1. The petitioners and their family members controlling 100% shares of M/s SPR Sugars Private Limited ("the Company") aggrieved on account of certain acts of oppression and mismanagement in the affairs of the Company at the instance of the second respondent have invoked the equitable jurisdiction of the Company Law Board under Sections 397 and 398 of the Companies Act, 1956 seeking the following reliefs (i) to declare that the respondents 2 & 3 have no right to continue as directors of the Company, (ii) to direct the respondents to render all accounts of the Company in favour of the petitioners, and (iii) to restrain the respondents 2 & 3 from interfering in the affairs of the Company 2 Shri B.C. Thiruvengadam, learned Counsel representing the petitioners, while initiating his arguments submitted o The petitioners 1 to 3 promoted the Company in April 1995 as a private limited company for the purpose of setting up a sugar factory and a mini power plant with authorised capital of Rs. 27,35,00,000 comprising of 2,73,50,000 equity share capital of Rs. 10/-each and paid up capital of Rs. 21,10,00,000/- consisting of 2,21.00,000 equity shares of Rs. 10/-each which are wholly held by the petitioners and their family members Apart from contribution towards share capital, the first petitioner had lent an amount of Rs. 5 02 crore by way of loan to the Company and further furnished personal guarantee to the financial institutions, which lent monies in favour of the Company to a tune of several crores of rupees for completion of the project By virtue of a share purchase agreement dated 06 02.2002 ("the SPA"), the first petitioner and his family members had agreed to transfer 70% of shares held in the Company to the respondents group (D.K group) for a minimum consideration of Rs. 5 crore, subject to valuation of the shares and payment of the balance consideration by the latter The first petitioner representing rest ol the petitioners, was made to sign the SPA and while so the second respondent took advantage of the fact that the first petitioner is not conversant with the English language and manipulated the entire situation in such a manner that the first petitioner was made to believe that the consideration would be more than Rs. 5 crore depending upon the valuation of shares The SPA is wholly one sided, unfair and opposed to public policy The first petitioner who signed the SPA in good faith came to know that though no consideration was shown in the main text of the SPA, the price has been disclosed as Rs. 5 crore under the definition section, forming part of the agreement Thus there was a conflict regarding the method of exchange of consideration. However, both the parties mutually agreed that Mr. J. Alexander, Chairman of the Company, who was the former Chief Secretary of Government of Karnataka, was to function as an escrow agent, upon which the petitioners lodged with him the blank transfer deeds with instructions that the transfer deeds be delivered to the second respondent only on the petitioners receiving the consideration in accordance with the SPA, namely on or before 31.03.2003 and received the first instalment of Rs. 50 lakh from the respondents and the balance amount of Rs. 4.05 crore was to be paid by the respondents, which was not paid within the time stipulated in the SPA, nor any attempt was made to value the shares.
The second respondent brought in an amount of Rs. 37 crore. beyond the stipulated period by which time cost of the project has been escalated on account of the delay caused by the respondents. This resulted in loss of good will and reputation enjoyed with the Company's bankers, loss of profitability and non-starting of commercial production etc. The second respondent failed to get the personal guarantee, offered by the petitioners in favour of the financial institutions, released in terms of the SPA. Consequently the shares have not been transferred to D.K. group. In the meanwhile, on signing the SPA the second respondent was appointed as the managing director of the Company, who took control of the management of the Company. The second respondent appointed two others as directors, while the sons of first petitioner had resigned and the managing director including the Chairman continued to be on the board. The respondents have been exclusively in management of the Company, pursuant to execution of the SPA, but so far no commercial production has been started, which is nothing but an act of mismanagement in the affairs of the Company. During the financial year ended 31.03.2003, a sum of Rs. 6.77 crore has been invested by the respondents as against Rs. 20 crore, stipulated in the SPA. The new management neither carried out the obligations as envisaged in clause III(3)(a)(i) to (vi) of the SPA nor settled the balance sale consideration before 31.03.2003, but claimed that the second respondent invested huge sums of money in the project. At the same time, the SPA came to be lapsed on 31.03.2006, and is no longer effective. When the petitioners were ready and willing to repay the entire money invested by the respondents in the Company in the form of debt, the first petitioner received a notice dated 20.09.2005 on 23.09.2005, convening an extra ordinary general meeting of the Company on 29.09.2005, proposing to reduce the rights of the petitioners and restrain them from participating in the day-today affairs of the Company. The notice convening the extra ordinary general meeting has been sent with