Judgment:
1. In this order I am considering Company Petition No. 94/2006 filed by Smt. Sushila Aggarwal and Anr. under Sections 397 and 398, of the Companies Act, 1956 (hereinafter referred to as 'the Act') alleging certain acts of oppression and mismanagement in the affairs of the R-1 by the respondents. The petitioners were directors holding 50% shares in M/s SMR Electronics Pvt. Ltd. They have alleged that R-1, the M.D.of the company and R-2 another director till date have paid no rent to the petitioners even after using the premises since August 2001 and despite there being rent agreement dated 24.4.2002 whereby the company is to pay rent to the petitioners with effect from 1.4.2002 @ Rs. 3 lakhs per month; P-1 and P-2 have been removed illegally by the respondents; 10,000 shares have been illegally allotted to Shri Pawan Kumar; the respondents have illegally siphoned off money from the respondent company and hence a prayer to restore the siphoned off money, to restore P-1 and P-2 as directors and the management and control of the company be given to the petitioners to declare allotment of 10,000 shares to Shri Pawan Kumar as null and void and further that the R-1, 2 and 3 be directed to pay the petitioners the rent w.e.f.
1^st August, 2001 @ Rs. 3 lakhs per month alongwith interest @ 18% per annum.
2. The undisputed facts of the case are: M/s. SMR Electronics Pvt. Ltd. was incorporated on 23.7.1996. The Regd. Office of the company is situated at 2, Hasanpur, Near Patpatganj Depot, Delhi-92. The authorised share capital of the company was Rs. 50,00,000/- comprising of 5 lakhs equity shares of Rs. 10/- each. The issued, subscribed and paid up share capital of the Respondent No. 1 company is Rs. 40,00,000/- divided into 4 lakhs equity shares of Rs. 10/- each. The main (sic) of the company were to trade, distribute, market, manufacture, develop, (sic) export, buy, sell, service, repair, convert, alter, let on hire and otherwise (sic) electronics, electrical, electromechanical, technical components, equipment and home appliances. etc.
3. Shri Praveen Mahajan, Counsel for the petitioners pointed out that the petitioner Nos. 1 and 2 agreed to associate and run the business jointly along with the Respondent Nos. 1, 2 and 3 who agreed and ensured that mutually agreed rent of the building/premises would be paid to the petitioners for their premises regularly in due time. It was also clarified by the Petitioners to the Respondent Nos. 1, 2 and 3 in their meetings held in the month of April, 2001 that they would not be able to spare so much time as they were assisting their children in getting higher education and hence it was not possible for them to join the Respondents' group on partnership basis. Respondent Nos. 1, 2 and 3 offered the Petitioners to join the Company and to become the Directors in the said Company. Respondents also offered to allot equal number of Equity Shares in the Company. It was also agreed that there would be a monthly business meeting in between both the groups to discuss and shape up the business transactions carried out by the Company and Company's Bank Accounts would be operated jointly and earlier Bank Accounts of the Company. It was further agreed and assured that they would run/control the Company properly as they were having lot of experience and exposure in the field of aforesaid business/trade and assured that they would keep the interest of the Petitioners safe and the Petitioners would get their rent of the premises in due time. As per the MOU entered into by and between the parties in April, 2001, it was agreed to start the trading business of electronic goods/items on the first, second and third floor of the said building and to start a showroom and workshop of Yamaha Motorcycles on basement and ground floor of the said building. As per Clause 1 and 2 of the Memorandum of Understanding, it was agreed that the Petitioners would execute a General Power of Attorney in favour of the Company authorizing the Company to use basement and ground floor of the property at 2, Hasanpur, Near Patparganj Depot, Delhi - 110 092 for a total consideration of Rs. 20,00,000/- (Rupees Twenty Lac only) and the Company would issue and allot fully paid up shares to the petitioners of the same value of Rs. 20,00,000/- (Rupees Twenty Lac only) at par and it was clarified in Clause 9 of the Memorandum of Understanding that in case of mutual decision of the parties to end the arrangement, the Ground and Basement Floors would revert back to the Petitioners upon the Petitioners agreed to sell and transfer their allotted shares on face value to the remaining directors of the Company or their nominee after accounting for the profit and loss in the business. It was agreed that the consideration Rs 20 Lac alleged to be paid to the Petitioners would be mechanism to allot the shares in favor of the Petitioners to equate their shareholding in the company thus the entire consideration of Rs 20 lac is again reverted back in the company to enable the company to allot the shares in favor of the petitioners, thus the alleged sale of property was no sale in eye of law and merely the mechanism agreed between the parties to allot the shares to the Petitioner and accordingly the MOU entered between the parties vide Clause 9 provided that in case of mutual decision of the parties to end the arrangement, the Ground and Basement Floors would revert back to the petitioners upon the petitioners agreed to sell and transfer their allotted shares on face value to the remaining directors of the Company or their nominee after accounting for the profit and loss in the business. Further, both the petitioners were appointed as Directors in the Company on July 18, 2001. It was agreed that the Company would use and utilize the entire premises as per its requirement and would pay the monthly rent of Rs. 3,00,000/- in advance on or before 10^th day of every month. My attention was drawn to the Rent Agreement dated 24^th April, 2002. However, the Company had been utilizing the entire premises since August, 2001 but as per the Rent Agreement dated April 24, 2002, it was agreed that the Company would pay the rent to the petitioners with effect from April 1, 2002 @ Rs. 3,00,000/- per month.
