Judgment:
1. Late Mehboob Ramzan Khan was carrying on a sole proprietary concern known as Mehboob Production engaged in the business of film production.
He incorporated Mehboob Production Private Limited (hereinafter referred to as "the company") and acquired the business of Mehboob Production. Virtually, he held the entire paid up capital of 5000 shares of Rs. 100/- each. He had two wives, 3 sons and 3 daughters.
During his lifetime, he created 5 trusts for the benefit of his wife and children and transferred 4031 shares in the name of the 5 trusts and transferred the balance shares to his family members. Presently, all the shares have been distributed to and are held by 14 shareholders, all being the family members of the deceased. He expired in May, 1964. The present Board of Directors of the company comprises of his eldest son- Ayub Khan (the 2^nd respondent- Whole Time Director), his second son- Iqbal Khan (3^rd respondent-Managing Director) and his youngest son- Shaukat Khan (a consenting member in the petition - Whole Time Director). The company has a studio located in a land area of about 1,80,000 square meters.
2. This petition has been filed by Ms. Nazma M. Syed, daughter of the deceased, holding 429 equity shares of Rs. 100/- each constituting 8.58% of the paid up capital. 3 other shareholders, including Shaukat Khan, collectively holding 1299 equity shares constituting 25.98% shares have given their consent to the petitioner to file this petition. The main allegation in the petition relates to the decision of the Board of the company to undertake development of the property of the company jointly with one K. Raheja Universal Private Limited and the main prayer in the petition is that it should be ordered that any sale, disposal or development of the property of the company should be with the consent of the members in a general meeting by a special resolution.
3. Shri Sarkar, Sr.Advocate appearing for the petitioner's submitted: Originally, the company was a one man company. Presently, there are 14 shareholders, all being the family members of late Mehboob Khan. The main business of the company is to operate a film-studio, film production, distribution etc. and therefore the properties of the company have to be applied for purposes of the company's business.
However, the Managing Director of the company convened an EOGM on 15.3.2000 by a notice dated 21^st Feb. 2000 to transact the business of amending the object clause by a special resolution with the following "To sell, improve, manage, develop, exchange, lease, mortgage, dispose of, turn to account or otherwise deal with all or any part of the property and rights of the company". This resolution was proposed only with a view to construct residential and commercial premises, whereafter they were to be sold. Since construction and sale of the property was not a part of the business of the company, this resolution could not secure requisite majority and as such was not passed.
However, nearly 3 years later, in a Board meeting held on 10.2.2003, the 3^rd respondent, being the Managing Director initiated discussion on the development of the company's property jointly with a builder. In the agenda for the Board meeting on 17th March, 2003, the proposals for development of the property received from Lokhandwala Construction Industries Limited and K. Raheja Developers were discussed and notwithstanding the objection raised by Shri Shaukat Khan, the 2^nd and 3^rd respondents, being majority on the Board, decided to award the contract to K. Raheja Developers. He urged the Board that both the proposals should be circulated to the shareholders and their approval obtained by way of a special resolution. He further urged that since the main business of the company related only to film business, it should not engage in real estate development. He also pointed out that in March, 2000, the matter of development of the property was put before the general body as a special resolution. However, the majority directors declined to heed to the objections of Shri Shaukat. The majority directors decided to obtain the approval of the shareholders by an ordinary resolution.
4. The learned counsel further submitted: The agenda for the Board meeting to be held on 20^th Sept. 2003 included an item of consideration of the proposals for joint development received from several builders and placing the same before the shareholders. Shri Shaukat, by a letter dated 19^th Sept. 2003 pointed out that the statement made in the agenda was wrong as contained proposals received only from two builders and not several builders. He had also pointed out that he himself had received certain other proposals which should also be placed before the shareholders. In deference to this letter, a meeting was held on 8^th October, 2003 in which a proposal obtained by Shri Shaukat from M/S Sagar Builder was also placed before the Board meeting. In the meanwhile, around 11th/12th September, 2003, some of the shareholders lodged a requisition with the company in accordance with Section 169 of the Act to convene an EOGM to pass as a special resolution the following: "Resolved that any joint development project of the company's property with any builder/real estate developer should be passed by a majority of 75% of the shareholders as a special resolution". Even though, this notice was considered by the Board in a Board meeting on 20^th Sept. 2003, the Board declined to convene an EOGM on the ground that as per legal advice obtained by the company, the resolution proposed was not valid and lawful in terms of the Articles and the Act and advised the requisitionists to call for the said meeting if they so desired. This decision was communicated to the requisitionists by a letter dated 27.9.2003 -Annexure -13. There after, Shri Shaukat Khan convened the said meeting on 18^th Oct. 2003. In that meeting, the 2^nd respondent got himself elected as the Chairman and after voting was done by poll on the resolution and after collecting the ballot papers, the 2^nd respondent adjourned the meeting for 35 days without assigning any reason. Such adjournment was itself an act of oppression. Such an adjournment was also against the provisions of Article 21 according to which only with the consent of the meeting, the Chairman could adjourn the said meeting. This adjournment was absolutely malafide as the company, by that time had convened the 55^th AGM on 17th Nov. 2003 which fell within 35 days period and in the AGM the Board had proposed for passing an ordinary resolution to undertake development of the property jointly with K. Raheja Developers. However, this notice of convening the AGM was not placed before the Board but the 3^rd respondent in his capacity as the MD, issued the notice without approval of the Board and as such Shri Shaukat was not aware of this notice. Therefore, Shri Shaukat by a letter dated 24^th Oct. 2003 pointed out this illegality to the MD and cautioned that even if this resolution was passed by an ordinary resolution, the same would be null and void. This AGM was held on 17th Nov. 2003. In that meeting, even though, Shaukat Khan desired to be elected as chairman of the meeting, the other two directors did not allow the same and they announced that the resolution has been passed with majority voting. But for their undertaking before this Bench on 15.12.2003 that they would not enter into any agreement with the developer without the permission of this Bench, they would have done so. Passing of such a resolution, using the majority shares, in a family company is an act of grave oppression against the minority shareholders.