an ulterior motive and malafide intention to curb the rights of the petitioners and such acts arc oppressive, which would affect the interest of the Company and its shareholders. The right of a member is a statutory right and has a right to file a petition under Section 397/398 for relief against oppression or mismanagement if the provisions of Section 399 are satisfied as held in Surendra Kumar Dhawan v. R. Vir (1977) Vol.47 CC 276. Though the SPA contains an arbitration clause, the court's jurisdiction under Sections 397 and 398 cannot be fettered and further that the matter which can form the subject matter of a petition under Section 397 and 398 cannot be the subject matter of an arbitration, for an arbitrator can have no powers such as are conferred on the Court by Section 402, as held in Manavendra Chitnis v. Leela Chitniis Studios Private Limited (1985) Vol.58 CC 113. The Madras High Court held in Sporting Pastime India Limited v. Kasthuri and Sons Limited (2006) 70 SCL 158 held that the allegations of oppression and mismanagement could be adjudicated upon without reference to the terms of arbitration agreement and the question of referring parties to arbitration does not arise. The agreement has become redundant, in view of the fact that "time being the essence of the contract". Therefore, the respondents are only entitled for the refund of money, which has been incurred in the project of the Company and not 70% of shares in the Company. The respondents are not even shareholders of the Company and have no right to convene any meeting of shareholders of the Company.
o The respondents 2 & 3, admittedly took control of the Company in which case, it is obligatory on their part to obtain no objection from the financial institutions for the transfer of shares, in terms of the SPA, which the respondents 2 & 3 failed and therefore, no grievances can be raised by them in this behalf. The respondents are not shareholders and cannot be in the management of the Company causing prejudice to the petitioners holding 100% of the shares of the Company. Against this background, the respondents 2 & 3 have no right to claim the shares and cannot take any steps in terms of the notice dated 20.03.2005 convening the extra ordinary general meeting of the Company. By virtue of the notice dated 20.09.2005 convening the extra-ordinary general meeting at the instance of the second respondent, the rights of the petitioners as members are attempted to be varied by the respondents and when rights of any shareholder are curbed, the provisions of Section 397 can be invoked.
o There is no material to show that the petitioners have agreed to vary the stipulated date, for completion of the transfer of shares, namely 3 1.03.2003 and modify the terms. The petitioners have not so far transferred their shares till date, despite the deadline fixed as 31.03.2003. The respondents have failed to pay the purported balance consideration of Rs. 4.50 crore within 31.03.2003. By virtue of Section 27 of the Limitation Act, l963 prescribing three years for enforcement of a contract, the right to claim the impugned shares has been barred by limitation on 31.03.2006, thereby the rights of the respondents is lost, in the light of the fact that shares are movable properties. The shares are reiterated by the Patna High Court in Arjun Prasad and Ors. v. Central Bank of India Limited are movable properties. The Patna High Court in yet another decision, i.e. R.B. Mishra v. State of Bihar and Ors. held that on expiry of the period of limitation, right of a person over the property is extinguished and therefore, the right of the respondents to the shares in question already got lapsed. The respondents are not claiming any relief with reference to the SPA, but relying upon the same only for collateral purpose and therefore, the respondents cannot be denied of any relief under Section 397/398 of the Act. The petitioners have fulfilled their obligations, which are envisaged in the SPA and cannot be held responsible for non-fulfilment of any of the terms of the SPA. o This Bench initiated appropriate settlement process, in the course of which. the petitioners paid more than Rs. 12.41 crore and cleared the dues payable to IFCI and IDBI. These payments have been made without prejudice to the contentions of both the parties raised before the CLB. However, the parties could not reach any amicable settlement and accordingly, this Bench by an order dated 17.07.2006 recorded that no compromise could be reached between the contesting parties. It is therefore, made clear by the petitioners that the above payments have been made not in pursuance of the SPA dated 06.06.2002.
3. Shri R. Murari, learned Counsel appearing for the respondents, while opposing the company petition submitted: o The petitioners are ventilating their personal grievances, arising out of the SPA, which are totally alien to a petition under Section 397/398 of the Act as held in R. Balakrishnan and Ors. v. Vijay Dairy & Farm Products Private Limited (2005) 59 SCL 667. Tne matters arising out of the SPA are essentially between the petitioners and respondents 2 & 3, which cannot form the subject matter of the company petition. The petitioners have neither pleaded nor established any of the essential ingredients of oppression and mismanagement and further failed to make out any case, as contemplated by Section 397/398. The Supreme Court held in Sangramsinh P. Gaekwad and Ors. v. Shantadevi P. Gaekwad and Ors.
