Sh. Amrik Singh Hayer Vs. Hayar Estates Pvt. Ltd. and ors. - Court Judgment

Excerpt:
1. in this order i am considering two company petitions numbered as 44 of 2006 and 45 of 2006 seeking similar reliefs against the same respondents. the facts in both the petitions are identical, save and except the name of the companies and the properties owned by them. the petitioner has alleged certain acts of oppression and mismanagement by the respondents specificial in the affairs of the respondent companies.hence these petitions.2. m/s hayer estates pvt. ltd. and m/s hayer and hayer estates pvt.ltd. are private limited companies. the petitioner alongwith with his son were the first directors of the company. the petitioner, his son, respondent no. 2 and respondent no. 4 were the directors of the companies. the companies were incorporated with the object to "engage in the business of.....

Judgment:
1. In this order I am considering two company petitions numbered as 44 of 2006 and 45 of 2006 seeking similar reliefs against the same respondents. The facts in both the petitions are identical, save and except the name of the companies and the properties owned by them. The petitioner has alleged certain acts of oppression and mismanagement by the respondents specificial in the affairs of the Respondent Companies.

Hence these petitions.

2. M/s Hayer Estates Pvt. Ltd. and M/s Hayer and Hayer Estates Pvt.

Ltd. are private limited companies. The petitioner alongwith with his son were the First Directors of the company. The petitioner, his son, respondent No. 2 and respondent No. 4 were the Directors of the companies. The companies were incorporated with the object to "engage in the business of real estate and in particular purchase and sale of residential and non-residential and owning and buying, selling, hiring, letting, sub-letting, maintaining, allotting, transferring allotment, administrating, exchanging, mortgaging, accepting lease, tenancy or sub tenancy of the same." The authorised and paid up capital of each company was 1 crore. The petitioner (Shri Amrik Singh Hayer) held 250000 shares and R-2 (Shr Ajmer Singh Khangura) held 750000 shares of Rs. 10/- each as on 30.9.2005. On September 30, 2003, the Companies purchased property bearing No. SCO 156-157, Sector 9-C, Chandigarh for a total amount of Rs. 2.9 crores in an open auction. The letter of allotment for the said property was issued on November 24, 2003 in the name of the companies by the Municipal Corporation, Chandigarh. This property forms the asset of the companies.

3. Shri Ashwani Chopra, Counsel for the petitioner pointed out that in a meeting of the Board of Directors of the companies dated October 29, 2005, a resolution was passed keeping in view the object of the companies. In the said meeting, it was resolved that: ...the company be and is hereby authorized to "negotiate and settle terms and conditions for transfer of company land and building....

...all directors of the company be authorized for and on behalf of the company to carry out day to day activities including execution of lease deed for renting out premises; ...MOU be executed and signed by Sh. Ajmer Singh Khangura, S. Amrik Singh Hayer, and S. Malkiat Singh on Behalf Of the Company.

...in the absence of S. Ajmer Singh Khangura from India, Smt. Manjit Kaur w/o Late S. Balbir Singh .authorized to receive consideration amount on behalf of THE director and to sign the receipt thereof; and No transfer of shares be made in his favor until full payment as given in the MOU is made.

Pursuant to the above resolution, the companies through the petitioner alongwith Respondent No. 4 and respondent No. 2, acting as the Directors of the companies, entered into a Memorandum of Understanding dated November 9, 2005 (hereinafter referred to as 'the MOU') with respondent No. 3. It was argued that (i) the MOU was entered into for transfer of companies land and building pursuant to the Board Resolution dated October 29, 2005 ;(ii) the MOU categorically provided for a schedule of payment which was to be strictly adhered to by the parties; (iii) as per the terms of the MOU, the total consideration was arrived at Rs 1500.0 lakhs (Rupees Fifteen Crores) for the sale of companies' properties, subject to: (a) adjustment of 3^rd and final installment payable to Municipal Corporation, Chandigarh; (b) cost of fixation of flooring tiles in the building No. 156-159, Sector 9-C.4. It was further pointed out that the MOU provided a schedule of payment that had to be adhered to by all the parties i.e.: (a) 25% on execution of the MOU (on receipt of first installment as per this MOU, nominee of Second Party namely Shri Zora Singh will be inducted on the Board of Directors but without holding any shares in the Companies to take care of day to day activities of the Companies (b) 25% within three months of execution of MOU;(c) balance payment within 6 months or earlier of execution of MOU. It was further provided that: "on expiry of three months from the date of execution of MOU, if the total payment is not paid for by the second party, then compensation of Rs. 7.0 lacs per month in lieu of the average lease rental that the building was to fetch will be paid additionally by the second party to the first party." Further, the MOU incorporated a FORFEITURE CLAUSE which provided as under: no additional time would be given to the second party for discharge of the payment obligations. In case of default by the second party, it will forfeit its advance so given for all practical purposes.

5. Shri Ashwani Chopra argued that the stipulations in the MOU clearly show that the time was the essence of the agreement. Further, as per para No. 6 of the MOU, all further actions were to take place only after payment of full consideration amount of Rs. 15.0 crores as per the schedule provided in para No. 1 of the MOU. My attention was drawn to para No. 6 of the MOU which reads as under: 6. That upon payment of full consideration amount of as per para I within the stipulated time.

a) Transfer the total shareholding held by first party & their associates in favour of second party or his/their nominees as specified as per applicable provisions of The Companies Act, 1956.

b) Induction of new Directors of the second party on the Board of the companies as per applicable provisions.

c) All Directors of the first party as specified above will tender written resignation as Directors & be relieved from the Board of the company, as per applicable provisions of Companies Act (upon receipt of full payment from second party all Directors of first party will be automatically considered as relieved from the Board, in case they fail to execute written resignation.) d) Transfer effective control, physical possession of building of the companies to the second party, who will be competent & empowered to manage & run the affairs of the companies independently as deemed appropriate.

That upon making full payment as specified in Para I above before the stipulated date, the second party will be empowered to take over the companies through Court of Law, in case of delay or default by first party. (Except last payment to Municipal Corporation, Chandigarh the companies will be transferred without any lien/encumbrance to the second party).

6. The counsel for the petitioner argued that as per the case of the respondents, the full consideration amount had been paid on or before May 9, 2006 and for this purpose, the respondents are relying upon the endorsements made on the back of the MOU. The last date for making the total payment was six months from the date of execution of the MOU i.e.

before May 8, 2006. Admittedly, the payments were not made as per the schedule provided in para No. 1 of the MOU and further the full consideration amount admittedly was not paid even by May 9, 2006 in as much as the total of the endorsements at the back of the MOU, on which the respondents are asserting that full consideration was paid comes to only Rs. 12,99,82,000/- whereas even as per the case of the respondents, a sum of Rs. 13,23,50,000/- was required to be paid after deducting the amount as per the stipulations in the MOU. Still further, it was argued, the respondents have even failed to demonstrate from the documents or otherwise before this Hon'ble Board that the payments had been made in accordance with the terms of the MOU. Even the payments alleged to have been made as per the endorsement's are not shown to have been actually paid. However, without prejudice to the same, it was argued that the full consideration amount having not been paid, the payments whatsoever made by respondent No. 3 were liable to be forfeited in favour of the companies.

7. It was further argued that since Respondent No. 3 could not arrange the requisite funds within the time frame stipulated by the MOU and there was every likelihood of the amount already paid by respondent No.3 of being forfeited in favour of the companies as per the forfeiture clause in the MOU, the respondents colluded with one another with the intent to hoodwink the companies as also the petitioner. It was argued that the collusion between the respondents is clearly demonstrated from the material on record. Rs. 638.82 lacs are shown to have allegedly been paid in cash to Respondents Nos. 2 and 4 and substantial amount is stated to have been paid by cheques. All these payments are not shown to have been withdrawn and/or deposited in any account and, as such, it can very safely be inferred that the amount has not been actually paid and it is because of the collusion between respondents Nos. 2, 3 and 4 that the said amount is alleged to have been paid. Further, the payments admittedly have not been made as per the time schedule fixed in the MOU. Still further, even as per the own showing of the respondents, the full consideration amount admittedly was not paid till May 8, 2006 and even till date but for the connivance between the respondents, the payments whatsoever made by respondent No. 3 were liable to be forfeited by the companies and all the rights and liabilities under the MOU were to come to an end. However, in order to cause prejudice to the Companies and to deprive the Companies of the amount which was to be forfeited, the respondents colluded to oust the petitioner so that the companies could be deprived of its legitimate money. When the petitioner learnt of the illegal design of the respondents and started demanding explanations for the same, the respondents in utter disregard of law and equity, hurriedly proceeded to illegally transfer the assets of the companies to respondent No. 3.

