Judgment:
1. The petitioners claiming to collectively hold 87.5% shares in the company, have filed this petition alleging that the 2nd and 3rd respondents are guilty of acts of oppression and mismanagement in the affairs of M/S Drishti Media Private Ltd. (the company) and have sought for directions to the 2nd and 3rd respondents to refrain from directly acting or doing any acts on behalf of the company without authorization by the Board, directions to the 4th and 5th respondents to allow operation of the bank accounts as per the decision of the Board on 27.4.2004, for a declaration that two forms No. 32 and a Form No. 18 filed on 27.9.2004 as null and void and also for a direction to the 2nd and 3rd respondents to deposit all the money collected by them on behalf of the company.
2. The facts, as alleged in the petition are that the company was incorporated on 2nd December, 2002. The company is engaged in the business of telecast of channels for entertainment and news in the city of Jodhpur. The first directors of the Board were 2nd and 4th petitioners and 2nd and 3rd respondents. The paid up capital of the company is Rs. 10 lacs comprising of 1 lakh shares of Rs. 10 each, of which the petitioners collectively hold 87900 shares and the balance by the respondents. One Shri Charan Singh Jodha was appointed as an additional director in a Board meeting held on 31.3.2004. The quorum for the Board meeting is 3 directors or 1/3rd of the total number of directors. The company entered into a contract with one M/S Reel Entertainment wherein the 7th respondent, being the son of the 2nd and 3rd respondents, was a partner, authorizing them to telecast entertainment channel of the company for a period of 4 months at a fee of Rs. 1 lac per moth payable in advance. Similarly, on 14.1.2004, the company entered into a contract with 2nd respondent authorizing him to telecast the news channel of the company for a period of 6 months at a fee of Rs. 1.5 lacs per month for the first two month and Rs. 2 lacs per month for the subsequent 4 months. Both of them did not pay the fee in full and as of now a sum of Rs. 1.5 lacs and Rs. 5 lacs is outstanding from Reel Entertainment and 2nd respondent respectively. To get over and circumvent their obligations, the 2nd and 3rd respondents, along with the 7th respondent, decided to take complete control over the affairs of the company. On 27.9.2004, the 2nd respondent filed a Form No. 32 intimating the appointment of the 6th respondent as a director effective from 10.2.2004. No Board meeting was held on 10.2.2004 nor any such appointment was ever made. Further, the 2nd respondent also filed another Form No. 32 intimating the vacation of office of the petitioner directors and also of Shri Shiv Charan Singh Jodha in terms of Section 283(1)(g) of the Act and appointment of 7th and 8th respondents as directors on 1.9.2004. The petitioner directors never received any notice for any of the Board meetings allegedly held and not attended by them. By illegally removing the petitioner directors representing over 85% shares of the company and appointing their own nominees, the respondents, holding less than 15% shares in the company, have taken over the entire control of the company. In addition, they have also published a news in the newspaper about the removal of the petitioner directors and have also advised all the customers to send remittances to the account opened by them with the 5th respondent. They have also informed the 4th and 5th respondents, being the bankers of the company, not to allow the bank operations by the petitioner directors. Over a sum of Rs. 20 lacs is now kept frozen in the Bank accounts. This has created a stalemate in the operation of the company. With a view to expand the business of the company, the petitioners have entered into an agreement with one M/S Mass Printers Private Ltd. on 23.8.2004 to sell the rights title, interest and licenses of the company for transmission and operation of cable network within the territory of Jodhpur for a sum of Rs. 75 lacs and have also received Rs. 11 lacs as advance. Their proposal is to expand the business of the company in other parts of the State of Rajasthan.