(2005) Vol.123 CC 566 that the acts of oppression must be harsh and wrongful. An isolated incident may not be enough for grant of relief under Section 397 of the Act. The only grievance of the petitioners raised before the CLB is regarding the issue of a notice by the respondents 2 &. 3, convening an extra-ordinary general meeting of the Company and therefore, such an isolated act is not enough for claiming any relief under Section 397. Furthermore, the notice dated 20.09.2005 convening an extra ordinary general meeting on 29.09.2005, which revolves around the SPA cannot be challenged before the CLB. It was further held by the Supreme Court that the conduct complained of by any aggrieved shareholder must be such as to oppress a minority of the members including the petitioners vis-a-vis the shareholders, which a fortiorari must be an act of the majority. This essential requirement is not fulfilled in the present case. The petitioners have acquiescenced by extending time in implementing the SPA and therefore, cannot question the respondents for non-implementation of the SPA. o The petitioners cannot approbate and reprobate, by signing the SPA in English without any objection, but at the same time plead ignorance of the English language and contents of the SPA. The SPA was signed by the petitioner out of his own free will and further the SPA was executed after several rounds of discussions between the petitioners and respondents. The consideration of Rs. 5 crore was mutually agreed in terms of the SPA and therefore, all averments to the contrary are absolutely false and baseless The further averments that the first petitioner, who represents the other petitioners was "made to sign" the SPA and that "the First Petitioner is not conversant with English language" are incorrect and are pure after thoughts. The SPA was executed not only by the first petitioner but also by petitioners 2 & 3, as early as in the year 2002, in the presence of the Chairman of the Company and the statutory auditor of the Company, execution of which has never been challenged by the petitioners, prior to filing of the company petition.
o By virtue of the SPA, the petitioners had agreed to handover the management of the Company to D.K. Group and further that the petitioners would transfer 70% of shares of the Company to D.K. Group on payment of Rs. 5 crore, in pursuance of which, the respondents 2 & 3 had paid to the petitioners a sum of Rs. 50 lakh towards part consideration on the date of execution of the SPA and the respondents 2 & 3 were inducted on the board of the Company.
Clause I of the SPA, while defining price states that the respondents 2 and 3 would pay Rs. 5 crore for the transfer of shares by the petitioners. The respondents 2 & 3 had also made, subsequent to the SPA, huge payments of over Rs. 50 crore, to discharge the outstanding liabilities and dues to the financial institutions and bank (IDBI, IFCI & ING Vysya Bank), after negotiated settlement, various contractors, material suppliers etc., connected to the project of the Company, with a view to proceed with completion of the project of the Company. All these payments were made by way of cheques and are reflected in the Company's books of account. These developments have been deliberately suppressed by the petitioners and made it appear that apart from the initial payment of Rs. 50 lakh, these respondents did not make any further payment, which shows the conduct of the petitioners. The petitioners have derived benefit under the SPA on account of huge settlement of the dues of the Company to an extent more than Rs. 50 crore and therefore, the petitioners cannot have any grievance, as put forth by them. The respondents 2 & 3, prior to execution of the agreement had contributed a sum of Rs. 5,07,00,000/- by way of loan to the Company and further provided their personal guarantee to the financial institutions. All the amounts were brought in by the respondents 2 & 3 on the specific request of the petitioners and therefore, cannot plead ignorance of the same.
o Clause III(1) and (3)(a) of the SPA stipulate that the petitioners shall perform several acts, which were never fulfilled by them.
Consequently, the respondents 2 and 3 could not act, in terms of Clause IIl(3)(c) of the SPA. The petitioners never made any grievance about breach of the contract, on the part of the respondents, prior to filing of the company petition, nor could make any such grievance by the petitioners.