Since the time of entering into MOU, the property rates in the city of Chandigarh sky-rocketed and respondent No. 3 realized that since he had not made the payments in time, he had no rights left in the property under the MOU. Under these circumstances there was a clandestine understanding between the respondents that Respondents Nos. 2 and 4 to state that respondent No. 3 had made all the payments as per the MOU, so that they would somehow oust the petitioner from the companies, sell the property of the companies and share/divert the proceeds amongst themselves. It was argued that a bare perusal of the records shows that the respondents have carried out the entire exercise in the most highhanded and arbitrary manner.

8. Shri Chopra further argued that it is quite evident from the material on record that the affairs of the companies have been conducted by the respondents in a manner which is not only oppressive against the petitioner who is the share holder/Director but is also prejudicial to the interest of the companies itself. Without prejudice to the contention of the petitioner that the full consideration admittedly having not been paid as per the MOU, the payments whatsoever made by respondent No. 3 were liable to be forfeited, no step could have been taken till the payment of full consideration amount to the companies and further the fact that the respondents hurriedly proceeded to take various steps when the full consideration amount had not been paid in the account of the companies clearly demonstrates connivance of respondents No. 2, 3 and 4, their malafide and motivated intentions and, as such, their conduct in managing the affairs is oppressive against the petitioner and prejudicial to the interest of the companies.

My attention was drawn to the fact that me consideration amount as per MOU was not received in the account of the companies. Apart from the fact that the respondents did not adhere to the schedule of payment as incorporated in para No. 1 of the MOU, the admitted position is that the full consideration amount has not been paid. As per the own showing of the respondents after deducting the amount of instalments due to the Municipal Corporation and for flooring of tiles as per the MOU, Rs. 13,23,50,000/- was to be paid but the total amount as per the endorsements at the back of the MOU comes to only Rs. 12,99,82,000/-.

As such, the certificate given at the back of the MOU by respondent No.2 that full consideration amount as per the MOU has been paid, is apparently false and is prejudicial to the interest of the companies.

If the affairs of the companies had been conducted in a proper manner to avoid oppression and mismanagement, the payments, if any, had to be forfeited in favour of the companies but respondent No. 2 chose to act in favour of the personal interest of respondent No. 3 rather than in the interest of the companies as also the petitioner who is the Director of the companies as also in the interest of the companies itself.

9. It was argued that utter disregard to the other terms of MOU are also prejudicial to the interest of the companies and oppressive against the petitioner. As per para No. 6 of the MOU, the payment of full consideration amount as per para No. 1 of the MOU within the stipulated time was sine qua non for transfer of total share holding of new Directors, resignation of existing Directors, transfer of effective control and physical possession of the building of the companies but without caring and actually receiving the full consideration amount, the respondents proceeded to do acts which apparently are not only prejudicial to the interest of the petitioner but are oppressive against the petitioner.

10. It was argued that without prejudice, that (i) after receipt of the full consideration amount, firstly the share holding was required to be transferred, then new Directors of the second party were to be inducted as per the provisions of the Company Law and thereafter the existing Directors were required to tender written resignation and were to be relieved and only thereafter the effective control and physical possession of the building of the companies were required to be transferred. Para 6 of the MOU even stipulates that the companies could be taken over by the second party through the Court of Law upon making full payment as specified in para No. 1 of the MOU. However, the respondents managing the affairs of the companies started giving the possession of the properties of the companies to respondent No. 3 on May 9, 2006; (ii) on May 9, 2006 itself, Additional Directors, Kulwant Kaur, respondent No. 5 (wife of respondent No. 3) and Shri Bahadur Singh were appointed; (iii) on May 9, 2006 itself, the address of registered office of the company was changed;(iv) on May 9, 2006, shares were allotted to respondent No. 3 and his wife, respondent No.5; (v) on May 10, 2006, despite the objections and reservations of the Petitioner, the possession of the company was hurriedly handed over to respondent No. 3; (vi) on May 11, 2006, Surinder Singh and Smt.

Jaswinder Kaur were appointed as Additional Directors; (vii) on May 11, 2006, the share holding of the companies were further increased; (viii) on May 11, 2006, further shares were allotted to respondent No. 3 and his wife, respondent No. 5. (ix) on May 12, 20006, the name of the company was changed; (x) on May 12, 2006, the existing bank account with ICICI Bank was closed and new account was opened with State Bank of Patiala; (ix) on May 19, 2006, the petitioner and his son were removed from the Board of Directors of the companies while respondent No. 2 and 4 continued to carry on as directors; (xii) on May 19, 2006, Shri Ajmer Singh Khangura's shares are transferred though he continued to be the Director and Shri Malkiat Singh as Director was authorized on behalf of the companies to sign necessary endorsements on the share certificates and to do all acts as required for giving effect of the position to transfer and approve the shares; (xiii) on May 19, 2006, the main objects of the companies were also altered; (xiv)on May 19, 2006, respondent No. 2 transferred his shareholding not in favour of Respondent No. 3 but certain other persons, (xv) on May 29, 2006, respondents Nos. 2 and 4 realizing their mistake ostensibly resigned but the resignation of respondent No. 2 for reasons best known to the respondents was deferred till October 30, 2006. It was pointed out that till date nothing was pleaded or brought on record by the respondents to show whether respondent No. 2 is still continuing as a Director in the companies or not. It was argued that the sequence of events clearly shows that the terms contemplated in the MOU were given a go bye and the respondents acted in whimsical and arbitrary manner which is prejudicial to the interest of the companies.

11. Further, it was reiterated that the schedule of payment given in the MOU was not adhered to. The MOU expressly provided a Schedule of Payment that had to be strictly adhered to by all the parties. It is amply clear from the stipulation in the MOU that time was of essence.

Admittedly, the respondents could not demonstrate either through documents or otherwise, that payments had been made in accordance with the terms of the MOU. As per the MOU, the last date for making the total payment was six months from the date of execution of the MOU, i.e. before May 8, 2006. Admittedly, the payments were not made within the stipulated time and as per the schedule and as per the MOU, the payments made previously were liable to be forfeited by the Companies.

The respondent No. 3 did not have any money to make the payments. Even the loan sought by respondent No. 3 to make payments under the MOU was sanctioned only on 9/5/2006. Under these circumstances, all rights under the MOU ought to have ceased after 8.05.2006 and payments already made were liable to be forfeited.

12. Furthermore, it was argued that the payments were not made at all - Accounts were manipulated to show fictitious payments, fabricated receipts but money admittedly did not reach the Companies account. It was pointed out that (i) as per the case of the respondents, on May 9, 2006, drafts of Rs 3.25 crores were allegedly presented in the name of the petitioner, drafts of Rs. 23.0 lakhs were prepared in the name of respondent No. 2, Rs. 57.82 lakhs allegedly paid in cash to respondent No. 2 and Rs. 20.0 lakhs paid to Shri Malkiat Singh, the respondent No.4. Admittedly respondent No. 4 was merely a director and was not a share holder and hence no payment ought to have been made to him. It was argued that it clearly shows that actually no payments were made and bogus entries were sought to be adduced to hopelessly project that payments were in fact made, (ii) the respondents at no stage of proceedings before the Company Law Board have been able to show that the amount of consideration as envisaged in the MOU was paid by respondent No. 3, and were now seeking to cloak the illegalities perpetuated by them by trying to offer some payment to the petitioner.