Therefore, unless the respondents are restrained from interfering with the petitioner directors and the Forms No. 32 filed with ROC are declared as null and void, the business of the company will be adversely affected. 3. A common reply has been filed by respondents 1,2,3,7 and 8. The summary of the reply is as follows: The petitioners claim 90% shares in the company on the basis that the 3rd respondent had transferred 20000 shares to the petitioners. She never did so and the transfer instrument relied on by the petitioners is a fabricated and forged one. The 3rd respondent has already lodged a compliant with the police on this issue. Thus, the petitioners have come with unclean hands. Further, even though the 2nd and 4th petitioners had ceased to be directors effective from 1.9.2004, they have illegally transferred the rights of the company to Mass Printers Private Limited. Even the consideration agreed to of Rs. 75 lacs is much lower than the value of the assets and the net worth of the company which has been assessed as more than Rs. 9 crores. Therefore, this petition should be dismissed, declaring the sale made by the petitioners as null and void. It is the 2nd respondent who is the brain behind the entire business of the company and due to his efforts the company is having an excellent reputation in Jodhpur. It is the petitioners who have illegally transferred 20,000 shares of the respondents to themselves and they have also sold the valuable rights of the company. The 2nd respondent, being a professional journalist, is a well know media person in the State of Rajasthan and at the request of the 2nd petitioner, he joined the 2nd petitioner to promote the company. In other words, as one of the promoters of the company, the 2nd respondent has put in a lot of time and efforts in the growth of the company. Originally, the 2nd and 3rd respondents collectively held 30000 equity shares while the petitioners held the balance 70000 shares. Till Feb. 2004, the 2nd respondent was solely conducting the affairs of the company while the 2nd and 3rd petitioners did not take any interest. They did not attend Board meeting. Therefore with a view to induct one more director, notice was issued to the petitioners on 1.2.2004 for a Board meeting on 10.2.2004. Neither of the petitioners nor Shri Shiv Charan Singh Jodha attended the said meeting. In that meeting the Shri Radha Krishan Trimali was inducted as a director and accordingly Form No. 32 was filed. By a notice dated 24.2.2004, Shiv Charan Singh Jodha demanded from the respondents that they should pay Rs. 1.5 lacs and Rs. 5 lacs under the alleged contracts. They never entered into any contract with the company and as such the question of payment does not arise. When the respondents sought for share certificates in relation to 30000 shares held by them, they were informed that share certificates had already been delivered to them as and when shares were allotted. By a letter dated 19.5.2004, it was also alleged that the 3rd respondent had sold 20000 shares for a consideration of Rs. 2 lacs to the 4th petitioner. The 3rd respondent never sold these shares and therefore a police complaint was lodged. But the police did not take any action because of the influence of the 1st petitioner who belonged to Rajasthan Administrative Service. The respondents convened a Board meeting on 28.5.2004 which was also not attended by 2nd and 3rd petitioners as also Shiv Charan Singh Jodha. Since there was a rumour in the markets that the petitioners were planning to dispose of the rights of the company, the 2nd respondent convened a Board meeting on 27.8.2004 to discuss this issue. Petitioners did not attend this meeting. The next Board meeting on 1.9.2004 was also not attended by the petitioners and accordingly the Board passed a resolution that the petitioners had vacated the office of directors in terms of Section 283(1)(g) of the Act. In their place, other respondents were appointed as directors and it was also decided to shift the registered office of the company. Relevant Forms Nos. 32 and 18 were filed on 27.9.2004.
However, even though they are not directors of the company, the petitioners illegally entered into an agreement with Mass Printers Private Ltd. The main reason for filing the petition is that the petitioners are Apprehensive that the respondents might initiate proceedings against the petitioners for having illegally transferring the rights of the company to M/S Mass Printers Private Ltd and as such the petition should be dismissed.
4. I have considered the pleadings and arguments of the counsel. When the petition was heard on 6.6.2005, it transpired that the main complaint of the petitioners was in relation to the composition of the Board of directors. While the petitioners had not only complained about the alleged cessation of office, they also complained about induction of certain directors. Therefore, with a view that the composition of the Board of directors should be decided by the shareholders, I passed an order directing the company to convene an EOGM on 30.6.2005 for election of 3 directors. However, this order was taken on an appeal to Rajasthan High Court, before which both the parties agreed for setting aside the said order and accordingly the order was set aside and the matter was remanded for deciding on merits.
5. The learned Counsel for the petitioners submitted: The main grievances of the petitioners relate to their alleged vacation of office of directors by the 2nd and 3rd petitioners and also of Shri Jodha. In terms of Article 54, the quorum for Board meetings is thee directors or 1/3rd of the total directors which ever is higher.
