1. The 1st petitioner (hereinafter referred to as the petitioner) and the 2nd respondent (hereinafter referred to as the respondent) are wife and husband. They were married in 1975 and have three sons. Besides the res- pondents company there are other business entities either controlled by the petitioner or by the respondent or by both. They are Nitin Rubber which is a proprietary con- cern of the petitioner, Navneel Elastomers, a proprietary concern of the respondent, Nimit Exports (P) Ltd., in which the petitioner has large stake while the respondent has no stake and Navin Kohli and Sons. A large number of properties are also held in the individual names of the petitioner and the respondent. Matrimonial differences had arisen between the two during the middle of 1990s and besides this petition filed by the petitioner, there are other proceedings pending in civil courts. They are, one filed by the respondent for dissolution of the marriage, one filed by the petitioner for restitution of conjugal rights, one filed by the respondent for a declaration that Nitil Rubber belongs to him and another filed by the petitioner on the same allegations as in the present petition before us (this was subsequently withdrawn after this petition was filed). Besides, both have filed various FIRs against each other.
2. As far as the respondent company is concerned, according to the petitioner, the respondent is guilty of hijacking the company by reducing her majority shareholding in the company both by way of issuing further shares in the company and also by illegally transferring shares held in her name to himself and siphoning off of funds of the company.
3. In view of the relationship between the parties, this bench made various attempts to bring about an amicable settlement not only in respect of respondent company but also in respect of other disputes.
Even the members of this Bench made a visit to Kan- pur to inspect all the properties of the parties with a view to bring about a partition of the assets of the family with a view to put an end to all the disputes.
Various sugges- tions were made by us for settling all the disputes amicably and at the end it was suggested that, since there are five family members in the family including their three children, all the assets of the family could be divided into five parts and each one could have one part. Even though this suggestion was generally agreed to by the par- ties subject to a valuation being made, yet, it did not materialise in view of the unwil- lingness of the petitioner to agree for a divorce by mutual consent which was set as a pre-condition by the respondent for division of the properties. Since all the efforts towards an amicable settlement failed, the petition was heard on merits. Even though the arguments on the petition were concluded in January, 2000, we deferred issue of this order with a view to offered [afford ?] the parties to make further attempts to settle the disputes amicably. Since nothing towards this end has been reported, we are issuing this order.
4. Shri Vikas Mathur, Advocate, appearing for the petitioner, during final stages of the hearing, submitted as follows : At the time of their marriage, the respondent did not have any funds. Out of her own funds and that of her parents, the petitioner estab- lished a business for manufacture of various rubber products in the name Nitin Rubber in 1978 as a sole proprietorship and employed the respondent as the manager. The respondent did not contribute any funds. With a view to expand the business, she applied or and got allotted an industrial plot in Kanpur in 1983 for which she paid the entire consideration. She incorporated the respondent company in the year 1985 and since two persons were required to incorporate the company, she invited the res- pondent to join her as a shareholder with a nominal shareholding. Both were the first directors in the company. The industrial plot allotted to her was transferred to the company with the permission of the UPSIDC with the stipulation that the petitioner would hold the majority shares in the company. Of the authorised and paid up capi- tal of the company of 3,000 shares of Rs. 100 each, the petitioner was allotted 2,835 shares, her son, the 2nd petitioner, 100 shares and the balance 65 shares were allotted to the respondent. Both the directors were jointly managing the affairs of the com- pany. The expenses towards construction of the factory premises were provided by her and Nitin Rubber. In 1990, this company started to manufacture saddlery pro- ducts and it was doing well and the petitioner was actively involved in the business of the company. However, in the middle of 1994, serious matrimonial differences arose between them after which the respondent started acting in an oppressive manner towards the petitioner and had unilaterally taken over the control and management of the company.