As per the respondents, as the payment is being offered to the petitioner, thus he cannot address the blatant illegalities being committed by respondents in collusion with each other and cannot have any grievance against the respondents. Further, my attention was drawn to the contention of the respondents that they being in majority could do whatever they like and the petitioner cannot have any grievance with regard to the conduct of the respondents in any manner as the petitioner is in minority. It was argued that such an argument, if accepted, would render the entire provisions of Companies Act relating to "oppression and mismanagement", redundant, (iii) It was pointed out that as per the contention of the respondents the MOU is a share holding agreement and on that account, 25% of the total consideration having been offered to the petitioner, he cannot be heard to have any grievance and cannot allege any oppression and mismanagement. The said contention is again not only against the material on record and illegal but is erroneous and misconceived. If it was just a share holding transfer agreement and payments of 75% amount was to be paid to Shri Ajmer Singh Khangura, respondent No. 2 and 25% payments were to be made to the petitioner, then why 5 cheques as shown at serial Nos. 7 to 11 in the details of payment were given in the name of the companies. It was pointed out that these were the payments received by the petitioner and had gone to the account of the companies. It was argued that no explanation has been given by the respondents as to why payment of Rs. 1.05 crore through cheques were made in the name of the companies if the agreement was share holding transfer agreement, as now sought to be projected. Further, it was not explained as to why Shri Malkiat Singh, who is admittedly not a share holder, a party to the MOU and further a signatory to it.(iv) It was pointed out that in the installment to be paid by February 8, 2006, Rs 5.0 lakhs have been added by the respondents for the sake of convenience, whereas this amount only reflected a personal transaction between the petitioner and respondent No. 3, which amount has since been repaid. No endorsement has been made of these cheques even at the back of the copy of the MOU appended by the respondents. This amount of Rs 5.0 lakhs has been sought to be shown as payment towards the consideration amount under the MOU by the respondents with the oblique motive of somehow arriving at the total consideration figure by any means, (v) A payment of Rs. 20.0 lacs is stated to have been paid through cheque dated May 9, 2006 to Malkiat Singh but this amount is also not included in the endorsements. Shri Malkiat Singh is not a share holder, so payment of Rs. 20.0 lacs through cheque made to him is not to be included in the payment of full consideration amount, especially as per the respondents the MOU is share holding transfer agreement. It is a false plea raised by respondent No. 2 that he paid Shri Malkiat Singh out of his 75% share holding, in that case there should have been an endorsement of the said cheque at the back of the MOU but admittedly there is no such endorsement of this cheque/amount on the back of the MOU. (vi)Huge amounts have been shown to have been paid in cash. The receipt of the cash payment has been given on plain sheet of paper and is obviously bogus. No prudent and transparent transaction is carried out in this callous manner especially when such huge sum of money is involved. It was argued that the entire exercise smacks of malafide and fraud, (vii) An amount of Rs 25,59,000/- has been deducted for flooring tiles/jobs as per companies nominated architect's site inspection-cum-valuation report, which is interestingly dated May 11, 2006. A perusal of the report would show that the architect had visited the companies' premises only on May 10, 2006 only and the report was dated May 11, 2006. However, Respondents Nos. 2 and 4 had given the possession on receipt of 'full and final payment' on May 9, 2006 itself after deducting the exact amount as had been arrived in the architect's report. It was argued that this clearly depicts that all calculations have been done subsequently and the Architects report is also a tailor made document, (viii) Further, Rs. 638.82 lakhs have been paid in cash to respondents Nos. 2 and 4. There is no account/documentary evidence pertaining to these alleged cash payments, (ix) No payment has been made into the account of the companies but allegedly in the name of individual directors. In the balance sheet dated March 31, 2006. It was argued that the accounts of companies do not reflect the payments.

13. Further, my attention was drawn to the violation of the statutory provisions. There was no notice to the Petitioner of the alleged meetings of shareholders/Directors held on April 28, 2006, May 9, 2006, May 11, 2006, May 12, 2006, May 19, 2006 and May 20, 2006 It was pointed out that the Respondents have not served on the petitioner any notice of any meeting either of the Board of Directors or of shareholders, no postal receipts of any notice of meetings were found on the record of the companies on inspection, no notice dispatch register is being maintained by the companies. As per the Articles of Association, 7 days notice in writing is required to be given. (Article 23). As such, any action taken in the aforesaid meetings being contrary to the provisions of the Companies Act, is invalid and illegal.

14. Further, it was argued that the Petitioner's right to pre-emption was violated. In the alleged meeting of Board of Directors dated May 9, 2006 shares have been allotted to respondents Nos. 3 and 5, who at the time were admittedly not the shareholders of the companies and further respondent No. 2 on May 19, 2006 transferred his share holding not to respondent No. 3 also but to others. This act of the respondents No. 2 and 4 is violative of the petitioner's right of pre-emption as provided in the Articles of Association. My attention was to Article 10 to 15 which read as under: 10. No share shall be transferred to any person who is not a member of the Company so long as any member is willing to purchase the same at a valuation to be determined as provided hereinafter.

11. The person proposing to transfer the share (hereinafter called the transferring member shall give notice in writing to the Company of his intention to sell his share. Every such notice shall specify the distinctive number of shares proposed to be sold and shall constitute the Company as his agents for the sale of such shares to any members of the Company at a fair value to be determined by the Board. The Company shall communicate the notice of sale to each of its members. No notice intending transfer once given shall be withdrawn except with the sanction of the Directors.

12. If the Company shall within 45 days after the service of a sale notice find a member willing to purchase shares therein, the Company will give the notice thereof to the transferring member who shall be bound on payment of fair value to transfer the shares to purchasing members by executing proper dead of transfer with in one month from the date of receipt of notice from the company.

13. If the Director are not within 45 days after service of a sale notice able to find a member willing to purchase all or any of the shares comprised therein and give notice in the manner aforesaid, or if though no fault of the transferring member, the purchase of any share in respect of which notice according to article 11 has been given shall not be completed, then the transferring member will be at liberty subject to Article. Thereof to sell or transfer the shares comprised in his nature any other person or persons and at any price.

14. Save as provided in Section 108 of the Act, of transfer of a share will be registered unless a proper instrument of transfer duly stamped and executed by or on behalf of the transferor and by or on behalf of the transferor has been delivered to the Company together with share, certificate or if no such certificate is in existence, the letter of allotment of share. A fee not exceeding Rs. 2/may be charged for such transfer approved by the Directors.

15. The executor, or administrators of deceased member (not being one of the several joint holders) shall be the only persons recognized by the Company as having any title to the shares registered in the name of such member, and in case of the death of any one or more of the joint registered holders of any registered shares, the survivor or survivors shall be the only person recognized by the Company as having any title to or interest in such shares.

It was pointed out that the Articles of Association have not been amended and the existing shareholders had a right of pre-emption over the allotment of any new shares. It was contended that the petitioner continues to be a shareholder and before new allotment of shares, the Petitioner had a pre-emptive right in it. The action of the respondents is unsustainable in the eyes of law and is clearly violative of the articles of association of the respondent companies.

15. Further, Shri Chopra argued that removal of the petitioner and his son as the Directors of the companies were without following the procedure prescribed under law. It was pointed out that no notice of the meeting of Board of Directors to be held on May 19, 2006 was given to the petitioner. No special notice as envisaged under Section was 191 given to the petitioner and his son before their removal, thus denying them any opportunity of hearing as contemplated under the Companies Act, 1956. The procedure for removal of a director of the companies as laid down in Section 284 was admittedly not followed by the respondents on the premise that being in majority they could act in any manner since the result would be the same. The respondents have tried to explain their conduct by stating that under the MOU, automatic removal of the old directors is contemplated. However, this does not explain the differential treatment given to respondent Nos. 2 and 4, who were not automatically removed. In the alleged meeting of Board of Directors dated May 29, 2006, respondent Nos. 2 and 4 resigned as directors but resignation of respondent No. 2 was deferred till October 30, 2006. It was pointed out that so far nothing has been brought on record to show whether respondent No. 2 is still on the Board or not.

