1. The petitioners, holding 25.1% of shares in M/S Lake Shore Palace Hotels Pvt. Ltd. (the company), have filed this petition with the main allegations that by increasing the share capital of the company, the 2 respondent is attempting to oust the petitioners from the company and also to reduce them to a hapless minority and that he; is guilty of financial mismanagement in the affairs of the company. With these allegations, the petitioners have sought for supersession of the Board, appointment of an administrator and for permanently restraining the respondents from increasing either the authorized or paid up share capital.
2. In brief, the undisputed facts of the case are: The company was originally promoted by late Maharana Bhagwat Singh of Mewar and he had leased out one of his palaces (Shiv Niwas Palace) to the company for running a hotel. He had three children the 1st petitioner, the 2nd respondent and Shri Maharaj Kumar Mahender Singh. The 2nd respondent is the younger brother of the 1st petitioner. Late Maharana expired on 3.11.1984 leaving a Will appointing the 2nd respondent and one A.Subramaniam (who expired in 1993) as executors. The High Court of Rajasthan granted probate of the Will in 1987. Through the Will, late Maharana had created a trust in the name of Maharana Mewar Institution Trust to which he placed a number of immovable and movable assets owned by him including some of the shares held by him in the company. Of the 700 shares held by him in the company, he bequeathed 100 shares each to the 1st petitioner and the 2nd respondent leaving 500 shares for the Trust. He had also stipulated that none of them should sell their shares except to the Trust. He had named 5 trustees, the 1st petitioner being the Chairman and the 2nd respondent as the Managing Trustee. In 1989, the company issued certain number of shares on a right basis.
This issue was challenged by the petitioners before the High Court of Rajasthan by a petition under Sections 397/398. The judgment of the learned Single Judge was appealed against by both the parties before the Division Bench. Before the Division Bench, the parties decided to settle the disputes amicably by a Memorandum of Understanding on 25.8.1999. Some of the terms of the agreement were: a. The 2nd respondent was to transfer 145 shares held by him to the 1st petitioner.
c. The services of the proprietary concern of the 1st petitioner would be utilized by the company on payment of Rs. 6 lacs per annum.
3. The Court accepted the terms of Settlement and accordingly all the terms were implemented. By acquiring 145 shares from the 2nd respondent, the shareholding of the petitioners came to be 25.1% while that of the 2nd respondent to 52%. In 2004/2005, the company proposed to issue 3000 shares on a right basis and the said proposal has been challenged in the present petition.
4. Shri Sarkar appearing for the petitioners submitted: Right from incorporation in 1972 till 1979, none of the family members except late Maharana held shares in the company. In 1979, the total number of shares issued was 125 out of which late Maharana held 75 shares and the 1st petitioner who was allotted 25 shares held 20% of the issued capital of the company. On issue of further shares in 1980, she came to hold 33.4% shares while late Maharana held 58.3% shares. On further issue of shares in 1982, the shareholding of late Maharana went up to 77.5% while that of the 1st petitioner came down to 20%). Only in 1983, the 2nd respondent became a shareholder when late Maharana transferred 7.5% shares from his holding to the 2 respondent. Again in 1984, late Maharana transferred 25 further shares in favour of the 2nd respondent, thus, he came to hold 10% shares in the company. Thus it is evident that neither the petitioners nor the 2 respondent contributed towards the shares of the company. As per the Will of late Maharana, all the assets held by him were to go to the Trust. In his Will, late Maharana had specifically mentioned that shares in the company had been allotted to the members of the family with the intention that the hotel would always remain a closely knit family concern. Thus, in a family company, certain equities are to be maintained. Even though probate had been granted, the 2nd respondent being the only surviving executor, delayed the execution of the Will and continued to control the 700 shares held in the name of late Maharana, in his capacity as the executor. To ensure that even after administration of the estate by which 500 shares would go to the Trust, with a view to maintain control over the affairs of the company, he increased the authorized capital of the company from Rs. 25 lacs to Rs. 50 lacs in 1989 and 923 shares were offered to the 1st petitioner as right shares. However, 923 shares were not allotted to the 1st petitioner. Instead of offering right shares to the Estate and accepting the same on behalf of the Estate in his capacity as the executor of the Estate, the 2n respondent got these shares allotted to himself. He got himself allotted 1023 shares. Thus, from a 10% shareholder, he became a 56.6% shareholder, thus became the absolute majority. In addition, he also came to control 23.1% shares held by the Estate in his capacity as the executor. This action of right issue and consequent allotments along with other acts of mismanagement on the part of the 2nd respondent was agitated before the Rajasthan High Court in a petition under Sections 397/398. Before the Division Bench, the parties had entered into a settlement by which 145 shares were transferred by the 2 respondent to the 1st petitioner to increase her shareholding to 25.1% with the understanding that no further shares would be issued in the company so as to maintain the percentage of the shareholding of the petitioner, the Estate and the 2nd respondent. The company holds 49% shares in Lake Palace Hotel, Jaipur which is running very profitably. By the majority shareholding in the company, the 2nd respondent controls the Lake Palace hotel also but the petitioner is not on the board of the Lake Palace Hotel even though the return for her shares in the company depends on the performance of the Lake Palace Hotel.
5. Sometimes in 2004, the 2nd respondent desired to purchase the shares held by the 1st petitioner. Since the 1st petitioner had been completely excluded from the management of the affairs of the company, she expressed her willingness to consider selling her interest at a fair price. Instead of having the fair value determined, the 2nd respondent offered Rs. 1 crore for her shares which was not acceptable to the 1st petitioner. Thereafter, the petitioner received a valuation report prepared by the 3 respondent stating that the same had been prepared at the behest of the 1st petitioner even though she had never asked the 3 rd respondent to prepare any valuation report. In that report, Shri Unni had grossly under valued the price of the shares with the view to benefit the 2nd respondent. His failure to acquire the shares of the petitioners at a gross under value had prompted the 2nd respondent to go in for a right issue with the view to put pressure on the petitioners.