5. The learned counsel further submitted: The shareholding of the petitioner together with the consenting shareholders is about 36%' shares. They comprise of two daughters and one son of late Mehboob Khan while the respondents are two sons. One of the daughters of the deceased is not a party to the proceedings. Therefore, the dispute is between 3 children against 2 children. Late Mehboob Khan produced a film by name " Nazma" which is the name of the petitioner and this film was a great success financially. In terms of Mohammedan Law of Succession, a daughter gets 50% of what a son gets and that is why late Mehboob Khan gave to each of his daughters l/9^th share and to each son 2/9^th share of the shares in the company. Presently, there are 6 groups in the company and there have been disputes among themselves in regard to the affairs of the company right from 1992. The company is a family company and the parties cannot carry on together. The business of the company has become unviable due to the fire accident in the studio. Therefore for any decision relating to the affairs of the company, all the family members should agree and the question of minority or majority does not arise. However, the two respondents holding 2/3^rd of the shares in the company are planning to do whatever pleases them without the consent of the other 4 family members.
Imposition of the will of two sons on 4 other family members itself is an act of grave oppression. Since entering into real estate business amounts to change in the substratum of the company, there should be a special resolution. When the same was defeated, the respondents proposed ordinary resolution. By proposing to bring an outsider to develop the property, they are inducting an outsider into a family company. If the matter is placed for passing as a special resolution, the same would be defeated and there would be stalemate. But for the Muslim Personal law, each child would have got equal shares but the respondents do not recognize even the rights that the petitioner and the other consenting shareholders presently have and such rights should be protected. None of the present shareholders in the company had invested any money for the shares as they were all gifted by their father. Since the only asset of the company is the land, the petitioner's group should get 1/3^rd of the land as the land is divisible. As may be seen from the Explanatory Statement attached to the Notice for the EOGM on 17.11.2003, the respondents themselves have admitted that the business of the company has been going down gradually and that the company has 'nil' booking for the studio and as such the company was finding it difficult to meet its day to day expenses.
Therefore, it is clear that the company cannot go on, as even the respondents are not able to mobilize sufficient funds. Even with the amount of Rs. 60 lacs that the company received as insurance claim, it could not develop its business. Therefore the only option for the company would be to develop the land for raising finance which even though during the proceedings, the respondents have taken a stand they would not develop the land, they would be forced to do so later.
Further, neither of the respondents has the resources to buy out the shares held by the petitioner's group. Even though, the respondents are together now, earlier they had serious differences and presently they are suggesting valuation of shares only with a view to buy some time.
Therefore, the fair relief that could be granted is to divide the land in proportion to the shareholdings of the petitioner's group and hand over the same to her.
6. In support of his submissions, the learned counsel relied on the following cases:Needle Industries India Limited v. Needle Industries Newey (India) Holdings Limited (51CC 743): Even if the petitioner fails to make out a case of oppression, the court is not powerless to do substantive justice between the parties. Delstar Commercial & Financial Limited v. Sarvottam Vinijaya Limited (2001 3 CLJ 442): In this case, the Company Law Board has recognized the power of the Board to order division of assets of a company.
Bennett Coleman & Co. v. UOI (47 CC 92) : In this case, the Bombay High Court has held that in a petition under Sections 397/398 of the Companies Act, 1956, the powers of the Court are limitless and unrestricted as long as there is a nexus between the order that may be passed and the objects sought to be achieved by these Sections.
Debi Jhora Tea Co. Ltd. v. Bhomick (50 CC 771): In a proceeding under Sections 397/398 of the Act, the court is vested with ample powers to pass such order as it thinks fit and it can give appropriate directions which are even contrary to Articles and the provisions of the Act.