First, he, unauthorisedly, without the consent of the petitioner, in- creased the authorised capital from Rs. 3 lakhs to Rs. 10 lakhs in an allegedly held EOGM on 24.3.1995. No notice of this meeting or for the Board meeting in which it was decided to convene the EOGM was given to the petitioner. Since there were only two share- holders two directors, in view of the petitioner having not attended these meetings, there would have ben no quorum. The claim of the respondent that the authorised capital was increased to impress the foreign customers and that it was done with a view to convert the company into a public company is an after-thought to justify wrongful allotment made to himself with a view to convert the petitioner into a mino- rity. After increase in the authorised capital, the respondent had also fabricated the records of the company to show as if 3,200 shares were allotted to him in a Board meeting on 27.3.1995. Neither, any notice for this meeting was received by the peti- tioner nor had she attended this meeting. Without a valid quorum, no business could have been transacted in the Board meeting, if at all it had been held. The respondent has filed false and fabricated returns with the Registrar of Companies with respect to this allotment. This allotment straightaway converted the majority of the petitioner into minority. Not having been satisfied with such a conversion, the respondent, further, by forgoing the signature of the petitioner, got 1,600 shares held in the name of the petitioner to himself and he manipulated the records to show as if this transfer was approved in a Board meeting allegedly held on 26.8.1995.
The petitioner never signed any transfer instrument nor had she received any consideration. Even though it is now claimed by the respondent that he had paid the consideration for 1,600 shares by way of a cheque for Rs. 1.6 lakhs, this cheque was actually deposited in a joint account in the names of the petitioner and the respondent, without the knowledge of the peti- tioner on 9.8.1995. Later, on 25.8.1995, he transferred this amount to Nimit Exports and withdrew this amount later on. Therefore, no consideration was paid for the alleged transfer of 1,600 shares. He had also filed an annual return indicating therein that the AGM of the company was held on 28.9.1995 while no such AGM was actually held as the petitioner did not receive any notice for this meeting. In the annual return filed thereafter wherein changes in the shareholding have been noted, the respondent had forged the signature of the petitioner with a view to establish that she was in the knowledge of the change in tthe shareholding. Further, he had also appointed his own father as an additional director in a subsequent Board meeting allegedly held on 6.8.1996. Thus, he had ensured, by manipulation of the records of the company and forging the signature of the petitioner that she was not only converted into a minority but also lost her equal status in the Board. There could have been no worst case of oppression than in this case. The respondent claims as if the consideration of Rs. 1.6 lakhs for 1,600 shares was given to the petitioner by way of a cheque. It is absolutely wrong inasmuch as, on his own, he had credited this amount in the account of Nitin Rubber without the knowledge of the petitioner since he holds the power of attorney the petitioner, and he was also the manager of Nitin Rubbers. In addition to the grave act of oppression of converting the majority into minority, the respondent is also guilty of diversion of the business of the company to a newly established proprietary con- cern of the respondent known as Navneel Elastomers. He set up this business in the factory premises of the company subletting a portion without the knowledge and per- mission of the Board/the petitioner and has been using all the facilities of the com- pany for his personal benefit through this concern. Even though the respondent relies on a rent receipt alleged to have ben signed by the petitioner as token of having re- ceived rent on 1.5.1995 from this firm, the receipt was not signed by her and the res- pondent has not produced any further rent receipt to attribute knowledge to the peti- tioner of subletting the premises of the company to this firm. Relying on Sheodhari Rai v. Suraj Prasad Singh AIR 1954 SC 758 wherein it was held that payment of rent does not necessarily establish relationship of landlord and tenant and that such payment may only prove permissive occupation not amounting to any right or title to posses- sion, he argued that mere signing of a rent receipt cannot confer a claim of continued occupation, especially, when the subletting is against the terms of the lease stipulated by UPSIDC. Further, he also indulged in siphoning off of funds of the company. He opened a new bank account with Standard & Chartered Bank, Sansad Marg, New Delhi, by forging the signature of the petitioner on the account opening form. Since the company was not having any business in Delhi, the purpose of opening this account was only to siphon the funds of the company. In the same bank he also opened another account in his personal name for the purposes of diversion of the funds of the company to his personal account. Nearly a sum of Rs. 63 lakhs was trans- ferred from the company's bank account to the account of Navneel Elastomers bet- ween December, 1995 to April, 1996, as per the details furnished in paragraph 27 of the petition. Likewise, a sum of Rs. 5.22 lakhs was transferred from the bank account of the company in Kanpur to the account in Sansad Marg, new Delhi bank account. In view of this, the petitioner filed a suit in October, 1996, seeking a permanent injunc- tion against the respondent from operating the accounts maintained with Standard and Chartered Bank at Kanpur and Delhi. She also complained to the police in this regard. The respondent claims that there was a Board meeting on 1.9.1995 in which the balance sheet for the year 94-95 was approved hand the petitioner attended the same.