6. The learned Counsel further submitted: On 13.12.2004, the company issued a notice for convening a Board meeting on 29.12.2004 to consider increase in the authorized capital from Rs. 50 lacs to Rs. 5 crores claiming that funds were needed for project implementation. No project report was circulated. She sent a letter of protest on 29.12.2004 against this proposal. She attended the meeting and again expressed her dissent but with the support of Shri Unni, the 2nd respondent got the proposal through and they decided to convene an EOGM on 29.1.2005 to seek the approval of the shareholders to increase the authorized capital. The explanatory statement did not contain any particulars/details of the projects. In the EOGM, the 1st petitioner demanded a poll and with his majority shareholding, the 2nd respondent got the proposal approved. Thereafter, a board meeting was convened on 30.3.2005, by a notice dated 14th March, 2005. Along with the notice, a summary of the projects had been enclosed and agenda also included an item for discussion on method of raising finance to fund the projects and to approve the most suitable method. There was no mention of any expansion plan in the agenda. The Statement enclosed with the notice only indicated the status of the projects which had already been completed and expenses towards renovation etc. Except this chart, no other details have been given. It is to be noted that in the board meeting on 29.12.2004 wherein it was decided to increase the authorized capital, even this chart has not been produced. Further, the notice for the board meeting is dated 14th March, 2005 but the chart shows details as on 1st April, 2005. There was no agenda of this meeting for issue of shares on a right basis. However with the connivance of Shri Unni, the 2nd respondent got the proposal to offer 30000 equity shares of Rs 1000 per share on a right basis and the petitioners got the letters of offer.
7. Notwithstanding the spirit with which the agreement was entered into before the High Court that no further shares would be issued/the share capital expanded and that the company would be managed properly, the 2n respondent has tried to increase its shareholding and continues to mismanage the affairs of the company with the active connivance of Shri Unni. Having illegally acquired 52% shares in the company, by proposing further right issue of 30000 shares, the 2nd respondent is trying to reduce the petitioners to a hapless minority as the 2nd respondent is fully aware that the petitioners are not in favour of increasing the capital of the company and as such would not accept the shares. His proposal to increase the capital was malafide. He knew that the petitioners would not accept the right shares and that being the Executor of the Estate he would not subscribe to the shares in the name of Trust. Thus all these shares would be available for allotment to himself and he would subscribe to the same and thus gain full control of the company. This is the same modus operandi that he adopted in the allotment in 1989 which resulted in the earlier petition. However, after this petition was filed, he accepted 2000 shares on behalf of the Trust out of the shares offered to it. This itself would show the malafide purpose of the right issue. The purported claim of the 2nd respondent that the company is in need of funds is bogus. From the balance sheet as on 31.3.2004, it is evident that the 2nd respondent has spent substantial funds on real estate. Even assuming that the company needed funds, he did not take any effort to look for alternate source of funds by way of loans from the banks or by way of unsecured borrowings. The agreement before the High Court was entered into on the understanding that there would be no further issue of capital to reduce the holding of the 1st petitioner and the Estate. In other words, whatever was the percentage of shares after transfer of 145 shares that the 1st petitioner and the Estate held, the same could never be reduced/altered. Therefore, the proposed allotment by way of right of 30000 shares is not bonafide and is motivated and is highly oppressive to the petitioners. The admitted fact is that the company holds 49.5% shares in Lake Palace Hotel. It has leased out the hotel property to Taj Group of hotels and it gets a minimum guarantee amount of over Rs. 10 crores every year. The 2nd respondent is in charge of that hotel but no dividend has been declared for the shares held by the respondent company affecting the interest of the petitioners as they are not in a position to get any dividend from the respondent company. The shareholding in Lake Palace Hotel is a very valuable asset of the company. Being in charge of Lake Palace Hotel, the 2nd respondent is advancing loans to other entities which are controlled by him or his relatives. No funding is done by Lake Palace Hotel for the needs of the company. Thus, the misstatement of the 2nd respondent is evident from these facts.
8. As a matter of fact, the company is running a hotel which is functioning in a lease hold property and has only 36 rooms. Its major asset is the shares held by it in Lake Palace Hotel. Since the petitioners were not getting any return on their investment and the 2nd respondent was insisting on further issue of shares, the petitioners were willing to go out of the company but the 2nd respondent offered only a sum of Rs. 1 crore notwithstanding the fact that the value of the hotel property is over Rs. 30 crores and the company holds 49.5% in Lake Palace Hotel, the value of which would be very high. Even now, the petitioners are willing to divest their entire shares if the shares are valued on real estate price. The: 2nd respondent should not have any objection as he has acquired the shares at par value. Let the valuation of the shares held by the petitioners be directed to be done as on 31st March, 2006. In the alternative, if at all the company is need of funds, the petitioners are prepared to give loans in proportion to their shareholding at market rate of interest and let the 2nd respondent also do so instead of right issue.
9. In regard to Shri Unni, the learned Counsel submitted: Shri Unni was appointed as a director in terms of agreement before the High Court. At that time the petitioner had reposed complete trust and confidence in him, but of late he has started against the interests of the petitioner. He has completely turned against the petitioners. He has supported the 2nd respondent in approving right shares in the board meeting. This was done with a view to oust the petitioners from the company. It is to be noted that initially the 2nd respondent offered Rs. 1 crore to the petitioners for their shares, which the 1st petitioner did not accept. With a view to convince that Rs. 1 crore was a reasonable price, the 2nd respondent got Shri Unni to prepare a valuation report showing a much lesser value for the shares. Being a director of the company, Shri Unni should not have carried out the valuation. Further, he is also guilty of professional misconduct, as being a director of the company, he could not have been appointed as the statutory auditor of Lake Palace Hotel in which the company holds 49% shares. Therefore, he should be removed as a director of the company.
10. Summing up his arguments, Shri Sarkar submitted that the only manner by which the interests of the petitioners could be protected is that, their shares should be directed to be purchased by the 2nd respondent/company on a fair valuation based on the asset value of the company as well as Lake Palace Hotel or in the alternative, any funds required by the company should be mobilized through loans by the petitioners and the respondent/Estate and the present offer of right shares should be cancelled.
a. Clemens v. Clemens Bros 1976 2 AER 268: The powers conferred on the board of directors must be exercised not only in the manner required by law but also bonafide for the benefit of the company as a whole, but it must not be exceeded. These conditions are always implied and seldom expressed.
b. Standard Industries Ltd. v. Mafatlal Industries Ltd. 80 CC 764 CLB: Even allotment of right shares could be considered to be oppressive and when a shareholder is not willing to invest in the right shares, his entire shareholding could be directed to be purchased on a fair valuation.
c. Re: A company 1985 BCLC 80: Even a right issue in facts of a case could be considered to be unfairly prejudice to a shareholder and with a view to preserve the status quo, injunction can be granted against the right issue.
d. Re: A company 1986 BCLC 362: If the majority knows that the petitioner does not have the money to take up his right and the offer is made at par when the shares are plainly worth a great deal more than par as part of a majority holding (but very little as a minority holding), it seems to me arguable that carry through the transaction in that form could, viewed objectively, constitute unfairly prejudicial conduct. In this case, however, it seems to me that the petitioner, is he lacks the resources or inclination to contribute pari passu to the company could protect its interest by offering to sell his existing holding to the majority. Indeed if the company need funds and he does not want to pay his shares, it seems to be fair that he should offer to sell out.
e. Howard Smith v. Ampol Petroleum Ltd. 1974 AC 821: When a dispute arises whether directors of a company made a particular decision for one purpose or another, the court is entitled to look at the situation objectively in order to estimate how critical or pressing or substantial are, per contra, in substantiate an alleged requirement may have been.S. James Fadrick v. Mrs. Minnie R. Fadrick 101 CC 294 CLB: In a family company with limited number of shareholders, the shares held by the company in the subsidiary could be distributed among the shareholders.