It was pointed out that till date, no rent has been paid to the petitioners even after using the premises since August 2001 and thus Respondent Nos. 1, 2 and 3 cheated the petitioners and committed a contractual as well as criminal breach of trust. The petitioners felt cheated. They served a legal notice through their counsel Sh. Sanjeev Kumar, Advocate for the non payment of due and outstanding rent w.e.f.
01.08.2001.
4. Shri Praveen Mahajan, Counsel for the petitioners pointed out that the petitioners were allotted shares on 18.07.2001 and thus the Share Certificates should have been issued on or before 18.10.2001 as per the provisions of Section 113 of the Act, but till the date of filing this petition, no share certificates were issued to the petitioners.
Further, it was pointed out that the petitioners after getting no response from the Respondent Nos. 1 and 2 wrote several letters/reminders on various dates to provide the statutory records and other books and papers but the Respondents provided nothing except false assurances. The counsel for the petitioners alleged as to the non-compliance of various provisions contained under the Companies Act.
It was pointed out that the respondents failed to produce any record relating to: (a) Holding of Annual General Meeting for the year 2002; (b) Holding of Board Meeting; (c) As to the statutory records maintained in the Company; (d) Minutes Book, Register of Members, Directors Shareholding, Register of Managing Director, Director, Manager etc., Director's Attendance Register, Register of Mortgage and Charges etc. maintained by the company.
5. Further, the counsel for the petitioners argued that the respondent Nos. 1, 2 and 3 have intentionally manipulated the transactions and procured the LG products at higher prices for the Company through their conduit companies like Global trading company, a sole proprietorship concern owned and controlled by Respondent No. 3 i.e. Father of Respondent No. 1. That the Respondents by manipulating the transactions of the Company have reduced the profit margin of the Company and enriched the profits of the conduit companies at Company's cost, in blatant violation of the Section 297 of the Act. During F.Y. 2002-2003 the totals sale of the LG Company was 7%. Therefore, the total income from LG Shoppe comes to Rs. 35 lac approx. (i.e. @ 7% of Rs. 5 Crore), whereas unaudited profit and Loss Account for the year ended 31.03.2003 shows an income of Rs. 8.30 lacs only from LG products, which clearly shows the large scale siphoning of funds from the company by way of unauthorized dealings with the conduit companies by the Respondent. It was further pointed out that it is policy of LG Company that it reimburses the amount spent on advertisements of its products to the company. The Company spent about Rs. 3 Lac on the advertisements of the LG products but the amount so reimbursed by the LG Company were not remitted to the Company but were diverted to the Global Trading Company, a conduit Company owned and controlled by Respondent No. 3.