Since, on his own version, the respondent had left for Germany on 31.8.1995 along with the 2nd petitioner, no meeting on 31.9.1995 could have ben held. It was the respondent who filed a suit for judicial separation on 23.11.1995 even though the relationship between them became sore as early as in May, 1994. In December, 1995, he moved out of the house. The version of the respondent that the petitioner had for- cibly removed the records of the company on 2.7.97 is false. All the records of the company are with the respondent and he is reluctant to produce the same, as they would prove that no meetings relating to increase in authorised capital, allotment of shares and transfer of shares had ever taken place. It is also worthwhile to refer to the letter dated 4.7.96 written by the respondent to the auditor of the company that all the accounting record were with the auditor. As far as the allegation against the peti- tioner that she had withdrawn an amount of Rs. 9.5 lakhs from the company by removing a signed cheque on 9.6.96, it is to be noted that she was entitled to operate the bank account and suitable entry regarding the withdrawal had been made in the accounts of the company. Even though it is a fact that the petitioner had filed a civil suit on 5.10.96 on the same issues raised in the instant petition, the suit was subse- quently withdrawn on 6.2.96 and, therefore, there is no bar on the CLB adjudicating the allegations in the petition 5. Referring to CA 293 of 1999 filed by the petitioner for initiating contempt pro- ceedings against the respondent, the learned counsel pointed out that the company had purchased a flat at 801, Chitrakoot Apartment, Kanpur. The Company Law Board had passed an order on 12.9.1997 directing the parties not to deal with the immovable properties of the company in any manner. In violation of this order, the respondent had transferred this flat to his own name on 7.11.1998.
Further, he also had sublet a part of the factory premises to Navneel Elastomers. Such acts are completely in viola- tion of the fiduciary duties of a director as decided in the following case[s]: 'The directors of a company are not at liberty to sacrifice the interests of the company and divert in their own favour business which should properly belong to the company they represent.' V.G. Balasundaram v. New Theatres Carnatic Talkies Pvt. Ltd. (1995) 3 Comp LJ 231 (Mad) : (1993) 77 Comp Cas 324; A Company, Re, (1987) 1 Comp LJ 185 (Ch D): 'Disposal of company assets is not only prejudicial to the shareholders but also is in breach of directors' fiduciary duties to the company.' 'Directors owing fiduciary duties to a company cannot enrich themselves to the detriment of the interests of the company and the shareholders.' Thus, he submitted that not only the respondent has acted in breach of the fiduciary duties, but also has committed contempt and as such, not only the transfer of the flat and the subletting the factory premises should be declared as null and void, the respondent should also be punished for committing contempt of the order of the Company Law Board.
6. Summing up his arguments, the learned counsel submitted that due to the matrimonial disputes, the respondent became inimical and vengeful against the peti- tioner and without any respect for law indulged in forgeries, misappropriation, etc., and has completely taken over the company which wholly belonged to the petitioner. Relying on Bhaskar Stoneware Pipes (P) Ltd. Rajinder Nath Bhaskar (1984) 2 Comp LJ 299 (Del) : (1988) 63 Comp Cas 184 (Del) wherein it was held [that] the issue of fur- ther shares, clandestine transfer of shares and diversion of funds of a company, etc., would constitute grave oppression and mismanagement in the affairs of a company, he submitted that the facts in this case would reveal that the respondent is guilty of grave acts of oppression against the petitioner. In regard to the non-disclosure of the fact of a pre-existing suit on the similar issues filed by the petitioner, he submitted that it is only a technical lapse and as such should not deprive the petitioner of equit- able remedy as held by the apex court in Needle Industries India Ltd. v. Needle Industries Newey (India) Holdings Ltd. (1982) 1 Comp LJ 1 (SC) : AIR 1981 SC 1298 wherein the court has held that technicalities cannot be permitted to defeat the exercise of the equitable jurisdiction conferred by Section 397. Therefore, in the present case, non-dis- closure of the pending proceedings should not deprive the petitioner of the right to proceed with the petition. He also relied on Sindri Iron Foundry (P) Ltd., Re, (1964) 34 Comp Cas 510 (Cal), wherein the High Court observed that even a single wrongful act could be considered to be an act of oppression, if the effect of such at could be a continuous course of oppression, then, the court is entitle, to pass appropriate orders under Section 397. Accordingly, he sought for declaration that allotment of 3,200 shares, transfer of 1,600 shares and appointment of the father of the respondent as an additional director as null and void and for investigation into the affairs of the com- pany and for removal of the respondent as director of the company and declaring the transfer of the flat of the company to the respondent as null and void in addition to initiating contempt proceedings against him.