12. Shri Vibhu Bakhru appearing for the petitioners submitted: In the earlier proceedings before Rajasthan High court, no decision on merit was given by the Division Bench. The matter ended in a compromise.
Therefore, the principle of res judicata cannot be applied. In terms of Section 11 of the CPC also, there is no finality in the judgment. What the petitioners allege is regarding the conduct of the 2 respondent consolidating his position in all companies in breach of the family set up. He had acquired the shares meant for the Trust. Thus all the benefits which should legally go to the Trust have been appropriated by the 2nd respondent. The 2nd respondent has offered Rs. 1 crore for the 25% shares held by the petitioners. Even, in his own proposal to the State Bank of Bihaner & Jaipur on 8th March, 2002, the Vice President (Finance) of the company stated that on a conservative basis the value of Shiv Nivas Palace was about Rs. 30 crores. If so, the shares of the petitioners should be valued at least at Rs 7.5 crores. Further even assuming that the petitioners are not interested in taking the shares, when such a valuable property is involved, there is no reason as to why the 2nd respondent should acquire the shares at par. Shri Unni being a director of the holding company cannot function as the statutory auditor of its subsidiary. The 1st petitioner agreed for induction of Shri Unni as a director only with the hope that he would be impartial.
However, his subsequent conduct has shown that he is siding with the 2nd respondent and therefore the petitioners have lost complete faith in him. At the time when the consent terms were entered into before the High court, the understanding was that the percentage shareholding of the petitioner would remain without any change. The 1st petitioner never interfered with the working of the company. Therefore when such an understanding is breached, the petitioners have a fresh cause of action. It is to be noted mat the authorized capital was increased only after the petitioners rejected the offer of Rs 1 crore made by the 2nd respondent. This itself would show that the motive for increase in the capital is not bonafide but only to gain absolute control over the company knowing fully well that the petitioners would not subscribe to the shares. It is further to be noted that the letters from the banks relied on by the 2nd respondent related to the period 2003 and 2005 and not relating to 2004. By using the position of a trustee, executor and majority shareholder, the 2nd respondent is trying to acquire the shares of the petitioners at a low price. Once the 2nd respondent acquires the shares of the petitioners, his individual control over Lake Palace Hotel would become 64%. Shri Unni, being aware of the agreement before the High Court, could not have approved issue of further shares. This itself would indicate that he is no longer neutral but is siding with the 2 respondent. This is the reason why the petitioners are challenging his continuance as a director as well as the auditor of Lake Palace Hotel. Taking into consideration that both the petitioners as well as the 2 respondent had acquired the shares by inheritance, one has to look at the group as a whole for valuation. The 2nd petitioner being a trustee of the Trust is very much concerned with the interest of the Trust. Even though the Trust is entitled for 6400 shares, the 2nd respondent has acquired on behalf of the Trust only 2000 shares. Thus the 2nd respondent has acted against the interests of the Trust also in breach of his fiduciary duties to the Trust.
13. Shri Mookherjee, Senior Advocate, appearing for 2nd and 3rd respondents submitted: The petition has been filed in respect of the 1st respondent company and Lake Palace Hotel has not even been made a party to the proceedings and therefore there can be no reference to Lake Palace Hotel in deciding the disputes between the parties. From 1991 to 1999, the petitioners held 615 shares and regular dividend had been declared on the shares. In 1999, in terms of the agreement before the High Court, the petitioner acquired 145 shares from the 2nd respondent at par. This would indicate that the petitioner is not averse to acquire the shares at par and even now the proposal of the company is to offer right shares at par. Her total investment in the company is Rs. 7.6 lacs and she has been a director of the company and has been receiving Rs. 6 lacs per year in terms of the agreement before the High Court. Thus, she has by now received more than Rs. 42 laks by way of dividend/compensation. She cannot allege any financial mismanagement as she has been signatory to the annual reports up to 2004. Many of the allegations raised in the petition relate to the period prior to the date of her petition under Sections 397/398 of the Act before the High Court. The allegation that the 2nd respondent has gained majority shares in the company and that he had not subscribed to the shares offered to the Estate etc. had all been covered in the earlier petition. Since the parties had agreed to settle their disputes before the High Court and had actually done so, none of the issues raised in the earlier petition can ever be raised in the present petition. As a matter of fact, after the settlement, the petitioners withdrew the said petition without liberty. Therefore having withdrawn the said petition without liberty, the petitioners cannot now voice any grievance against the 2nd respondent that he had gained majority shares in the company illegally. In terms agreed before the High Court, the 1st petitioner had elected to continue with the company and unless the same is disturbed, she cannot complain. Therefore, the only allegations relating to the period after 1999 can be looked into by this Board. In the petition, the only allegation relating to the period after 1999 is that the company is proposing a right issue.
14. In so far as the proposal to issue further shares is concerned, it is not the case of the petitioners that the company is not in need of funds. Even in the petition at paragraph 25, the petitioners have only complained that the 2nd respondent has not made any attempt to look for alternate source of funds. In her letter dated 27.1.2005, her allegation was that the need for funds had arisen due to the mismanagement by the 2 respondent. In her letter dated 9.4.2005, she had alleged that agenda item No. 4 for the board meeting on 30.3.2005 was to discuss the various methods of raising funds and that the 2nd respondent had unilaterally decided that funds should be raised by issue of further shares. This would indicate that the 1st petitioner was conscious of the fact that the company is in need of funds. Having withdrawn the earlier petition due to which none of the earlier allegations would survive, she has included all those allegations in the present petition only to build a case of consecutive events. Para 21 to 34 of the earlier petition have been practically reproduced.