o At the annual general meeting held on 26.09.2003, wherein the first petitioner was present, a special resolution was passed approving the transfer 70% of paid up capital to the new promoters in terms of the SPA. Thereafter, at the board meeting held on 28.02.2005, attended by, apart form the chairman and other directors, the first petitioner and IFCI nominee director, the transfer of shares in favour of the respondents 2 & 3 was approved in principle. In view of lapse of time, fresh transfer deeds were being executed to be placed before the board for registering the transfer of 70% of shares, in favour of the new promoters. At the board meeting held on 20.09.2005, participated by among other directors, the petitioner and IDBI nominee, it was resolved to convene an extra ordinary general meeting of the Company on 29.09.2005, for passing necessary special resolution to amend the articles of association, in terms of the SPA. The board resolutions passed at the above board meetings clearly recognised the entitlement of respondents 2 & 3 to 70% of paid up capital of the Company, despite of which, the petitioners have not transferred the shares to the respondents 2 & 3. Nevertheless, the first petitioner in his communication dated 30.11.2005, requested the Chairman of the Company to delete from the draft board minutes dated 20.09.2005, item No. 9 of the resolution relating to the amendment to articles of association and convening of an extra ordinary general meeting, a copy of which has been produced on 09.12.2005 along with the rejoinder filed by the petitioners. However, the respondents have already filed counter on 25.11.2005, enclosing a copy of the board resolution dated 20.09.2005. Therefore, the petitioners cannot challenge the validity of the board minutes dated 20.09.2005.
o Clause VII(1) of the SPA envisages that the petitioners would not interfere in the day-to-day management of the Company and would have no say in the running of the Company and further provides that the articles of association would be amended restricting the rights of the petitioners, in accordance with Section 106 of the Act. D.K. Group and petitioners would furnish guarantee in proportion to their share holding in the Company and therefore, the question of relieving the petitioners from personal guarantee does not arise.
These respondents substantially discharged the Compay's liabilities and cannot now be asked to quit the Company and these respondents are entitled to hold 70% of paid up capital of the Company.
o The SPA is dated 06.06.2002. Clause III(2) of the SPA provides that completion of the transfer of shares shall take place on or before 31.03.2003, which may, however, be varied with mutual consent of the parties in writing. The contention of the petitioners that the agreement got lapsed on 31.03.2006 is baseless especially, when the transfer of 70% of the paid up capital of the Company has not yet taken place and therefore, the agreement continues to remain in force. Article 55 of the Limitation Act, 1963 specifies a period of three years, for enforcement of a contract, when it is breached and therefore, the date of performance or breach of the SPA is rather relevant to determine whether the SPA is time barred or not. Clause VIII(1) stipulates that the SPA shall come into force on signing and shall terminate on the transfer of all the shares of the petitioners in the Company to the respondents 2 & 3, in accordance with Clause VI of the SPA and on compliance with the terms and conditions as specified in the SPA. The. transfer of shares in favour of the respondents 2 and 3 never happened and therefore, the SPA is in force. Since the SPA is in force the respondents -and 3 are entitled to convene an extra ordinary genera! meeting in fulfilment of the terms and conditions, as stipulated in the SPA. Even otherwise, the notice dated 20.09.2005 issued by the second respondent is within three years of the SPA and therefore, the claim cannot be said to be barred by limitation. Nevertheless, limitation does not extinguish the right but only bars the remedy as held in Official Liquidator, Palai Central Bank Ltd. (in liquidation) Ernakulam v. K. Joseph Augusti, Kayalackakam House, Palai and Ors. . The notice dated 20.09.2005, convening an extra ordinary general meeting on 29.09.2005 is based upon Clause VI1(1) of the SPA and the second respondent caused notice convening the meeting as per the terms of the SPA and strictly in accordance with understanding reached between the parties as per the SPA and therefore, the same cannot be construed as an act of oppression. The petitioners have not made out any act of oppression or mismanagement in the affairs of the Company. The respondents have already referred the disputes for resolution by arbitration in terms of the SPA. The petitioners therefore, cannot seek any relief before the CLB. o The petitioners have brought in an amount of Rs. 12.41 crore, in the course of the present proceedings, pursuant to the settlement proposal mooted before the Bench, whereas, the respondents 2 & 3 have already invested more than Rs. 50 crore including payments made to various financial institutions, in order to safeguard the project and interest of the employees, who are dependent on this project for their livelihood. The amounts contributed by the respondents have been reflected in the Company's accounts and are acknowledged by the petitioners. The petitioners are required to contribute 30% share amounting to Rs. 13.80 crore. If the payment of Rs. 12.41 crore made by the petitioners is considered independent of the share purchase agreement, the petitioners are bound to bring in a sum of Rs. 13.80 crore towards their 30% share.