7. Dr. Singhvi, appearing for the respondent submitted as follows : The petitioner has not come with clean hands. She had concealed the fact of her having filed a civil suit on similar issues prior in time. The respondent married the petitioner in 1975. The petitioner is a rubber technologist and, therefore, he established Nitin Rubber out of loans raised by him. This business was named after their first son. The petitioner has no knowledge of or qualification in manufacture of rubber products. The Rubber business was conceived and developed by the respondent. He made the petitioner as the sole proprietor of Nitin Rubber as per the wishes of her father, even though she did not contribute a pie. Because of his expertise in rubber technology, the business of Nitin Rubbers prospered and with a view to expand the business it was decided to incorporate the company. For all the shares allotted to her in the company, funds came from Nitin Rubber and she did not contribute towards the shares by herself. The respondent has already filed a civil suit challenging the claim of the petitioner to the absolute ownership of Nitin Rubber that was invested in her shares in the com- pany. In this connection, reference be made to her affidavit dated 7.8.1997 filed in the civil suit in which she has stated that they were the joint owners of Nitin Rubber, Nikhil Rubber, Nimit Exports and Naveen Kohli and Sons. Further, for Nitin Rubber, it is the respondent who had given personal guarantees to the bank and the peti- tioner has not given any personal guarantees. The respondent had also given interest free loans to Nitin Rubber as well as to the company. Various assets, like house, etc., even though were bought with the funds of the respondent, they were all registered in the name of the petitioner out of love and affection. The respondent never thought that the petitioner would later claim all the properties as her own. In May, 1994, when they were attending a party at Bombay, the petitioner was found to be behav- ing in an indecent manner with a family friend in the presence of all family members and this had hurt the feeling of the respondent. Even then, for the sake of his young children, he continued to live with the family and look after the businesses. As far as the allegations in the petition are concerned, all the acts complained of were with the knowledge and approval of the petitioner.
Even though matrimonial differences arose in May, 1994, and the petitioner claims that all acts of the respondent thereafter have to be considered as motivated, yet the fact is that they were living together even thereafter. This is evident from the pleadings of the petitioner herself in other proceed- ings. In suit No. 253 of 1996, she had averred that there was no separation between them till the respondent abandoned his job in Nitin Rubber in May, 1996. In her reply to the suit for judicial separation filed by the respondent, she had pleaded that even as on 20.8.1996 for restitution of conjugal rights filed by the petitioner, she had claimed that the cause of action arose on 20.8.1996. Further, in September, 1994, she travelled with the respondent to Germany as is evident from the copies of her passport.
8. The learned counsel further submitted : The respondent was in full control of the company, and it was he who explored the export market for saddlery products manufactured by the company by visiting various exhibitions in Germany. The turn- over of the company increased to Rs. 1.1 crores in 1995, the entire turnover arising out of exports. In view of the upbeat of the saddlery market, it was decided to go to public for further funds. Since the company had only Rs. 3 lakhs in the EOGM held on 24.3.1995 and necessary Form No. 23 was filed with the Registrar of Companies on 16.6.1995. The petitioner questioned the EOGM before the Registrar of Companies only in July, 1996, without explaining the reason for such a long delay. Due notice was given to the petitioner for this meeting, and she did attend the EOGM. In the same way, when 3,200 shares were allotted to the respondent on 27.3.1995, the peti- tioner attended the said meeting, signed the attendance register and also approved the allotment. Form No. 2 in respect of the allotment was filed on 19.4.1995 and was registered by the RoC on 23.6.1995. However, the respondent is not in a position to produce any evidence inasmuch as all the records of the company were forcibly removed by the petitioner on 2.7.1996 with the help of gundas.
