Kasturi and Sons Limited Vs. Sporting Pastime India Limited - Court Judgment

Excerpt:
1. this company petition is filed under sections 397, 398, 402 & 403 of the companies act, 1956 ("the act") alleging that the second respondent in connivance with the respondents 3 to 6 are indulging in serious acts of oppression and mismanagement in the affairs of m/s sporting pastime india limited ("the company") in a manner which are prejudicial to the interests of the company and oppressive to the petitioner, constituting one-tenth of the total number of its members and seeking the following reliefs: (i) to supercede the present board of directors and appoint an independent chairman and other directors to manage the affairs of the company; (ii) to declare the increase in share capital from rs. 27 crores to rs. 53 crores made on 28.10.2004 as illegal and void ab initio; (iii) to cancel the allotment of shares of rs. 25 crores made on 28.10.04; direct the consequent reduction of share capital under section 100 of the act and rectify suitably the register of members of the company; (iv) to declare all proceedings and resolutions passed at the meeting held on 28.10.2004 as void and inoperative and declare any further resolutions that may be passed either at board meeting or general meeting as void and inoperative; (v) to direct rectification of the register of members to include s. kuppuswamy and t.b. narayanaswamy as members of the first respondent company, holding one share each and by reducing the two shares from the total share . holding of the petitioner herein; (vi) to rectify the register of members protecting the petitioner from the effect of non-compliance with the requirement of section 2. sri t.v. padmanabhan, learned counsel, while initiating his arguments submitted: * the company was incorporated in may 1994 as a 100% subsidiary of the petitioner for the sole purpose of establishing, maintaining and conducting a golf course-cum-beach resort. the company could not achieve its main object which resulted in the petitioner entering into an agreement with the second respondent on 19.07.2004 for the taking over the company. the second respondent, in terms of the agreement, acquired 90% shareholding, controlling and management interest in the company for a total consideration of rs. 2.43 crores apart from agreeing to discharge the debts and liabilities due by the company to the petitioner and several others and relieve the petitioner of its guarantee obligations in respect of the company, as stipulated therein. the petitioner's nominees, pursuant to the acquisition of shares by the second respondent, had resigned from the office of director and the respondents 3 & 4 being nominees of the second respondent were inducted on the board of directors of the company. however, the second respondent failed to discharge the liabilities of the company in terms of the agreement entered into with the petitioner. the present grievances are that since taking over the control and management of the company in august 2004, the respondents 2 to 6 are indulging in several acts of oppression and mismanagement in the affairs of the company and therefore, invoked the jurisdiction of sections 397 and 398. * the only object of taking over the company by the second respondent is to use it as a medium for parking illegal funds by illegally pledging all original share certificates issued at the time of transfer of shares by the petitioner and title deeds of the properties belonging to the company in favour of fairfax financial holdings limited ("fairfax") canada, a foreign company, in violation of the provisions of the act as well as the foreign exchange management act ("fema") and to divert the illegal funds received from abroad for his personal gains. the affairs of the company have been conducted for a fraudulent and unlawful purpose, prejudicial against public interest, the company's interest and in a manner oppressive of the petitioner, which resulted in loss of trust and confidence between the parties. the directors in breach of their fiduciary obligations failed to utilize the assets of the company for its benefits. * the respondents 2 to 4 along with one gopinath athappan, son of the third respondent were involved in promotion of a group of companies with cross holdings incorporated or acquired without obtaining the government approval for siphoning of the company's funds and assets. fairfax had lent moneys against collateral of real estate belonging to various companies of the second respondent including the first respondent company. fairfax group invested to the tune of 75 crores in m/s. data access india limited (dail) 51% of which is held by the respondents 8 and 9, which are solely held by the second respondent. the respondents 2. to 4 are solely responsible in diversion of rs. 25 crores during october 2004 out of the huge amounts received from fairfax, to the company by way of parking measure and not towards investment or advance share capital. the conversion of rs. 25 crores into share capital of the company is a deliberate manipulation, which resulted in attachment of the amount so brought into the company, by the income tax department for the dues and penalties payable by the company. the company's total tax liability for the period from 01.04.2004 to 07.01.2005 comes to rs. 17.40 crores as borne out by the assessment order dated 23.02.2005. the assessment order describes the amount of twenty five crores of rupees in the company's account as unexplained share capital. the assessment order produced by the petitioner is admissible in evidence, irrespective of the method by which it has been obtained as held in pushpadevi m. jatia v. union of india and ors. , there are no chances of recovery of the amount, which has been attached by the income tax department and the company has no reasonable prospect of earning any profit. the respondents have not taken the initiative to complete the project after taking over the management of the company from the petitioner. the petitioner came to know from the delhi high court proceedings initiated against dail by one of its creditors that the inward remittance to dail was made from data access us to settle trade dues. canara bank, which held receivables of dail as security for its advance to dail, made a claim over the inward remittance received by dail from data access us. the delhi high court by its order dated 18.11.2005 directed that the amounts which were transferred to the first respondent company and other companies by the eighth respondent herein out of the remittance received from dail must be remitted with canara bank on account of the admitted liability of the bank and charge of the bank over the remittance. it is further directed that in case it is ultimately found that the money is to be refunded to fairfax, appropriate orders will be passed directing canara bank to refund the amount in favour of fairfax. the consequence of the order of the delhi high court would be that the amount of rs. 25 crores remitted with the company, out of the remittances from dail will go either to canara bank or dail as may be decided in due course by the high court, thereby, the plea of the respondents that the amount of rs. 25 crores was brought in by the second respondent by way of share capital of the company came to be rejected by the delhi high court, which is a clear proof of diversion of money and violation of the provisions of fema. in view of the present developments, the company lost its substratum and the main business of the company has become incapable of being performed due to the huge liabilities incurred and the illegalities committed by the company. * after taking over the company, no accounts have been finalised and no balance sheet has been filed with the registrar of companies but wrongfully increased the share capital from rs. 27 crores to rs. 53 crores in october, 2004 without the knowledge of the petitioner. it was further shown that the eighth respondent, a nominee of the second respondent had invested a sum of rs. 25 crores in the equity of the company, without convening any general meeting as envisaged under section 81 of the act and fulfilling the other requirements of the act. there is absolutely no business need or commercial justification to raise the share capital from rs. 27 crores to rs. 53 crores. while issuing further shares, no offer was made to the petitioner, thereby the second respondent and his nominees abused their power to seriously prejudice the interest of the minority shareholders. this would constitute an act of oppression as observed by this board in deepak luhia v. kamrup developers (p) ltd. (order dated 31.i2.2001 in c.p. no. 82 of 2000), wherein it has been held that any disproportionate allotment of shares is an act of oppression attracting the provisions of section 397, * form no. 5 dated 24.01.2005 filed with the registrar of companies shows that authorised capital was increased from rs. 27 crores to rs. 53 crores at the extra ordinary general meeting held on 28.10.2004. the petitioner never received any notice of the extra ordinary general meeting purportedly held on 28.10.2004 for increasing the share capital and for issue of further shares. form no. 23 dated 24-01-2005 shows that the company passed a special resolution on 28.10.2004 altering the articles of association of the company pursuant to the enhancement of the share capital and further that notice was dispatched to the members on 01.10.2004, but no such notice was received by the petitioner. form no. 2 dated 24.01.2005 discloses that 2.50 crores shares of rs. 10/- each were allotted in favour of the eighth respondent on 28.10.2004. it has been held in (a) c.n. setty v. hillock hotels (p) ltd. and ors. (2001) 104 cc 722 that any allotment of additional shares bypassing the prescribed procedure of sending the notice of meeting in advance would tantamount to an act of oppression within the meaning of section 397; (b) akbarali a. kalvert and anr. v. konkan chemicals pvt. ltd. and ors. (1997) 88 cc 245 (vol.88) that meetings held without proper notices are invalid and proceedings of such meetings are illegal and invalid; and (c) martin castelino v. alpha omega shipmanagement (p) ltd. (2001) vol.104 cc 687 that any extra ordinary general meeting held without notice to majority shareholders is invalid and further any decision to increase the authorised capital is also held to be invalid. all these returns were filed with the roc after the interim order of the delhi high court made on 17.12.2004 and hence no value can be attached to any of the fabricated returns filed by the company. this device of enhancement of share capital as well as issue of further shares has been adopted by the company with a view to get away with the attachment order made by the delhi high court. the register of members does not disclose the allotment of 25 crores shares in favour of the eighth respondent. the eighth respondent failed to produce the share certificates in support of the allotment of shares in its favour. further the second petitioner got the shares from the petitioner at re. 1/- per share, but 2.50 crores shares were issued at the rate of rs. 10/- per share to the eighth respondent, which is neither justified nor logical. the directors enjoying a fiduciary position failed to exercise their powers for the benefit of the company. the impugned allotment of shares made in favour of the eighth respondent must be annulled, in support which reliance has been placed on (i) piercy v. mills & company limited (1920) 1 ch 77 to show that (a) directors shall exercise their fiduciary powers for the general advantage of the company; and (b) directors are not entitled to use their power of issuing shares merely for the purpose of maintaining their control, or control of themselves and their friends, over the affairs of the company, or merely for the purpose of defeating the wishes of the existing majority shareholders; and (ii) nanalal zaver and anr. v. bombay life assurance co, ltd. to show that the directors hold a fiduciary position and must exercise their powers for the benefit of the company and for that alone but not for the personal ends of directors and for their personal aggrandisement, for keeping themselves in power. * the agreement dated 19.07.2004 envisages the sale of business and not the sale of shares. the sale consideration would include the price paid for the shares and the discharge of liabilities of the company. the second respondent and his nominees, after taking over the company, failed to discharge the huge liabilities, of the company, for which claim has been made before the arbitral tribunal. the second respondent failed to relieve the petitioner from the guarantee obligations which resulted in many of the creditors of the company proceeding against the petitioner, for the dues of the company. the petitioner was further constrained to incur several lakhs of rupees on account of the payments made on behalf of the company. in view of this, the second respondent must be directed to return back the shares to the petitioner, treating the transfer of shares in favour of the second respondent without sufficient consideration on account of the default committed by him and restore the status quo ante in regard to the shareholding pattern in the company. * the registered office of the company is beyond the reach of any members or creditors. the statutory records are not available for inspection and scrutiny. the advocate commissioner visited on 30.08.2005 the registered office of the company at the address as given in the company petition namely no. 19 (new no. 44) kothari road, nungambakkam, chennai-600 034. the advocate commissioner did not find any name board at the aforesaid premises showing the company's name and no office of the company was functioning at the said premises. however, the registered office of the company was reportedly shifted on 12.08.2005 to boat club road, chennai-600 028, which came to be vacated on 22.10.2005 in terms of the communication dated 24.04.2006 addressed by the owners of the premises in favour of the petitioner. the registered office of the company is shown as boat club road even in the proceedings before the delhi high court. the eighth respondent is reportedly having its registered office at the boat club road. the notice dated 01.10.2004 convening the extra ordinary general meeting on 28.10.2004 to increase the authorised share capital shows that the registered office is located at kothari road, chennai - 600 034, but the registered office did not function at the said place as claimed by the respondents. in akbarali a. kalvert and anr. v. konkur chemicals pvt. ltd. and ors. (supra), it is held that burdening the company with additional rental by shifting the registered office and thereby committing avoidable expenditure would constitute an act of mismanagement. the letters addressed by the company do not bear its registered office address as borne out by copies of the communications produced before the bench. the income tax assessment order reveals that the registered office of the company is closed and that whereabouts of the second respondent are not known and his presence is wanted in connection with certain criminal cases filed in various parts of india. similarly, the addresses of the respondents 3 & 4 furnished in form no. 32 filed on 18.08.2004 are at variance with their addresses furnished in form no. 32 filed on 24.01.2005, with the registrar of companies. the affairs of the company are being conducted with the intention to defraud its creditors, members or any other persons. * at present, there are only six members in the company including the petitioner, pursuant to the transfer of shares in favour of the second respondent and his nominees in terms of the agreement dated 19.07.2004 and therefore, the company must be wound up. the second respondent by his communication dated 17.08.2004 requested the petitioner to transfer 2.43 crores shares in his favour and in favour of his nominees as described therein. accordingly, 2,42,99,994 shares were transferred in favour of the seventh respondent in terms of the transfer deed forwarded by the second respondent, copy of which is produced before the bench. the petitioner, after effecting the transfer of shares in favour of the seventh respondent as per the request of the second respondent forwarded the relevant share certificates to the seventh respondent which has been duly acknowledged by it. the second respondent failed to ensure the minimum number of seven members, which is violative of the provisions of section 45 of the act. this section provides that every person who is a member of a public company, which is less than 7 members will be severally liable for payment of the whole debts of the company contracted during the period of six months as specified therein. it is, therefore, just and necessary that the number of members is increased to a minimum of 7 members and the petitioner is ready and willing to transfer a part of its shares to different persons in order to ensure that the number of members exceeds seven, thereby avoiding the penal provisions of section 45. * according to the second respondent, the respondents 3 & 4 were directors of the company, the fact of which has been seriously disputed by them. it is claimed that the respondents 3 & 4 never consented to act as directors of the company, and signed form no. 29 and the signatures thereon are obvious forgery. the income tax assessment order also confirms that the signatures of the respondents 3 & 4 as appearing in form no. 29 are entirely different from the signatures in the joint venture agreement dated 31.01.2004. the respondents 5 & 6 were appointed as directors in september 2004 but necessary form no. 32 was filed after a delay of one year and till such time the second respondent was only a director in the company. by virtue of section 264, no person shall act as a director of the company unless he has within 30 days of his appointment signed and filed with the registrar of companies his consent in form no. 29, to act as a director. there