15. He further submitted:, It is the sole prerogative of the board of directors to decide the mode and manner of raising funds required for the company. The financial position of the company is reflected in the Chartered Accountant's certificate dated 9.9.2005, as enclosed with the sur rejoinder. As per this certificate, the net worth of the company was negative to the extent of Rs. 2.13 crores as on 31.3.2004 and of Rs. 1.1 crore as on 31.3.2005. As a matter of fact, Lake Palace Hotel had given an advance of Rs. 10 crores to the company by way of trade deposit on account of which only the company could survive. The petitioners are fully aware of the financial position of the company as the 1st petitioner had signed the balance sheets as on 31st March, 2002, 31.3.2003 as well as 31.3.2004. All these years, the company had incurred losses. Because of this dire financial position of the company, when the company requested for term loan facility from the Banks for project finance, the Bank of Baroda as well as Vijaya Bank had advised the company to increase the paid up capital of the company.
Therefore, the necessity of issue of further snares arose because the 2n respondent could not raise funds through any other source, contrary to the stand of the petitioners, that alternate method of raising funds had not been considered. Raising of funds through issue of shares is the most cost effective as there will be no liability towards interests etc. In a closely held company, it is the duty of every shareholder to assist the company by inducting funds by way of share capital when the company is in need. Further, nothing was done in a clandestine or secret manner. The matter of raising the authorized capital was discussed in a board meeting on 29.12.2004 by giving a notice on 13.12.2004 showing this business as a part of the agenda for the board meeting. In response to the said notice, by a letter dated 29.12.2004, the 1st petitioner objected to the proposal for increase in the authorized capital only on the ground that even though in the past share capital had been raised, the company had not made any profit. She did not voice any other grievance. The 1st petitioner attended the said meeting and in that meeting the 2nd respondent gave full details as to why the company was in need of funds requiring the increase in the authorized capital. Even though she voted against the proposal, by majority, the proposal was cleared and it was decided to convene an EOGM and accordingly on 5.1.2005, notice for EOGM on 29.1.2005 was issued. The 1st petitioner attended the EOGM and sought for a poll and her entire group voted against the proposal but was carried through by majority. Thereafter by a notice dated 14.3.2005, a board meeting was convened on 30.3.2005 to approve projects to be under taken by the company (Project report was annexed with the notice) and also for deciding the methods of financing the project. Responding to this notice, by a letter dated 20.3.2005, the 1st petitioner alleged that Shri Unni should not attend any board meeting as his appointment was bad in law and as such he should not attend the meeting on 30.3.2005.
She further alleged that the annexure to the notice was not a project report but only a summary of the progress of certain projects allegedly approved in a board meeting in September, 1996. Therefore, she sought for deferring discussions on the projects and also the method of raising finance till such time she received the full project report.
The 1st petitioner attended the meeting on 30.3.2005. In the meeting, the 2nd respondent gave complete details of the projects under implementation and the need to complete the projects at the earliest.
He also mentioned that for completion of the projects, funds could be raised both by way of right issue and also borrowing terms loans from the banks. However, the 1st petitioner voted against the proposal to issue and allot right shares of 30000 equity shares of Rs. 1000/- each.
Thereafter, the 1st petitioner started making allegations against the 2nd respondent of siphoning of funds and also alleged that by the proposed right shares, the 2nd respondent was trying to reduce the percentage shareholding in the company. Shri Unni has been continuing as a director on the basis of the consent terms approved by the High Court and his appointment as a regular director had been approved by the general body attended by the petitioners and therefore the allegation that his appointment is illegal has no validity. The allegation that Explanatory Statement annexed to the notice for the EOGM did not contain full particulars as provided in Section 173 of the Act is concerned, since the 1st petitioner was fully aware of the need for funds in the company, non enclosure of the project report with the Explanatory Statement is not fatal. As a matter of fact, Explanatory Statement is not a mandatory requirement. In Suramul Nagarmull v. Shew Bhagwan Jalan 1973 ILR 1 Cal 207, it has been held that non complying the provisions of Section 173 does not make the proceedings of the meeting void and may in certain circumstances become voidable. In the present case, the petitioners have not pleaded in the petition about the violation of Section 173 but the same was presented only during the arguments. This is because, the petitioners knew about the implementation of the project right from 1996. Even assuming that there was some infirmity in the said Explanatory Statement, the same cannot be considered to be oppressive. In Shree Hari Rao v. Gopal Automotives 1996 CC 493 CLB, this Board has held that issue of shares on a right basis cannot be considered to be an act of oppression as, if all the shareholders accept the right shares, there would be no-change in the existing percentage holding. In Hari Kumar Raja v. Sovereign Dairy Industries Ltd. 106 CC 91 CLB, this Board has again held that since by issue of right shares, no new majority is created, the act of issuing right shares cannot be considered to be an act of oppression. In Maharana Lalita Rajyalakshmi v. Indian Motor Co. Ltd. 1962 Cal. 127, it has been held that failure to supply the fuller possible details will not be visited with an application under Section 397 except that it could invalidate a meeting and no more. The main ground of challenging the Explanatory Note is that it has talked of need of funds for expansion while the project report is nothing but funds for renovation.
As per the New Shorter Oxford Dictionary, expansion would include increasing the scope of activities or the scale of operations of a company. Likewise in Webster's Dictionary, expansion would include renovation. Therefore on the contention that the explanatory statement was defective, the issue of rights shares cannot be alleged to be an act of oppression.
16. The learned Counsel further submitted: The petitioners have alleged mismanagement in the affairs of the company. Since the 1st petitioner has signed the balance sheets from 2002 to 2004 without raising any objection, she cannot allege mismanagement up to 2004. As a matter of fact, she has not made any allegation in the petition but all these allegations have been made only in the rejoinder which cannot be looked into unless these allegations pertain to the period after filing of the petition as held in Sangram Sinh P. Gaekwad v. Shanta Devi P. Gaekwad AIR 2005 SC 808. The petitioner has made another allegation that advertisement, sales promotion expenses of the associate companies are being debited in the accounts of the company. It is just a bald allegation without any particulars. The petitioner has further alleged that the 2nd respondent has caused capital expenses of over Rs. 370 lacs when the Tourism Industry was in bad shape. This statement is false. Out of Rs. 370 laks of project works, Rs. 250/- lacs were carried forwarded as on 31.3.2004. The projects were undertaken at a time when the industry future was looking bright and rosy and Tourisms was in upswing. The petitioner has further alleged that compared to the performance of other hotels, the performance of the company is bad. No comparison of the performance of hotels can be made as the performance would depend on location, size etc. The respondent company hotel has only 36 rooms and the occupancy varies from season to season. From the report prepared by M&A Associates as enclosed with the sur rejoinder, it can be seen that on every parameter compared to the size of the hotel the performance of the company has been fairly good.