16. It was further argued that no explanation was given for the steep hike in the shareholding of the companies. The shareholding of the companies were increased from 1.0 crore to Rs 2.5 crores on April 28, 2006 and from 2.5 crores to 3.0 crores on May 11, 2006 without any notice to the petitioner, who admittedly is still a substantial shareholder of the companies. And further no explanation has been given before increasing the shareholding. My attention was drawn to illegal induction of Directors. Respondent Nos. 5 & 6 were illegally inducted on May 9, 2006. Respondent Nos. 7 and 8 were illegally inducted on May 11, 2006.

17. The counsel for the petitioner further pointed out that inspection of statutory records were denied to the Petitioner. It was allowed only after the Company Law Board's orders. Further my attention was drawn to non-maintenance of Minutes of Meetings in violations of Sections 193 and 194 of the Companies Act 1956. Further, it was pointed out that the respondents had changed the Registered Office and name and Memorandum and Articles of Association.

18. Shri Davinder Pal Singh, Counsel for the Respondent Nos. 1, 3 and 6 to 9, argued that the Respondent Companies were formed in January 2003 with primary object of engaging in the business of real estate. These were closely held companies and all the directors were closely related to each other. Petitioner and Respondent No. 2 were the only shareholders, holding 25% and 75% shares respectively. As both the shareholders were NRIs Respondent No. 4 was inducted on the Board of Directors for facilitating the smooth functioning of the companies. The companies had only one asset namely shop cum office complex at SCO 156-157, Sector 9-C, Chandigarh which was acquired on 30/09/2003. The Companies had no commercial activity, these did no business for a continuous period of two years and further these had no employees. Even till the date of filing of the present petition the companies had no source of revenue nor did these generate any revenue.

19. Shri Singh pointed out that the MOU executed on 09.11.2005 was for sale and purchase of shares to transfer complete control and management of the Companies to Respondent No. 3, including their assets and liabilities. Transaction cost was fixed as Rs. 1500 lakhs subject to deductions of dues payable to Municipal Corporation, Chandigarh and Cost of fixation of flooring titles. The MOU mentioned that 'the parties of the first part are keen to transfer their shareholding rights and unsecured loans/long terms deposits for a total consideration of Rs. 1500 lakhs and the second party together with his nominees are keen to purchase the shareholding. It was argued that the agreement was a simple share purchase agreement for a consideration, to which the companies were not a party.

20. Further, it was argued that the Respondent No. 3 was appointed as a director only on payment of 25% of the total consideration. Petitioner has continued to receive the payments as is evident from the receipts dated 10.02.2006 and 21.02.2006. The petitioner at this time never raised any objections regarding delay of payments. The objections were suddenly raised when the final payment was to be tendered, with a malafide intention, to avoid the MOU. Respondent No. 2 was authorised to receive the payments, it is evident from minutes of Board meeting dated 29.10.2005. Moreover, Respondent No. 2 was mainly responsible for the conduct of the affairs of the companies. Respondent No. 3 has made the entire payment including the penalty as per the MOU. For determining the final instalment deductions were made only regarding the two heads specified as above. Though four heads were mentioned in the meeting dated 09.05.2006 but no deduction was made regarding the later two heads. Petitioner was offered his share Rs. 3.25 crores through bank drafts on several occasions, which he refused to accept.

21. As regards the retention of Respondent No, 2 as Director it was argued that though Respondent No. 2 tendered his resignation in the Board meeting held on 29.05.2006, his resignation was deferred till 30.10.2006, on account of the various roadblocks created by the petitioner. Also, Respondent No. 3 was apprehensive that the petitioner and other directors were closely related and he was a stranger in the family. Further, large part of the payment was made in cash, so in order to make sure that investment of Respondent No. 3 was safe, Respondent No. 2 was retained. Respondent No. 3 in the meeting held on 28.03.2007 was relieved of his responsibilities as a Director.

22. Pointing to the malafide of the Petitioner, Shri Singh argued that various technical pleas regarding notice have been raised by the Petitioner to avoid the MOU. The petitioner was informed about every meeting through telephonic calls and letters. Even otherwise, the Board meetings were held at the registered office of the companies which was the residence of the Petitioner. Even if Petitioner's case is to be believed still it is hard to accept as to how a person, who was oblivious of all the developments, suddenly had the information that the possession of the assets was to be transferred on 10.05.2006.

Petitioner through the present litigation wants to extract more money than what is due as per the MOU. It was pointed out that the Respondent No. 3 has on several occasions made attempts before this Hon'ble Board whereby the assets of the Companies can be properly utilized, so that the companies do not have to suffer on account of the present litigation. However, the Petitioner has refuted every such attempt of Respondent No. 3, which clearly shows that he is pursuing this litigation with a malafide intention to satisfy his illegitimate ends and has no concerns for the affairs of the companies.

23. Shri Singh argued that the other acts of commission/omission as detailed by the petitioner can be described as consequential to the operation of the MOU which were done after the MOU was completed on 09.05.2006. After the completion of the MOU the Petitioner was no longer in control of the business and could not have participated in the companies management as all the shares were now held by Respondent No. 3 and his nominees. These acts include-(a) Increase in the Share Capital; (b) Appointment of respondent No. 3 as a Director; (c) Allotment of shares to Respondent No. 3; (d) Induction of Respondent 5 to 9 as Directors; (e) Automatic retirement of Petitioner as Director; (f) Change in the name of the Companies; (g) Change in the Registered Offices; (h) Change in the Memorandum of Association and Articles of Association; (i) Closing old bank account of the companies and opening new accounts. Replying on the reply to the amended petition, it was reiterated that these acts were justified being consequential to the operation of the MOU.24. Replying to the petitioner's allegation regarding oppression and mismanagement, it was argued that to decide whether the act complained was oppressive a five point test may be applied, namely - (a) What is the alleged act of oppression? (b) Who committed the act of oppression? (c) How it is oppressive? (d) Whether it is in the affairs of the companies? and (e) whether the companies are a party to the commission of the act of oppression? Reliance was placed on the judgments in Sangramsinh P. Gaekwad V. Shantadevi P. Gaekwad Fiduciary duty of Director - Para Nos. 42, 48, 49, 53, 54, 69, 75, 78, Oppression and Mismanagement - Para Nos. 180, 181, 183, 184, 194, 195, 196, 197, 198, Lifting of corporate veil-Para Nos. 226, 230; Needle industries (India) Ltd. v. Needle Industries Newey (India) holding Ltd. , Acts in contravention of Companies Act not per se oppressive-Para Nos. 44, 49, 51, 52; and Bijay Kumar Agarwal v. Rattan Lai Bagaria Lifting of corporate veil-Para Nos.

25. Alternatively, Shri Singh argued that the corporate veil of the Companies be lifted as the companies were used as a device to transact in the sole asset of the companies, in order to avoid the preferred rate of taxes. In such circumstances this Hon'ble Board may lift the corporate veil of the Companies to determine the true nature of the transaction. Supporting the above argument is the fact that the companies did no business nor it had any source of income. Further, the Petitioner has not alleged that the execution of the MOU was an act of oppression and mismanagement. It was pointed out that even the counsel for the petitioner has during the course of his arguments submitted that the corporate veil be lifted.

26. Shri Vivek Bhandari, counsel for the Respondent Nos. 2 & 4 argued that the petition has been filed by a person in capacity a Director through a power of attorney who neither holds any shares in the companies nor is he a Director. Till date the disgruntled Director has never appeared before any court. It was pointed out that the powers of a director are statutory in nature and cannot be delegated by the Director to an outsider through a power of attorney. The petition is therefore wholly incompetent and therefore deserves to be dismissed as such. It was pointed out that the original Directors of the Companies were closely related. The original Directors share holding was Ajmer Singh : 75% Shares; Amrik Singh : 25% Shares; Malkiat Singh : No shares. Shri Amrik Singh is the brother-in-law (Jeeja) of Shri Malkiat Singh being married to his sister. Shri Ajmer Singh and Malkiat Singh and married to two real sisters and as such are co-brothers (Sadu). But Shri Zora Singh with whom the MOU has been entered into is not related to any of them in any manner.