K.N. Bhargava v. Trackparts of India Limited (104 CC 611): In this case, the Company Law Board ordered division of the business of the company between the petitioners and the respondents.
Vijay Krishan Jaidka v. Jaidka Motor Co. Ltd. (1997 1 CLJ 268): In this case, the company being a family company, the Company Law Board divided the business between two groups. S. James Fredrick v. Minnie R. Fredrick (2000 1 CLJ 293): In this case, the Company Law Board directed distribution of the main assets of the company, being shares in the subsidiary, equally among all the shareholders in their own names notwithstanding the fact that the shares were held in the name of the company.
Loch v. John Blackwood Limited (1924 AC 783): It is the expectation of the shareholders that the business of the company would be conducted in accordance with certain principles of commercial administration defining the statute which provide some guarantee of commercial probity and efficiency. If the shareholders find that the conditions are deliberately violated, they can move the court on just & equitable grounds for winding up of the company.
7. Shri Tikku, Sr. Advocate appearing for the 2^nd respondent submitted: The petitioner has not come with clean hands. She had tried to induct an outsider into the company by sale of her shares to that outsider. In Sept. 1993, she had entered into an MOU with one Shri Karim A. Maredia for sale of all the 429 shares held by her in the company at a price of Rs. 1.6 lacs per share and also received an advance of Rs. 12.11 lacs. When she gave a notice to the company in terms of Article 28B for the aforesaid sale, since in terms of the Articles, the price of the shares was to be fixed by the auditors of the company, the auditors of the company fixed the price at Rs. 2000 per share and sought her consent for the price so that the same could be offered to the existing members of the company. However, she entered into a Supplemental MOU with Maredia on 21^st Dec. 1994 for sale of the shares at Rs 2.5 lakh per share, not withstanding the fact, that the company had valued the same at Rs. 2000 per share. She has not disclosed these MOUs in the petition and has suppressed the same from this Board clearly indicating that she has come to the court with unclean hands. Her conduct of agreeing to sell her shares in the family company to an outsider itself is a grave act of oppression by her against other members especially when the Articles stipulate for pre-emptive right to the existing shareholders who are all members of the family. Having entered into an agreement to sell the shares, the petitioner has no real interest in the company and as such cannot seek for any relief in the capacity as a member.
8. Referring to the various allegations in the petition, Shri Tiku submitted: Most of the allegations in the petition relate to the period before 1999 which have all been either redressed or settled. As of date, the only dispute is whether special resolution or ordinary resolution is required for undertaking joint development of the land of the company. While according to the petitioner any decision on joint development should have the approval of the general body by a special resolution, according to the respondents, ordinary resolution is sufficient. However, in view of the opposition from the petitioner, it has now been decided not to go in for development of the property and that the respondents would mobilize funds for improving the business of the company. Once this commitment has been given, nothing survives in the petition and as such this petition should be dismissed.
9. The learned counsel further submitted: The allegation of the petitioner that the business of the company is going down due to mismanagement is absolutely wrong to her own knowledge. In the year 2000, there was a fire in the studios due to which the studio was extensively damaged and as such could not be put to use resulting in the turnover of the company coming down. The very idea of development of the land of the company was to raise finance for running the business more effectively and profitably. It is wrong on the part of the petitioner to contend that there has been deadlock in the management of the company. Right from 1966, there have been 3 directors on the Board and there has not been a single occasion when there was a deadlock on any issue except on the issue of development of the land.
Even now, the Board is meeting regularly and decisions are being taken.
10. As far as the relief relating to division of the land as sought for by the petitioner is concerned, the learned counsel submitted: In the petition, the only relief sought is that any decision regarding sale or disposal or development of the land should be taken only in pursuance of the prior approval of the company by a special resolution passed in a general meeting. During the hearing, when the petitioner objected to the choice of Mrs. Raheja for development of the property, the Bench gave permission to the petitioner to suggest a better offer for development of the property. Instead of doing so, she filed an affidavit on 19.4.2004 and in that affidavit she has sought for division of the land in proportion to the shareholding of the petitioner's group. It is a settled law that no shareholder can claim a share of the property of a company. When the petitioner has not made out any case of oppression or mismanagement, the question of granting of any relief does not arise and no relief can be granted on the ground that the petitioner cannot get on together with the majority shareholders. Further, division of the land of the company would be completely prejudicial to the interest of the company as the business of the company, being film production, it requires extensive land and Exhibit -B to the affidavit of the respondents dated 11.7.2004 which is a descriptive plan of the land would indicate that the entire land is being used for studio purposes. The claim for division of the land of the company by the petitioner is completely in contrast to the averment made by her in para 6.1.1 of the petition. In that paragraph it is stated "The main business of the company is to operate film studio, film production, distribution, exhibition and activities germane to the said business. The property, assets and money of the company have to be applied for the purposes of the company's business to earn income from such activities". Again, in the same paragraph, it is stated "The land in question is an asset of the company to be utilized to carry on its business for generation of revenue. It is not the business of the company to sell land or construct premises". Having thus averred, now the petitioner cannot seek for division of the land which would be, in her own words in the petition, against the interest of the company.