has been an inordinate delay in filing form 29 by the respondents 5 & 6 and therefore, they shall not act as directors of the company. their presence cannot be counted for the purpose of ascertaining quorum for any of the board meetings. * the company specifically pleaded in the counter affidavit filed in the arbitration proceedings that the company owned lands to the extent of 343.85 acres, value of which will be more than the claim of rs. 31 crores of the petitioner made in the arbitration proceedings. at the same time the respondents valued the properties of the company at rs. 20 crores in the present proceedings and thus the respondents are taking contradictory stand at different point of time. the petitioner obtained various clearances for commissioning and running the golf course during the years 1999 to 2002, but the respondents failed so far to make any headway in commissioning the golf course. the second respondent has taken possession of the share certificates which were issued in the name of his nominees, apart from the fixed assets of the company in the form of building, equipment, furniture and fixtures aggregating rs. 6 crores, but failed to fulfill any of the obligations in terms of the agreement dated 19.07.2004. * the respondents 2 to 4 along with gopinath athappan were directors of dail against whom, summons have been issued by the metropolitan magistrates of delhi, kochi, ambala, lucknow, chennai and bangalore in criminal complaint filed by bsnl and prosecution launched by the income tax department new delhi for failure to deposit tds. a complaint has also been lodged before the enforcement directorate for violation of the provisions of fema by the second respondent and his nominee directors in dail. the second respondent obtained anticipatory bail in the criminal proceedings on the charges of cheating given by dail, as borne out by the news item in the local newspaper produced before the bench. the supreme court in k. vengactuchalam v. k.c. palanisamy and ors. (2005) 7 scc 352 directed the trial court to proceed with the trial in the prosecution of the second respondent herein and others launched under various sections of the indian penal code. these developments would show the conduct and inaction on the part of the second respondent to act in pursuance of the agreement dated 19.07.2004, rendering the second respondent to be unfit to continue as a director in the company. * the directors have ignored several provisions of the act, regarding convening of meetings, maintenance of accounts, allotment of shares and appointment of directors. the company has no managing director or whole time director though its paid up share capital exceeds the prescribed limit in terms of section 269. there is no company secretary as stipulated in section 383a of the act. the address of the registered office of the company is not given in the company's letter head as required under section 147. section 252 stipulates that every public company shall have atleast three directors, but this company at no point of time had three directors on its board. the respondents 2, 3 & 4 are no more directors. the board is presently comprised of the respondents 5 & 6, who are new faces and therefore, the company is left in the hands of newcomers, which is prejudicial to the interest of the company and its members. the company has not constituted any audit committee in terms of section 292a of the act. the number of members has been reduced below seven and therefore the company has to be wound up by virtue of section 433(d). the company is violating the laws of the land and acting against public interest. these gross violations of various statutory provisions would justify the making of an order of winding up against the company on just and equitable grounds. the real state of affairs are unknown and hence the company must be directed to be inspected by the central government. these are series of illegal acts following upon one another which can justifiably lead to the conclusion that they form part of the same transaction, constituting acts of oppression against the petitioners, as held in needle industries (india) ltd. v. needle industries newey (india) holding ltd. (1981) vol.51 cc 778. this board held in vikas wsp limited and ors. v. union of india (order dated 25.08.2005 in cp. no. 50 and 51 of 2003) that when the company has not carried its affairs prudently and have violated provisions of various acts of government including violations of provisions of the companies act, 1956 the clb may direct the central government to appoint board of directors for a specified period of time. the petitioner is a minority shareholder and major creditor and has every right to enforce its legal right against the company and therefore, urged for the reliefs claimed in the petition.3. dr. k.s. ravichandran, learned authorised representative of the respondents 1, 2 & 5 to 10 opposed the company petition on the following grounds: * the petitioner having failed to commence and implement the golf course project was looking for a suitable entrepreneur in order to divest its shareholding in the company. accordingly the agreement dated 19.07.2004 came to be executed, pursuant to which the petitioner shall offer to sell to the second respondent and/or his nominees 243 lakhs equity shares of rs. 10 each in the capital of the company for a lump sum consideration of rs. 2,31,50,000/- and the second respondent shall buy the said shares for the said consideration in his name and/or in the names of his nominees, within 30 days of the date of execution of the agreement. accordingly, the petitioner sold 90% of the total paid up capital and the second respondent bought the same. the entire sale consideration came to be settled and the shares were transferred in favour of the second respondent and his nominees. as per the agreement, the petitioner's 10% shareholding, remaining after the second respondent's take over of 90% shareholding should also be purchased by the second respondent at a mutually agreeable consideration between the parties. it is, therefore, clear that the petitioner could not implement the project and did not want management of the company. the petitioner was desirous of divesting all its shareholding in the company in favour of the second respondent. the discharge of the liabilities of the company by the second respondent does not form part of consideration for the shares purchased by him. the petitioner complaining of the breach committed by the second respondent in discharging the liabilities of the company taken over by him in terms of the agreement has already made a claim before the arbitral tribunal for its adjudication. in this regard, the petitioner has lodged a complaint with the income tax department. thus, the petitioner is engaged in forum shopping and the grievances under the guise of oppression and mismanagement in the affairs of the company, being individual and private ones cannot be entertained in a section 397/398 proceeding. the petitioner is trying to force the respondents to carry out his contractual obligations under the agreement. the acts complained of in the company petition are covered by the agreement dated 19.07.2004. the grievances raised in the petition dchors the agreement are not amenable to the jurisdiction of the clb. the petitioner's claim is based on the breach of agreement and no remedy is possible before the clb, as held by this board in r. balakrishnan v. vijay diary and farm (p) limited (2005) vol. 59 scl 667. the petitioner has made false averments, which are not backed up by any documentary evidence. the petitioner not having approached the company law board with clean hands, the petition is liable to be dismissed in limine. * the authorised representative of the petitioner, pursuant to the directive of the arbitral tribunal, visited the administrative office of the company and inspected the original title deeds of the company and all the original share certificates issued in the name of the second respondent and his nominees as borne out by his endorsement made on 03.11.2005. the respondent has not pledged either the share certificates or the title deeds of the company to any foreign company. there has been no violation of the provisions of the act or fema, as alleged by the petitioner. the second respondent, on the other hand, is in custody of the share certificates and the title deeds of the company. these charges have not been established by adducing any evidence in this behalf. * the allegations of the petitioner regarding the conduct of the second respondent in transactions with several of the entities are neither relevant nor established. all the relevant materials and parties are not before the clb and they are matters requiring examination and cross examination of witnesses, before other courts of law, which cannot be agitated in the present proceedings. the supreme court in sangramsinh p. gaekwctd v. shantadevi p. gaekwad (2005)57 scl 476 held that (a) acts of malafide. improper motive and similar other allegations must be pleaded with full particulars and proved so as to obtain appropriate reliefs; and (b) aggrieved shareholders must be make out a case under sections 397 and 398 in the petition itself and the defects contained therein cannot be cured nor the lacuna filled up by other evidence oral or documentary. the bombay high court in p.s. offshore inter land services pvt. ltd. and anr. v. bombay offshore suppliers and services ltd. and ors. (1992) vol.75 cc 583 held that (a) in a petition under section 397 and 398, all material facts must be set out in the petition itself and allegations of fraud, coercion, malafides, if any, must be supported by particulars; and (b) parties cannot be allowed beyond the petition and reply to the contentions urged in the petition. this board in g. govindaraj v. venture graphics (p) limited [2005] 57 scl 141 held that to decide whether a petition is to be granted or not, the allegations in the petition must be looked at and cannot be traversed beyond that. no order could be passed if sufficient cause is not alleged in the petition, even if such a case is proved in evidence. the case under section 397 and 398 must be determined with reference to facts transpiring on the date of the presentation of the petition and on the basis of averments made in the petition itself. without such averments in the petition, the petitioner cannot prove the requirements under sections 397 and 398. * the income tax assessment order discloses (a) certain deemed income consequent upon the writing off by the petitioner of certain advances made by it to the company, to an extent of rs. 22.36 crores; and (b) deposit of rs. 25 crores made by the second respondent is found to be a deemed income, for want of proof of source for such funds. the poor maintenance of accounts and the manner in which the petitioner has accounted for its advances to the company have resulted in a massive tax liability for the company. the petitioner is solely liable for passing of the adverse order by the income tax authorities. the petitioner has obtained the assessment order by unfair and illegal means and it should not be relied upon as an admissible, evidence. the company has preferred an appeal against the assessment order before the commissioner of income tax (appeals) and the appeal is still pending and therefore any findings therein cannot form the basis for deciding the issues before the clb. the petitioner obtained copy of the income tax assessment order in an illegal manner and justifies its production on the basis of certain case laws. the decision in pushpadevi m. jatia v. union of india and ors. (supra) covers cases where evidences are bad of procedural irregularities. whereas, in the present case, there is specific provision as to the confidentiality of the assessment order. * the second respondent had increased the share capital with a view to settle the dues of the company, after due notice of the extra-ordinary general meeting, sent to the petitioner on 01.10.2004 by ordinary post. the petitioner did not choose to attend the general meeting. the eighth respondent, a nominee of the second respondent, had invested a sum of rs. 25 crores towards the equity of the company. the income tax assessment order reveals that the petitioner is aware of the increase in authorized capital of the company and issue of further shares as early as in february 2005. however, the only demand of the petitioner, as borne out by its letters dated 22.01.2005, 04.02.2005 and 12.03.2005 is that the second respondent must clear all the liabilities of the company in terms of the agreement dated 19.07.2004 and no grievances have been made in regard to either the authorized capital of the company or allotment of shares at any prior point of time. these communications were endorsed to the respondents 3 & 4 thereby they cannot deny any knowledge of the developments resulted pursuant to the agreement between the petitioner and the second respondent. the impugned allotment of shares has neither been questioned in the lawyers' notice dated 26.03.2005, wherein it has been reported that the petitioner has appointed sri s. vijayaraghavan, advocate, as its arbitrator in the light of the disputes which arose out of the agreement dated 19.07.2004. at the time of allotment of shares, the only relevant question which would arise for consideration is whether the moneys payable on the shares have been brought into the company or not. according to the respondents "...the second respondent had purchased majority state in dail for a valuable consideration of rs. 33 cr. as per an agreement, inter alia, dated 26^th angust 2004 (dail agreement). in accordance with the dail agreement, a sum of 17 million usd was brought to india through normal banking channels from abroad through the joint venture partners of the second respondent and they were supposed to be invested in dail subject to certain pre-disbursement conditions. one such condition was the most important one relating to opening up of traffic by bsnl. bsnl did not open the switches. therefore deploying the money for reviving the dail as per the dail agreement did not arise. having invested rs. 33 cr. in acquiring dail shares and having found difficulty in ensuring opening of traffic by bsnl, the second respondent was under a duty to see that the money that came to india had to be protected and used for other commercial projects. immediately the eighth respondent applied to the reserve bank of india for refund of the entire money. however, as there was delay in getting any clearance from rbi and during the said time the joint venture partners of the second respondent agreed to keep the moneys usefully invested in india. thereafter the eighth respondent applied to the foreign investment promotion board of the government of india for approving downstream investments in various sectors including hotels and resorts. the application is a matter of record and it had clearly mentioned that the eighth respondent would invest in the equity of the first respondent. very clearly the amount transferred to the first respondent was mentioned and approval was sought". (para nos. 32 & 33 in page 8 of counter of the company). the categorical finding of the delhi high court in its order dated 18.1 1.2005 would show that the amount of rs. 78.35 crores remitted in the account of dail maintained with abn amro bank, was received through its subsidiary namely, data access us. there is, therefore, no illegality on the part of the company in having received 25 crores through the eighth respondent from the account of dail. * prior to the impugned allotment, an extra ordinary general meeting of the company was convened and conducted on 20.10.2004 for approving the preferential allotment of shares to the eighth respondent. thereafter, at an yet another extra ordinary general meeting held on 28.10.2004, the authorised capital was increased from rs. 27 crores to rs. 53 crores. the impugned allotment is supported by consideration, brought in by the eighth respondent on 20.10.2004 to the account of the company without encumbering any of the properties of the company to clear the dues of the petitioner, in terms of the agreement only by january, 2005. in the meanwhile, the said amount came to be attached by the income tax department, which was beyond the control of the respondents. if the moneys had been paid to the petitioner, there would not have been any claim before the clb. the supreme court held in sangramsinh p. gaekwatl v. shantadevi p. gaekwad (2005) 57 scl 476 held that an isolated incident may not be enough for grant of relief but continued course of oppressive conduct on the part of the majority shareholders must be proved. the acts complained of may either be designed to secure pecuniary advantage to the detriment of the oppressors or wrongful usurpation of authority. the present grievance does not merit any consideration. * the petitioner had agreed to sell balance 10% of its holding in the company in favour of the second respondent and therefore, it cannot complain of its shareholding being decreased by virtue of the impugned allotment of shares to the eighth respondent. the directors have not created any new majority or reduced the petitioner into minority and never committed any breach of their fiduciary obligations. the supreme court in needle industries (india) ltd. and ors. v. needle industries newey (india) holdings ltd. and ors. (supra) held that (a) if the directors exercise their fiduciary powers over the shares without any ulterior motive or not solely for the purpose of destroying an existing majority or for creating a new majority, their acts cannot be covered under section 397/398; and (b) if the shares are issued in the larger interest of the company, the decision to issue shares cannot be struck down on the ground that it has incidentally benefited the directors in their capacity as shareholders. the delhi high court in pearson education inc. and ors. v. prentice hall india (p) ltd. and ors. (2006) clc 218 held that the power to issue shares is given primarily