4. I have considered the pleadings and arguments of learned Counsel.
The issue before me is whether the petitioners, invoking the jurisdiction of Sections 397 and 398 read with Section 402 of the Act, are entitled as claimed, the following reliefs: (i) to declare that the respondents 2 & 3 have no right to continue as directors of the Company; (ii) to direct respondents 2 and 3 to render accounts of the Company; and (iii) to restraint the respondents 2 & 3 from interfering in the affairs of the Company.
Before considering the contentious issues on merits, I shall point out that several attempts have been made, involving the contesting parties in person, to sort out the differences amicably, pursuant to which the petitioners even made payments in excess of Rs. 12 crore, discharging the dues of the financial institutions, but ultimately no compromise could be reached between them and therefore, proceeded further in the matter, to meet the ends of justice.
"The purpose of the petition", as reiterated in the written submissions filed on behalf of the petitioners is thus: (a) The Respondents No. 2 and 3 are in control of the Company, by misrepresentation and manipulation; (b) The Respondents No. 2 and 3 took control of the Company, hut did not determine the consideration to the petitioners on basis of fair valuation.
(c) The Respondents No. 2 and 3 did not even pay the purported consideration of Rs. 5,00,00,000/- [Rupees Five Crores Only) as admitted claimed by them.
(d) The Respondents did not bring in the Sum of Rs. 20,00,00,000/- (Rupees Twenty Crores only) within 31^st March 2003.
(e) The Respondents No. 2 and 3 mismanaged the Company, resulting huge cost over run and time over run and the Company is yet to commence its production.
(f) With the background, the Respondent No. 2 and 3 allowed the agreement to lapse and as of 31^stMarch 2006 the rights of the Respondents No. 2 and 3 over the shares held by the petitioners got extinguished, still they continued on the Board of the Company and are managing the company (g) Without any rights, the Respondents No. 2 and 3 caused the issue of the Extra Ordinary General Meeting notice when the First Petitioner denied of any such business been contemplated by the Board of Directors.
In the above background, the relevant terms and conditions forming part of the SPA assume importance, a summary of which is as under: (a) The petitioners group, being vendors agreed to sell 70% of their shareholding to "D.K. Group", subject to the terms and conditions specified in the SPA. (b) While according to the petitioners, no amount of consideration for sale of 70% of their shareholding has been defined, D.K. Group asserts that a sum of Rs. 5 crore is the price, in terms of Clause-1, to be paid by D.K. Group for transfer of the impugned shares in their favour.
(c) The Company and the vendors shall procure the unconditional and unqualified consent of the financial institutions for the transfer of impugned shares to D.K. Group, which is a condition precedent for the purchase of shares. [Clause III(1)] (d) The transfer of shares shall take place at Bangalore on or before 31.03.2003, unless both the parties mutually vary the date of completion of transfer of the impugned shares. [Clause III(2)] i. to amend the articles providing for transfer of the impugned shares in favour of D.K. Group; ii. to hold a meeting of the board of directors of the Company to register transfer of the impugned shares, subject to approval of the shareholders in general meeting; iii. to hold a meeting of the shareholders of the Company for approving the transfer and adopting the amended articles; iv. to effect suitable changes in the register of members of the Company so as to reflect the transfer and issue share certificates in favour of D.K. Group. v. to replace the existing articles and adopt the new articles; vi. to furnish in favour of DK Group certified copies of minutes of the board meeting as well as general meeting of shareholders of the Company approving the transfer of shares in favour of DK Group.
[Clause III(3)(a) ] (f) DK group shall pay the price of the impugned shares by way of demand drafts or cheques drawn in favour of the first petitioner in the specified manner. [Clause III(b)] (g) The purchase of impugned shares by DK Group shall be conditional upon the fulfilment of the foregoing stipulations, failing which the price of the shares shall not be paid by D.K. Group. If any of the provisions is not fully complied with, D.K. Group is at liberty to cancel the SPA, by giving notice in writing to the Vendors/Company.
[Clause III(c)] (h) D.K. Group shall bring in a sum of Rs. 20 crore, by way of secured or unsecured loans, to commence commercial operations as stipulated in the SPA. [Clause V(4)] (i) The SPA provides appropriate remedies in the event of breach of any of the warranties set out in the SPA. [Clause V(5)] (j) The Vendors, on execution of the SPA, handed over the management of the Company to DK Group and shall not interfere in the day-to-day management and running of the Company or in any of the affairs of the Company, in so far as the same does not directly affect the rights of the Vendors as shareholders. The Vendors shall exercise their voting rights to ensure the passing of special resolutions, as determined by D.K. Group in respect of the following matters: o Issue of shares to a creditor converting debentures or loans to shares of the Company and creations of reserved liability.
o The articles of association of the Company shall be amended so as to restrict the rights of the Vendors in terms of this clause.