Besides that the Company has spent a hefty amount on advertising its shop as SMART MART and has also applied for registration thereof, the logo instead has been used by the other shops owned by Respondent No. 3 and his relatives. Further, the Company bears the advertisement costs and accordingly products are being advertised but instead of giving the Telephone Nos. of the Company, the Respondents deliberately gave the Telephone Nos. of their other shops that too cause financial losses to the Company. Further, the Company has the dealership of Panasonic. The Company had got login in the Panasonic Company. It means the Company is authorized to trade with Panasonic directly. But the Respondent Nos. 1, 2 and 3 without the consent and approval of the approached and requested Panasonic to send Panasonic products through their conduit Company (Global Trading Company) and opened a new log-in for the conduit Company. The petitioners on inquiry from Panasonic found that these manipulations have been carried out by the Respondent Nos. 1, 2 and 3. On objections by the Petitioners, the Panasonic products started coming directly to the Company which shows how the Respondents from the very beginning were manipulating the business transactions of the Company and duping the Company and were cheating the Petitioners for their personal benefits and gains.
6. The counsel for the petitioners pointed out that several employees of the Company who get their salaries from the Company are working for other companies belonging to the Respondents. For instance, Mr. Kapil Dhiman is the employee of the Company and gets his salary from the Company but working for Global Trading Company, Indian Overseas Company, Kapin etc., the conduit companies of Respondents. Further, it was pointed out that respondent No. 5, father of respondent No. 3 and proprietor of Global Trading Company and other conduit companies runs the Company without authority holding and no post and without the consent of the Petitioners. It was argued that the respondents had given vague and evasive reply to the aforesaid glaring instances of the mismanagement in the affairs of the company and failed to offer any plausible explanation to such act of large scale mismanagement in the companies.
7. Further, it was argued that in the adjourned Board Meeting held on 06.09.2003, Respondent No. 1 and 2 in collusion with the Auditors namely Shri Manoj Kumar Aggarwal and the Practicing Company Secretary Shri Amit Aggarwal mounted pressure upon the Petitioners and tried to get the signature of the Petitioners on the balance Sheet and Profit and Loss Account for the year ended on 31.03.2003 along with schedules attached therewith forcibly.
8. It was argued by the counsel for the petitioners that during the month of November 2001, Mr. Rohit Aggrawal (Respondent No. 1) informed the Petitioners that no previous bank accounts in the name of the Company exit as the earlier bank accounts in the name of the Company had been closed. The Company had taken Term Loans from the Respondent No. 4 through its Connaught Place Branch during the month of August, 2002 to the tune of Rs. 70 lac. Petitioner No. 1, Petitioner No. 2, Respondent No. 1, Respondent No. 2 and Respondent No. 3 were the guarantors of the said Term Loans. One Term Loan Account bearing A/c No. 110049 and C.C. A/c bearing A/c No. 0456250227 were opened for Rs. 50,00,000 (Rupees Fifty Lac only) and another Term Loan A/c bearing A/c No. 110058 and C.C. A/c bearing A/c No. 0434800226 was opened for Rs. 20,00,000/- (Rupees Twenty Lac only) with the Respondent No. 4 in its Connaught Place Branch. It was agreed between both the groups (Petitioner Nos. 1 and 2 comprising one group and Respondent Nos. 1,2 and 3 comprising another group) that both the aforesaid C.C. A/c of the Company with the Respondent No. 4 would be operated jointly and accordingly Petitioner No. 2 and Respondent No. 1 were made the authorized signatory on behalf of the Company. The Respondent No. 1 out of the sanctioned loan amount of Rs. 70 lac in two Term Loan Accounts transferred the amount of Rs. 20 lac sanctioned in Term Loan Account No. 110058 to C.C. A/c No. 043480026 but the amount of Rs. 50 lac sanctioned in Term Loan A/c No. 110049 was not transferred to the C.C.A/c No. 0456250227 and fraudulently the said amount of Rs. 50 lac was deposited in the Company's earlier bank account operated unauthorisedly by Respondent No. 2 which was not even in the. knowledge of the Petitioner Nos. 1 and 2. Not only this, during the month of November 2001, the Respondent No. 1 had informed the aforesaid Petitioners that no earlier bank account existed in the name of the Company. It was clarified by the Respondent No. 1 that all the earlier bank account of the Company had been closed and in future all the Accounts would be operated jointly. Keeping the aforesaid Petitioners in dark, the Respondent Nos. 1, 2 and 3 in connivance with Respondent No. 4 got the amount of Rs. 50 lac transferred in another bank account of the Company unauthorisedly operated by Respondent No. 2. Respondent No. 1, 2 and 3 in collusion with Respondent No. 4 transferred the funds of Rs. 50 lac to an unauthorized Current Account bearing A/c No. 50305 at Oriental Bank of Commerce, Suraj Mal Vihar, Delhi operated by Respondent No. 2 (unauthorisedly) on 13.09.2002 and then within the period of 5 days, the entire money was transferred to the account of their conduit companies and firms owned and controlled by family embers of the Respondent Nos. 1 and 3. Petitioners also approached the officials of Respondent No. 4 and objected that how Respondent No. 4 sanctioned and transferred the sum of Rs. 50 lac without informing the petitioners.