It is evident from the complaint made by him to the police in this regard. However, the annual report signed by the petitioner which indicated the increase in the share capital is available with the Registrar of Companies. As far as the transfer of 1,600 shares is concerned, the peti- tioner voluntarily transferred these shares to the respondent, and this transfer was approved by the Board on 26.8.1995.
The consideration of Rs. 1.6 lakhs for these shares was paid by a cheque dated 8.8.1995 and this cheque was entered in the books of accounts of Nitin Rubber as 'payment for shares'. This amount was later used for refund of a loan to Nimit Exports. Now, the petitioner claims that she had no know- ledge to the entry in Nitin Rubber even though according to her, she was in full con- trol of the business of Nitin Rubber. Further, the annual return signed by her reflects the transfer of shares. With a view to claim that she was not a party to decision to further shares to the respondent and the transfer of shares, the petitioner is now tak- ing a stand that her signature found in the annual report is a forged one. Therefore, there is no truth in the allegations of the petitioner that she had been reduced to a minority without her knowledge or consent.
9. She has also claimed that as per the lease agreement with UPSIDC, the peti- tioner has to be a majority shareholder in the company, and as such, no shares could have been allotted to the respondent. This stand is not sustainable inasmuch as, as per the lease agreement, the petitioner was to have majority only for a period of 5 years from the date of lease agreement, which expired in 1992 itself. As far as Navneel Elastomers is concerned, it was established on 1.4.1994, well before the starting of dis- putes between the parties. The name of this concern was suggested by the petitioner which contains the first portion of the names of the respondent and the petitioner. A portion of the premises of the company was leased out to this concern with the con- sent of the petitioner as is evident from the rent receipt produced before the Bench containing the signature of the petitioner.
Not only Navneel Elastomers is func- tioning in the premises of the company, even Navin Kohli & Sons has been operating from the same premises for a long period. Even though UPSIDC was inclined to approve the lease to Navneel Elastomers, yet, because of the opposition by the peti- tioner, UPSIDC has not approved the tenancy in favour of Navneel Elastomers. Since the business of the company has been closed due to various proceedings initiated by the petitioner, the respondent has been carrying on the export business through Navneel Elastomers.
Further, the petitioner had taken away a sum of Rs. 9.5 lakhs by using a blank cheque signed by the respondent for meeting the day to day functions by forcibly entering the premises of the company which resulted in the company being unable to pay dues to the Electricity Board, etc. Thus, the petitioner had caused the electric connection being disconnected and the factory had to be closed. Thus, the petitioner, by her misconduct, caused the closure of the factory which was func- tioning very profitably. Since the petitioner acquired the shares in the company out of the funds of Nitin Rubber, which was funded by the respondent, no relief should be granted to her in respect of the shares till such time the suit filed by the respon- dent regarding the ownership of Nikhil Rubber is decided.
10. Dealing with the allegations relating to opening of an account in New Delhi, the learned counsel submitted that it was in view of the closure of foreign exchange deal- ing by the bank in Kanpur and not with a view to siphoning off the funds of the com- pany. In regard to the allegation relating to diversion of funds to Navneel Elasto- mers, the learned counsel referred to the reply wherein full details of the amount lent and recovered [have been set out ?] to state that in the family group temporary accommodation of funds by one to another had always been a practice and that the entire amount lent to Navneel Elastomers had been recovered.
11. In regard to the contempt application, Dr. Singhvi pointed out that flat was never owned by the company. It had only booked the flat by making a booking deposit and the sale was never completed. It is the respondent who paid for the flat in early 1996. The company informed the builder through a letter dated 18.3.1997 that the sale deed may be executed in the name of the respondent, and as such, the trans- fer of the rights of the company in the flat was complete on 18.3.1997 itself well before the orders of the Company Law Board dated 12.9.1997. The sale deed could not be executed at that time since there was a proposal that the State Government would reduce the stamp duty, the formal sale deed was executed on 7.11.1998 in which the company has been made only a confirming party and the transfer was being effected directly from the builder to the respondent. Further, the flat was of no use to the com- pany and since the respondent had been driven out of his house by the petitioner, he had to have some place to stay. As far as subletting of the factory premises to Nav- neel Elastomers is concerned, this concern was functioning in the same premises right from April, 1994.
Further, the petitioner herself issued a rent receipt dated 1.5.1995.