[Clause VII(1)] (k) DK Group and the Vendors shall provide personal guarantees in proportion to their shareholding, in the Company, in favour of the financial institutions, for the loans and credit facilities obtained or to be obtained by the Company. [Clause VII(3)] (1) (i) The board of directors of the Company shall be constituted in the proportion of 70% to DK Group and 30% to the Vendors.
(ii) DK Group, on signing the SPA is entitled to nominate the managing director of the Company in the place of the present managing director of the Company. [Clause VII(5)] (m)The SPA shall come into force on signing and shall remain in full force and shall stand terminated on the transfer of all the shares of the Vendors in the Company to DK Group, on compliance with the terms and conditions specified in the SPA and contains appropriate default clauses. (Clause VIII) (n) In the event of any dispute arises either in connection with the interpretation or implementation of the SPA, the parties shall at the first instance resolve such dispute through conciliation proceedings, and on failure of which, the Vendors or DK Group may refer the dispute for resolution by arbitration according to the Arbitration and Conciliation Act. 1996. [Clause X(5)] The main grievance of the petitioners raised in the company petition are: o (i) the first petitioner not conversant with the English language was made to sign the SPA drawn in English language, for sale of 70% of shares held b\ the petitioners in the Company in favour of DK Group; (ii) the price of Rs. 5 crore disclosed in the SPA does not represent the true and fair consideration for the impugned shares; and (iii) The SPA is one sided unfair and opposed to public.
o DK Group though had paid an amount of Rs. 50 lakh towards the first instalment of the price for shares, failed to pay the balance purchase price of Rs. 4.50 crore, within the stipulated time. The second respondent, however, belatedly brought in over Rs. 50 crore, resulting in escalation of the project cost.
o The second respondent failed to take any initiative to relieve the petitioners from personal guarantee given by them in favour of the financial institutions. Nevertheless, pursuant to the SPA, the second respondent was appointed as the managing director who took control of management of the Company and while the third respondent became the director, the sons of the first petitioner resigned from the board of directors of the Company.
o The respondents have been in exclusive management of Company, but no commercial production has so far been commenced. DK group did not either choose to discharge the obligations imposed on them in terms of the SPA. By virtue of Section 27 of the Limitation Act, 1963, the SPA got lapsed on 31.03.2006 and is in no longer in force.
Therefore, DK Group is only entitled for refund of the money spent on the project of the Company and not 70% of shares in the Company.
DK Group, despite the failure to perform their obligations under the SPA had caused, with ulterior motive, a notice convening an extra ordinary general meeting of the Company on 29.09.2005, for the purpose of amending the articles of association of the Company to restrict the rights of the Vendors, as specified therein, which is claimed to be oppressive, and prejudicial to the interests of the Company and its shareholders. The respondents not being shareholders of the Company have no authority to convene any meeting of the shareholders of the Company, curbing the rights of the petitioners, especially when they had fulfilled their obligations, as envisaged in the SPA.A careful consideration of the SPA, "the purpose of the petition" and the grievances of the petitioners set out in the company petition and elaborated elsewhere would indicate that the alleged acts of oppression and mismanagement in the affairs of the Company are found to be interwoven with the SPAS reached between the parties. The admitted fact is that while the second respondent was appointed as the managing director and third respondent became a director of the Company, pursuant to the SPA, in which case, the plea of the petitioners that the respondents 2 and 3 not being the shareholders cannot be in the management will not hold good for relief against oppression or mismanagement, in the present proceedings. In this context the decision of the Delhi High Court in Surendra Kumar Dhawan v. R. Vir (supra) holding that the right of a member is a statutory right will not go in aid of the petitioners. The petitioners cannot seek intervention of this Bench, to declare that the respondents 2 & 3 have no right to continue as directors of the Company or restrain the respondents 2 and 3 from functioning as directors of the Company, especially when these prayers are directly arising out of the alleged breach of the SPA on the part of the respondents 2 and 3. In this connection Clause VII(I) of the SPA assuming importance reads thus: 'The Vendors acknowledge that they have, on execution of this agreement, handed over the management of the Company to the DK Group. The Vendors shall only be entitled to a share in the profits proportionate to their shareholding Accordingly the Vendors agree that they shall not interfere in the day to day management and running of the Company Even as regards other matters, the Vendors shall not he entitled to any say in the running of the Company and in any of the affairs of the Company in so far as the same does not directly affect the rights of the Vendors as shareholders..."The second respondent had issued a notice dated 20.09.2005 convening an extra ordinary general meeting of the Company, reportedly in exercise of the rights vested in Clause VII (1) of the SPA for the purpose of amending the articles of association of the Company, proposing the following resolutions: (1) To consider and if thought fit, to pass with or without modification the following resolution as a Special Resolution.