27. Shri Bhandari argued that the petitioner has intentionally given the wrong address of Registered Office in the title of the Petition only to deprive the Respondents of the opportunity to contest with the short time available to file the reply. The notice was issued 09.06.2006 for 13.06.2006. The respondents were to be served in Chandigarh. The petitioner has concealed from this Hon'ble Court that there was an outstanding amount of Rs. 118857500/- and Rs. 11331188/- towards share application money pending allotment in the balance sheets for the year 31.03.2005 which were duly signed by the Petitioner and yet the Petitioner has taken an objection to the increase in share capital. If there were only two copies one with Shri Zora Singh and the other with Shri Ajmer Singh then from where has the Petitioner got the copy of the MOU to attach with the petition. The petitioner has attached a doctored copy of the MOU to obtain the interim order. The petitioner claims that he was not kept in the know of things by Shri.

Ajmer Singh which is obviously incorrect because upto 10.02.2006 and 21.02.2006, the petitioner has received the consideration as per the endorsement on the MOU itself. Thereafter he has been in continuous touch with Shri Ajmer Singh and Shri Malkiat Singh how else could he know the exact the date and time to the physical delivery of possession, when he is said to have approached the police on 10.05.2006. The petitioner has caused a huge loss to the companies to the tune of more than one crore towards the rent alone by obtaining the interim order by misleading this Hon'ble Court. This is besides the penalty levied by the Municipal Corporation Chandigarh for non payment of installments.

28. Further, it was argued that the main grievance of the Petitioner is that he has not received the consideration. The entire grievance of the petitioner is that he has entered into a share transfer agreement with Shri Zora Singh and that he has not received the consideration for his 25% shares. This fact has been clearly mentioned in para 6 (d) and 6(e) of the amended Petition. And that he has not received the consideration is mentioned in para 6(f) and 60 of the petition. He has also made this statement before this Hon'ble Court when the case came up for hearing on 13.06.2006 and the same has been duly recorded. It was argued that in fact, this is totally incorrect as the entire consideration payable under the MOU has been received by Shri Ajmer Singh who was duly authorized to accept the same and admits having accepted it. It was contended that the petitioner admits the Resolution dated 29.10.2005 attached by the petitioner which clearly states that Shri Ajmer Singh was duly authorised to accept the consideration on behalf of the Directors/ Shareholders from Shri Zora Singh and in his absence Mrs.

Manjit Kaur w/o Late Balbir Singh. Shri Ajmer Singh was mainly responsible for the conduct of the affairs of the companies as state in para 3(a) of the, Amended petition. Further, Shri Ajmer Singh was responsible for the affairs of the companies and for receiving the consideration under the MOU is also evident from the fact that as per the endorsement made on the MOU by Petitioner on 10.02.2006, while receiving part of the consideration the petitioner has himself written that he is receiving the same on behalf of Shri Ajmer Singh. This fact was specifically admitted by the Petitioner during the course of arguments.

29. Replying to the petitioner's argument that installment schedule given in the MOU has not been followed, Shri Bhandari argued that it is the petitioner's own admission that he has received the payment on 10.2.2006 and 21.2.2006 which is duly endorsed by him on the reverse of the MOU. Upto this date a payment of Rs. 4.44 Crores had been paid by Shri Zora Singh. But there was never any objection, it suddenly started pouring out after 9.5.2006. It was pointed out that MOU was never followed by mutual consent. It was argued that it is obvious that the Petitioner is only shedding crocodile tears with a view to obviate his responsibilities under the MOU and to extract more money from Shri Zora Singh. Reiterating R-2 and R-4's contentions, Shri Bhandari vehemently argued that in fact the entire petition is based upon misleading facts and hypertechnical pleas and actually the petitioner has been refusing to accept his share of the consideration from the director who was duly authorized to accept the same, the transaction under the mou with mr.

zora singh is complete as zora singh has paid the entire consideration which the petitioner is refusing to accept.

30. Further, the counsel argued that (i) the petitioner knew fully well that Shri Zora Singh was going to make the full and final payment on 9.5.2006 when he signed the MOU on 9.11.2005. He was specifically informed regarding the same vide letters dated 30.4.2006 and 8.5.2006 yet he did not come Jersonally to collect the same and authorized Shri Ajmer Singh who did so ; (ii) On 10.5.2006, also when the Police was summoned by him also he did not receive the Bank Drafts amounting to Rs. 3,25 crores; (iii) again when the matter came up for hearing before CLB on 27.7.2006 the same Bank Drafts were offered but were refused; (iv) again before the Civil Court the Drafts were submitted by the answering respondent but the petitioner refused to accept. It was contended that the refusal is clearly with an intention to create where none exists. Even though the stand is totally unwarranted the Dispute, if any, only is of civil nature as such Remedy of the petitioner would be before the Civil Court and there is no mismanagement or oppression of any kind.

31. Further, replying to the other grievances, the Counsel argued that it is a totally wrong assertion that the money received as consideration should have been deposited in the Bank Account of the Companies. It was argued that the admitted position is that the MOU is nothing but a share transfer agreement, therefore, the consideration would necessarily flow from the buyer of the shares (i.e. Shri Zora Singh) to the seller of the shares (Shri Ajmer Singh under authority of all original Directors) which has been done. It was contended that the irrationality of this argument is evident from the fact that even if it is accepted then both the consideration as well as the shares and thus the control of the companies would stand transferred to Shri Zora Singh which could not have been the intention of the MOU.32. Replying to the objection to increase of Share Capital, it was argued that as per balance sheet duly signed by the Petitioner himself there were huge sums of money in the "Pending Share Allotment" account.

After, assuming control of the majority share holding the companies have only regularized the violation which has been effectively approved by the Board when accepting the Balance Sheet.

33. As regards payment to Shri Malkiat Singh, it was pointed out that this payment has been made out of the consideration for shares of Shri Ajmer Singh. Petitioner has been offered entire share which stands unaffected. It was pointed out that even the Petitioner has made payment of Rs. 25 lakhs to Shri Malkiat Singh.

34. Regarding retaining of Shri Ajmer Singh on the Board of Directors, it was contended that the objections of the Petitioner is totally unwarranted. Shri Ajmer Singh has been continued to maintain continuity in the companies. Since Shri Zora Singh had controlling interest it was upto him to choose his directors. There is no bar under company law to reappoint Shri Ajmer Singh.

35. Shri Bhandari reiterated the contentions that the petition has been filed by an incompetent person. Dispute if any is only of a civil nature and no case of oppression or mismanagement has been made out.

There is no requirement under the Companies Act, 1956 to hold a Board Meeting to effectuate a transfer of shares as such no notice was necessary on 9.5.2006. Further, the petitioner had no concern with the Companies after 9.5.2006 after Shri Zora Singh & Associates had taken over the controlling interest. Dispute if any is only of civil nature and a suit for specific performance has been filed and is pending in the Court of Sub-judge Chandigarh. Petitioner has mislead this Hon'ble Court by filing the frivolous litigation and obtained the said orders causing irreparable loss to the Companies and wasting the precious time of this Hon'ble Court. It was prayed that the case deserves to be dismissed with exemplary costs.

36. Sh. Nesar Ahmad, Company Secretary, appearing for the R-5 drawing my attention to as to who can file the petition argued that the present case is filed by person in capacity of a Director through a power of attorney who neither holds any shares in the companies nor is a Director. Whereas the power of attorney is neither accepted by the holder and it is incomplete and defective in the eyes of law hence becomes inoperative. The petition is, therefore, wholly incompetent and, therefore, deserves to be dismissed as such.

37. It was argued that companies are closely held companies since incorporation. No public interest at large was involved any time in the companies and that First Directors of the Companies were closely related. Further, drawing my attention to the provisions of Section 398 of the Act, it was argued that there is no public interest involved because it is a closely held company. There is no material change in the management. The change has taken place only when the Petitioner himself gave the consent to sell his shareholding and leave the directorship automatically on payment of consideration. The shareholding of the petitioner was never being questioned. He opted to quit and for a valid and higher consideration. It was argued that the only purpose of the petitioner seems to prolong the litigation and gain time to extort more and more money.

