the court considers necessary or expedient to decide in connection with an application for rectification. The Supreme Court has decided this issue much earlier in 1965 in Public Passenger Services Ltd, v. M. A Khadar [1966] 36 Comp Cas 1 (SC) in which the issue related to a notice for forfeiture of shares and the court observed that such matters could be examined in proceedings under Section 155. A similar forfeiture issue was also decided by the Rajasthan High Court under Section 155 in Kotah Transport Ltd. v. State of Rajasthan [1967] 37 Comp Cas 288. Coming to the specific question of allotment/non-allotment of shares, these issues were also decided under Section 155 by the Calcutta High Court in Farhat Sheikh v. Escman Metalo Chemical (P.) Ltd. [1991] 71 Comp Cas 88 and by the Patna High Court in Basudeb Kataruka v. Dhanbad Automobiles (P.) Ltd. [1977] 47 Comp Cas 68. A similar view was expressed by the Calcutta High Court in Turner Morrison and Co. Ltd. v.Shalimar Tar Products (1935) Ltd. [1980] 50 Comp Cas 296. With regard to the scope of Section 155, it is stated that "it is wide and generous for doing justice against illegality and fraudulent action". We ourselves had occasion to deal with the scope of Section 111 in a Full Bench of the Eastern Bench in Dr. Jitendra Nath Saha v. Shyamal Mondal [1995] 82 Comp Cas 688, wherein we had to deal with the failure to allot shares by the respondents to the petitioners. In view of the decisions of the various High Courts and the Supreme Court on this matter we do not have any doubt with regard to the scope of inquiry under Section 111(4). We are convinced that it is open to the Company Law Board to go into any question relating to the rectification of the register of members so long as it falls precisely within the provisions of Section 111(4) read with Sub-section (7) of that Section 37. Another significant issue raised on behalf of the respondents is that the jurisdiction under Section 155 (presently 111(4)) is a discretionary jurisdiction and the courts have already taken the view that whenever there is any complicated question of facts or law involved, the court will not get into such questions but will relegate the parties to a civil suit. Dr. A. M. Singhvi pointed out in this connection, that facts like the nature of understanding between family members regarding induction of outsiders, genuineness of declaration before income-tax authorities, the nexus between dealers of Swaraj Mazda and Punjab Tractors with SM, genuineness of the source of funds have all to be examined for which a trial may have to be conducted and parties may have to be examined on oath and cross-examined. These being summary proceedings such examinations cannot be resorted to and the courts have always refrained from getting into such questions. We do appreciate the issue raised by learned counsel and have examined the matter in detail. Our initial reaction was that having already examined with the help of precedents, the question of the extent of our jurisdiction under Section 111(4), whether we should give credence to this question at all. However, on a deeper examination we do appreciate the distinction between the jurisdiction conferred by law and the exercise of discretion for not using such jurisdiction in a particular situation. As such both the issues can co-exist, namely, whether a jurisdiction is available and whether in a particular situation discretion could be exercised for not using the jurisdiction. What Dr, Singhvi emphasises is that even if jurisdiction to enquire into matters of allotment is available we may not use that jurisdiction and exercise our discretion to relegate the parties to the civil court. Though we are clear in our minds regarding the availability of jurisdiction to enquire into matters relating to allotment, yet we may in particular circumstances depending upon the facts of a case, refrain from exercising the jurisdiction available. We have also referred to the various precedents in this regard.
38. A single member Bench of the Delhi High Court in Harnam Singh v.Bhagwan Singh [1992] 74 Comp Cas 726 has expressed the view that the jurisdiction of the company court dealing with a case under Section 155 is co-extensive with that of a civil court and, therefore, the court is competent to decide matters involving title to shares and that it would not be right for the civil court to entertain such matters.