Resolved that the following he inserted after Article-10 of the Articles of Association of the company.' The Company takes note of the Share Purchase agreement dated 06.06.2002 entered into between the existing shareholders of the Company (SPR Group-Vendor) and D.K. Group.
In terms of the agreement, the shares retained by the SPR Group representing 30% of the paid up capital shall be treated as a separate class of shares in terms of Section 106 of the Companies Act 1956 and rights of the above shares will be restricted as under The above shareholder (SPR Group) shall not interfere in the day-to-day management and running of the company. Even in regard to other matters, the above shareholders shall not be entitled to any say in the running of the company and in any affairs of the company in so far as the same does not directly affect the rights of the shareholders.
Without prejudice to the generality of the above, the above shareholders shall exercise their voting power so as to allow the passing of special resolutions as determined by the D.K. Group in respect of the following matters (c) The company purchasing its own securities in accordance with the Companies Act, 1956.
(e) Issue of shares to a creditor to convert debentures or loans to shares of the Company; By virtue of Clause VII(1) of the SPA, the Vendors have agreed that they shall exercise their voting rights so as to allow the passing of special resolutions in respect of the matters specified supra and that the articles of association of the Company shall accordingly be amended. Any grievance in connection with convening of an extra ordinary general meeting arising out of the contractual obligations covered under the SPA including D.K. group's authority to invoke Clause VII (1) of the SPA cannot be adjudicated in the present proceedings.
The minutes of the annual general meeting dated 26.09.2003 and the board minutes dated 28.02.2005 categorically show that both the parties have acted upon the SPA in relation to the transfer of 70% shares of the petitioners in the Company in favour of DK Group. It is relevant to observe that among others, the first petitioner is a party to the decisions taken at the aforesaid annual general meeting as well as the board meeting. It is on record that the board of directors at the board meting held on 20.09.2005 resolved to convene an extra ordinary general meeting of the Company on 29.09.2005 for the purpose of amending the articles of association of the Company, in terms of Clause VII(1) of the SPA, which is, however, questioned by the first-petitioner in his communication dated 30.1 1.2005. I do not express any opinion regarding the validity of the board resolution dated 20.09.2005, since the board meeting was nothing but fallout of the SPA. The entire grievances and reliefs claimed by the petitioners are found flowing from the SPA and therefore, no application will lie before the CLB for any remedial measures as held in R. Balakrishnan and Ors. v. Vijay Dairy & Farm Products Private Limited (2005) 59 SCL 667. The isolated grievance of the petitioner being that the second respondent was convening an extra ordinary general meeting of the shareholders of the Company for amendment of the articles is not enough for claiming any relief under Section 397 as held in Sangramsinh P. Gaekwud and Ors. v. Shantadevi P.Gaekwud and Ors. (supra). The decisions in Sporting Pastime India Limited v. Kasthuri & Sons Limited and Manavendra Chitnis and Anr. v.Leela Chiinis Studios Private Limited and Ors. (supra) having been rendered in the context of the Arbitration and Conciliation Act 1 996 and the grievances of the petitioners having arisen out of the SPA, will not be applicable to the facts of the present case. The plea of the petitioner that he is relying upon the SPA only for collateral purpose does not merit any consideration, it is on record that the respondents have already referred the disputes for resolution by arbitration, of course after filing of the company petition. In view of this, the petitioners are at liberty, if so advised, to agitate all their grievances in relation to the SPA before the arbitrators, more so when, this Bench is not competent to decide as to whether the SPA is fair or barred by limitation or whether parties to the SPA have violated its terms or whether consideration for the impugned shares is reflected in the SPA or any other issue arising out of the SPA. With these directions the company petition stands disposed of. In view of this, all the interim orders are vacated.