Right from May, 1997, what the respondent did was to only get a formal approval from UPSIDC and as such, has not sublet the premises to Elastomers after the orders of the Company Law Board. Therefore, he submitted that the respondent has not committed any act of contempt and as such, this application should be dismissed.
12. Summing up his arguments, Dr. Singhvi pointed out that the petitioner, instead of disclosing that she has filed a suit prior in time on similar allegations, had dis- honestly averred in paragraph 38 of the petitioner that no proceedings on the same issues were pending in any other court. Such a wilful misrepresentation of a statu- tory requirement should disentitle the petitioner from being heard on this petition. Fur- ther, it is a clear case of perjury and as such the petition should be dismissed in limine. He also submitted that since the petitioner has lied on a vital statutory requirement, all her averments in the petition should be considered with a pinch of salt.
Since Company Law Board is a court of equity, it should not allow the petitioner coming with unclean hands to proceed with the petition. He also pointed out that the peti- tioner has tried to make matrimonial disputes as corporate disputes with a vindictive motive and as such the petition is mala fide. He also pointed out that the disputes raised in the petition should not be examined in isolation of the matrimonial disputes between the parties especially when, as the head of the family, the respondent who is an expert in rubber technology established all the business entities in the family. He further submitted that the respondent had already agreed before the Company Law Board for division of the assets of the entire family into 5 parts so that there could be equitable division of the assets ; but the petitioner has been adamant in not agreeing to this proposal which would indicate that her only interest is to continue the litiga- tion and to take undue advantage of the respondent vesting ownership of all the pro- parties of the family in her name.
13. The learned counsel relied on certain case laws in support of his various sub- missions : Srikanta Datta Narasimharaja Wadiyar v. Sri Venkatsarawara Ral Estate Enterprises (1991) 3 Comp LJ 336 (Karn) : (1991) 72 Comp 211 (Karn) : 'In a proceeding under Sections 397/398, the courts' jurisdiction being equit- able, the requirement of good faith on the part of the petitioner is necessary and this good faith has to be tested by the conduct of the petitioner as reflected not only in the proceedings before the court, but also parallel proceedings in other courts and in other civil litigation. Even if the allegations are proved to be correct, leave could be granted only when the petitioner approaches the court with a clean record.' 'The oppressive acts should continue or should be present at the time when the petition is filed. The court cannot take cognizance of the events occurring after filing of the petition.' Binod Kumar Aggarwal v. Rington Tea Company Pvt. Ltd (1995) 1 Comp LJ 138 (CLB) : (1996) 85 Comp Cas 289 (CLB) and Yashovardhan Saboo v. Groz Beckert Saboo Limited (1993) 1 Comp LJ 20 (CLB) : (1995) 83 Comp Cas 371 (CLB) : 'The petitioners complaining of oppression should be directed to sell their shares to the oppressor.' 14. We have considered the pleading and arguments of the counsel.
Before we proceed with the merits of the case, it is essential to point out that both the parties have made certain inconsistent averment in the pleadings or the documents do not support their averment. There have been concealment of facts also by both the sides. The petitioner had not disclosed in the petition about the pendency of a civil suit filed by her on the same allegations as in the present petition even though it is a require- ment as per the CLB Regulations. There have been different versions of the petitioner as to the dates of estrangement in their relationship. Further, according to the peti- tioner, in para 20 of the petition, when she found that the accounts did not reflect the correct position when the respondent presented to her the balance sheet as on 31.3.95, she refused to sign the same. But in para 15, she says that she came to know of the changes int he shareholdings only when she inspected the records of the company in the RoC office. She has not indicated the date of inspection. She complained to the RoC only in July, 1996. If she had known the changes in the shareholding when the accounts were presented to her for signing, she has not explained as to why she waited till July, 1996, to complain to the RoC. In regard to the ownership of the various entities, she has averred in the other proceedings that they are all joint business, while in the present petition, she claims otherwise. In regard to taking away Rs. 9.6 lakhs by the petitioner, she had not disclosed the same in the petition. In the same way, the res- pondent says that the petitioner had removed the records of the company on 2.7.1996, but we find from RoC records that some of the annual reports had been filed subse- quent to this date. If so, the records of the company should have been available with the company/respondent on that date. Likewise, he did not disclose that the flat at Kanpur had already been agreed to be transferred to him when we passed the res- traint order. We also find that other than stating that the justification for increasing the authorised capital as well as the paid up capital was to impress his clients abroad, he has not given any other solid reason like financial needs of the company, etc., for increasing the authorised capital.