38. Drawing my attention to the provisions of Section 402 of the Act, it was argued that the agreement between the shareholders are outside the purview of the board and this petition is not maintainable, the alternate effective remedy is available in the matter of agreement which is pending before the civil court. The MOU between the shareholders and the purchaser of the shares are purely of commercial nature and it is the transaction which was outside the purview of the companies' management and operations because the company can't be part of the shares trading between the parties. Otherwise the object of the company law being separate legal entity will be defeated. It was pointed out that much stress was laid by the counsel for the Petitioner that MOU was only for the transfer of the land and building of companies, the said argument, it was argued, is refuted as (i) In the meeting dated 29/10/2005 it was resolved that MOU be executed by the shareholders of the companies with Respondent No. 3 for transfer of control and management of the companies; (ii) A draft MOU was executed by the parties on 29/10/2005. The said MOU was signed by the Petitioner himself. Thereafter, a final MOU was executed on 09.11.2005. The description in the MOU throws a glaring light as to its nature; which in point 1 provides that 'the parties of the first part are keen to transfer their shareholding rights and unsecured loans/long term deposits for a total consideration of Rs. 1500 lakhs and the second party together with his nominees are keen to purchase the shareholding.' (iii) Further, the assets and liabilities of the Companies have been treated as one cumulative lot in the final MOU and no specific reference has been made to SCO 156-159, Sector 9-C, Chandigarh; (iv) It can thus be concluded that MOU dated 09.11.2005 was a simple share-purchase agreement to which the companies never were and never could have been a party. Also the said MOU had a distinct peculiarity that all the shareholders of the companies decided to transfer their shareholding through one common agreement. Further, the petitioner's plea that the amount of the MOU shall be paid by the R-3 in the companies not to the share holders the plea is just to mislead the court because MOU was between the shareholders and not with the companies.

39. Further, it was argued that all the modifications and changes had taken place in the best interest of the companies and not in the interest of shareholders and all further funds raised by the companies were solely used by the companies for the construction and payment of government dues and expenses.

40. It was argued that the petitioner had not come with clean hands. He claims that the registered office of the companies was shifted and again he put wrong address which is petitioner's own residence. This is evident from the cause title and para 1(a) of the petition. Even otherwise the Petitioner was duly informed about the meeting dated 09.05.2006 through a letter dated 08.05.2006. He was fully apprised through the said letter that the balance of payment would be tendered in the meeting dated 09.05.2006. Further, the parties were in touch through mobile phones, which fact has not been denied by the Petitioner. However, despite notice he chose to remain absent willfully. It was further argued that even if Petitioner's case is to be believed it is strange as to how a person who was totally uninformed about the developments as per the MOU, managed to reach the spot on 10.05.2006 when the possession of the assets were being transferred.

This fact undoubtedly shows that the Petitioner's allegations are concocted and fabricated. It was contended that the Petitioner created a law and order problem, as a result the police authorities had to step in while the investigations were going on the Petitioner fled from the police station further brings to fore his concealed motive. Thereafter a letter was written by Respondent No. 2 and 4 on 12.05.2006 to the Petitioner to act fairly and further informing him that the next meeting was scheduled for 19.05.2006. However, the Petitioner despite notice chose to remain absent. The Petitioner did not have a copy of the MOU. If there were only two copies one with Shri Zora Singh and the other with Shri Ajmer Singh then from where has the Petitioner got the copy of the MOU to attach with the Petition. The Petitioner has attached a doctored copy of the MOU to obtain interim order. Further, it was pointed out that the petitioner claims that he was not kept in the know of things by Shri Ajmer Singh which is obviously ncorrect because up to 10.02.2006 and 21.02.2006, the Petitioner had received the consideration as per the endorsement on the MOU itself thereafter he has been in continuous touch with Shri Ajmer Singh and Shri Malkiat Singh, how else could he know the exact date and time of the physical delivery of possession, when he is said to have approached the Police on 10.05.2006.

40. It was further argued that the petitioner admits that the Resolution dated: 29.10.2005 clearly states that Shri Ajmer Singh was duly authorized to accept the consideration on behalf of the Directors/Shareholders from Shri Zora Singh and in his absence Mrs.

Manjit Kaur w/o Late Balbir Singh. Shri Ajmer Singh was mainly responsible for the conduct of the affairs of the Company is also stated in para 3(a) of the Amended petition. Further, Shri Ajmer Singh was responsible for the affairs of the companies and for receiving the consideration under the MOU is also evident from the fact that as per the endorsement made on the MOU by the Petitioner on 10.2.2006, while receiving part of the consideration the Petitioner had himself written that he is receiving the same on behalf of Shri Ajmer Singh. This fact was specifically admitted by the Petitioner during the course of arguments.

41. Replying to the petitioner's contention that installment schedule given in the MOU had not been followed; it was argued that it is the Petitioner's own admission that he has received the payment on 10/02/2006 and 21/02/2006 which is duly endorsed by him on the reverse of the MOU. Upto this date a payment of Rs. 4.44 Crores had been paid by Shri Zora Singh. But there was never any objection by the Petitioner through out the period of the transaction. It can be said that time was not the essence of the MOU whereas Petitioner himself demanded money and ratified the previous activities. It is also wrong submissions that payment was made by cheque. The entire payment wherever made by the Shri Zora Singh and his associates is made in cash or demand draft not by cheque, it seems that plaintiff tried to find escape route for his liability.

42. Further, it was argued that the petitioner willfully refused to accept the consideration and concocted the story for unjust enrichment.

The petitioner knew fully well that Shri Zora Singh was going to make the full and final payment on 09.05.2006 when he signed the MOU on 09.11.2005. He was specifically informed regarding the same vide letters dated 30.04.2006 yet he did not come personally to collect the same and authorised Shri Ajmer Singh who did so. On 10.05.2006, also when the Police was called by him also he did not receive the Bank Drafts amounting to Rs. 3.25 crores. Again when the matter came up for hearing before CLB on 27.7,2006 the same bank drafts were offered but were refused. Again before the Civil Court the Drafts were submitted by the answering respondent but the Petitioner refused to accept. Even through the stand is totally unwarranted the dispute if any is only of civil nature as such remedy of the Petitioner would be before the Civil Court and there is no mismanagement or oppression of any kind in the present plaint where he himself has shown his willingness to sell the entire share holding.

43. Furthermore, it was argued that the Petition has been filed by an incompetent person on the basis of power of attorney which in not even accepted by the holder of power of attorney/petitioner. The present dispute if any is only of a Commercial Nature between shareholders and civil suit is pending before the competent court. There is no matter of oppression or mismanagement has been made out as alleged as company is not in operation at all and further the petitioner is not qualified to file the petition before this board under the Companies Act, 1956 as he was not the member of the companies from the 9^th of May, 2006 or the filling date of present petition before the this Hon'ble Court as he ceased to be member by compliance of the MOU on 9^th May, 2006 by virtue of MOU on which entire consideration was passed to parties of MOU. If at all any grievances between the Petitioner and the R-1 the best remedy available to them was in the civil court. As he had mislead this Hon'ble Court by filing the frivolous litigation and obtained the stay orders causing irreparable loss to the Companies and wasting the precious time of this Hon'ble Court and companies also suffered heavy losses which is injurious for the health of companies. The present petitions, it was argued deserve to be dismissed with exemplary costs in the interest of equity and natural justice.

44. Responding to the contentions of the respondents, the counsel for the petitioner argued that the MOU is not a share transfer agreement which is belied in view of the facts that: (i) Malkiat Singh in his capacity of a Director is signatory to the MOU. Admittedly he is not a shareholder and could not have signed the MOU as a shareholder;(ii) the directors were acting on behalf of the companies as had been authorized vide Board Resolution dated October 29, 2005; (iii) the respondents have themselves pleaded that the payments were being made and received on behalf of the companies.

45. Further, it was contended that it was wrong to say that endeavour was to get Shri Zora Singh to default. The plea, on the face of it, is erroneous and misconceived. The material on record demonstrates that the respondents joined the companies to oust the petitioner and connived to usurp the assets of the companies and when the petitioner realized the collision between the respondents and sought to raise questions with regard to their conduct, hurriedly drafts of payments in the name of the petitioner were got made by taking loan sanctioned on May 9, 2006 itself. It is not understood as to how there could be any endeavour on the part of the petitioner to make Shri Zora Singh default in payment when as per their own case, it is Shri Ajmer Singh Khangura who was to receive the payment. As such, rather the material on record clearly shows that the endeavour is on the part of the respondents to hoodwink the petitioner as also the companies.