17. The learned Counsel further submitted: Sometime in 2004, the 1st petitioner evinced her interest to go out of the company. Accordingly, she requested Mr. Unni to prepare a valuation report. He valued the shares held by the petitioners on various methods giving different valuation. As per P/E Ratio method, the value of their holding came to Rs. 78 lacs. On Income Capitalization Method- Rs. 75 lacs and on break up value- Rs. 311 lakhs. However, she declined to accept the report on the ground that she had never authorized Shri Unni to do the valuation; that the value indicated was too low; that Shri Unni had not done the valuation as an independent person. However, she did not question the principles adopted for valuation. In the valuation, Shri Unni had taken into consideration the break up value of even the subsidiaries to ensure that the value of the shares of the petitioners is reflected correctly. This is in spite of the fact that in valuing the shares of a company, the assets of subsidiary need not be taken into accounts as held by SAT in its order dated 8.12.2005 (GL Sultania v. SEBI). The petitioners have expressed another grievance that dividend has not been paid. This grievance itself is not correct in as much as the company was regularly paying dividend till 2001 where after due to losses, the company could not declare dividend. Non payment of dividend cannot be considered to be an act of oppression or mismanagement as held in Jaladhar Chakraborty v. Power Tools & Appliances Co. Ltd. 79 CC 505.
18. The learned Counsel submitted that no case of either oppression or mismanagement has been made out. The petitioners have sought for directions to the 2nd respondent to purchase the shares at a fair value. Such an order can be made only if some equity is shown to be in favour of the petitioners. In Shanti Prasad Jain v. Kalinga Tubes , the Supreme Court has held that certain prerequisites should be fulfilled to seek relief under Sections 397/398 of the Act. They are; the acts complained of should be such as to oppress a minority in the capacity as shareholders; the facts relied on should establish making of a winding up order on equitable grounds. In the present case, they have not satisfied any of the pre-conditions. In Needles case the single judge granted leave under Section 398 of the Act while the Division Bench as well as Supreme Court considered the matter in terms of Section 397 alleging oppression in the matter of allotment of shares. In the present, since there is no oppression as the proposal of issue of shares is on right basis, relief could be granted only under Section 398 for which the petitioner has not made out a case. Even in the Needle's case, in paragraph 172, the Supreme Court came to conclusion that no act of oppression had been made out, yet, granted relief only with a view to place the parties in the same position as they would have been but for the acts complained of. In the present case, there is no change in the status of the petitioners. She can always retain the present position by subscribing to the right shares. It is on record that after the 2nd respondent subscribed to his entitlement and funds came into the company, renovation/expansion have taken place and the banks also gave further loans. It is to be noted that late Maharana expired in 1984 at which time the turnover of the company/hotel was Rs. 22 lacs and the company had suffered a loss of Rs. 16 lacs with occupancy of 19%. Presently, the turnover has gone over Rs. 200 lacs and there is a profit of more than 10 to 12 percent on the turnover. Shri Sarkar relied on Section 459 of the English Act to contend that the action of the board of directors is unfairly prejudicial to the petitioners. While Section 459 of the English Act refers to prejudice to members, Section 397 of Act refer to prejudice to public interest and not members. Therefore, provisions of Section 469 of the English Act cannot be extended to Section 397.
19. In rejoinder, Shri Sarkar submitted: The main argument of the learned Counsel for the respondents is that since no oppression has been made out for grant of relief, the petitioner should show that equity is in their favour. Not only the petitioners have established oppression in the attempt of the 2nd respondent to increase the capital of the company, even equity is in their favour. It is on record that none of the parties in the proceeding had contributed to the shares when they originally became the shareholders of the company. The entire assets including the shares belonged to their father. His assets have been put in the form of a company creating an artificial status of minority/majority. But for this corporate set up, the petitioners could have sought for partition. The petitioners' right cannot be taken away just because the assets are with the company. But for the manipulation of the 2nd respondent, the Trust would have been the major shareholder, in which the petitioners are principal beneficiaries. Therefore, the claim of the petitioners for fair valuation could never be objected to by the 2nd respondent. The petitioners have referred to the earlier proceedings only to show that similar allegations are recurring. Just because the 1st petitioner had entered into a compromise in the earlier proceeding, it does not mean that the petitioners will have to put up future acts of oppression. In Gaekwad case, in paragraph 186, the Supreme Court has held that while exercising the powers under Section 402, the court can mould the relief depending on the circumstances.
Again in Paragraph 207, the court has further held that even in a case where oppression is not established, the court can grant relief so as to do substantial justice between the parties. In the present case, the most equitable relief that can be granted is directing parting of ways by which the petitioners could sell their shares on a fair value. If such a relief is not granted, the war between the two would perpetuate and the same will be against the interests of the company. Whether the parties should part ways or not is for the CLB to determine and cannot be at the choice of parties. The petitioners have established that there have been disputes in the past, in the present and likely to be in the future also. Potentiality of conflict is always there. Once the petitioners have established that further issue of shares would be prejudicial to their interest, they could seek equitable remedy by seeking parting of ways.
20. I have considered the pleadings and arguments of the counsel. There are three main allegations in the petition. One is that there is no justification to issue right shares, that the 2nd respondent is guilty of financial mismanagement and even though Shri Unni was appointed with the consent of the 1st petitioner and the 2nd respondent, he has become hostile towards the 1st petitioner. In so far as issue of right shares is concerned, the same has been challenged on various grounds, that the projected financial needs for the company is artificial and manipulated, that even assuming there is need, the same has been brought about by the 2nd respondent by diverting the funds of the company to his own entities and that the proposal for right issue is an off shoot of the refusal of the petitioner to sell her shares to the 2nd respondent at Rs. 1 crore. The right issue is also challenged on the ground that the 2nd respondent is trying to gain substantial majority by acquiring the unsubscribed shares by the petitioners and the Estate and as such the proposal itself is malafide and with an ulterior motive. It is further alleged that in view of the agreement before the High Court, there could be no change in the shareholding of either the 1st petitioner or the 2nd respondent.
21. First, I shall deal with the contention of Shri Mookherjee that this Board should not take cognizance of any allegation relating to the earlier petition before the High Court since that petition had been withdrawn on the basis of a compromise. He contended that those allegations more particularly, the allegation that the 2nd respondent illegally acquired the shares unsubscribed by the Estate, do not survive once the petition was withdrawn. I do agree that once a matter had a reached finality in the earlier proceeding, whether by way of an order or merits or by way of a compromise, the same issues cannot be raised in a subsequent proceeding. However, in the present case I find that even though that there is a narration in the petition of the allegations in the earlier petition, no relief relating to those allegations has been sought. It is quite obvious that the petitioners have narrated the earlier allegations only lay stress that the 2nd respondent has practiced the same modus operandi in 2005 also.