Moreover, Petitioners' are the guarantors, mortgaged their property against the said term loan and are also the shareholder of 50% in the paid up capital of the Company and also represent 50% in directorship in the Company but no satisfactory reply was given by the Respondent No. 4. The Company has paid the further installments of term loan A/c No. 110049 from January 2003, till July, 2003. Although Petitioners were not ready to pay the further installments from January, 2003, but they were compelled to pay the same under threats and pressure mounted by the Respondents on the ground that if Petitioners denied to sign the cheque for the payment of further instalments in term loan A/c No.110049 would face dire consequences and their mortgaged property would be auctioned and sold.9. Shri Praveen Mahajan, Counsel for the petitioners pointed out that the petitioners were illegally removed from the directorship of company. The Petitioner Nos. 1 and 2 received a Notice under Section 284 and 257 of the Act dated 28.08.2003 from one of the shareholders namely Sh. Pawan Kumar Sharma belonging to Respondents' group for the removal of Petitioner No. 1 from the post of Directorship on the ground of inexperience and creating disturbances in the Company and a shareholder namely Mr. Kapil Dhiman, employee of the Company belonging to the Respondents' group was nominated to be appointed as a director in place of Petitioner No. 1. A shareholder namely Mr. Megh Raj Sharma, manager of the Indian Overseas Company Pvt. Ltd. managed and controlled by Respondent No. 3 and also husband of Respondent no 2 belonging to Respondents' group was nominated to be appointed as a director in place of Petitioner No. 2. In the Board Meeting held on 03.09.2003 and 06.09.2003, the Petitioner Nos. 1 and 2 requested to discuss the notice received under Section 284 and 257 of the Act, but Respondent Nos. 1 and 2 refused to discuss the same. The Petitioner No. 2 received a notice under Section 284 and 257 of the Act dated 28.08.2003 from one of the shareholders namely Sh. M.D. Sharma belonging to Respondents' group for the removal of Petitioner No. 2 from the post of Directorship on the ground of inexperience and creating disturbances in the Company.
The Respondent in alleged AGM dated 29.09.2003 illegally and fraudulently passed the resolutions removing the Petitioner Nos. 1 and 2 from the directorship of the company. The so-called minutes of the meeting assign no reasons for the removal of the Petitioners from the directorship of the company, as much as both the resolutions are stereo typed resolutions providing no basis for the removal of the Petitioner.
It was contended that the resolution passed in the illegally convened AGM is of no consequences, as much as minutes of the meeting produced by the Respondents are no minutes in the eye of law and contravenes the provisions of the Section 193 and 194 of the Companies Act. The act was oppressive and in contravention of the terms of the MOU. Further, the counsel for the petitioners pointed out that, the Respondent had illegally allotted 10,000 shares in favour of Shri Pawan Sharma without following any process of law and without notice and intimation to the Petitioners. As per the MOU entered between the parties and as well as per the Memorandum and Articles of Association of the company the company cannot allot the shares to the outsiders without being offered to the Petitioners and Respondents, further the Respondent and the Petitioners are always entitled for the 50% of the shareholding of the company. The said allotment was done for the sole purpose of disturbing the shareholding arrangement between the Petitioners and Respondents, and further to remove the Petitioner from the Directorship of the company. Further, the counsel for the petitioners argued that the Respondent Nos. 1 and 2 closed the Business of the company from August 13, 2003 unilaterally without taking the consent of the Petitioners. On 13.08.2003 when the Petitioners No. 2 reached the office of Company at around 10:00 a.m., the Respondents with the help of some anti social elements forcibly ousted him and the Company was locked. A Police complaint in this regard was lodged with the Local Police Authorities.