46. Further, it was argued that it was wrongly projected that the only grievance of the petitioner is that he has not received the money.

There is no denial of the fact that the petitioner was to receive the money but the payments were to be made as per the schedule given in the MOU and the same had to go to the account of the companies and thereafter in accordance with the provisions of the Companies Act, the same were to be distributed and in fact the respondents projected to the petitioner that the money was being given in the account of the companies, which fact can be seen from the 5 cheques given in the name of the companies and got receipted from the petitioner as well. It was argued that by making the drafts on a day after six months and when offering the same to the petitioner, in no way, can cure the numerous acts of oppression and mismanagement. Rather, this substantiates the contention of the petitioner that the respondents are hand in glove and had a malafide and motivated intention to oust the petitioner and then deal with the assets of the companies and share the money.

47. The counsel for the petitioner argued that the contention of the respondents that there has been no transaction since inception of the companies and the MOU is about the entire assets with an intention to save stamp duty, is wrong, erroneous and misconceived. The main object of the company is "to engage in the business of real estate and in particular purchase and sale of residential and nonresidential and owning and buying, selling, hiring, letting, sub-letting, maintaining, allotting, transferring allotment, administrating, exchanging, mortgaging, accepting lease, tenancy or sub tenancy of the same" and the property in question was the first acquisition of the companies and the transactions are in furtherance of the main object of the companies only and the stamp duty, if any, was or is required to be paid by the purchaser - respondent No. 3 only The respondents are also seeking to justify their illegal action by alleging that they were in majority and the result of the actions would have been the same only and the petitioner being in minority, could not have done anything, which plea, if accepted, would render the provisions of oppression and mismanagement as incorporated in the Companies Act, as redundant.

48. Shri Chopra counsel for the petitioner, reiterated his arguments that the petition as amended clearly spells out the acts of omission and commission. Moreover, the documents brought on record to substantiate the pleadings which have come from the custody of the respondents who were/are managing the affairs of the company, clearly demonstrate the acts of oppression and mismanagement. Further, it was pointed out that the power of attorney given by the petitioner is valid and legal. Similar power of attorney has been given by respondent No. 2 to respondent No. 4 with reply of respondent No. 2. Further, replying to the Respondents argument that this Hon'ble Board does not have jurisdiction to adjudicate the present dispute in view of the pending Civil Suit, it was argued that this argument is wholly misconceived as: (i) the Civil Suit has been filed by respondent No. 3 seeking specific performance of the MOU and has nothing to do with the issue of "oppression and mismanagement"; (ii) This Hon'ble Board has exclusive jurisdiction to adjudicate on the issue of "oppression and mismanagement" and jurisdiction of Civil Courts is expressly barred; (iii) If this Hon'ble Board does not show indulgence, then the Respondent will have an option of withdrawing the suit or if the suit is dismissed, the petitioner would be left without any remedy as far as the issue of "oppression and mismanagement" is concerned.

49. Considering the pleadings, the documents, the arguments and the legal position as applied to the facts and circumstances of this case, I find that the Respondents have not been able to controvert the contentions of the petitioner. It is a case of a petitioner, who being NRI has represented through his son who was present throughout these proceedings. The Respondents have raised technical objection that the son, has not specifically accepted the power of attorney given by his father who is a member and director in the companies. For this technical default and for the reason that director is not eligible to file a petition under Sections 397/398, it has been argued, the petition deserves to be dismissed at the threshold. These contentions of the respondents are not tenable. In the backdrop of allegations and counter allegations in the petition as well as acts of oppression and mismanagement, which the petitioner has made out successfully, to do substantial justice between the parties, preference cannot be given to technical defects when pitted against substantial justice. Moreover, this is a family company. In cases of family companies or companies in the nature of partnership, depending on the facts of the case, directorial complaints have been adjudicated by this Board in Sections 397/398 proceedings. Further, the scope and object of Company Law Board's powers under Section 402 read with Sections 397/398 is well settled. The provisions contained in Sections 397 to 409 of the Act constitute a Code by themselves and are not subject to other provisions of the Act; the CLB has wide powers under Section 402 of the Act including the power to give directions contrary to other provisions in the Act; the only limitation on the power that CLB could exercise under Section 408 of the Act is that there must be a nexus between the complaint made and the reliefs granted. The claim to relief rests not on any contract but on statutory rights. The powers conferred by Sections 397 to 402 of the Act cannot be taken away by agreement whether contained in the Articles or otherwise; the said provisions are an alternative to winding up and deal with public interest, the representative cause of shareholders and derivative cause of companies.

The powers under Section 402 are without prejudice to the generality of the powers of the Company Law Board under Section 397/398 and may provide for directions to achieve the objects for which Sections 397/398 is enacted. These statutory powers have been vested to administer justice and equity giving broad discretion applying general standard of fairness to decide the case on merits. These are inherent powers of the court to give directions to meet the ends of justice.

These powers can also be used to provide for interim arrangement, so that parties may not be unfairly prejudiced at the time of final decision. The exercise of these powers is not restricted to strict application of law, pleading in evidence, which may frustrate the very purpose of grant of these powers. Clause (g) of Section 402 has illustrated these extraordinary powers in which the Company Law Board may provide for another matter, which, in its opinion, is just and equitable. A failure to exercise these powers on a narrow and pedantic approach that powers under Section 397/398 are only for the purpose of protecting the interest of the companies, is a self-destructive attitude to the exercise of the equitable jurisdiction under Section 397/398.

50. Further, the respondents have drawn my attention to the conduct of the petitioner stating that the petition has been filed with an ulterior motive to extract more money from the respondents by deliberately making the respondents default the terms of the MOU in view of the rising prices of the property. The petitioner has successfully demonstrated that the respondents themselves were responsible for the non-adherence to the schedule of payment as per the MOU. As per the respondents' own case, it is Shri Ajmer Singh Khangura (R-2) who was to receive the payment, there was no way the petitioner could make Shri Zora Singh (R-3) to default in payment. Rather the facts and circumstances of the case give credence to the petitioner's contentions in this regard. In view of the foregoing, I find no justification to dismiss the company petitions at the threshold.51. Now, coming to the merits of the case, I find that the entire case of oppression and mismanagement has been triggered due to the unsuccessful MOU made by the Respondent Companies through its directors vide their Resolutions to negotiate and settled terms and conditions for transfer of companies land and building providing for resignations of the directors and transfer of entire shareholding. The petitioner has rightly contended that the MOU entered into for transfer of land building including entire shareholding rights and unsecured loans/long term deposits, etc. is in the affairs of the companies. It became, unenforceable. The respondents' contentions that it was "a simple share purchase agreement for a consideration, to which the company was not a party", "purely commercial nature... its transaction was outside the purview of the company management... the company cannot be part of the shares trading between the parties." "The MOU is nothing but a share transfer agreement..." are found to be incorrect on a bare reading of the language and terms used in the MOU which reveal altogether different facts. Pursuant to the Board's Resolution dated October 29,2005, the petitioner, the R-2 and R-4, acting as directors of the companies are the FIRST PARTY who entered into the MOU dated November 9, 2005 for transfer of the companies land building .The petitioner's contentions became tenable by the specific instances, besides the language and terms of the MOU, that Shri Malkait Singh, who could not have signed the MOU, he is admittedly not a shareholder, but has signed it in the capacity of a Director of the Companies, the directors were acting on behalf of the companies and had been so authorised vide Board Resolution dated 29.10.2005, the respondents have themselves pleaded that the payments were being made and received on behalf of the companies, even part payment has been shown in the accounts of the companies, where, in fact, it should have rightly gone. Without compliance with the terms of the MOU, which was in the affairs of the companies, no steps could have been taken till the payment of full consideration amount to the companies. But the respondents hurriedly proceeded to take various steps including transfer of shareholding to the new directors, resignation of existing directors, transfer of effective control and physical possession of the building of the companies causing oppression to the petitioner and prejudice to the interests of the Respondent Companies. The conduct of the respondents in managing the affairs of the companies was oppressive and prejudicial even to the interest of the companies. The respondents' contention that the total consideration having been offered to the petitioner, he cannot be heard to have grievance is misconceived, erroneous and against the material on record. The inconsistencies and contradictions in the arguments are obvious. As per the respondents own showing money was not paid to the companies, then as per their own showing five cheques amounting to Rs.1.05 crore have gone into the account of the companies-these are the payments that have been received by the petitioner and have gone into the account of the companies. Why not the balance payment? There is no answer. The respondents are silent regarding these payments. Why Shri Malikat Singh who is admittedly not a shareholder, is a party to the MOU? There is no answer. He has also been paid the money. But why? It has not been explained. Cash payment of Rs. 638.82 lakhs is said to have been made. There is no account. No documentary evidence.