to enable capital to be raised when it is required for the purpose of the company, but the power is not conditioned by such need. however, the power to issue shares can be used for other reasons namely, to enable the company create a sufficient number of shareholders or to comply with any legal requirements. the petitioner's real intention is to set aside the impugned allotment of shares for certain collateral purposes. even if the impugned allotment of shares is cancelled, the amounts brought into the company will remain to be due to the respondents and any relief of setting aside the allotment will not put an end to the disputes between the parties and any such direction would unfairly prejudice not only the respondents but also the petitioner. therefore, the further issue of shares cannot be challenged by the petitioner. * the petitioner managed the company for over a decade in such a way that its net worth eroded and the shares were sold for rs. 1/- per share. the petitioner cannot expect the respondents to bring about a turn-around in a period of one year of taking over of the company. the problems faced by the company are temporary in nature and it would be possible for the respondents to commence and implement the project under their leadership. merely because the company has stopped its business temporarily or the company is incurring losses, it cannot be ordered to be wounded on account of loss of substratum. the company's assets are intact and are valuable. the respondents never increased the company's liability, but added the assets by bringing liquid cash and the future prospects of the company are bright and its substratum is not lost. there are no specific pleadings, as laid down by the bombay high court in m.k. patel v. swarup shree yarn private limited (2002) vol. 109 cc 413, in regard to the assets and liabilities and other information for the court to arrive at a conclusion that the substratum of the company has disappeared. * the grievance of the petitioner that the company has only six members is false and imaginary. it was the representatives of the petitioners who were then in the board of the company and therefore, the petitioner ought to be held responsible for the same. the second respondent by a letter dated 17.08.2004 had requested the joint managing director of the petitioner to execute transfer deeds in favour of six of his nominees. with the addition of the petitioner, there are seven holders in the company. the transfer of shares was approved at the board meeting held on 18.08.2004 in respect of 2,42,99,994 shares in favour of the seventh respondent instead of cheran enterprises private limited. the register of members of the company recorded by the petitioner shows that there are seven members in the company. however, the register of members does not reflect the correct and true picture regarding the names of the members and therefore, appropriate steps will be taken for rectification of the register of members of the company. the respondents having come to know about the mistake in the particulars of members, have arranged the nomination of one more person, as a member by the seventh respondent. this irregularity does not persist any longer. * the petitioner has not so far handed over the books of account and other records to the respondents which ought to have been maintained under section 209 of the act, for which they must be held liable. the company's registered office was functioning at kothari road during the period between 18.08.2004 and 12.08.2005 and thereafter, the registered office was shifted to boat club road, where it was located till 31.03.2006. at present, the registered office is functioning at k. s. mansions, triplicane, chennai -600 005. the statutory records are being maintained at the registered office functioning at k.s. mansions. form no. 18 notifying the change of the registered office of the company to kothari road as well as k.s. mansions has been filed by the company secretary. * non compliance with the provisions of the act, mere irregular, illegal, invalid acts by themselves cannot support a petition under section 397/398. these acts, unless they are oppressive to any shareholder or prejudicial to the interest of the company or to public interest, cannot support a petition under section as held in g. govindaraj v. venture graphics (p) limited (supra). furthermore, the petitioner complained of violation of the various provisions of the act, all of which are more or less of procedural requirements and in no way would result in oppression and mismanagement. the allegations of mismanagement remain without any proof by petitioner. there is no prosecution pending against the second respondent for violation of any of the provisions of fema and the pending criminal proceeding is in respect of a chit transaction, which is not relevant to the present case before the clb. * the respondents 5 & 6 belatedly consented to act as directors, which will not impair their functioning as directors of the company. by virtue of section 264 the delay in filing form no. 29 is curable. the fourth respondent filed form no. 29 dated 18.08.2004 duly signed by him with the registrar of companies on 12.10.2004, upon which form no. 32 has been filed on 12.10.2005 with the registrar of companies. similarly, form no. 29 duly signed by the third respondent has been filed with the registrar of companies. thus, the petitioner failed to make a case for the purpose of section 397/398. * the second respondent is willing to allot shares to the petitioner in proportion to its shareholding in the company to ensure its interest. the second respondent's nominee namely, the eighth respondent will not exercise any voting rights in respect of the shares issued in its favour. the second respondent, in the alternative is willing to purchase the balance ten per cent shares held by the petitioner in the company.4. according to shri aditya vikram bhat, learned counsel, the fourth respondent has at no point of time been a director or a member of the company. he has never been involved in the management of the company.this respondent has never consented to act as a director of the company. form no. 29 has not been signed by this respondent and the signature contained thereon is forged, which has been confirmed by the income tax assessment order dated 23.02.2005. the signature contained in form no. 29 may be referred to an hand writing expert for his expert opinion on the genuineness of his alleged signature. since this respondent was never a director of the company, the question of having resigned by him on 28.10.2004 does not arise. this respondent never acted in connivance with the respondents 3, 5 & 6. the fourth respondent is an employee of one of the affiliates of fairfax. while the respondent has agreed to review an investment in the company, the investment did not materialise for various reasons, upon which neither this respondent nor fairfax and its affiliates had transactions whatsoever with the company. none of the shares of the company or properties belonging to the company has ever been pledged to fairfax or any of its affiliated companies. this respondent has been arraigned in two criminal proceedings initiated before the metropolitan magistrate at new delhi, which came to be stayed at his instance by an order of the delhi high court. according to the fourth respondent, odyssey america reinsurance corporation ('oarc'), a company incorporated in accordance with the laws of the state of connecticut, usa had given a loan for an amount of us $ 17,000,000/- (rs. 78,45,50,000/-) in favour of data access us, a body corporate organised under the laws of the state of delawave, usa and a wholly indirect subsidiary of dail. the loan proceeds were to be onward lent to dail in accordance with applicable laws and regulatory approvals. however, the loan proceeds were inappropriately remitted by data access us in favour of dail as payment of receivables for services rendered by dail, which came to be diverted to the eighth respondent, out of which a pay order of rs. 25 crores was issued on 28.10.2004 in the name of the company. thus, the sum of rs. 25 crores brought into the company through the eighth respondent originally formed part of the loan proceeds wrongfully remitted to the account of dail by way of receivables. the petition does not disclose any genuine cause of action against this respondent.there is no relief sought against this respondent. the various allegations raised against this respondent are frivolous and unnecessary.5. according to ms. shalini kaul, learned counsel, the third respondent is not associated in any manner whatsoever with the company and never consented to act as its director. the alleged signature in form no. 29 was forged, as borne out by an opinion dated 18.07.2006 of an hand writing expert. therefore, form no. 29 is void in law and does not bind the third respondent in any manner whatsoever. this respondent is taking criminal action against the persons responsible for forging his signature in form no. 29 and other documents.6. i have considered the arguments-oral and written-advanced for the parties. the arguments set out in the written submissions but not pressed into service at the time of oral submissions are not considered by me. the issues which arise for consideration are whether the acts complained of by the petitioner warrant interference of this bench and if so, whether the petitioner is entitled for the reliefs claimed in the company petition.during the pendency of the company petition, the respondents 1,2,5 and 8 to 10 have applied under section 8 of the arbitration and conciliation act, 1996, to direct the parties for arbitration on the ground that the grievances of the petitioner form part of the agreement dated 19.07.2004 and that the petitioner has already initiated the arbitration proceedings to resolve the disputes, which are interconnected with the acts complained of in the company petition.this bench, on hearing both sides by an order dated 27.12.2005 concluded that the agreement dated 19.07.2004 (a) deals with the terms and conditions for disposing of the petitioner's shareholding, controlling and management interest in the company in favour of the second respondent; and (b) envisages the rights and obligations of the parties in relation to taking over of the business, assets and liabilities of the company by the second respondent. the petitioner complained of, inter alia, the breach committed by the second respondent in discharging the liabilities of the company taken over by him in terms of the agreement and in incurring huge sums of money for and on behalf of the company, but no relief has been claimed in this behalf before the clb. however, the petitioner has made a claim against the respondent before the arbitral tribunal for the amounts spent by it in relation to the operations and management of the company and damages of rs. 5 crores for breach of the contract, which are covered under clauses 5 & 23a respectively of the agreement. the allegations of oppression and mismanagement brought out in the company petition shall be adjudicated, without reference to the terms of the agreement and accordingly the prayer of the respondents to refer the parties before the clb to arbitration, in terms of section 8 of arbitration and conciliation act came to be rejected. the appeal preferred by the respondents against the order dated 27.12.2005 was dismissed by the madras high court. in view of these developments, the grievances of the petitioner that the second respondent and his nominees failed (a) to discharge the liabilities of the company; (b) to relieve the petitioner from the guarantee obligations and (c) to reimburse the expenses incurred by the petitioner in terms of the agreement and the consequent prayer cor return of the shares by the second respondent and his nominees which have been transferred in their names, pursuant to the agreement shall necessarily be agitated before the arbitral tribunal, more so, when these charges are found flowing from the agreement dated 19.07.2004. no remedy is possible before the clb for the breach of any agreement, as held in r. balakrishnan v. vijay diary and farm (p) limited the grievances of the petitioner that (a) the second respondent took over the company for parking illegal funds by legally pledging all original share certificates issued at the time of transfer of shares by the petitioner and title deeds of the properties belonging to the company in favour of fairfax in violation of fema; (b) the company's affairs have been conducted for a fraudulent and unlawful purpose, prejudicial against public interest, the company's interest and in a manner oppressive of the petitioner; and (c) the respondents 2 to 4 along with gopinath athappan, promoted a group of companies without obtaining the government approval for siphoning of the company's funds and assets, apart from quite general and vague remain without being established by any documentary proof, in the absence of which no reliefs can be granted as held in sangmmsinh p. gaekwad v. shantadevi p. gaekwad & p.s. offshore inter land services pvt. ltd. and anr. v.bombay offshore suppliers and services ltd. and ors. (supra). the petitioner has neither chosen to make out as to how its interest has been unfairly prejudiced on account of these purported acts of mismanagement in the affairs of the company. it is not under dispute that the authorised representative of the petitioner took inspection of the original title deeds of the company and the original share certificates issued in the name of the second respondent and his nominees as early as in november 2005. the assertion of the second respondent that the share certificates and the title deeds are in his custody remain unrepudiated by the petitioner. the second respondent infact offered inspection of these documents to the petitioner. the issue relating to remittance from dail in favour of the company through the eighth respondent is being separately dealt with elsewhere.the claim of the petitioner in regard to the number of members, it may be observed that though the register of members shows that there are seven members in the company, yet the register, as admitted by the company, does not reflect the correct and true picture regarding the names of members and the company is at liberty to take appropriate action for rectification of the register of members of the company, in terms of the assurance made by dr. k. ravichandran at the time of his oral submissions. it is on record that the fifth respondent one of the directors of the company has sworn to an affidavit on 13.07.2006 to the effect that the seventh respondent holding only one share in respect of folio no. 28 has already nominated a person by name mr. k. chenniappa gounder, as the holder of the said share retaining the beneficial interest thereof with the seventh respondent, which has been taken on record by the company at the meeting of the board of directors held on 12.06.2006. it is seen from the extract of the relevant resolutions that the board of directors accorded its consent to the above arrangement in respect of one share bearing distinctive no. 64, which has been followed by necessary declarations filed under sub-section (2)/sub-section (3) of section 187c of the act with the registrar of companies. with the nomination of chenniappa gounder as the holder of one share in respect of folio no. 28, retaining the beneficial interest with the seventh respondent, the company at present comprises of seven members. in view of this, the apprehension of the petitioner on account of number of members, does no longer survive.the criminal prosecutions initiated by dail, bsnl, income tax department and k. vengadachalam on the charges of cheating and other offences, are not in respect of the affairs of the company. the petitioner has neither established as to how the interest of the company or its interest has been adversely prejudiced on account of the various criminal prosecutions pending against the second respondent, this bench by an order dated 26.08.2005 appointed an advocate commissioner to visit and inspect the registered office of the company as given in the company petition namely, no. 19 (new no. 44) kothari raod, nungambakkam, chennai-600034 for authenticating the statutory records. the commissioner reported that there was no registered office of the company located at kothuri road premises. however, it was later represented that the registered office of the company was shifted to no. 22/26, boat club road, chennai-600028 with effect from 12.08.2005.it may be observed that the owners of the board club road premises namely, eid parry (india) ltd. by their letters dated 09.11.2005 and 24.04.2006 advised the petitioner that m/s cheran enterprises private limited had taken the said premises for a period of two years from 15.01.2005 for the residence of its managing director namely, the second respondent herein and further that the lessee vacated the leased premises as early as on 22.10.2005. the income tax assessment order shows that the registered office of the company was closed. dr.ravichandran, at the time of his submissions contended that the registered office of the company is functioning at k.s. mansions, triplicane, chennai - 600 005, but the fact remains that the company failed to produce the statutory records for authentication by the commissioner in terms of the order of the bench. the respondents showing their bonafidies neither chose to cause production of the statutory records in the course of the hearing thereby, denying any opportunity in favour of the petitioner to carry out inspection of the statutory records and causing prejudice to its interest, nor established whether the company is maintaining the statutory records at k.s. mansions, triplicane, chennai-600 005 as claimed by the respondents. the appointment of the respondents 3 & 4, as directors is under serious dispute. it is further observed that the company has been burdened with additional rental by the frequent shifting of the registered office, involving additional