Subsequently, a Full Bench of the same High Court in Ammonia Supplies Corporation Pvt. Ltd. v. Modern Plastic Containers Pvt Ltd. [1994] 79 Comp Cas 163 after reviewing the decision of the single judge has categorically come to the conclusion that the proceedings under Section 155 are summary proceedings. The discretion lies totally with the company court keeping in view the facts and circumstances of the case whether to go ahead to decide the title or if it feels that complicated questions of fact and law are involved, to relegate the parties to a civil suit. This decision in our view is the latest so far on the discretion available to the company court in the matter. We have also to refer to the decision of the Supreme Court in Public Passenger Services Limited v. M. A Kkadar [1966] 36 Comp Cas 1, where the apex court has held "though whether by reason of its complexity or otherwise, the court might refuse relief under Section 155 and relegate the parties to a suit. . ." This is a sufficient indication of the discretion available to the company court in view of the complex questions involved to refrain from considering any relief to the parties. This discretion available in view of complicated questions of facts and law has been affirmed in a number of cases decided by various High Courts, namely, Laxminarayan Bhayya v. Praga Tools Corporation Ltd. [1953] 23 Comp Cas 198 (Hyd), Dady S. Mazda v. K. R. Irani [1977] 47 Comp Cas 39 (Cal), Public Trustee v. Rajeshwar Tyagi [1973] 43 Comp Cas 371 (Delhi), Joginder Singh v. Basawa Singh [1985] 58 Comp Cas 843 (P & H), S. Gurucharan Singh Mahant v. Rattan Sports (P.) Ltd. [1986] 59 Comp Cas 279 (P & H). We have also already taken this view in the Company Law Board decision in Kothari Industrial Corporation Ltd. v.Lazor Detergents (P.) Ltd. [1994] 81 Comp Cas 617. In view of the above, it is open for us to consider whether in the two petitions before us, there are such complicated questions of facts or law by virtue of which we may refrain from exercising our jurisdiction in the matter.
39. The bone of contention as evident from the pleadings is that no allotment could be made to the various petitioners in C. P. No. 2 of 1994, because they are strangers. The case of the respondents is that the company is a private company consisting of only blood relations and that there was an understanding that no outsider shall be inducted.
This is butteressed by the fact that the promoters' contribution of Rs. 11,70,000 from the respondents have all come from either the family members or their group companies/firms. In our view, there is substance in this contention in view of various decided cases. Where the company is in the nature of a partnership it would be unfair to introduce any partners without the consent of the other persons. However, in the present case, there is nothing in writing produced before us to evidence this kind of an understanding. At the same time the circumstances show that the business was purely confined to blood relations. Giving weightage to circumstantial evidence is imperative--for example a 50 : 50 ratio is not anywhere on record but the actual contribution is on 50 : 50 basis. Similarly keeping the company within the family fold may not be on record but the conduct of the respondents shows that they have kept their contribution within the family. Hence, it is necessary to ascertain whether there was an implicit understanding among the parties in this regard.
40. The respondents have also challenged the contention of the petitioners that there are two groups, one of SM and the other of AM with equal shareholding. From the pleadings, however, it is evident that the capital has been contributed by AM and his relations to the extent of Rs. 11,70,000 as promoters' contribution and another equivalent amount from SM and the nine petitioners in C. P. No. 2 of 1994. Just because of the equal contribution can the nine petitioners be considered as part of the SM group or can this be considered as a firm basis to conclude that actually there are two groups. When the petitioners and respondents are closely related to each other can we at all consider this company as consisting of two groups.
41. According to the respondents, the company's records show total remittance of Rs. 11,70,000 on behalf of SM with certain demand drafts from various places without mentioning the names of the parties and without any covering letters for the same. On enquiry from SM an official of Swaraj Mazda has intimated that these remittances should be taken as the contribution of SM. This communication is on record. This, however, is contradicted by the petitioners. At the same time, the records of the Income-tax Department, copies of which were produced before us, show that there were covering letters from all the different petitioners in C. P. No. 2 of 1994, and there were clarifications regarding their permanent account numbers as given by the company.