52. On merits, the respondents have been unable to controvert petitioner's allegations regarding oppression and mismanagement. The sequence of events Appointment of additional directors on May 9, 2006, change of the registered office of the companies and allotment of shares to R-3 and R-5 on the same day; handing over the possession of the companies to R-3 on 10.5.2006; appointment of more additional directors, increasing of share capital and allotment of further shares on 11.5.2006; the change of the name of the companies; closing of the existing Bank account of the companies with ICICI Bank and opening of new account with the State Bank of Patiala on 12.5.2006; removal of the petitioner and his son from the Board of Directors of the companies on 19.5.2006 whereas R-2, the other signatories to the MOU continued to remain on the Board; on the same day R-2's shares were transferred, though he continued to be a director, and R-4 as a director was authorised to sign necessary endorsements on the share certificates and to do all acts to give effect to transfer and approve the shares; on 19.5.2006 the main objects of the companies were also altered; on 19.5.2006 R-2 transferred his shareholding not in favour of R-3 but certain other persons; on 29.5.2005 R-2 and R-4 resigned but the resignation of R-2 was deferred, for the reason best known to them, reveals gross acts of oppression and mismanagement done blatantly in gross violation of the statutory provisions and Articles of Association of the companies. 1 find that the petitioner's contentions regarding non-receipt of the consideration amount as per the MOU, utter disregard to the terms of the MOU, non-adherence to the schedule of payment, compliance within stipulated time being sine qua non of this commercial transaction, manipulations of accounts, inconsistencies and contradictions in statements remain uncontroverted. There is no explanation as to why R-2 and R-4 were given different treatment. They were also signatories to the MOU. But it is not explained as to why they were not removed automatically as the petitioner was treated as having automatically resigned and removed. Even a single act on the part of the respondents managing the companies which disturbs the equity stakes decisively by bringing down the shareholding which would have relevance in taking many managerial decisions, would be sufficient to constitute an action of oppression/mismanagement. In the present case there are several acts which are not only oppressive to the minority but also burdensome, harsh and wrongful and are continuing upto the date of these petitions. I find that the lack of confidence between the majority and the minority shareholders has sprung from oppression of minority in the management of the affairs of the companies. The acts of omission and commission remain unexplained. The case laws relied upon by the respondents only reiterate the legal position to show as to what constitutes oppression and mismanagement and when can the corporate veil be lifted.

53 The respondents have failed to rebut the petitioner's contentions regarding the violations of the statutory provisions and the Articles of Association specifically Article 10 to 15 as reproduced above. This being a private company, I find that the petitioner's right to pre-emption has been violated. The contention regarding illegal allotment without notice, without offer remains uncontroverted. The onus of having given notice to the petitioner of the alleged meetings of shareholders/directors held on 28,4.2006, 9.5.2006, 11.5.2006, 12.5.2006, 19.5.2006 and 20.5.2006 remains undischarged. No document has been adduced/produced in this regard. All actions taken in these alleged meetings being in contravention of the provisions of the Act and in violation of the Articles of Association being illegal become invalid.

54. Further, the respondents have failed to explain their illegal acts regarding increase in the authorised share capital from 1 crore to 2.5 crores on 28.4.2006 and from 2.5. crores to 3 crores on 11.5.2006 without making a case of proper purpose. And this has been done at the back of the petitioner without notice to him who admittedly is still a substantial shareholder of the companies. The respondents contention that they were in majority, they could act in any manner since the result would be the same, is nothing but oppressive to the petitioner.

This only proves that the petitioner lost his "Negative Control Right" Clemens v. Clemens Bros Ltd. and Anr. [1976] 2 All ER 268 which is nothing but oppression to mismanage the affairs of the companies.

Taking away of the petitioner's "Negative Control Right" in itself is an act of oppression. The allegations of inaccessibility to even the statutory records of the companies and specifically non-maintenance of the minutes of the meetings remain uncontroverted. In this view of the matter, I have no option but to set aside the increase in the share capital on 28.4.2006 and 11.5.2006, restoring status quo ante. Further, to do substantial justice between the parties, all allotment of shares made subsequent to entering into the MOU dated 9.11.2005 and thereafter being illegal are hereby set aside and status quo ante is restored.

55. Coming to the allegations regarding removal of the petitioner and his son from directorship and induction of other directors without notice and in violation of the statutory provisions specifically 191 and 284 of the Act by resorting to the clauses in the MOU, which remained unenforceable, to say that the removal was automatic removal of the old directors as contemplated in the MOU, is nothing but acts of gross oppression specifically in view of the matter that the allegations remain uncontroverted. As pointed out earlier, in case of family companies or companies in the nature of partnership, depending on the facts of the case, directorial complaints have been adjudicated by this Board in Section 397/398 proceedings. The present case being of family companies, removal from directorship without notice in violation of statutory provisions amounts to gross oppression. Then, the respondents have failed to explain the different treatment given to R-2 and R-4. The clauses and terms of the MOU in question applied to them as well. The unexplained circumstances point towards collusion in the matter. Further, induction of new directors by the majority without notice to the minority after illegal removal of directors is nothing but oppressive. In view of the foregoing, I find no justification to uphold the removal of the petitioner and his son from directorship and induction of new directors on the Board. Induction of new directors on entering into the MOU on 9.11.2005 and thereafter being illegal is set aside and status quo ante is restored. The acts of removal of the petitioner and his son from directorship being illegal are set aside, they continue to be directors. The status quo ante is restored.

56. It is true that the Company Law Board does not sit in judgment over the commercial wisdom of the shareholders as reflected in the MOU, but noncompliance of the MOU which is in the affairs of the respondent companies has caused and triggered off oppression to the shareholders and resulted in prejudice to the interests of the companies whose affairs have been mismanaged by the respondents. The Company Law Board has powers to terminate, set aside, or modify the contracts to set right [Section 402(e), 407]. The Company Law Board's powers are not confined to the relief as may be deemed fit AIR 1976 Bom 237 Bennet Colman. It is reiterated that the powers under Section 402 are without prejudice to the generality of the powers of the Company Law Board under Section 397/398 and may provide for directions to achieve the objects for which Sections 397/398 is enacted, These statutory powers have been vested to administer justice and equity giving broad discretion applying general standard of fairness to decide the case on merits. These are inherent powers of the court to give directions to meet the ends of justice. These powers can also be used to provide for interim arrangement, so that parties may not be unfairly prejudiced at the time of final decision. The exercise of these powers is not restricted to strict application of law, pleading in evidence, which may frustrate the very purpose of grant of these powers. Clause (g) of Section 402 has illustrated these extraordinary powers in which the Company Law Board may provide for another matter, which, in its opinion, is just and equitable. A failure to exercise these powers on a narrow and pedantic approach that powers under Section 397/398 are only for the purpose of protecting the interest of the companies, is a self-destructive attitude to the exercise of the jurisdiction under Section 397/398. Keeping in view that the MOU allegedly unenforceable and that it has been specifically challenged by R-3 in the appropriate Court, no findings are necessitated in this regard.

57. With the above directions, the company petitions are disposed of.

All company applications stand disposed of. All interim orders stand vacated. No order as to cost.