Therefore, the prayer for division of the land should not be granted as in a proceeding under Sections 397/398 of the Act, the foremost consideration should be to protect the interests of the company. Since the petitioner has not made out any case of oppression or mismanagement in the affairs of the company, the petition should be dismissed.
However, if the petitioner feels that she cannot get on together with the majority shareholders, either the company or the other shareholders are willing to purchase the shares held by her and her group at a fair value to be determined by this Board.
11. The learned counsel relied on the following cases to substantiate his arguments:Maharashtra Power Development Corporation Ltd v. Dabhol Power Co.
Ltd. (2003 56 CLA 263 Bom.): In this case, the court has held that unless the petitioner proves that the affairs of the company are conducted in a manner oppressive or in a manner prejudicial, no order under Sections 397/398 can be passed.Hanuman Prasad Bagri v. Bagress Cereals Pvt. Ltd. (2001 33 SCL 78-SC): No relief can be granted unless it is established that the facts warrant winding up of a company on just and equitable grounds.
Praful M. Patel v. Wonderwell Electroles Pvt. Ltd. (2003 56 CLA 7 CLB): In this case, it has been held that in a petition under Sections 397/398, the interest of the company is paramount and with a view to protect its interest, one of the directions that is normally given is that one group should go out of the company and normally the minority group which is alleging oppression is directed to go out of the company. Dwija Bandhu Sarkar v. Dependra Nath (2004 60 CLA 141 CLB): In this case also, the Company Law Board observed that the provisions of Sections 397/398 being alternate to winding up, one of the most important aspects to be considered in granting relief is that the survival of the company is ensured by protecting its interest and as such one of the groups should be directed to go out of the company on receipt of fair consideration for its shares.Kilpest Pvt. Ltd. v. Shekhar Mehra (1996 23 CLA 173 SC): In this case, the Supreme Court has held that the submission that a limited company should be treated as a quasi partnership should not be easily accepted as the shareholders have voluntarily and knowingly elected to bind themselves by the provisions of the Companies Act.
Mrs. Prem Lata Bhatia v. UOI (2004 58 CLA 217 Del.): A company is a separate juristic person and as such is entirely different from the shareholders.Vinod Kumar Mittal v. Kaveri Lime Industries Ltd. (2000 36 CLA 174 CLB): The normal test to examine whether there is oppression or not is to find out as to whether majority shareholders, by strength of their shareholding, do things which are unfairly prejudicial, wrong, burdensome, harsh and there is an element of lack of probity and fair dealing etc. in relation to the interests of minority shareholders. As long as the act is bonafide and is in the interest of the company, then, even such acts affect the interest of shareholders, no one can claim of oppression.KRS Mani v. Anugraha Jewellers Ltd. (2004 61 CLA 52 Mad): The petitioners should come to court with clean hands and if they do not do so, they are not entitled to any relief against oppression & mismanagement. It is the duty of the courts to recognize the corporate democracy in managing its affairs by the company and the court should not restrict the powers of the Board of Directors.
K.S. Motilal v. Kasimaris Ceramique Pvt. Ltd.(2003 54 CLA 31 Mad): It is well settled legal position that there is nothing to warrant the assumption that a shareholder has any interest in the property of the company. It is a juristic person and is entirely distinct from the shareholders. Therefore, the petitioners cannot claim proportionate share in the land of the company.EIH Limited v. Mashobra Resorts Ltd. (2003 53 CLA 155 CLB): No shareholder can claim any right over the property of the company and cannot appropriate the assets of the company and the only manner in which a shareholder can share the assets of the company in the case of winding of the company and the surplus, if any, remaining after discharging the liabilities of the company.Devaraj Dhanram v. Fire Bricks & Potteries Pvt. Ltd. (2003 52 CLA 151): When it is in the knowledge of the petitioners that the company has ceased its operations and the only valuable assets of the company is the land, we do not consider that the attempts made by the respondents in developing this land for alternate users or leasing out of the same for earning revenue for the company could be considered as either mismanagement or oppression.
12. Shri Khursid, Sr. Advocate appearing for the 3^rd respondent submitted: This petition is not maintainable and deserves to be dismissed. The petitioner has not been able to establish any act of oppression and mismanagement in the affairs of the company. Further, even in equity, the petitioner is not entitled for any relief she had not disclosed in the petition two MOUs that she had entered into with Mr. Karim Maradia for sale of her shares. 'By suppressing the MOUs that she had entered into with Maradia to sell her entire shareholding, she has come to the court with unclean heads and by making the prayer for division of the land of the company, the oblique purpose of this petition is evident. It has been held in Re Bellador Silk Limited (1965 1 AER 667) that a petition which is launched not with the genuine object of obtaining the relief claimed, but with the object of exerting pressure in order to achieve a collateral purpose is an abuse of process of the court and as such the petition deserves to be dismissed.