expenditure, which is held to be an act of mismanagement in akbarali a. kalvert and anr. v. konkan chemicals pvt. ltd. and ors. (supra). it is claimed by the respondents 3 & 4 that (a) they never consented to act as directors of the company; (b) their signatures in form no. 29 are obvious forgery; and (c) they never acted as directors of the company. the income tax assessment order shows that the signatures of the respondents 3 & 4 as appearing in form no. 29 are entirely different from their admitted signatures in the joint venture agreement dated 31.01.2004. similarly, the handwriting expert's opinion dated 18.07.2006 produced by the third respondent confirms that the alleged signature of the third respondent in form no. 29 is forged. though, dr. ravichandran reiterated that the respondents 3 & 4 were directors of the company till they resigned from the office of director, there is no material such as the register of directors, or the minutes of the board meeting or any other material document evidencing participation of the respondents 3 & 4 in the affairs of the company as directors, which must, therefore, be seriously viewed by the bench. mere production of the disputed form no.29 and form no. 32 without being supported by any primary records, the plea of the company that the respondents 3 & 4 functioned as directors of the company does not merit any consideration. similarly, the respondents 5 & 6 belatedly consented to act as directors, contrary to the provisions of section 264. the provisions of sub-section (1) of section 264 being directory and not mandatory like sub-section (2), non- filing of consent with the company for the candidature is rather a curable irregularity. the consequence of a director continuing to act as such without filing his consent within the period specified in section 264(2) would be that penalty under section 629a would become attracted in the matter. the company has no managing or whole time director or a manager despite the fact that its paid up capital exceeds the prescribed limit under section 269. section 383a stipulates that every company having paid up share capital of rs. 2 crores and above with effect from 11.06.2002 shall have a whole time secretary, failing which the company and every officer of the company who is in default shall be punishable in the manner specified therein. nevertheless, the company does not have a whole-time company secretary in accordance with section 383a. section 147 envisages, inter alia, that the name of the company and address of the registered office should be painted or of fixed outside the office and place of business, failure of which attracts penalty. the report of the advocate commissioner dated 30.08.2005 shows that the company failed to ensure compliance with the requirements of section 147. there is no material to substantiate that respondents have acted in accordance with the requirements of section 147 with reference to the registered office reportedly situated at k.s.mansions, triplicane, chennai-600 005. though, it is vehemently contended by the petitioner that the company being a public company does not have three directors on its board as required under section 252, the respondents have not even chosen to furnish the names of the three directors who continue to be directors of the company. every public company, in terms of section 292a, having paid up capital of not less than five crores of rupees has to constitute an "audit committee", which has not been so far complied with by the company, thereby attracting the penal provisions contained in section 292a. these gross irregularities and violations of the act would indicate that the affairs of the company are not being prudently managed by the second respondent and his nominees, causing immense prejudice to the company and its members. the respondents cannot, therefore, take any shelter under the decision in g. govindaraj v. venture graphics (p) limited (supra), on the ground that mere irregularities cannot support a petition under section 397/398. there is not even any explanation from the second respondent and his nominees for their failure to meet the essential statutory requirements of the act. these state of affairs of the company indicate beyond doubt that all is not well in the day to day management of the company warranting an investigation into its affairs. the purpose of investigation is to find out as to whether who are in-charge of the company and whether those in-charge of the company are guilty of irregular conduct of the affairs of the company. the facts and materials before me do reasonably suggest and are sufficient to form a prima facie opinion in tenns of section 237(b)(i) of the act that the company's day to day management is being conducted in a manner oppressive of the minority shareholder which warrants timely intervention of the bench.according to the respondents (i) the share capital has been increased from rs. 27 crores to rs. 53 crores with a view to settle the dues of the company, after due notice of the extra ordinary general meeting sent to the petitioner on 01.10.2004 by ordinary post; and (ii) the petitioner is aware of the increase in the authorised capital and the issue of further shares as early as february 2005 as borne out by (a) the income tax assessment order; (b) the letters dated 22.01.2005, 04.02.2005 and 04.03.2005 of the petitioner demanding only settlement of the liabilities of the company; and (c) the legal notice dated 26.03.2005 issued on behalf of the petitioner notifying the appointment of an arbitrator. the sequence of events may indicate that the petitioner might be aware of the extra ordinary general meeting convened and held by the company as well as the allotment of shares, but mere knowledge of the meeting would not tantamount to serving of notice in terms of section 172 of the act, which provides that notice of every meeting of the company shall be given to every member, whose name appears on its register of members in any manner authorised by sub-sections (1) to (4) of section 53. it is, therefore, beyond doubt that the requirements of section 172 being a mandatory requirement must strictly be complied with, non-compliance of which invalidates the resolution passed at such meeting. though, it is contended that notice of the extra ordinary general meeting was sent by ordinary post yet there is no material to show that any such notice was in fact sent by ordinary post. the assertion of the respondents without any primary documents such as the despatch register or the books of account of the company showing that expenses were incurred by the company for sending the notices to the petitioner will lend little support to substantiate its claim regarding service of notice on the petitioner, in which case the presumption on the basis of section 53(2) of the act cannot be drawn. the petitioner neither, by virtue of the agreement dated 19.07.2004, dispensed with the requirement of service of notice of the general meeting. any meeting held without proper notice is invalid and proceedings of such a meeting are illegal as held in akbarall a.kalvert and anr. v. konkan chemicals pvt. ltd. and ors. and martin castelino v. alpha omega shipmanagement (p) limited (supra). similarly, any allotment of further shares bypassing the prescribed procedure of sending the notice of meeting would constitute an act of oppression, as held in c.n. setty v. hillock hotels (p) ltd. and ors. (supra).the company, while elaborating before the delhi high court in the proceedings in connection with dail initiated by one of its creditors, about the arrangement reached between the petitioner and the second respondent on disposing of the petitioner's shareholding, controlling and management interest in the company in favour of the second respondent, by virtue of the agreement dated 19.07.2004, categorically contended that the eighth respondent, herein, a nominee of the second respondent invested a sum of rs. 25 crores in the equity of the company as per the payment made in the month of october, 2004 thereby increasing the total paid up capital of the company to rs. 52 crores.by virtue of the said investment, the eighth respondent is holding 48% of the equity in the company. the company had also duly complied with the necessary statutory compliances as required by the act by filing necessary declarations in form no. 5 giving notice of increase in share capital and the return of allotment in form no. 2, confirming the allotment of 2.50 crores equity shares of rs. 10/- each. thus, the company claimed before the delhi high court that the investment of rs. 25 crores by the eighth respondent was towards the share capital of the company for clearing the liabilities of the company and that the allotment was completed by the company as early as on 28.10.2004, prior to the restraint order made by the high court on 17.12.2004. it was further pleaded before the high court that the eighth respondent had applied to the foreign investment promotion board in december 2004 seeking approval for the investments made by the eighth respondent in various companies including the first respondent company therein. in this situation, the company attempted to impress upon the high court that its order dated 17.12.2004 is now restraining the company from fulfilling its obligations under the agreement dated 19.07.2004 which is causing great prejudice to the company and therefore, sought before the delhi high court to vacate the restraint order dated 17.12.2004, on the ground that the amount of rs. 25 crores legitimately belongs to the company. the delhi high court after weighing the arguments of the company and other concerned parties, by an order dated 18.11.2005, while confirming the interim order dated 17.12.2004 directed that the amounts which were transferred to the first respondent company and other entities by the eighth respondent out of the remittance received from dail account must be remitted with canara bank on account of the admitted liability of the bank and charge of the bank over the remittance, in the following words: interim order dated 17^th december, 2004 is accordingly confirmed. consequence would be that the amount which has been transferred from abn amro account no. 1014374 of the company to chpl and other companies shall be remitted back by those parties to the account of the company maintained with abn amro bank. needful in this respect shall be done within two weeks. after receiving this amount the abn amro bank shall remit this amount to canara bank. it is because of the admitted liability of the bank and charge of the bank over this money. furthermore, in case it is found ultimately that the money is to be refunded to odyssey re etc., appropriate orders can be passed directing canara bank to refund the amount and the bank has sufficient means to carry out such directions. appropriate orders shall be passed in the company petition as to how this amount is to be dealt with depending on the nature of the final orders passed in the company petition.by virtue of the order dated 18.11.2005, the plea of the company that the amount of rs. 25 crores belong to it stands rejected. the consequence of the high court order would be that the amount of rs. 25 crores invested in the company by the eighth respondent, out of the remittance from dail will either go to canara bank or dail, as may be ordered by the high court in terms of para 72 of the order dated 18.11.2005. it shall be borne in mind that the income tax assessment order dated 23.02.2005 describes the amount of rs. 25 crores in the company's account as unexplained share capital. it is immaterial to look into the source of obtaining the assessment order by the petitioner, in view of the fact that the second respondent has himself produced the relevant portion of the assessment order and placed reliance on the same. in the event of the commissioner of income tax (appeals) raises the order of attachment made pursuant to the assessment order dated 23.02.2005 as claimed by the second respondent, the entire amount which may be released must be dealt with strictly in accordance with the order dated 18.12.2005 of the high court.therefore, the company can no longer claim that this amount of rs. 25 crores brought in by the eighth respondent belongs to the company. in view of this, it will be futile to go into the source of funds aggregating rs. 78.45 crores in dail's account (out of which rs. 25 crores was transferred to the eighth respondent which was later remitted to the company's account) which according to the delhi high court, "needs a thorough probe" as observed in para 69 of the order dated 18.11.2005. the net result would be that the allotment of 2,50 crores equity shares in favour of the eighth respondent impugned in the company petition, is not supported by any valid consideration. in this context, the decisions in needle industries (india) ltd. v. needle industries newey (india) holding limited & pearson education inc. and ors. v. prentice hall india (p) ltd. and ors. (supra) cited by the learned authorised representative of the respondents, justifying the impugned allotment, will be of little assistance to them. at this juncture, the categorical statement made on behalf of the second respondent at the bar that he is not willing to bring in any money towards the consideration of 2.50 crores equity shares, assumes relevance. the declaration of the second respondent made in his affidavit on 13.07.2006 to the effect that "when the income tax department clears attachments the same moneys could be paid to the petitioners..." runs parallel to the undertaking given on behalf of da1l to canara bank in its communication dated 18.08.2004, the relevant portion of which reads as under: we wish to apprise you that we desire too open a current account with abn amro bank, chennai branch, chennai. the above account is required to be opened on account of the fact that the investor has an account with abn amro bank at chennai and the opening of an a current account by data access (india) ltd with abn amro bank chennai branch, chennai would facilitate the smooth transfer of funds in the minimum possible time. the funds need to be transferred immediately to canara bank as we are in urgent need of funds for meeting some of our urgent commitments. we assure you that this account will be closed by us as soon as the funds arc transferred to the consortium bankers.therefore, the above undertaking of dail clearly indicates that the moneys namely, rs. 78.45 crores must be transferred by dail to consortium bankers in which case the company cannot make any claim over rs. 25 crores brought in by the eighth respondent from the remittance of dail. the second respondent has agitated in the present proceedings the very same plea regarding the source of funds, increase of capital, infusement of funds by the eighth respondent and allotment of 2.50 crores equity shares in favour of the eighth respondent, which has been raised before and rejected by the delhi high court. i cannot, therefore, come to any other conclusion than the categorical finding of the high court elaborated herein above. it is relevant to observe that the application made by company before the delhi high court to vacate the interim order dated 17.12.2004 on the ground the said order is restraining the company from fulfilling its obligations under the agreement dated 19.07.2004 came to be rejected. form no. 23 notifying the alteration of articles of association of the company pursuant to the increase of share capital from rs. 27 crores to rs. 53 crores as borne out by the special resolution dated 28.10.2004 has been filed with the registrar of companies after a lapse of one year on 31.01.2005. form no. 5 notifying the increase of share capital in accordance with the resolution dated 28.10.2004 has been filed with the registrar of companies only on 03.02.2005. similarly, form no. 2 dated 24.01.2004 disclosing the allotment of 2.50 crores equity shares of the company reportedly made on 28.02.2004 in favour of the eighth respondent has been filed with the registrar of companies on 31.10.2005, after a delay more than a year. the delay in filing form no. 23. form no. 5 and form no. 2 has not at all been justified by the company, all these returns have been filed with the registrar of companies after the interim order of 17.12.2004 of the delhi high court. therefore, no credentials can be attached to any of these returns filed by the company with the registrar of companies to sustain the increase of share capital and the allotment of impugned shares in favour of the eighth respondent. the allotment of impugned shares by the directors in breach of their fiduciary responsibility is nothing but an act of oppression against the minority shareholder, which would justify the making of a winding up order against the company on just and equitable grounds. however, any such order of winding up of the company would without any doubt unfairly prejudice the company and its members, in view of the assertion of the second respondent that the problems faced by the company are temporary, that the company will be in a position to implement and commence the golf course project in due course of time and also the fact that it owns extensively immovable properties.in view of my foregoing conclusion and (i) in exercise of the powers under sections 237(b)(i) and 402; (ii) to make appropriate orders bringing to an end the acts complained of and (iii) to regulate the conduct of the future affairs of the company, it is hereby declared that- (i) the enhancement of authorised capital of the company from rs. 27 crores to rs. 53 crores is illegal and void; (ii) the further issue of shares by the company in favour of the eighth respondent impugned in the company petition, being illegal is set aside; and (iii) the central government will appoint one or more competent persons as inspectors to investigate the affairs of the company and take the appropriate action if warranted, on receipt of the investigation report.with the above directions, the company petition stands disposed of. no order as to cost.