15. Before we deal with the main allegation regarding conversion of the majority into a minority, we shall deal with the other allegations. In regard to the allegation of the petitioner regarding navneel Elastomer, we find that the same was set up in April, 1994, when admittedly, the relationship between the parties was cordial. She had also issued a rent receipt in May, 1995. Further, even the concern has been named after the petitioner and respondent. Under the circumstances, the petitioner cannot disclaim her knowledge of this concern having been started as a proprietorship of the respondent. As far as its functioning in the same premises [is concerned], we do not propose to adjudicate on the same as it is for the UPSIDC to take a decision. In regard to diversion of business of the company to this concern, [is concerned] the fact is that the company remains closed due to the disputes between the parties and as such the question of diversion of a business of non-functional company, does not arise. If the respondent were using the machinery of the company for the business of the concern, he should account for the same and compensate the company. As far as the allega- tion relating to the diversion of funds of the company to this concern [is concerned], the respondent has admitted the same and he has also furnished the details about the refund of the money to the company so diverted in his detailed reply. He has also established the fact, that as a practice, within the group entities funds of one entity was being utilised by another entity. In view of this, nothing survives on this allega- tion. We also note that the petitioner has taken Rs. 9.5 lakhs from the company. The next allegation is in regard to transfer of a flat of the company to the name of the res- pondent. During the proceedings, we had passed an order on 12.9.1997 restraining both the parties from dealing with the assets of the company. The petitioner filed an application CA No. 293 of 1999 wherein she has brought to the notice of this Bench that the respondent had, during the pendency of the proceeding and after the order dated 12.9.1997, got Flat No. 801, Chitrakoot Apartment, Kanpur, owned by the com- pany transferred to himself and as such he has committed contempt. Dr. Singhvi has explained the circumstances under which the same was done and argued that there is no contempt of the order of the CLB. It would have been proper for the respondent to have apprised us of the position relating to this flat when we passed the order on 12.9.1997. Anyway, in view of the direction that we propose to give later in this order, we are not examining this issue further.
16. The main grievance of the petitioner is that she has been reduced from the status of an absolute majority to a minority, both by further issue of shares and by transfer of shares held in her name to the respondent. Conversion of majority into a minority has been held to be grave act of oppression by the Company Law Board in many cases, except in cases when such a conversion is incidental to mobilisation of funds for bona fide needs of company of brought about with the consent of the persons whose status is so converted. In the present case, according to the respon- dent, the petitioner consented to the issue of additional shares and she voluntarily transferred 1,600 shares for consideration and as such, there is no cause for complain- ing of oppression. The same is denied by the petitioner. Whether she consented to issue of further shares, and also for increase in authorised share capital of the company from Rs. 3 lakhs to Rs. 10 lakhs cannot be decided in the absence of relevant records of the company like minutes book, attendance register, etc. as, according to the res- pondents, these records had been forcibly removed by the petitioner on 2.7.96. The same is denied y the petitioner. The respondent relies on the annual return contain- ing the signature of the petitioner when the same was field with the Registrar of Companies. It is an admitted position that neither the Form No. 2 or Form No. 32 filed with the Registrar of Companies contained her signature. As far as the signature in the annual return is concerned, the petitioner claims forgery. In the absence of the records, we have to only come to a conclusion on whether the petitioner had consented for increasing the authorised capital and subsequent issue of further shares only from the prevailing relationship between the parties at that particular point of time. The authorised capital of the company was allegedly increased in an EOGM on 24.3.1995 and 3,200 shares were allegedly allotted in a Board meeting held on 27.3.1995. If the relationship between the parties had been cordial at that point of time, then, we have to presume that the petitioner had consented to these decisions. If not, then, the peti- tioner would have never allowed the control of the company being taken out from her. Unfortunately, there have been different versions of the status of relationship bet- ween them. For instance, according to the petitioner, in the present petition, matri- monial differences between the two started in the middle of 1994 and that the respondent deserted the family. However, she has averred that the respondent was living with her till 20.8.1996 before the matrimonial court. It is also stated by the respondent that the petitioner travelled with him to go abroad in September, 1994, and that his son, the 2nd petitioner, went abroad with the respondent in September, 