Therefore, I do not find any fault on their part in narrating the earlier proceeding. However, I would rely on the earlier proceeding only in regard to the terms of the agreement before the High court deciding the allegations in the petition and not for any other purpose.
22. Of the three main allegations in the petition, two are practically incidental in the sense no substantial consequential relief appears to have been sought in the petition. Therefore, I shall deal with these two allegations first. One is with regard to the financial mismanagement. The allegation in the petition, as seen from paragraph 45 of the petition is: "The petitioners variably believe that respondent No. 2 has financially drained the respondent company by diverting its funds for his personal aggrandizement by incurring huge unnecessary amounts towards business promotion, repairs and maintenance etc. for a hotel of only 35 rooms. The petitioners also have personal knowledge that most of the personal expenses of the respondent No. 2 and his family members are debited to the respondent company in one form or another. This extends to even respondent No. 2 holding all his personal functions at the cost of the respondent company and inviting guests from all over the world to stay for free in the hotel of the respondent company". With these allegations, it is also averred in the petition that since petitioners have no access to the internal accounts of the company, an independent audit should be directed. It is further stated that this financial mismanagement is only with a view to give a justification that funds are needed so that he could oust the petitioners from the company. Except this, no other allegation of financial mismanagement is made in the petition. In the rejoinder, in paragraph 37, further allegations that unnecessary loans have been advanced to unknown entities, that all advertisement and publicity expenses of other group companies have been booked on the respondent company have been made. To substantiate these allegations, certain expenses, loans etc. have been quantified. During the arguments, allegations were made more particularly with regard to the alleged financial mismanagement of Lake Palace Hotel. It is to be noted that this petition was filed in April, 2005. The 1st petitioner had signed the annual accounts of the company for the year 2003-2004 sometimes in September.2004 and the same has been approved in the AGM on 30.9.2004.
Even though, in the rejoinder, the petitioner has claimed that her objections on the accounts had not been recorded by the 2nd respondent, I do not find any such averment in the petition. Having signed the annual accounts, without any written protest on the accounts in September 2004, the petitioner cannot allege financial mismanagement in April 2005. Further, during the arguments and in the written submissions, the petitioners have alleged that the 2nd respondent being in management of Lake Palace Hotel in which the company holds 49% shares, has been financially supporting some of the hotels owned by his relatives and taken on lease by the Lake Palace Hotel. Shri Mookherjee pointed out that Lake Palace Hotel in fact given a loan of Rs. 10 crores to the respondent company and this has not been disputed by the petitioners. Therefore, considering the averment of the petitioners in paragraph 46 of the petition that the financial mismanagement by the 2nd respondent is not because of any inability or incompetence on his part but solely because of a well planned out method to oust the petitioners on the ground that the company is in need of funds, I do not find that the petitioners have established that there is financial mismanagement in the company.
23. The next allegation relates to Shri Unni. The petitioners' grievance is that Shri Unni has supported the 2nd respondent in the board meeting on 29.12.2004 in approving the proposal to increase the authorized capital in spite of the protest by the 1st petitioner. The further allegation is that he again supported the 2nd respondent when the proposal to issue right shares was taken in the board meeting held on 30.3.2005 even though there was no agenda regarding the said proposal and in spite of the protest by the 1st petitioner. It is further alleged that even though the 1st petitioner did not ask for any valuation report by Shri Unni and even though the same was prepared at the behest of the 2nd respondent, Shri Unni had valued the shares at a ridiculously low price. Thus, the trust and confidence reposed in him by the 1st petitioner when she had agreed for induction as a director in the agreement before the High Court have been completely belied by Shri Unni and as such he should be removed as a director. It is further alleged that he is guilty of professional misconduct by being the statutory auditor of the Lake Palace Hotel while holding the position of a director in the respondent company. The admitted fact is that Shri Unni was appointed as per the consent terms placed before and approved by the High Court. If his subsequent conduct, as alleged by the petitioners, is against the interest of the petitioners, the right course would be to approach the High Court and get the consent order modified. This Board has no jurisdiction to remove Shri Unni as a director since his appointment was on account of the consent terms approved by the High Court. In so far as his acting as the statutory auditor of Lake Palace Hotel, if he is guilty of professional misconduct, it is for the appropriate regulatory authority to look into this complaint and not this Board under Sections 397/398. ( I may record that after the conclusion of the hearing, it was reported by the learned Counsel for the respondents that the complaint of the petitioners in this regard to the Institute of Chartered Accountants of India has been dismissed by the Institute).
24. Now the main allegation relates to issue of right shares. Shri Mookherjee contended that a shareholder can allege oppression only if, by issue of further shares, a new majority is created or an existing majority is converted into a minority. In case of right issue, since every shareholder would be entitled to get proportionate shares, no shareholder can allege oppression as long as the right issue is made to raise funds needed by the company. He relied on two of the decisions of this Board-Gopal Automobiles and Sovereign Diary cases wherein this Board has held in the matter of issue of rights shares no oppression can be alleged. Shri Sarkar relied on another case of this Board - Mafatlal Services case wherein this Board has held that even in case of right shares, there could be oppression. He also cited 4 English decision wherein it has been held that even issue of right shares could unfairly prejudice a member/members. Shri Mookherjee argued that an act unfairly prejudicial to the interest of a member is not covered under Section 397 of the Act as it deals with only prejudice to the public interest and Section 398 deals with instances of acts prejudicial to public interest or the company and neither of the Sections deals with prejudice to a member. This raises an issue whether an act which is considered to be unfairly prejudicial to the interests of a member in terms of Section 459 of English Companies Act could be considered to be oppressive in terms of Section 397 of Indian Companies Act. While according to Shri Mookherjee, it cannot be in view of the fact that neither Section 397 nor 398 talks of prejudicial to the interest of members, Shri Sarkar argued that an act prejudicial to the interest of a member is also covered under Section 397.1 do not propose to examine this issue in detail in the context of the present case, except to hold that a conduct which is unfairly prejudicial in the context of Section 459 of English Act, if it is harsh and burdensome to a member, then, such an unfairly prejudicial conduct would be covered under Section 25. The settled principle of law in so far as issue of further shares is concerned- whether right shares or otherwise, is that, the same should be bonafide and in the interest of the company and one of the tests very often applied is whether the company is in need of funds. In the present case, while the company has taken a stand that for renovation/new projects, the company needs funds, according to the petitioners, by mismanaging the affairs of the company, the 2nd respondent has brought the company to a stage where the company has to resort to raising of funds. It has also been further alleged that both in the board meetings on 29.12.2004 and 30.3.2005, no details regarding the projects had been disclosed. In the rejoinder, the petitioners have enclosed the opinion of an Architect opining that the estimates given for the project/renovation as indicated by the company were overstated.