The Petitioners further lodged a Complaint with the same Police Station requesting that if need be, the Premises be opened in the presence of the Petitioners so that no manipulation with the stock/inventory could take place. Due to the closure of the business and in operation of the Company, it was contended, expenses are being compounded as major fixed expenses such as rent of the premises, salary to the staff, interest of the bank etc. which have to be borne and hence losses are further increasing. It was argued that since the Respondents have closed the business operations of the Company unilaterally, the losses must be borne by them and not by the Company. The unilateral decision of the Respondents to close the business has adversely affected the employees of the Company. Thus, ultimate closure of the business of the company clearly shows the intentions of the Respondents to destroy the substratum of the company and such action has caused the irreparable loss and injury to the business of company, which clearly proves the case of oppression and mismanagement of the Petitioners. Further, the counsel argued that the Respondents in order to further harass and pressurize the Petitioners filed the false and frivolous cases against the Petitioners. The Respondents in their reply had tried to build up the case that due to various alleged criminal actions of the Petitioners they were removed from the directorship of the company.
However, all such false criminal cases were filed after the Petitioners approached the Hon'ble Company Law Board with the present petition. It was pointed out that while passing the alleged resolution there was not even any whisper about any criminal offence committed by any of the Petitioners, thus the filing of criminal case is merely an afterthought to cover up their misdeeds, and most of criminal cases filed by the Respondent are either stayed and in no case the chargesheet is filed against the Petitioners. The Respondent had filed the criminal case against the Petitioner No 2 regarding alleged non disclosure by the Petitioner no 2 that he is an employee of the MTNL, the said allegation as to non disclosure by the Petitioner no 2 is wholly false and baseless, since the Petitioners and Respondents were known to each other and as much as the copy of Income Tax Return relied upon by the Respondent themselves clearly shows the MTNL employee status of the Petitioner No 1, even otherwise the said alleged non disclosure has nothing do with the working of company or any way caused any loss or injury to the company in any manner whatsoever. The other cases filed by the Respondent also includes the frivolous litigation filed by the Respondents for dishonoring of cheques of Company. In such Sec 138 cases the Mr. Rohit Aggarwal who is working as MD himself not made himself as a party, rather made Petitioner No 1 as the accused party which is despite of the fact she had no even signed the cheques, such frivolous cases filed by the Respondent stand stayed by the Hon'ble Delhi High Court. It was argued that the entire content and colour of criminal cases is vexatious and are filed with the sole intention to harass and to tarnish the image of the Petitioners. Further, the counsel argued that in view of relief claimed by the Petitioners in their petition and also in view of nature of power vested in Hon'ble CLB under Section 402 the matter cannot be referred to the Arbitration at all.
10. Shri Jai Gupta, Counsel for the respondents argued that the MOU dated April 2001 is the beginning of the commencement of the relationship between the petitioners and the R-1-3 and 6. The said MOU contained an Arbitration clause. The petitioners had themselves invoked arbitration by moving the appropriate application before the council of arbitration, New Delhi. The petitioner No. 2 being an employee of MTNL did not intentionally disclose this fact to the respondent company and acting in violation of the laid down statutory rules of employment entered into agreement with the respondents. FIR bearing No. 339 of P.S. Connought place under Section 420/16/19, IPC was registered against the petitioner No. 2 in this respect. The property 2, Hasanpur does not belong to the petitioners and the said land belongs to DDA.The said building part of which was sold to the respondents 1-3 to 6 and part of which was lent on lease is currently under demolition by DDA.11. It was pointed out by the counsel for the respondents that the petitioners and the respondents had admittedly entered into a rent agreement for the first, second and third floor of the premises No. 2 Hasanpur, Delhi-92. The copy of the rent agreement dated 24.4.2002 filed by the petitioner is the copy of a forged and fabricated document which had been falsely prepared by the petitioners to be used as false evidence. The respondents had never entered into any lease agreement to pay a monthly rental of Rs. 3,00,000 for the entire premises constituting 2, Hasanpur, Delhi 92. The company, SMR Electronics, Pvt.