Judgment:
1. This company petition is filed under Sections 397, 398, 402 & 403 of the Companies Act, 1956 ("the Act") alleging that the second respondent in connivance with the respondents 3 to 6 are indulging in serious acts of oppression and mismanagement in the affairs of M/s Sporting Pastime India Limited ("the Company") in a manner which are prejudicial to the interests of the Company and oppressive to the petitioner, constituting one-tenth of the total number of its members and seeking the following reliefs: (i) to supercede the present board of directors and appoint an independent Chairman and other directors to manage the affairs of the Company; (ii) to declare the increase in share capital from Rs. 27 crores to Rs. 53 crores made on 28.10.2004 as illegal and void ab initio; (iii) to cancel the allotment of shares of Rs. 25 crores made on 28.10.04; direct the consequent reduction of share capital under Section 100 of the Act and rectify suitably the register of members of the Company; (iv) to declare all proceedings and resolutions passed at the meeting held on 28.10.2004 as void and inoperative and declare any further resolutions that may be passed either at board meeting or general meeting as void and inoperative; (v) to direct rectification of the register of members to include S. Kuppuswamy and T.B. Narayanaswamy as members of the first respondent company, holding one share each and by reducing the two shares from the total share . holding of the petitioner herein; (vi) to rectify the register of members protecting the petitioner from the effect of non-compliance with the requirement of Section 2. Sri T.V. Padmanabhan, learned Counsel, while initiating his arguments submitted: * The Company was incorporated in May 1994 as a 100% subsidiary of the petitioner for the sole purpose of establishing, maintaining and conducting a golf course-cum-beach resort. The Company could not achieve its main object which resulted in the petitioner entering into an agreement with the second respondent on 19.07.2004 for the taking over the Company. The second respondent, in terms of the agreement, acquired 90% shareholding, controlling and management interest in the Company for a total consideration of Rs. 2.43 crores apart from agreeing to discharge the debts and liabilities due by the Company to the petitioner and several others and relieve the petitioner of its guarantee obligations in respect of the Company, as stipulated therein. The petitioner's nominees, pursuant to the acquisition of shares by the second respondent, had resigned from the office of director and the respondents 3 & 4 being nominees of the second respondent were inducted on the board of directors of the Company. However, the second respondent failed to discharge the liabilities of the Company in terms of the agreement entered into with the petitioner. The present grievances are that since taking over the control and management of the Company in August 2004, the respondents 2 to 6 are indulging in several acts of oppression and mismanagement in the affairs of the Company and therefore, invoked the jurisdiction of Sections 397 and 398.