However, these are denied by the respondents and are not within their knowledge. In the circumstances, it is difficult to establish whether these informations were separately available only with the Income-tax Department and have not originated from the company. In this connection, the respondents allege some dubious role played by the chartered accountant. It is evident from the pleadings that the chartered accountant who is not a party before us had been dealing with the income-tax assessment of the company and appears to have provided all the above information. Whereas this chartered accountant was connected with the company's matters earlier, the present management is hostile and they are charging this professional with colluding with SM and her husband. It is difficult to establish without even the concerned chartered accountant being a party before us, whether these documents were genuine and emanated from the company with the knowledge of the respondents. Though knowledge of the respondents that the nine petitioners were the contributors to the promoters equity, was attributed based on a letter signed by AM as managing director of the company addressed to the Assistant Commissioner of Income-tax, Solan, it is the contention of the respondents that certain blank signatures were obtained from AM which have been misused by the husband of SM to file these statements before the income-tax authorities. The truth of the statements affirmed on oath could not be established unless a proper examination is conducted. In this connection it should be noted that with all allegations against SM's husband Shri Yashpal Mahajan, he himself is not a party before us.
42. It appears that the accountant of Swaraj Mazda had been dealing with the accounts of the company earlier and this is perhaps on account of the association of the husband of SM in the earlier stages of the project. The respondents contend that the root cause of dispute is the dubious role played by Shri Yashpal Mahajan, the husband of SM. He is not a party before us in this case and we could not get further details in this regard to come to any conclusion.
43. Another intriguing area is that the respondents have decided to make allotment to themselves and decided not to allot to the petitioners without having any factual information regarding the allegations which they have chosen to make subsequently. In other words, the decision not to allot was taken first, but subsequently an investigation was done to justify such decision. This creates a doubt regarding the genuineness of the decision. If the records of the company show at the time of allotment that all the Rs. 11,70,000 has come from SM then it would have been only proper to allot the shares to SM.44. All the above questions relate to the facts of the case and if some of these facts are established then it is necessary to examine whether there is any illegality arising out of the provisions of the Benami Transactions (Prohibition) Act. It is also clear to us that all the above complicated questions of facts and law relate to the contribution of Rs. 4,90,000 received from the nine petitioners in C. P. No. 2 of 1994. It is also clear that these questions do not arise in respect of Rs. 6,80,000 received on SM's own account. The question whether her borrowing from different sources for making this contribution towards promoters equity will attract the Benami Transactions (Prohibition) Act, is not tenable. Even, according to the respondents, the allotment to SM was denied mainly because of her conduct in inducting outsiders into the company. Thus, a clear distinction could be made between C. P.No. 2 of 1994 and C. P. No. 9 of 1994 inasmuch as there are complicated questions of facts and law involved in the former case, but no such complex issues are present in SM's case. In view of this situation, in exercise of the discretion available to us, it is only appropriate that the petitioners in C. P. No. 2 of 1994 should be relegated to the civil court for any remedy and we should refrain from drawing any conclusion based on limited pleadings before us. Since we have already concluded that the cause of action arises in this case only on the date of allotment to the respondents and denial of allotment to the petitioners, i.e., January, 1993, these persons still have a remedy before a civil court.
45. We have so far considered the preliminary objections including the jurisdiction of the Company Law Board to entertain the petitions and whether there are any complicated questions of law and facts which warrant our non-intervention in the matter. We have come to the conclusion that C. P. No. 9 of 1994 relating to SM is maintainable and also that we may consider this petition with regard to the reliefs prayed for. We shall now examine the facts and circumstances in this case for considering relief as the legal issues have been considered in detail and settled.
46. It is an undisputed and accepted fact that an amount of Rs. 6.8 lakhs has been contributed on various dates from November 28, 1989, to February 27, 1990, and credited to SM's account. The only dispute raised by the respondents as regards SM's contribution is that she was asked for the source of her contribution but she was not able to provide such details but no evidence of any correspondence is available in this regard.