Ltd. through its Chairman-cum-Managing Director Shri Rohit Aggarwal had on 6^th day June 2001 entered into an agreement to sell with the P-1 and 2 who claimed to be the exclusive owner of and in absolute possession of the property bearing No. 2, in the area of village Hasanpur, Delhi-92 whereby the said company purchased the entire lower ground and upper ground floors upto ceiling level of property bearing No. 2 in the area of village Hasanpur, Delhi-110092. The company had in pursuance of the agreement to sell made the payment of the sale consideration in respect of the above said property amounting to a total of Rs. 20,00,000 through four cheques to the accused Nos. 1 and 2 vide receipt dated 6.6.2001. Subsequently the first, second and third floors of the property No. 2 Hasanpur, Delhi-92 were also taken on lease by the company from the petitioner Nos. 1 and 2 vide agreement dated 20.9.2001. As per the terms of this deed of agreement the company was to pay a monthly rent of Rs. 3,000/- per month to the petitioners.
The petitioners had filed a false criminal complaint in the court of the ACMM, Karkardooma against the respondents on the basis of lease agreement produced by him of the entire premises for rental of 3,00,000/-. All the documents i.e. both the lease agreements and the agreement to sell were sent to the Central Forensic Science Laboratory by the Police for authentication and verification. The Forensic report had certified the rent agreement for Rs. 3,000/- to be the genuine lease agreement and the police had finally submitted a cancellation report in the case filed by the petitioners 1&2. The respondents had also filed a complaint with the Police Station, Mandawali, Delhi against the petitioners for having forged and fabricated a lease document and F.I.R. No. 506 of 2004 under Sections 406, 463, 464, 465, 467, 468, 471 and 120-B stands registered against the petitioners No. 1 and 2 and investigation is pending in the Economic Offences Wing of Delhi Police. The Respondents have also lodged another F.I.R. bearing No. 468 dated 10.9.04 under Section 420 and 120 of IPC at P.S.Mandawali (Investigation is pending in Economic Offences Wing, Delhi) against the petitioners alleging that the petitioners sold two floors of his property No. 2 Hasanpur to the Respondent No. 6 Company for an amount of Rs. 20 lakhs after giving an assurance that there is no dispute regarding the property but later on it was found that the DDA had ordered for demolition of the property and the said property was to be demolished. It was pointed out that the respondents had as per the terms of the genuine lease deed of Rs. 3000/- credited rent of Rs. 1,000 (for six months) to the petitioners during the financial year 2001-2002 (the Balance Sheet for the said financial year is also signed by the petitioners themselves) and Rs. 36,000 (for 12 months) during the financial year 2002-2003. The petitioners had themselves filed the balance sheet of the said financial years along with their petition and have themselves relied upon the said balance sheet.
12. Further, the counsel argued that the petitioners fabricated the letters/reminders to use as evidence in judicial proceedings and F.I.R.bearing No. 183/04 under Sections 420, 463, 464, 467, 468, 471 and 120-B IPC of P.S. Mandawali lodged against the petitioners in which investigation is pending with the DIU East. The petitioners themselves used to handle the day to day business of the company and had access to all the record and documents of the company.
13. Further, the counsels for the respondents argued that the petitioners had themselves been operating the account No. 50305 in the OBC Bank, Suraj Mai Vihar, Delhi and were aware of the said account as the four cheques of Rs. 5 lakhs each given to the petitioners was of the same bank and the cheque issued by the petitioners of Rs. 120 lakh towards allotment of shares were also deposited in the same bank account. The petitioner No. 2 was well aware of the loan of 50 lakhs as well as the various accounts of the respondent company as the petitioners had themselves issued the instalment of cheques to the Citi Bank on 30.1.2003, 28.2.2003, 30.3.2003, 30.4.2003, 31.5.2003, 30.6.03 and 30.7.2003. The Delhi Police had filed a cancellation report in the FIR bearing No. 107/04 of P.S. Connought Place filed by the petitioners with allegations of cheating and fraud in respect of the bank loan.