Admittedly, on 10.2.2004 when the 6th respondent was allegedly appointed as a director, there were 5 directors on the Board. On that day, to the knowledge of the petitioners, no Board meeting was held and even if one had been held, in the absence of the two petitioner directors and Shri Jodha, there could not have been a quorum for appointment of the 6th respondent as a director. Therefore, his appointment as a director is illegal and any decision taken in any other subsequent Board meeting/s with his participation forming the quorum is also illegal. The alleged vacation of the petitioners and Shri Jodha is nothing but a concocted story. According to the respondents, petitioners ceased to be directors as they did not attend the Board meetings on 28.5.2004, 27.8.2004 and 1.9.2004. Neither the petitioner directors nor Shri Jodha received notices for any of these meetings. Further, since the appointment of the 6th respondent was illegal, there was no valid quorum on 1.9.2004 for appointing the other respondents as directors. Therefore, a declaration should be made that the Board consists of only the 1st and 2nd petitioners, 2nd and 3rd respondents and Shri Jodha as it existed before appointment of the 6th respondent. In so far as transfer of 20000 shares of the 3rd respondent to the 6th respondent is concerned, she had transferred the shares for a consideration of Rs. 2 lacs on 21.8.2003. The same is evident from the copy of the transfer deed at Annexure-B and also from the annual return filed on 26.12.2003 wherein the transfer has been shown to have been effected on 21.8.2003. This annual return has been signed by 2nd respondent. The amount of Rs. 2 lacs was paid by way of draft, a copy of which is enclosed at Exhibit RR-III in the rejoinder. Therefore, the allegation that the 3rd respondent had not transferred the shares to the petitioners is wrong. By freezing the bank accounts, the respondents have brought the company to a standstill and for the last 20 months, the petitioners are unable to carry on the business of the company because of this. They sold the rights and licenses of the company only with a view to develop the business of the company in other areas of Rajasthan. The purpose of changing the registered office by the respondents was to collect all the dues to the company in that address and not for any other business purpose. Therefore, considering the facts of the case that due to the above acts of oppression and mismanagement, the business of the company has come to a standstill, the reliefs sought for should be granted.
6. Dr. Ashok Soni, Advocate, appearing for the respondents submitted: The petition is not maintainable as there are no acts of oppression and mismanagement in the affairs of the company. It is the petitioners who have acted against the interests of the company by selling the valuable rights of the company without the approval of the Board for a paltry sum. As far as transfer of 20000 shares from 3rd respondent to the 4th petitioner is concerned, police complaint has already been lodged and the petitioner directors and Shri Jodha, vacated their office by operation of law under Section 283(1)(g) of the Act and therefore other respondent directors were appointed in their place. In Bagree Cereals Pvt. Ltd. v. Hanuman Prasad Bagree 105 CC 465 and Hanumar Prasad Bagree v. Bagress Cereals Private Ltd. it has been held that no petition under Section 397/398 of the Act would lie on the grounds of allegations of removal as a director and/or change of registered office of the company as these acts would not justify winding up of a company on just and equitable grounds. The only remedy available on these allegations is to file a suit. Relying on Sangram Sinh P. Gaekwad v. Shanta Devi P. Gaekwas , the learned Counsel submitted that in case of violation of statutory or contractual rights, the only remedy is a civil suit and if the pleadings or the evidence adduced in the proceedings remains unsatisfactory to arrive at a definite conclusion of oppression or mismanagement, the petition must be dismissed. He also relied on Rai Saheb Vishwamitra v. Amar Nath Mehrotra 59 CC 854 All. wherein the court has held that there must be continuous acts on the part of majority share holders to allege oppression or mismanagement till the date petition and unless it is established that the new directors had conducted the affairs of the company prejudicial to the interest of the company, no relief can be granted. In the present case, there is nothing on record to show that the newly appointed directors had acted against the interests of the company.
7. I have considered the pleadings and arguments of the counsel. The main grievances of the petitioners relate to their ceasing to be directors, change of registered office, appointment of new directors and freezing of bank accounts. It was argued on behalf of the respondents that the allegations of removal from directorship or change of registered office cannot be agitated in a 397/398 petition. On this argument, Bagree Cereals cases decided by Calcutta High Court and Supreme Court were relied on. The facts of that case cannot be applied in the present case as in that case, the petitioner held only 20% shares while in the present case, even after excluding the disputed 20,000 shares claimed to have been transferred by the 3rd respondent to the petitioner, the petitioners' hold majority shares in the company i.e., 70%. It is relevant to note that in Bagree Cereals case, the High Court took cognizance of the fact that petitioners ' therein held only less than 20% shares while the respondents held more than 80% shares and it also noted that the respondents were well equipped to pass even a special resolution. In the present case, the allegation is that directors representing the majority shareholders are sought to be excluded from the management and therefore, they can legitimately allege oppression. Further, in a number of cases, this Board has held that removal of directors who have been acting as such right from incorporation in closely held companies, is an act of oppression. In so far as shifting of registered office is concerned, in Bagree Cereals case, the Calcutta held that change of registered office per say cannot be either oppressive or mismanagement. In the present, the allegation of the petitioners is that by shifting the registered office, the respondents are getting all the payments due to the company in that registered office. In view of these factual differences, the decision in Bagree Cereals cases cannot be applied in the present case.