* The only object of taking over the Company by the second respondent is to use it as a medium for parking illegal funds by illegally pledging all original share certificates issued at the time of transfer of shares by the petitioner and title deeds of the properties belonging to the Company in favour of Fairfax Financial Holdings Limited ("Fairfax") Canada, a foreign company, in violation of the provisions of the Act as well as the Foreign Exchange Management Act ("FEMA") and to divert the illegal funds received from abroad for his personal gains. The affairs of the Company have been conducted for a fraudulent and unlawful purpose, prejudicial against public interest, the Company's interest and in a manner oppressive of the petitioner, which resulted in loss of trust and confidence between the parties. The directors in breach of their fiduciary obligations failed to utilize the assets of the Company for its benefits.

* The respondents 2 to 4 along with one Gopinath Athappan, son of the third respondent were involved in promotion of a group of Companies with cross holdings incorporated or acquired without obtaining the Government approval for siphoning of the Company's funds and assets. Fairfax had lent moneys against collateral of real estate belonging to various companies of the second respondent including the first respondent Company. Fairfax group invested to the tune of 75 crores in M/s. Data Access India Limited (DAIL) 51% of which is held by the respondents 8 and 9, which are solely held by the second respondent. The respondents 2. to 4 are solely responsible in diversion of Rs. 25 crores during October 2004 out of the huge amounts received from Fairfax, to the Company by way of parking measure and not towards investment or advance share capital.

The conversion of Rs. 25 crores into share capital of the Company is a deliberate manipulation, which resulted in attachment of the amount so brought into the Company, by the Income Tax Department for the dues and penalties payable by the Company. The Company's total tax liability for the period from 01.04.2004 to 07.01.2005 comes to Rs. 17.40 crores as borne out by the assessment order dated 23.02.2005. The assessment order describes the amount of twenty five crores of rupees in the Company's account as unexplained share capital. The assessment order produced by the petitioner is admissible in evidence, irrespective of the method by which it has been obtained as held in Pushpadevi M. Jatia v. Union of India and Ors. , There are no chances of recovery of the amount, which has been attached by the Income Tax Department and the Company has no reasonable prospect of earning any profit. The respondents have not taken the initiative to complete the project after taking over the management of the Company from the petitioner.

The petitioner came to know from the Delhi High Court proceedings initiated against DAIL by one of its creditors that the inward remittance to DAIL was made from Data Access US to settle trade dues. Canara Bank, which held receivables of DAIL as security for its advance to DAIL, made a claim over the inward remittance received by DAIL from Data Access US. The Delhi High Court by its order dated 18.11.2005 directed that the amounts which were transferred to the first respondent Company and other companies by the eighth respondent herein out of the remittance received from DAIL must be remitted with Canara Bank on account of the admitted liability of the bank and charge of the bank over the remittance. It is further directed that in case it is ultimately found that the money is to be refunded to Fairfax, appropriate orders will be passed directing Canara Bank to refund the amount in favour of Fairfax. The consequence of the order of the Delhi High Court would be that the amount of Rs. 25 crores remitted with the Company, out of the remittances from DAIL will go either to Canara Bank or DAIL as may be decided in due course by the High Court, thereby, the plea of the respondents that the amount of Rs. 25 crores was brought in by the second respondent by way of share capital of the Company came to be rejected by the Delhi High Court, which is a clear proof of diversion of money and violation of the provisions of FEMA. In view of the present developments, the Company lost its substratum and the main business of the Company has become incapable of being performed due to the huge liabilities incurred and the illegalities committed by the Company.

* After taking over the Company, no accounts have been finalised and no balance sheet has been filed with the Registrar of Companies but wrongfully increased the share capital from Rs. 27 crores to Rs. 53 crores in October, 2004 without the knowledge of the petitioner. It was further shown that the eighth respondent, a nominee of the second respondent had invested a sum of Rs. 25 crores in the equity of the Company, without convening any general meeting as envisaged under Section 81 of the Act and fulfilling the other requirements of the Act. There is absolutely no business need or commercial justification to raise the share capital from Rs. 27 crores to Rs. 53 crores. While issuing further shares, no offer was made to the petitioner, thereby the second respondent and his nominees abused their power to seriously prejudice the interest of the minority shareholders. This would constitute an act of oppression as observed by this Board in Deepak Luhia v. Kamrup Developers (P) Ltd. (Order dated 31.I2.2001 in C.P. No. 82 of 2000), wherein it has been held that any disproportionate allotment of shares is an act of oppression attracting the provisions of Section 397, * Form No. 5 dated 24.01.2005 filed with the Registrar of Companies shows that authorised capital was increased from Rs. 27 crores to Rs. 53 crores at the extra ordinary general meeting held on 28.10.2004. The petitioner never received any notice of the extra ordinary general meeting purportedly held on 28.10.2004 for increasing the share capital and for issue of further shares. Form No. 23 dated 24-01-2005 shows that the Company passed a special resolution on 28.10.2004 altering the articles of association of the Company pursuant to the enhancement of the share capital and further that notice was dispatched to the members on 01.10.2004, but no such notice was received by the petitioner. Form No. 2 dated 24.01.2005 discloses that 2.50 crores shares of Rs. 10/- each were allotted in favour of the eighth respondent on 28.10.2004. It has been held in (a) C.N. Setty v. Hillock Hotels (P) Ltd. and Ors. (2001) 104 CC 722 that any allotment of additional shares bypassing the prescribed procedure of sending the notice of meeting in advance would tantamount to an act of oppression within the meaning of Section 397; (b) Akbarali A. Kalvert and Anr. v. Konkan Chemicals Pvt. Ltd. and Ors. (1997) 88 CC 245 (Vol.88) that meetings held without proper notices are invalid and proceedings of such meetings are illegal and invalid; and (c) Martin Castelino v. Alpha Omega Shipmanagement (P) Ltd. (2001) Vol.104 CC 687 that any extra ordinary general meeting held without notice to majority shareholders is invalid and further any decision to increase the authorised capital is also held to be invalid. All these returns were filed with the ROC after the interim order of the Delhi High Court made on 17.12.2004 and hence no value can be attached to any of the fabricated returns filed by the Company. This device of enhancement of share capital as well as issue of further shares has been adopted by the Company with a view to get away with the attachment order made by the Delhi High Court.

The register of members does not disclose the allotment of 25 crores shares in favour of the eighth respondent. The eighth respondent failed to produce the share certificates in support of the allotment of shares in its favour. Further the second petitioner got the shares from the petitioner at Re. 1/- per share, but 2.50 crores shares were issued at the rate of Rs. 10/- per share to the eighth respondent, which is neither justified nor logical. The directors enjoying a fiduciary position failed to exercise their powers for the benefit of the Company. The impugned allotment of shares made in favour of the eighth respondent must be annulled, in support which reliance has been placed on (i) Piercy v. Mills & Company Limited (1920) 1 Ch 77 to show that (a) directors shall exercise their fiduciary powers for the general advantage of the company; and (b) directors are not entitled to use their power of issuing shares merely for the purpose of maintaining their control, or control of themselves and their friends, over the affairs of the company, or merely for the purpose of defeating the wishes of the existing majority shareholders; and (ii) Nanalal Zaver and Anr. v. Bombay Life Assurance Co, Ltd. to show that the directors hold a fiduciary position and must exercise their powers for the benefit of the company and for that alone but not for the personal ends of directors and for their personal aggrandisement, for keeping themselves in power.

* The agreement dated 19.07.2004 envisages the sale of business and not the sale of shares. The sale consideration would include the price paid for the shares and the discharge of liabilities of the Company. The second respondent and his nominees, after taking over the Company, failed to discharge the huge liabilities, of the Company, for which claim has been made before the Arbitral Tribunal.

The second respondent failed to relieve the petitioner from the guarantee obligations which resulted in many of the creditors of the Company proceeding against the petitioner, for the dues of the Company. The petitioner was further constrained to incur several lakhs of rupees on account of the payments made on behalf of the Company. In view of this, the second respondent must be directed to return back the shares to the petitioner, treating the transfer of shares in favour of the second respondent without sufficient consideration on account of the default committed by him and restore the status quo ante in regard to the shareholding pattern in the Company.

* The registered office of the Company is beyond the reach of any members or creditors. The statutory records are not available for inspection and scrutiny. The Advocate Commissioner visited on 30.08.2005 the registered office of the Company at the address as given in the company petition namely No. 19 (New No. 44) Kothari Road, Nungambakkam, Chennai-600 034. The Advocate Commissioner did not find any name board at the aforesaid premises showing the Company's name and no office of the Company was functioning at the said premises. However, the registered office of the Company was reportedly shifted on 12.08.2005 to Boat Club Road, Chennai-600 028, which came to be vacated on 22.10.2005 in terms of the communication dated 24.04.2006 addressed by the owners of the premises in favour of the petitioner. The registered office of the Company is shown as Boat Club Road even in the proceedings before the Delhi High Court.