47. In our view, the promoters' contribution made by SM stands on a different footing than that made by the nine applicants in the other petition. SM is as per records of the company one of the promoters of the project and her name is also found in the Articles of association as one of the first directors of the company. The argument of the respondents that there should be a pre-existing legal right has some force. Hence, we have to look into the documents available with the company and those in which the company is a party to satisfy ourselves whether such right exists. These documents are not in the nature of a private arrangement between two parties, but related to the company in which the company is also a party. The letter of intent dated July 17, 1989, issued by the IFCI stipulates that SM along with Shri P. C.Mahajan and AM (the petitioner, her father and brother) shall give an undertaking for making arrangement for shortfall, if any, in the resources for completing the project and for working capital. On September 21,1989, SM along with the other two promoters has given deeds of guarantee for the term loan of Rs. 84 lakhs. On November 8, 1989, SM has also signed various undertakings with regard to the project as a promoter director both in her individual capacity as well as on behalf of the company as a director. On October 17, 1990, yet another deed of guarantee in respect of the additional term loan of Rs. 18 lakhs has also been executed by SM. In connection with the additional term loan, further letter of declaration and undertaking was executed on October 17, 1990, by SM both in her individual capacity and also as a director of the company. In addition, a letter dated July 7,1993, from IFCI addressed to the company evidences that the financial assistance was granted to the company on the strength of SM being a woman entrepreneur. The letter dated August 24, ' 1993, from the nominee director of the IFCI also indicates that SM is the main promoter and she should be continued as a promoter director of the company. In the face of the above undisputed facts, the mere denial by the respondents that SM was not recognised as a promoter shareholder of the company, does not carry conviction with us. As a promoter director, SM was also required to give an undertaking not to dispose of her shareholding besides continuing to be a director of the company. This document alone is a sufficient to establish that she is required to be a shareholder of the company irrespective of the extent of her holdings. All these are incorporated in the agreement between the company and the IFCI. In view of these undisputed facts, SM's claim to be a shareholder of the company with contributions already made by her as a promoter is a valid claim. In fact such contribution was a pre-condition to the disbursement of the term loans from the IFCI to constitute a base for the entire project as per the covenants with the IFCI. This situation is not comparable to that of a general investor making an application to the company for allotment of shares and awaiting the decision of the directors for allotment. The citation of the Supreme Court judgment in Morgan Stanley's case [1994] 81 Comp Cas 318 is in a different context altogether, i.e., the provisions of the Consumer Protection Act. For that purpose the prerequisite is that there should be "goods". Since the shares have not come into existence a case under the Consumer Protection Act is not maintainable. That decision has no relevance to the present case. The plea that the directors have a discretion to allot or not to allot the shares to such person is not a valid argument in such a situation. We have already held in Dr. Jitendra Nath Saha v. Shyamal Mondal [1993] 1 Comp LJ 76 ; [1995] 82 Comp Cas 688 (CLB) [SB], that "where the directors of a company keep the remaining shareholders in the dark and proceed to allot the shares to themselves and outsiders even though the remaining shareholders were eager to participate in the further capital of the company, the manner in which the directors have allotted the shares to themselves, and others is a clear breach of their fiduciary duties, is not bona fide, lacks probity and they should not be allowed to derive any benefit from such transaction." This conclusion is also perfectly in line with the decision of the Calcutta High Court in Turner Morrison and Co. Ltd, v. Shalimar Tar Products (1935) Ltd. [1980] 50 Comp Cas 296 on a petition under Section 155 of the Act. It is also evident that there is no substantial reasoning given at the time of allotment of the shares by the respondents to themselves on January 13, 1993, as to why the allotment has been denied to SM not to talk of the other applicants who may be considered as outsiders. In the circumstances, we are of the firm view that SM has to be allotted 68,000 shares of Rs. 10 each for her contribution of Rs. 6,80,000 which has to come out of the shares already allotted over and above those allotted against Rs. 11,70,000 to the respondents for their original contribution to the promoters' equity. Respondents Nos. 2 and 3 having been identified as the co-promoters of the project besides SM shall ensure the transfer of 68,000 shares either from out of their own holdings or out of the allotment made to others who are only part of their group over and above the original contribution of Rs. 11,70,000 as contemplated in the project report for a consideration of Rs. 6,80,000 lying with the company. The company is hereby ordered to rectify the register of members after, respondents Nos. 2 and 3 arrange for the above said transfer within 10 days' of the receipt of the copy of this order and, accordingly, the company shall delete the names of the transferors to that extent. The consideration shall be released to the transferors by the company. With this both the petitions, namely, C. P. Nos. 2 and 9 of 1994 are disposed of. No order as to costs.