Even the Company Law Board has held in Ramesh Thakur v. Sea Side Hotel Private Limited (100 CC 117) that the settled principle of law in a proceeding under Sections 397/398 of the Act is that the relief sought should be to put an end to the acts complained of and not for any oblique purpose. In Vijaya Krishan Jaidka v. Jaidka Motor Company Limited (1997 1 CLJ 268), the Company Law Board has held that relief could be considered in favour of the petitioners only if they had approached the court with clean hands. In Srikant Datta v. Sri Venkateshra Real Estates (72 CC 211), the Karnataka High Court has held "Thus, even if the directors arc majority shareholders have been guilty of improper or irregular conduct, so that there is prima facie case for relief, it will be refused if the real purpose of the petitioner is to obtain payment of a debt owed by the company or to force the directors to accept his views as to the ways in which the company business should be managed". Similar principle has been stressed in Nurcombe v.Nurcombe (1985 3 CLJ 163-CA) by observing that it is pertinent to remember that a minority shareholders action in for is nothing mere than a procedural device enabling the court to do justice to a company controlled by miscreant directors or shareholders. Since the procedural device is evolved so that justice can be done for the benefit of the company, whoever comes forward to start the proceedings, must be doing so for the benefit of the company and not for any other purpose. Relief sought for in a subsequent affidavit cannot go beyond the main relief sought in the petition. It is on record that the petitioner is has not objected to the development of the land but is only questioning the choice of the developer. The respondents proposed development of the land only for the benefit of the company.
It has been held In Jermyn Street Turkish Baths Limited (1971 3 AER) that any legitimate act done in good faith in the interest of the company cannot be considered to be an act of oppression. If the petitioner is keen on division, she should seek for winding up of the company and cannot seek such a relief in a petition under Sections 397/398 of the Act. Even in the case of winding up, she cannot demand a portion of the land. If the land is divided and handed over to her, the land will go to Mr. Maradia with whom she had already entered into an agreement to sell her shares. A minority cannot dictate terms to the majority by holding a gun on their heads. The only object in a proceeding under Sections 397/398 of the Act is to protect the interest of the company and in the present case, the entire film industry respects Late Mehboob and the studios established by him. It is wrong to contend that the respondents would go for development of the land at a later date as they are confident of raising finance for the company on their own. Any solution should be on economic grounds and cannot be on emotional grounds. The said Maradia has issued a public notice in Times of India, Mumbai on 22^nd March, 2003 (Annexure -GG of reply of R-3) wherein he has cautioned the prospective developers that any development would be subject to his rights contained in the MOUs. This would indicate that it is Mr. Maradia on whose behalf the petitioner has filed this petition. However, if the petitioner is keen of having a share of the property, let her agree for development of the land and the respondents are willing to give her a portion of the developed property so that not only the company will be able to raise finance for its business, the petitioner also can have a share of the developed property. The respondents cannot be fairer than this. The respondents are apprehensive that if a portion of the land is given to the petitioner, it may ultimately be handed over to Mr. Maradia against whom a number of criminal charges are pending. An outsider cannot have a greater say than the family members. Further, it is also not known whether the consenting shareholders have also agreed to sell their shares to Maradia. If the petitioner is keen on division, let her go to a civil court for partition. In the public interest also, the company should continue as such as Mehboob Studios is a part of India's Cinema history. Further, the question of partition of a company may arise only in a case of equal shareholding, joint management etc. From the demand of the petitioner that the land should be divided, it is clear that be does not want to continue with the company and since she had already decided to sell her shares, she should accept the offer of the respondents that they would buy her shares instead of demanding a portion of the land. The only reason she wants division is to hand over the land to Mr. Maradia which is not acceptable to the respondents.
Further, if the land is divided, its economic value will come down and will also be beset with various regulatory restrictions. The main object of filing the petition, as is evident from the arguments of the learned counsel for the petitioner, is to seek division of the land and not for the purposes of redressal of any of the grievances. As a matter of fact, the main objection/grievance of the petitioner relating to the development of land no longer survives as the respondents have undertaken not to proceed with the development of the land. However, with the view to bring peace, the respondents are willing to purchase the shares held by her group. It is on record that she had already decided to sell the shares to an outsider and if it is so, there can be no objection as to why she should not sell the shares to the respondents who are family members for a fair consideration. The outsider to whom she has agreed to sell the shares is not acceptable to the majority shareholders. The respondents would like the company to function and flourish. By demanding a part of the land, it is the petitioner who is acting in an oppressive manner towards the majority who arc interested in continuing with the business of the company established by their father. Further, in law, no shareholder can demand partition of the properties of a company. If the demand of the petitioner is conceded, the same is likely to trigger off a domino effect wherein the remaining shareholders also can seek for division in proportion to their shareholdings. For the purposes of the business of the company, the entire land is required and the respondents proposed development of the land only to raise Finance to develop the business of the company. It is not for the petitioner to decide what remedy should be granted. If she wants a particular remedy, the same should be justified and established. Earlier, her grievance was that she was not offered a fair price by the shareholders and now when they are prepared to do so, she should accept the said proposal in case she does not want to continue in the company.