1995. Unfortunately, no documents are available, whether they have been forcibly taken away by the petitioner as alleged by the respondent which is denied by the peti- tioner, or otherwise, to substantiate the stand of the respondent that the increase in authorised capital, further issued of shares, approval for registration of transfer of shares, etc., had taken place in meetings attended by the petitioner, and all decisions had the consent of the petitioner. The only document which contains the signature of the petitioner signifying the changes that had taken place in the share capital of the company is the annual return filed with the Registrar of Companies. The petitioner denies her signature on this document, which according to her, is a forged one. It is on record that the respondent, continued as the manager of Nikhil Rubber, a pro- prietary concern of the petitioner till the middle of 1996, and he also operated the joint bank account with the petitioner till that time. Further, the petitioner has not satis- factorily explained the entry of Rs. 1,60,000 allegedly paid by the respondent towards the consideration for 1,600 shares in the accounts of Nitin Rubber. Under these circum- stances, we can think of only two possibilities by which the majority control of the company went into the hands of the respondent. Even though the respondent has adduced the reason for estrangement between them on account of some incidence in Bombay in May, 1994, the petitioner has not adduced any reason in the petition other than stating that matrimonial differences had arisen in the middle of 1994. One possi- bility is that with the view to save the marriage, she could have agreed to the respon- dent's proposal for allotment of shares to him and also agreed for transfer of her shares to him and that she filed the petition after her attempts to save the marriage did not progress.
The other possibility is that, as alleged by her, the respondent had done everything behind her back especially when the reasons adduced by him for in- crease in the share capital of the company are not convincing and once he gained control of the company, filed the petition for judicial separation. The observations made by us in paragraph 12 would support both the possibilities. In view of this, we do not propose to go deeper into the merits of the matter other than taking congni- zance of the fact that the irreconcilable matrimonial differences between the parties have brought the affairs of the company to a stage that it is just and equitable that the company should be wound up. However, we find that by the time the disputes started, the turnover of the company was going up, and but for the disputes, the company could have prospered. Therefore, we propose to pass an order that would be equit- able to both the sides while protecting the interest of the company. The company is a family company promoted by the petitioner and the respondent. We are not impressed with the claim of the petitioner that, since she had 95% share capital, she should be given the charge of the company inasmuch as mere capital alone cannot ensure pros- perity of a company. Her averment that she joined the respondent as a promoter only due to the legal requirement of having two members does not carry much conviction. It is on record that the respondent has expertise in rubber technology while the peti- tioner has no such expertise. It is also on record that the major portion of the turnover of the company was out of the exports for which the respondent had obtained orders while visiting exhibitions abroad. Thus, even assuming that the respondent had not contributed to the capital of the company initially, his contribution of expertise for the benefit of the company cannot be ignored. the Company Law Board, in a proceed- ing under Section 397/398, exercise equitable jurisdiction and, therefore, all these aspects have to be taken into consideration in moulding the relief. According to us, the most equitable manner of disposing of this petition, in facts of this case, is to declare the petitioner and the respondent as 50% shareholder each considering the fact that one had contributed to the capital and the other to the expertise. Since there is ample evidence that due to serious matrimonial disputes, they cannot continue to- gether, it is imperative that one of them goes out of the company. Considering the fact that the petitioner has a business of her own (Nikhil Rubber), we consider it appropriate that the respondent who had been the manager of Nikhil Rubber and also an active director of the company should also have a business of his own; and accor- dingly, we direct the petitioner to sell her 50% interest in the company to the respon- dent at a value to be determined by an independent valuer. In the peculiar circum- stances of this case, we consider that this would be the most equitable solution even if somewhat unconventional.
Accordingly, we direct the parties to be present before us on 15 November, 2000, at 4.00 p.m. for appointment of a valuer mutually accept- able to both the sides for valuing the shares in the company and for further direction in regard to the valuation. Since the respondent would gain control of the company on working out this order, it is not necessity for us to look into the circumstances under which the flat in Kanpur was registered in the name of the respondent.
17. The petition is disposed of in the above terms subject to the appointment of a valuer on 15 November, 2000.