14. The counsel for the respondents further pointed out that the petitioners had themselves played fraud on many investors by collecting Rs. 20 lakhs for share application money but in the Board Meeting the petitioners wanted share certificates to be in their own name. Due to this problem shares were not issued and the investors on not receiving share certificates had instituted legal notice to the petitioners and the petitioners had replied "Question of allotment of share does not arise." An FIR bearing No. 111 under Sections 420, 406 and 120 IPC of P.S. Anand Vihar was registered against the petitioners for having misappropriated the investors money. One of the investors, Shri C.B.Sharma, had filed a criminal case against the petitioners in the trial court at Guwahati. It was contended that the petitioners were removed from the office of Director of the respondent company due to their above stated conduct and behaviour and also due to fraud and cheating committed by the petitioners during the court of the relationship between the parties.
15. I have considered the pleadings and documents filed therewith as well as the arguments of both the parties. In this case I find that the petitioners have taken resort to Sections 397 and 398 of the Act to sort out their personal disputes with the respondents. There are allegations and counter allegations, there are FIR's pending against the petitioners. The respondents have raised preliminary objections pointing out that the petitioners have not come with clean hands. They have fabricated rent documents which the police has referred to CFSL whose report has confirmed that the petitioners had fabricated the rent document dated 24.4.2002. I agree that it is a settled proposition of law that the conduct of the parties is a very relevant factor to be considered in the equitable proceedings under Sections 397/398. In Sri Kanta Datta Narasimharaja Wadiyar v. Venkateshwar Real Estates Private Ltd. (1991) 3 Comp. LJ 336 (Karri) : (1991) 72 Comp Cas 211 (Karn), it was held that the petitioner seeking equitable relief must come with clean hands and good conduct, failing which the petitioner would constitute a gross abuse of the process of Court, and the petitioner is not entitled for any relief under Sections 397 and 398. It also held that the conduct of the parties in other proceedings could also be taken into consideration. However, it was held that the conduct of the petitioner before filing of the petition may not be a relevant factor.
Regarding the principle of equity in Shrimati Abnash Kaur v. Lord Krishna Sugar Mills Ltd 44 CC 390 the Division Bench of Delhi High Court has held that while exercising equity jurisdiction, which clothes the Court with discretionary powers "...the discretion cannot be exercised arbitrarily or according to one's own will or whim. It has to be regulated by law, allay its rigour advance the remedy and to relieve against abuse. The court, therefore, exercising equity jurisdiction, cannot ignore the well known maxims of equity. Two such maxims are that he who seeks equity must do equity and he who comes into equity must come with clean hands." In the present petition the petitioners have not come with clean hands. Besides they have forged and fabricated documents and have tried to attract the provisions of Section 397 and 398 for their personal disputes and directorial complaints which do not come within the scope of Sections 397 and 398 of the Act.
16. In these circumstances, the petition deserves to be dismissed at the threshold itself. However, considering the case on merits, I find that the petitioners have not been able to substantiate their case of oppression and mismanagement except the illegal allotment of 10,000/- shares to Shri Pawan Kumar which is illegal being in contravention of the provisions of the Act and Articles of Association. The respondents have justified removal of P-l and P-2 as directors on account of unclean hands. There are allegations of fraud. Several FIRs are pending against the petitioners for investigation. Further, it is noticed that the respondents have pointed out that the petitioners have themselves invoked arbitration by moving the application before the council of arbitration. It is found to be correct.
17. It is true that the provisions of Sections 397 and 398 which are specifically directed to resolve deadlocks/disputes arising out of company matters cannot be attracted to resolve any other differences of personal nature between the directors. But even while dismissing a petition under Sections 397 and 398 of the Act, the Company Law Board has power under Section 402 of the Act to pass orders which are just and equitable. Objects and purpose of Sections 397, 398, 402 and 408 of the Act are two fold - to set right the wrongs and take remedial action to prevent occurrence of wrongs in future. Thus both preventive and curative action can be taken by the Company Law Board to regulate the conduct of the, Company's affairs in future and to bring to an end the matters complained of.
18. In view of the foregoing, to do substantial justice between the parties, I hereby order that the petitioners be paid value of their shares and allowed to go out of the company, the valuation of shares is to be arrived at considering the alleged siphoning off funds to be determined by the valuer to be appointed with the consensus of the parties or in the alternative a lumsum amount acceptable to the petitioners may be paid by the respondents to the petitioners with the direction to the petitioners to go out of the company.
19. With the above directions, I dispose of this petition. All CAs stand disposed of.