13. In rejoinder, Shri Sarkar submitted: It is incorrect to say that division of land would result in the other members demanding further division. Since, out of the 6 groups of shareholders, 3 are with the petitioner and one being dormant, it is only the 2 respondents that could demand further division and is on date, they are together.
Further, an issue cannot be decided on pure speculation that in future there could be probable claims of further division of the land. The respondents have not stated as to how the division of the land would be prejudicial to the company. In their affidavit dated 11.7.2004, the respondents had given a proposal for development of the land from which it can be seen that out of 1.8 lakh sq. mtrs., the requirement of the studio would be only around 50,000 sq. mtrs. The share of the petitioner of the entire area would be roughly 60,000 sq. mtrs leaving a balance of 1.2 lakh sq. mtrs with the company which is more than twice of the land proposed to be retained for the studios. Therefore, the claim that the division of land would be prejudicial to the interest of the company is unfounded. The petitioner is suggesting division of the land only with a view to put an end to the dispute once for all. Once the division takes place, the respondents would be free to not only carry on the business of the company but also develop the balance land. Valuation of shares is not only time consuming, the value arrived at could also be challenged. The division is not only quick and fast, it also cannot be challenged. The petitioner gives an undertaking that she would live in the area of the land given to her so that the apprehension of the respondents that the land would be handed over to an outsider is taken care of. It is incorrect to say that there has been no case of division of properties of the company in a proceeding under Sections 397/398 of the Act. In T. Ramesh U Pai v. The Canara Land Investments Ltd. (2004 55 SCL 616) and in T.O. Aleyas v. Cent Merry's Hotels Pvt. Ltd. (Manu/CL/0034/2004), the Company Law Board itself had directed division of assets of the company.
14. I have considered the pleadings and arguments of the counsel. Even though, the petition contains a lot of allegations pertaining to events from 1990 onwards, the main allegation as argued by the learned counsel for the petitioner related to the issue of development of the property of the company. In respect of other allegations, either they have been redressed or other remedial steps have already been taken except in respect of the MOUs for sale of shares of the petitioner to Maradia.
Any grievance of the petitioner relating to the same cannot be gone into at this point of time and as a matter of fact, no relief in relation to the same has been sought for in this petition. In para 13 of the petition, the petitioner has highlighted certain disputes among the directors to urge that there is deadlock in the management of the company. In reality, there is only one allegation in the petition which was also argued during the hearing and the main relief sought in the petition also relates only to this allegation.
15. First, it is to be examined as to whether the decision of joint development of the land could be considered to be an act of oppression or mismanagement. The admitted position is that there was a major fire accident in the studios of the company resulting in heavy damages due to which the studios could not be operated profitably. The need for finance to develop the business of the company is not in dispute. Any decision of the Board to mobilize funds for the benefit of the company could never be considered either as an act of oppression or mismanagement. This is what this Board has held in Firebricks case(supra). As a matter of fact, it is not the case of the petitioner also that there should not be any joint development of the land. I find from the records that, in so far as the development of the land of the company is concerned, none of the parties to the petition has been consistent in his/her view. In the minutes relating to the EOGM held on 15.3.2000, it is recorded: (Annexure -8), "Mrs. Najma Saiyed said that the company needed to improve its performance and profitability. The company must make quantum leap forward and it was essential to develop the valuable land, assets of the company. Mr. Ayub stated that he was not interested in any discussion on the resolution but demanded an immediate poll. Mr. Iqbal stated that he wanted the status quo to continue and was against the resolution. Mr. Shaukat said that although no special resolution was required for a private limited company under the Companies Act, it was in the best interest of every shareholder to allow discussion on the proposed resolution. He further stated that even the Memorandum of Association of the company allowed the development and improvement of the company's land". From these minutes it is evident that the petitioner and the consenting member wanted development of the land while the respondents were opposed to it.
However, in 2003, when the respondents proposed joint development, the petitioner and the consenting member opposed the same as is evident from the fact that they demanded a special resolution. The reason for demanding a special resolution is not that they opposed joint development but they were opposed to choosing a particular developer as is evident from the averment of the petitioner in paragraph 7.5 of the petition, wherein she has averred "The minority members and the director were never against the proposal to consider development of the property by the company jointly with a builder.