It is also alleged that the Explanatory Statement stating that the funds were required for the project was wrong as no new project has been undertaken but all the expenses related only to renovation. The sum and substance of these arguments is that by projecting the need for funds and knowing fully well that the petitioners were not interested in subscribing to the shares, the 2nd respondent had planned to acquire the unsubscribed shares of both the petitioners and the Estate by himself. It is also further alleged that; the proposal of right issue was mooted only after the 1st petitioner declined to accept the offer of the 2nd respondent of Rs. 1 crore for the shares held by the petitioners. It was also argued that the 2nd respondent did not look for alternate course of raising funds even if needed.
26. The mode and manner of raising funds is always the sole prerogative of the board of directors but in a company in the nature of a family company, the same may not always hold good. The admitted position in the present case is that both the petitioners and the 2nd respondent acquired their initial shares from their father, perhaps without paying any consideration and there are only three groups of shareholders, namely, the petitioners, the 2nd respondent and the Estate. Since the Estate is controlled by the 2nd respondent in his capacity as the Executor, literally there are only two group of shareholders. Shri Mookerjee argued that in a family company, every shareholder has to contribute funds to the company. Therefore, equity demands that there is a consultative process and consensus between the two in relation to raising of funds provided the company is in need of funds. The petitioners have made various arguments that the Explanatory Statement was defective; that full project details had not been disclosed; that instead of projects, the one sheet project report reflects only renovation; that the estimates are overstated etc. These objections are mostly technical and legalistic. The sum and substance of these objections is whether the company requires funds to carryout renovations/development. I have not been able to find, either in the pleadings or during the arguments that the renovations proposed in the project report are unnecessary or unwarranted. In a hotel industry, upgradation of the facilities and also constant renovation is a standard practice. I find from the accounts of the company that there was an addition to the fixed assets of a sum of about Rs. 40 lacs in 2002-2003 and about Rs. 85 lacs in the year 2003-2004. As rightly pointed out by Shri Mookherjee, the main contention of the petitioners is that the 2nd respondent had not explored raising of funds through other means than the right issue. Therefore, I am of the view that, even assuming that the estimates are overstated, considering the financial position of the company, it does require funds to carry out the renovations. Therefore, the only question that has to be examined is whether to raise funds the only source is by way of issue of right shares, considering the stand of the petitioners that in terms of the agreement before the High Court that there could be no issue of further shares and that the shareholding should remain, all times to come, as it stood after the agreement before the High Court. The agreement before the High Court by which the 2nd respondent transferred 145 shares to the 1st petitioner is significant in the sense that 145 shares is an odd figure. By these 145 shares, the petitioners' shareholding came to be 25.1% meaning thereby no special resolution can be passed without the consent of the petitioners. In other words, even though, the petitioners are in minority, yet, they have the special rights attached to 25.1% shares. Any attempt to disturb this percentage shareholding, without the consent of the petitioners, could be an act of oppression. The petitioners' main objection for the right issue is that they would not get any benefit by investing in the right shares as the company has not been declaring any dividend. I am inclined to agree with the petitioners. While non payment of dividend by itself will not give rise to a claim of oppression, yet, forcing the shareholders to continue to invest without any return on the same could be an act of oppression. In the present case the facts are startling. The face value of the shares held by the petitioners is about Rs. 7.6 lacs. To subscribe to the right shares with the view to maintain their existing percentage and protect their special rights, they have to invest over about Rs. 75 lac, i.e., nearly 10 times of the face value of the shares that they hold and for which they are not likely to get any return in the near future. (The real investment of the petitioners, omitting the shares got transferred from the father, is only Rs. 1.45 lacs for 145 shares transferred by the 2nd respondent to the petitioners in terms of the agreement before the High Court. Now to maintain their shareholding, they have to invest about Rs. 75 lacs which is nearly 50 times of their original investment). It may be argued that on this score, the petitioners cannot allege oppression as even the 2nd respondent has to invest substantial amount for the right shares offered to him. Investment by a majority shareholder is different from investment by a minority shareholder as the majority shareholder has the advantage of controlling the company and thus being in a position to derive various attended benefits while the minority shareholder does not. Shri Mookherjee argued that in view of payment of Rs. 6 lacs per year on their megre investment, the petitioners have already received over Rs. 42 lacs. It is to be noted that in the earlier petition, the petitioners had questioned the mode and manner of the 2nd respondent acquiring majority shares in the company and by withdrawing the said petition, they had allowed the 2nd respondent to continue with the majority shareholding and therefore the amount of Rs. 6 lacs is nothing but a compensation given to the petitioners in not insisting on maintaining their then existing shareholding percentage. Forcing a shareholder to invest such a substantial amount of money without any returns only to maintain their percentage shareholding is harsh, burdensome and therefore is definitely oppressive.
27. The earlier cases of this Board relied on by Shri Mookerjee can be distinguished. In Gopal Automobiles case, this Board observed that in case of a right issue, since it would not affect the shareholdings of the shareholders resulting either in creation of a new majority or reduce the majority into a minority, no oppression could be alleged if the company is really in need of funds. It also observed that no shareholder stating that he has no confidence in the management and is unwilling to subscribe can seek for restraining a company from issuing right shares. This Board also noted that in spite of the allegations of oppression, the petitioner therein had actually subscribed to the shares. In Sovereign Diary case, the allegation was that the company was not doing any business and therefore there was no need for any additional funds to be mobilized through issue of right shares but was resorted to reduce the petitioner from 34% to 8% shareholding as he was not willing to subscribe to the right shares. This Board found that the company was really in need of funds to clear the existing liabilities held that issue of right shares cannot be considered to be an act of oppression. However, in Mafatlal Services case, the holding company made a right issue to raise funds to subscribe to the shares of its wholly owned subsidiary which was rendering services to other companies controlled by the respondents therein. Therefore, the petitioners objected to the issue of right shares. Observing that the action of the respondents suffered from lack of probity and fair play as evidenced by their resolute to go ahead with the issue in spite of opposition from shareholders holding 48% shares in the company, the Board declined to stop the issue but directed the respondents to purchase the shares of the petitioners.