8. First I shall deal with the shareholding of the petitioners.
Originally, the petitioners' group held 70000 shares constituting 70% of the paid up capital, the balance being with the 2nd respondent's group. According to the petitioners, the 3rd respondent sold 20000 shares out of her holding of 25000 shares. They have annexed a copy of the transfer deed, the statement of shareholding signed by the 2nd respondent etc. to substantiate their claim. The 3rd respondent has contended that no transfer was effected and the transfer document relied on by the petitioners is a forged and fabricated one, as the 3rd respondent always signs in Hindi while the fabricated transfer document bears her signature in English, They have also submitted that a case of forgery against the petitioners has been lodged with the police.
Therefore, I do no propose give any finding, whether, the petitioners are entitled for these 20000 shares or not. Even excluding the 20000 shares, the petitioners undisputedly hold 70% shares as against 30% shares held by the respondents. As a matter of law, it is the prerogative of the majority shareholders to decide on the composition of the Board and that is the reason why in my order dated 6.6.2005, I directed holding of a general meeting for election of directors as the main dispute in the present case is regarding the composition of the Board of directors.
9. In terms of the printed version of the Article 54 of the Articles of Association of the company, the quorum for Board meetings is two directors or 1/3rd of the total number of directors whichever is higher. The word "two" is found to have been struck of and the word "three" is written in this Article and this alteration has not been challenged by the respondents. Therefore, for deciding the allegations/ relating to directorship, I am taking the quorum for Board meetings as three. Admittedly, the Board consisted of 5 directors viz. the 2nd and 3rd petitioners, 2nd and 3rd respondent and Shri Jodha. In the alleged Board meeting held on 10.2.2004, 6th respondent was reportedly appointed as director but the relevant Form No. 32 was filed only on 27.9.2004. This long delay in filing the Form itself raises a doubt whether any Board meeting was held on 10.2.2005. From the minutes of that meeting annexed at R-2, I find that the petitioner directors and Shri Jodha had not attended that meeting. There is no evidence to show that notices were issued for this meeting to these 3 directors. In that meeting, the 6th respondent was appointed as a director and not as additional director. In the absence of 3 directors, the other two directors could not have formed a quorum to transact any business.
Therefore, the appointment of the 6th respondent as a director in that meeting cannot be held to be valid. Consequently, decisions taken in subsequent meetings in which his presence formed the quorum will also not be valid. The manner in which the 2nd and 3rd petitioners and Shri Jodha have been declared to have ceased to be directors is also suspect. According to the respondents, the 2nd and 3rd petitioners and Shri Jodha did not attend Board meetings held on 28.5.2004, 27.8.2004 and 1.9.2004 and as such their ceasing to be directors was noted in the meeting held on 1.9.2005. The respondents have not produced any proof of having sent notices for these meetings to these directors. Therefore in the absence of any proof of notice to these directors, even these Board meetings had, in fact, had been held, they have to be declared as invalid as it is a settle law that meetings held without notice to all directors are invalid. From the minutes of the Board meeting held on 1.9.2004, it is seen that the same was attended by the 2nd, 3rd and 6th respondents. In this Board meeting, other respondents were appointed again as directors and not as additional directors. I have already held that Board meetings held with 6th respondent forming the quorum as invalid. This being the case, the appointment of the other respondents as directors cannot be held 10 be valid. The learned Counsel for the respondents, relying on Amar Nath Mehrotr's case (supra) contended that there should be continuous act of oppression till the date of the petition and that the new directors should be guilty of the same. In the present case, when the new Board has been invalidly constituted preventing the legally constituted Board from functioning, such an act is a continuing one and as such the same can be agitated in a petition under Sections 397/398.
10. Therefore, I declare that the Board shall be deemed to consist only of the 2nd and 4th petitioners, 2nd and 3rd respondents and Shri Jodha with immediate effect as it existed before the alleged Board Meeting on 10.2.2004. Forms No 32 filed on 27.9.2004 and 1.9.2004 stand cancelled as also Form No 18. On the authority of this order, 4th and 5th respondent Banks shall allow operation of the bank accounts of the company as per the resolution of the Board on 27.2.2004. The respondents have alleged that the 2nd and 3rd petitioners have sold the company's rights and licenses to Mass Printers Private Limited without the approval of the Board and that too for a paltry consideration. I direct the petitioners to convene a Board meeting with due notice to the 2nd and 3rd respondents with in 3 weeks of this order and place before the Board, full details relating to the sale of rights and licenses of the company to Mass Printers.
11 .The petition is disposed of in the above terms without any order as to cost.