However, they insisted that firstly any such decision by the Board should be taken after due consideration of various proposals by comparing pros and cons thereof and the benefits that would accrue to the company and its shareholders..... Consequent to this bonafide desire of the minority, the majority kept on insisting with a malafide intention that the contract for the development of the property be awarded only to K. Raheja Developers. The petitioner submits that this was done by the majority with the evil design of reaping the benefits of awarding the contract to K. Raheja Developers which is evident from the fact that in spite of greater benefits of awarding the contracts to other developers having been pointed out, the majority stuck to the stand of awarding the contract to K. Raheja Developers by suppressing the minority by an ordinary resolution". From this averment, it is clear that the petitioner recognizes the need to develop the land for the benefit of the company, but is only opposed to choosing a particular developer. This is the reason, why, during the hearing on 15.12.93, I suggested to the learned counsel for the petitioner that his client may find out a developer with a better offer. Instead of doing so, she filed an affidavit praying for division of the land in proportion to her group share holding. From that time onwards, the entire argument of the counsel for the petitioner turned towards division of the land. The main prayer in the petition that any development of the land should be with the consent of the members by a special resolution in a general meeting was given up and as a matter of fact the issue of development of land itself became a non issue as the counsel for both the respondents gave an undertaking before the Bench that their clients will not undertake development of the land and they will mobilize funds on their own for the business of the company.
However, the learned counsel for the petitioner expressed his apprehension that the respondents may once again propose development of the land at a later date and therefore to put an end to this dispute once for all, the petitioner should be given a portion of the land in proportion to her group shareholding.
16. The learned counsel for the petitioner relying on Needle Industries case submitted that even if the petitioner fails to make out a case for oppression, suitable order can be passed to do substantive justice between the parties. It is true that in a number of cases, this Board has done so keeping in mind that a proceeding under Sections 397/398 is alternative to winding up of company and as such any relief granted by this Board should be in the interest of the company. According to the learned counsel for the petitioner, since there is no mutual (SIC) and confidence between the parties and to put to an end to the disputes, the land should be divided and petitioner's group being a portion of the land in proportion to its shareholding. To the proposition that this Board has the power to do so, he relied on Trackpart of India, Jedka Motor and James Fredrick, Canara Land and St. Mary's cases. The facts of these cases are different from the present case and therefore, none of these cases has any relevance to the present case. In all these cases, the allegations in the petitions were manifold and the Board came to the conclusion that mere redressal of the grievances would only lead to either deadlock in the management or would be of only a temporary nature. In the present case, there is only one substantive allegation, which too has become a non issue after the respondents undertook not to proceed with the development of the land. Further, in all these cases, they were either equality in the shareholding or equal representation on the Board or both. In the present case, there is neither equality in the shareholding nor in the Board. Even though, there appear to be some differences in the Board, no deadlock situation is likely as the Board has 3 directors. In Trackpart of India case, there were two manufacturing divisions and each one was being managed independently by one group and each group held more or less equal percentage of shares in the company and therefore a formal division was ordered. Same is the case with Jedka Motor Company case also. In James Fredrick case, the shares held by the subsidiary were ordered to be distributed among all the shareholders equally. In the present case, the petitioner demands division only for her group. In the case of St.
Marry's Hotel case also, since the family had a hotel and a resort business distinct from each other, division of the businesses was ordered. The only case wherein division of the assets of the company was ordered is that of Canara Land Investment Ltd. In that case, there were only two distinct groups, the respondents holding 52% and the petitioners 44%. In the present case, the main ground for seeking division of the land is that the petitioner's group, consisting of one son and two daughters of late Mehboob Khan, holds nearly 1/3^rd of the shares and they are together. I find from the records that the parties to the proceedings change sides periodically. For instance, in para 13.1.1 of the petition, the 2^nd respondent filed a police complaint alleging that there was a serious fight between the 3^rd respondent and the consenting member. However, in November, 1993 the 2^nd respondent and the consenting member made complaints against the 3^rd respondent (Para 13.1.3). In December, 1998 the consenting member complained against the 2^nd respondent (13.1.5). There is nothing in record considering the fact that the consenting member was also on the Board when the Board proposed a consideration for the shares of the petitioner at Rs. 20,00, per share, when she desired to sell the shares to Maradia, when the consenting member became a part of the petitioner's group. It appears to me that parties change sides according to their convenience and there is no long standing or permanent groupism in the company. Even though the two respondents are together in the present proceeding, as is seen from paragraph 13 of the petition, there seems to be differences between them also. From paragraph 8.5 of the petition, I also find that there are certain disputes regarding 233 shares held in the joint names of the 2^nd respondent and 6^th/7^th respondents and the matter is pending before Bombay High Court. One sister is not represented at all. Thus, it is evident that there are no (SIC)(line missing) of the cases cited by the learned counsel (SIC) on the examiner. In such (SIC) circumstance, as rightly pointed out by the learned counsel for the respondents, the likelihood of other shareholders demanding similar division cannot be ruled out, which would result in fragmentation of the valuable asset of the company. Therefore the facts of the present case are distinct from the cases relied on by the learned counsel from the petitioner except that all these cases indicate that a suit to be ordered for parting of ways can be made in a proceeding under Sections 397/398. Another important aspect to be noted is that in all these cases, this Board decided the method of parting of ways, unlike the present case, wherein the petitioner desires a particular method of parting of ways.