The eighth respondent is reportedly having its registered office at the Boat Club Road. The notice dated 01.10.2004 convening the extra ordinary general meeting on 28.10.2004 to increase the authorised share capital shows that the registered office is located at Kothari road, Chennai - 600 034, but the registered office did not function at the said place as claimed by the respondents. In Akbarali A. Kalvert and Anr. v. Konkur Chemicals Pvt. Ltd. and Ors. (supra), it is held that burdening the company with additional rental by shifting the registered office and thereby committing avoidable expenditure would constitute an act of mismanagement. The letters addressed by the Company do not bear its registered office address as borne out by copies of the communications produced before the Bench. The Income Tax assessment order reveals that the registered office of the Company is closed and that whereabouts of the second respondent are not known and his presence is wanted in connection with certain criminal cases filed in various parts of India.

Similarly, the addresses of the respondents 3 & 4 furnished in Form No. 32 filed on 18.08.2004 are at variance with their addresses furnished in Form No. 32 filed on 24.01.2005, with the Registrar of Companies. The affairs of the Company are being conducted with the intention to defraud its creditors, members or any other persons.

* At present, there are only six members in the Company including the petitioner, pursuant to the transfer of shares in favour of the second respondent and his nominees in terms of the agreement dated 19.07.2004 and therefore, the Company must be wound up. The second respondent by his communication dated 17.08.2004 requested the petitioner to transfer 2.43 crores shares in his favour and in favour of his nominees as described therein. Accordingly, 2,42,99,994 shares were transferred in favour of the seventh respondent in terms of the transfer deed forwarded by the second respondent, copy of which is produced before the Bench. The petitioner, after effecting the transfer of shares in favour of the seventh respondent as per the request of the second respondent forwarded the relevant share certificates to the seventh respondent which has been duly acknowledged by it. The second respondent failed to ensure the minimum number of seven members, which is violative of the provisions of Section 45 of the Act. This section provides that every person who is a member of a public company, which is less than 7 members will be severally liable for payment of the whole debts of the company contracted during the period of six months as specified therein. It is, therefore, just and necessary that the number of members is increased to a minimum of 7 members and the petitioner is ready and willing to transfer a part of its shares to different persons in order to ensure that the number of members exceeds seven, thereby avoiding the penal provisions of Section 45.

* According to the second respondent, the respondents 3 & 4 were directors of the Company, the fact of which has been seriously disputed by them. It is claimed that the respondents 3 & 4 never consented to act as directors of the Company, and signed Form No. 29 and the signatures thereon are obvious forgery. The Income Tax assessment order also confirms that the signatures of the respondents 3 & 4 as appearing in Form No. 29 are entirely different from the signatures in the joint venture agreement dated 31.01.2004.

The respondents 5 & 6 were appointed as directors in September 2004 but necessary Form No. 32 was filed after a delay of one year and till such time the second respondent was only a director in the Company. By virtue of Section 264, no person shall act as a director of the Company unless he has within 30 days of his appointment signed and filed with the Registrar of Companies his consent in Form No. 29, to act as a director. There has been an inordinate delay in filing Form 29 by the respondents 5 & 6 and therefore, they shall not act as directors of the Company. Their presence cannot be counted for the purpose of ascertaining quorum for any of the board meetings.

* The Company specifically pleaded in the counter affidavit filed in the arbitration proceedings that the Company owned lands to the extent of 343.85 acres, value of which will be more than the claim of Rs. 31 crores of the petitioner made in the arbitration proceedings. At the same time the respondents valued the properties of the Company at Rs. 20 crores in the present proceedings and thus the respondents are taking contradictory stand at different point of time. The petitioner obtained various clearances for commissioning and running the golf course during the years 1999 to 2002, but the respondents failed so far to make any headway in commissioning the golf course. The second respondent has taken possession of the share certificates which were issued in the name of his nominees, apart from the fixed assets of the Company in the form of building, equipment, furniture and fixtures aggregating Rs. 6 crores, but failed to fulfill any of the obligations in terms of the agreement dated 19.07.2004.

* The respondents 2 to 4 along with Gopinath Athappan were directors of DAIL against whom, summons have been issued by the Metropolitan Magistrates of Delhi, Kochi, Ambala, Lucknow, Chennai and Bangalore in criminal complaint filed by BSNL and prosecution launched by the Income Tax Department New Delhi for failure to deposit TDS. A complaint has also been lodged before the Enforcement Directorate for violation of the provisions of FEMA by the second respondent and his nominee directors in DAIL. The second respondent obtained anticipatory bail in the criminal proceedings on the charges of cheating given by DAIL, as borne out by the news item in the local newspaper produced before the Bench. The Supreme Court in K. Vengactuchalam v. K.C. Palanisamy and Ors. (2005) 7 SCC 352 directed the trial court to proceed with the trial in the prosecution of the second respondent herein and others launched under various sections of the Indian Penal Code. These developments would show the conduct and inaction on the part of the second respondent to act in pursuance of the agreement dated 19.07.2004, rendering the second respondent to be unfit to continue as a director in the Company.

* The directors have ignored several provisions of the Act, regarding convening of meetings, maintenance of accounts, allotment of shares and appointment of directors. The Company has no managing director or whole time director though its paid up share capital exceeds the prescribed limit in terms of Section 269. There is no company secretary as stipulated in Section 383A of the Act. The address of the registered office of the Company is not given in the Company's letter head as required under Section 147. Section 252 stipulates that every public company shall have atleast three directors, but this company at no point of time had three directors on its board. The respondents 2, 3 & 4 are no more directors. The board is presently comprised of the respondents 5 & 6, who are new faces and therefore, the Company is left in the hands of newcomers, which is prejudicial to the interest of the Company and its members.

The Company has not constituted any audit committee in terms of Section 292A of the Act. The number of members has been reduced below seven and therefore the Company has to be wound up by virtue of Section 433(d). The Company is violating the laws of the land and acting against public interest. These gross violations of various statutory provisions would justify the making of an order of winding up against the Company on just and equitable grounds. The real state of affairs are unknown and hence the Company must be directed to be inspected by the Central Government. These are series of illegal acts following upon one another which can justifiably lead to the conclusion that they form part of the same transaction, constituting acts of oppression against the petitioners, as held in Needle Industries (India) Ltd. v. Needle Industries Newey (India) Holding Ltd. (1981) Vol.51 CC 778. This Board held in Vikas WSP Limited and Ors. v. Union of India (Order dated 25.08.2005 in CP. No. 50 and 51 of 2003) that when the company has not carried its affairs prudently and have violated provisions of various acts of Government including violations of provisions of the Companies Act, 1956 the CLB may direct the Central Government to appoint board of directors for a specified period of time. The petitioner is a minority shareholder and major creditor and has every right to enforce its legal right against the Company and therefore, urged for the reliefs claimed in the petition.

3. Dr. K.S. Ravichandran, learned Authorised Representative of the respondents 1, 2 & 5 to 10 opposed the company petition on the following grounds: * The petitioner having failed to commence and implement the golf course project was looking for a suitable entrepreneur in order to divest its shareholding in the Company. Accordingly the agreement dated 19.07.2004 came to be executed, pursuant to which the petitioner shall offer to sell to the second respondent and/or his nominees 243 lakhs equity shares of Rs. 10 each in the capital of the Company for a lump sum consideration of Rs. 2,31,50,000/- and the second respondent shall buy the said shares for the said consideration in his name and/or in the names of his nominees, within 30 days of the date of execution of the agreement.

Accordingly, the petitioner sold 90% of the total paid up capital and the second respondent bought the same. The entire sale consideration came to be settled and the shares were transferred in favour of the second respondent and his nominees. As per the agreement, the petitioner's 10% shareholding, remaining after the second respondent's take over of 90% shareholding should also be purchased by the second respondent at a mutually agreeable consideration between the parties. It is, therefore, clear that the petitioner could not implement the project and did not want management of the Company. The petitioner was desirous of divesting all its shareholding in the Company in favour of the second respondent. The discharge of the liabilities of the Company by the second respondent does not form part of consideration for the shares purchased by him. The petitioner complaining of the breach committed by the second respondent in discharging the liabilities of the Company taken over by him in terms of the agreement has already made a claim before the Arbitral Tribunal for its adjudication. In this regard, the petitioner has lodged a complaint with the Income Tax Department. Thus, the petitioner is engaged in forum shopping and the grievances under the guise of oppression and mismanagement in the affairs of the Company, being individual and private ones cannot be entertained in a Section 397/398 proceeding. The petitioner is trying to force the respondents to carry out his contractual obligations under the agreement. The acts complained of in the company petition are covered by the agreement dated 19.07.2004. The grievances raised in the petition dchors the agreement are not amenable to the jurisdiction of the CLB. The petitioner's claim is based on the breach of agreement and no remedy is possible before the CLB, as held by this Board in R. Balakrishnan v. Vijay Diary and Farm (P) Limited (2005) Vol. 59 SCL 667. The petitioner has made false averments, which are not backed up by any documentary evidence. The petitioner not having approached the Company Law Board with clean hands, the petition is liable to be dismissed in limine.

* The authorised representative of the petitioner, pursuant to the directive of the Arbitral Tribunal, visited the administrative office of the Company and inspected the original title deeds of the Company and all the original share certificates issued in the name of the second respondent and his nominees as borne out by his endorsement made on 03.11.2005. The respondent has not pledged either the share certificates or the title deeds of the Company to any foreign company. There has been no violation of the provisions of the Act or FEMA, as alleged by the petitioner. The second respondent, on the other hand, is in custody of the share certificates and the title deeds of the Company. These charges have not been established by adducing any evidence in this behalf.

* The allegations of the petitioner regarding the conduct of the second respondent in transactions with several of the entities are neither relevant nor established. All the relevant materials and parties are not before the CLB and they are matters requiring examination and cross examination of witnesses, before other courts of law, which cannot be agitated in the present proceedings. The Supreme Court in Sangramsinh P. Gaekwctd v. Shantadevi P. Gaekwad (2005)57 SCL 476 held that (a) acts of malafide. improper motive and similar other allegations must be pleaded with full particulars and proved so as to obtain appropriate reliefs; and (b) aggrieved shareholders must be make out a case under Sections 397 and 398 in the petition itself and the defects contained therein cannot be cured nor the lacuna filled up by other evidence oral or documentary. The Bombay High Court in P.S. Offshore Inter Land Services Pvt. Ltd. and Anr. v. Bombay Offshore Suppliers and Services Ltd. and Ors. (1992) Vol.75 CC 583 held that (a) in a petition under Section 397 and 398, all material facts must be set out in the petition itself and allegations of fraud, coercion, malafides, if any, must be supported by particulars; and (b) parties cannot be allowed beyond the petition and reply to the contentions urged in the petition. This Board in G. Govindaraj v. Venture Graphics (P) Limited [2005] 57 SCL 141 held that to decide whether a petition is to be granted or not, the allegations in the petition must be looked at and cannot be traversed beyond that. No order could be passed if sufficient cause is not alleged in the petition, even if such a case is proved in evidence. The case under Section 397 and 398 must be determined with reference to facts transpiring on the date of the presentation of the petition and on the basis of averments made in the petition itself. Without such averments in the petition, the petitioner cannot prove the requirements under Sections 397 and 398.