28. In both the cases cited by Shri Mookerjee, the petitioners therein, not only alleged that the company was not in need of funds they also alleged that the motive was only to reduce the shareholding of the petitioners. In the present case also, the same allegations have been made but at the same time the petitioners are not averse to provide funds to the company- not in the form of share capital but in the form of loans on a reasonable rate of interest. The willingness of the petitioners, not withstanding their stand that the company is not in need of funds, to fund the company, is a distinguishing factor. One of the main arguments of the 2 respondent for proposing the right issue is that to grant further loans, the bankers have advised improving the debt equity ratio. When a bank is approached for a loan by a company having a low capital base, the bank would require either increasing the capital base or insist on long term funds to be inducted by the promoters. If the promoters are able to induct long term funds by way of loans, the bank would not insist on increasing the capital base. In such cases, the banks only stipulate that the loans given by the promoters should not be withdrawn till the loans by the bank are cleared. As a matter of fact, I find from the letter of Bank of Baroda dated 8.7.2004 that they had advised the promoters to induct long term funds. Therefore, when the petitioners are willing to contribute by way of loans, the 2nd respondent cannot have any objection that in terms of the requirement of the bank, only share capital has to be increased. No doubt, taking loans would involve payment of interest but the same cannot be helped in facts of this case.
29. Both during the course of the proceedings and also at the conclusion of the hearing, on my suggestion that the parties should resolve the dispute amicably, both the sides gave some suggestions without prejudice. Unfortunately, none of the suggestion, was accepted by both the parties. The petitioners desired to go out of the receipt of fair value determined on asset basis including the assets of Lake Palace Hotel. The respondents were unwilling to consider this suggestion on the main ground that neither the 2nd respondent nor the company has funds to acquire the shares on the basis of asset value.
Therefore, even though in closely held companies where un-reconcilable difference have arisen among the parties, this Board has always directed parting of ways, the same is not possible in the present case in view of the inability expressed by the 2nd respondent/the company that they do not have sufficient funds to purchase the shares held by the petitioners' group. Therefore, certain other relief which does not require valuation of shares has to be evolved. Even though the petitioners are not interested in investing in shares on account of no returns on the investment, they expressed their desire to induct the required funds by way of loans on a reasonable rate of interest provided the 2nd respondent also does so instead of investing in shares. Therefore, this could be one of the methods of resolving the disputes. The second would be that the right issue may be allowed to go on without any hindrance with liberty to the respondents to acquire the unsubscribed shares provided some compensation is given to the petitioners for reduction in their percentage holding. The third is that, in view of the apprehension expressed during the hearing that any reduction in their shareholding percentage in the company would indirectly affect them in their interest through the company in Lake Palace Hotel, the shares held by the company in Lake Palace Hotel could be transferred to the petitioners in proportion to their holding in the company and the fourth is that a lumpsum payment, not on the basis of valuation, but on a equitable consideration could be paid to the petitioners either by the company or by the 2nd respondent in consideration of the shares held by the petitioners.
30. On an overall appreciation of the facts and with a view to put an end to the acts complained of, I give the following options to the petitioners to choose one of them: 1. I had passed an interim order allowing the company to go ahead with the right issue keeping the shares offered to the petitioner and the Estate intact. It was pointed out by Shri Mookerjee that in terms of the said order, while the 2nd respondent has subscribed to his entitled shares, the Estate has also subscribed to 2000 shares and the entitlement of the petitioners and those unsubscribed by the Estate are kept intact. He further mentioned that because of increase in the capital base, the company could avail additional loan facilities from the banks of about Rs 2.5 crores and with these funds renovation work has been completed. The money spent on the renovation from 2005 till date can be quantified and deducting Rs 2.5 crores funded by the Banks, the petitioner can fund 25.1% of the balance amount by way of long term loans carrying an interest at the rate of 10%(which is more or less the bank rate for long term fixed deposits). Since they would share the actual expenses, this would also allay the apprehension of the petitioners that the project estimate is overstated. The investments of the 2nd respondent and the Estate in the shares shall be treated as loans carrying the same rate of interest. The right shares already issued shall stand cancelled. If the petitioners choose this option, the same will not affect the company in any manner as the loans shall form part of long term funds.
2. The company will go ahead with the right issue and the 2nd respondent is at liberty to acquire the shares unsubscribed. Since it would reduce the shareholding of the petitioners substantially, the company shall pay a sum of Rs. 20 lakhs per year (including Rs. 6 lakhs now being paid) with an increase of Rs. 1 lakh every three years thereafter. This amount will include dividends, if any, declared by the company in future. The petitioners will continue to hold the shares that they currently hold and the 1st petitioner will continue as a director as long as the said shares are held by the petitioners. This would be more or less in line with the agreement between the parties before the High Court when company agreed to pay Rs. 6 lacs for the 2nd respondent to acquire majority shares in the company. Since in the present case, the petitioners will lose their special right in respect of 25.1% shares, they should be entitled for adequate compensation which I have fixed at Rs. 20 lac.
3. During the hearing, it appeared that the petitioners were mainly concerned with the shares held by the company in Lake Palace Hotel which is one of the main assets of the company. As this Board did in James Fedrick's case, the company will transfer 25.1% of the shares held by it in Lake Palace Hotel at face value to the petitioners and the petitioners will surrender all their shares to the company at face value and cease to be members of the company and the company shall reduce its paid up capital to this extent. Difference, if any, in the value of shares surrendered/transferred, the same shall be adjusted by payment in cash. The 1st petitioner shall cease to be a director of the company and there shall be no payment of Rs. 6 lacs as hereto before.
4. The forth option is parting of ways. The petitioners demanded that their shares should be valued on real estate price taking into consideration the assets of the company as also that of Lake Palace Hotel. The 2nd respondent not only objected to the inclusion of the assets of the Lake Palace Hotel in the valuation, he also expressed his inability to mobiles funds to purchase the shares of the petitioners on a real estate price basis. Considering the fact that the company is a family company and that after a full round of litigation, the second round is going on and that future litigation can also not be ruled out, I am of the view that the petitioners should go out of the company for a reasonable consideration for their shares. Purely on an equitable ground, I am fixing the price for their shares at Rs. 5 crores ( Rupees five crores). Either the company or the 2nd respondent, at his option, shall purchase the shares at this price. The 1st petitioner shall cease to be a director of the company effective from the date of surrender/transfer and on receipt of consideration and the petitioners shall not be entitled for Rs. 6 lacs as hereto before. I make it abundantly clear that this amount of Rs 5 crores is not based on any valuation but has been fixed on equitable consideration taking into consideration, the interests of both the sides.
31. Any of the options chosen by the petitioners shall be binding on the company and the 2nd respondent. The petitioners shall intimate to the company/2nd respondent, in writing by 10th January 2008, the option that they have chosen. In case the petitioners elect the 4th option, the parties are liberty to apply to this Board for deciding on the terms of payment. In case, the petitioners do not choose any of the options, the petition shall be deemed to have been dismissed and all interim orders shall also be deemed to have been vacated.