17. Further, the learned counsel for the respondents cited the decisions in Bellador Silk Limited, Sea Side Hotel, and Turner Morrison cases to the proposition that a petition for a collateral purpose should nor be entertained. I agree with this proposition. It is on record that the petitioner decided to part ways with the company by sale of her shares to Maradia as early as in 1993 and as a matter of fact, increased the consideration for the shares from Rs 1.6 lakhs to Rs. 2.5 lakhs per/ share after the company communicated the price of Rs. 2000 per share. Now, when the respondents are offering to pay the consideration for the shares on the basis of a valuation made by an independent valuer, the petitioner is insisting on division of land.
Taking into consideration the public notice issued by Shri Maradia as pointed out by the learned counsel for the respondent, and the fact, that inspite of repeated allegation by the learned counsel for the respondents that the present petition is at the behest of Maradia, there was no denial by the petitioner other than stating that no outsider would be involved, I am of the view that this petition is not a bonafide one but has been filed for an oblique motive.
18. The learned counsel for the respondents cited a number of cases to the proposition that no shareholder can claim a share in the properties of a company and to be fair to Shri Sarkar, he also accepted the said proposition. However, he repeatedly contended that the company is a family company and the shares were distributed on the basis of Muslim Law, and therefore, when 3 out of the five contesting children of Late Mehboob Khan desire division of the land, the same could be ordered.
According to him the numerical strength is more relevant than the shareholding strength. I am unable to accept this contention of numerical strength, which is never recognized in Company Law except in case of voting by show of hands. Further, as on date, the shareholding is not restricted only to the children of Late Mahboob. There are 14 shareholders in the company. Therefore, the only contention that could be accepted is that in terms of Section 402 of the Act, this Board has the power to order division of the properties of the company if the circumstances so warrant in the interest of the company and the shareholders. However, I do not find that the circumstances in the present case warrant such a division. First at no time before she filed the affidavit dated 19.4.2004, she had raised this issue nor had indicated that she was against the development of the land by the company. Her support to the development of the land is evident from the minutes of the EOGM and also from her averment in the petition as quoted earlier. Secondly, as late as in October, 2003, the consenting member holding himself also forwarded a proposal to the Board from M/S Sagar Builders for joint development of the property. Even during the hearing, not a single argument was advanced as to how and why the development of the land by the company would be against the interest of the company. It appears that the main objection of the petitioner related to selection of M/S Raheja to develop the land as proposed in the AGM. Anyway once the respondents have given an undertaking that they will not proceed with the proposal for joint development of the property, the main grievance of the petitioner stood redressed and to ensure that the respondents do not initiate such a proposal in future, the petitioner could have asked for some protective/preventive directions. Instead, the learned counsel for the petitioner urged on division of land and pointed out that even after division, there would be adequate land for the purposes of the company. Such an argument would be relevant only if the petitioner could justify the division of the land, which for the reasons I have already enumerated, has not been done. Further, I am also in agreement with the contention of the learned counsel for the respondents that the company, having been engaged in film production, needs larger area of land. Even otherwise, if the development of the land is to take place, more profitable development can take place on a larger area of land than smaller area.
Thus both for the purposes of carrying on the business of the company and also for development of the land, possession of larger area of land would have better economic value for the company and therefore beneficial to the interest of the company and all the shareholders also.
19. Thus, for the reasons that the division of the land would be against the interest of the company as its economic value would come down, that any division as sought for by the petitioner would lead to further such demand from other shareholders resulting in fragmentation of the valuable land of the company, and that the petition having been filed for an oblique purpose and as such is not a bonafide one, and that the respondents have undertaken not to develop the land of the company, no relief can be granted to the petitioner and accordingly, I reject the prayer of the petitioner for division of the land. However, since the respondents themselves have expressed their willingness either to purchase the shares held by the petitioners' group on a valuation to be made by an independent valuer or give her proportionate share in the developed property as and when it is developed, she is at liberty to choose any of these two alternatives. In case, she is willing for sale of her group's shares, she should file an application before this Bench for appointment of an independent valuer and for consequential directions. In case she chooses to share the developed property, she should communicate the same to the respondents. This should be done within a month from the date of this order. However, in case, she does not choose any of the two alternatives and to ensure that the respondents do not enter into any agreement for development of the property without the consent of the shareholders, I direct that any proposal for development of the property with any builder should be approved by the general body by way of a special resolution. I am making this stipulation only because the company itself, at the first instance, decided to obtain the consent of the general body by way of a special resolution in the EOGM held on 15.3.2000.
20. The petition is disposed of in the above terms with no order as to cost.