* The Income Tax Assessment Order discloses (a) certain deemed income consequent upon the writing off by the petitioner of certain advances made by it to the Company, to an extent of Rs. 22.36 crores; and (b) deposit of Rs. 25 crores made by the second respondent is found to be a deemed income, for want of proof of source for such funds. The poor maintenance of accounts and the manner in which the petitioner has accounted for its advances to the Company have resulted in a massive tax liability for the Company.

The petitioner is solely liable for passing of the adverse order by the Income Tax Authorities. The petitioner has obtained the assessment order by unfair and illegal means and it should not be relied upon as an admissible, evidence. The Company has preferred an appeal against the assessment order before the Commissioner of Income Tax (Appeals) and the appeal is still pending and therefore any findings therein cannot form the basis for deciding the issues before the CLB. The petitioner obtained copy of the Income Tax Assessment order in an illegal manner and justifies its production on the basis of certain case laws. The decision in Pushpadevi M. Jatia v. Union of India and Ors. (supra) covers cases where evidences are bad of procedural irregularities. Whereas, in the present case, there is specific provision as to the confidentiality of the assessment order.

* The second respondent had increased the share capital with a view to settle the dues of the Company, after due notice of the extra-ordinary general meeting, sent to the petitioner on 01.10.2004 by ordinary post. The petitioner did not choose to attend the general meeting. The eighth respondent, a nominee of the second respondent, had invested a sum of Rs. 25 crores towards the equity of the Company. The Income tax assessment order reveals that the petitioner is aware of the increase in authorized capital of the Company and issue of further shares as early as in February 2005.

However, the only demand of the petitioner, as borne out by its letters dated 22.01.2005, 04.02.2005 and 12.03.2005 is that the second respondent must clear all the liabilities of the Company in terms of the agreement dated 19.07.2004 and no grievances have been made in regard to either the authorized capital of the Company or allotment of shares at any prior point of time. These communications were endorsed to the respondents 3 & 4 thereby they cannot deny any knowledge of the developments resulted pursuant to the agreement between the petitioner and the second respondent. The impugned allotment of shares has neither been questioned in the lawyers' notice dated 26.03.2005, wherein it has been reported that the petitioner has appointed Sri S. Vijayaraghavan, Advocate, as its arbitrator in the light of the disputes which arose out of the agreement dated 19.07.2004. At the time of allotment of shares, the only relevant question which would arise for consideration is whether the moneys payable on the shares have been brought into the Company or not. According to the respondents "...the second respondent had purchased majority state in DAIL for a valuable consideration of Rs. 33 Cr. as per an agreement, inter alia, dated 26^th Angust 2004 (DAIL Agreement). In accordance with the DAIL Agreement, a sum of 17 million USD was brought to India through normal banking channels from abroad through the Joint Venture partners of the Second Respondent and they were supposed to be invested in DAIL subject to certain pre-disbursement conditions. One such condition was the most important one relating to opening up of traffic by BSNL. BSNL did not open the switches. Therefore deploying the money for reviving the DAIL as per the DAIL Agreement did not arise. Having invested Rs. 33 Cr. in acquiring DAIL shares and having found difficulty in ensuring opening of traffic by BSNL, the second respondent was under a duty to see that the money that came to India had to be protected and used for other commercial projects.

Immediately the eighth Respondent applied to the Reserve Bank of India for refund of the entire money. However, as there was delay in getting any clearance from RBI and during the said time the Joint Venture partners of the Second Respondent agreed to keep the moneys usefully invested in India.

Thereafter the Eighth Respondent applied to the Foreign Investment Promotion Board of the Government of India for approving downstream investments in various sectors including hotels and resorts. The application is a matter of record and it had clearly mentioned that the Eighth Respondent would invest in the equity of the First Respondent. Very clearly the amount transferred to the First Respondent was mentioned and approval was sought". (para Nos. 32 & 33 in page 8 of counter of the Company). The categorical finding of the Delhi High Court in its order dated 18.1 1.2005 would show that the amount of Rs. 78.35 crores remitted in the account of DAIL maintained with ABN Amro Bank, was received through its subsidiary namely, Data Access US. There is, therefore, no illegality on the part of the Company in having received 25 crores through the eighth respondent from the account of DAIL.

* Prior to the impugned allotment, an extra ordinary general meeting of the Company was convened and conducted on 20.10.2004 for approving the preferential allotment of shares to the eighth respondent. Thereafter, at an yet another extra ordinary general meeting held on 28.10.2004, the authorised capital was increased from Rs. 27 crores to Rs. 53 crores. The impugned allotment is supported by consideration, brought in by the eighth respondent on 20.10.2004 to the account of the Company without encumbering any of the properties of the Company to clear the dues of the petitioner, in terms of the agreement only by January, 2005. In the meanwhile, the said amount came to be attached by the Income Tax Department, which was beyond the control of the respondents. If the moneys had been paid to the petitioner, there would not have been any claim before the CLB. The Supreme Court held in Sangramsinh P. Gaekwatl v. Shantadevi P. Gaekwad (2005) 57 SCL 476 held that an isolated incident may not be enough for grant of relief but continued course of oppressive conduct on the part of the majority shareholders must be proved. The acts complained of may either be designed to secure pecuniary advantage to the detriment of the oppressors or wrongful usurpation of authority. The present grievance does not merit any consideration.

* The petitioner had agreed to sell balance 10% of its holding in the Company in favour of the second respondent and therefore, it cannot complain of its shareholding being decreased by virtue of the impugned allotment of shares to the eighth respondent. The directors have not created any new majority or reduced the petitioner into minority and never committed any breach of their fiduciary obligations. The Supreme Court in Needle Industries (India) Ltd. and Ors. v. Needle Industries Newey (India) Holdings Ltd. and Ors.

(supra) held that (a) if the directors exercise their fiduciary powers over the shares without any ulterior motive or not solely for the purpose of destroying an existing majority or for creating a new majority, their acts cannot be covered under Section 397/398; and (b) If the shares are issued in the larger interest of the company, the decision to issue shares cannot be struck down on the ground that it has incidentally benefited the directors in their capacity as shareholders. The Delhi High Court in Pearson Education Inc. and Ors. v. Prentice Hall India (P) Ltd. and Ors. (2006) CLC 218 held that the power to issue shares is given primarily to enable capital to be raised when it is required for the purpose of the company, but the power is not conditioned by such need. However, the power to issue shares can be used for other reasons namely, to enable the company create a sufficient number of shareholders or to comply with any legal requirements. The petitioner's real intention is to set aside the impugned allotment of shares for certain collateral purposes. Even if the impugned allotment of shares is cancelled, the amounts brought into the Company will remain to be due to the respondents and any relief of setting aside the allotment will not put an end to the disputes between the parties and any such direction would unfairly prejudice not only the respondents but also the petitioner. Therefore, the further issue of shares cannot be challenged by the petitioner.

* The petitioner managed the Company for over a decade in such a way that its net worth eroded and the shares were sold for Rs. 1/- per share. The petitioner cannot expect the respondents to bring about a turn-around in a period of one year of taking over of the Company.

The problems faced by the Company are temporary in nature and it would be possible for the respondents to commence and implement the project under their leadership. Merely because the Company has stopped its business temporarily or the Company is incurring losses, it cannot be ordered to be wounded on account of loss of substratum.

The Company's assets are intact and are valuable. The respondents never increased the Company's liability, but added the assets by bringing liquid cash and the future prospects of the Company are bright and its substratum is not lost. There are no specific pleadings, as laid down by the Bombay High Court in M.K. Patel v. Swarup Shree Yarn Private Limited (2002) Vol. 109 CC 413, in regard to the assets and liabilities and other information for the Court to arrive at a conclusion that the substratum of the Company has disappeared.

* The grievance of the petitioner that the Company has only six members is false and imaginary. It was the representatives of the petitioners who were then in the board of the Company and therefore, the petitioner ought to be held responsible for the same. The second respondent by a letter dated 17.08.2004 had requested the Joint Managing Director of the petitioner to execute transfer deeds in favour of six of his nominees. With the addition of the petitioner, there are seven holders in the Company. The transfer of shares was approved at the board meeting held on 18.08.2004 in respect of 2,42,99,994 shares in favour of the seventh respondent instead of Cheran Enterprises Private Limited. The register of members of the Company recorded by the petitioner shows that there are seven members in the Company. However, the register of members does not reflect the correct and true picture regarding the names of the members and therefore, appropriate steps will be taken for rectification of the register of members of the Company. The respondents having come to know about the mistake in the particulars of members, have arranged the nomination of one more person, as a member by the seventh respondent. This irregularity does not persist any longer.

* The petitioner has not so far handed over the books of account and other records to the respondents which ought to have been maintained under Section 209 of the Act, for which they must be held liable.

The Company's registered office was functioning at Kothari Road during the period between 18.08.2004 and 12.08.2005 and thereafter, the registered office was shifted to Boat Club Road, where it was located till 31.03.2006. At present, the registered office is functioning at K. S. Mansions, Triplicane, Chennai -600 005. The statutory records are being maintained at the registered office functioning at K.S. Mansions. Form No. 18 notifying the change of the registered office of the Company to Kothari Road as well as K.S. Mansions has been filed by the Company Secretary.

* Non compliance with the provisions of the Act, mere irregular, illegal, invalid acts by themselves cannot support a petition under Section 397/398. These acts, unless they are oppressive to any shareholder or prejudicial to the interest of the company or to public interest, cannot support a petition under section as held in G. Govindaraj v. Venture Graphics (P) Limited (supra). Furthermore, the petitioner complained of violation of the various provisions of the Act, all of which are more or less of procedural requirements and in no way would result in oppression and mismanagement. The allegations of mismanagement remain without any proof by petitioner.

There is no prosecution pending against the second respondent for violation of any of the provisions of FEMA and the pending criminal proceeding is in respect of a chit transaction, which is not relevant to the present case before the CLB. * The respondents 5 & 6 belatedly consented to act as directors, which will not impair their functioning as directors of the Company.

By virtue of Section 264 the delay in filing form No. 29 is curable.

The fourth respondent filed Form No. 29 dated 18.08.2004 duly signed by him with the Registrar of Companies on 12.10.2004, upon which Form No. 32 has been filed on 12.10.2005 with the Registrar of Companies. Similarly, Form No. 29 duly signed by the third respondent has been filed with the Registrar of Companies. Thus, the petitioner failed to make a case for the purpose of Section 397/398.

* The second respondent is willing to allot shares to the petitioner in proportion to its shareholding in the Company to ensure its interest. The second respondent's nominee namely, the eighth respondent will not exercise any voting rights in respect of the shares issued in its favour. The second respondent, in the alternative is willing to purchase the balance ten per cent shares held by the petitioner in the Company.

4. According to Shri Aditya Vikram Bhat, learned Counsel, the fourth respondent has at no point of time been a director or a member of the Company. He has never been involved in the management of the Company.

This respondent has never consented to act as a director of the Company. Form No. 29 has not been signed by this respondent and the signature contained thereon is forged, which has been confirmed by the Income Tax Assessment order dated 23.02.2005. The signature contained in Form No. 29 may be referred to an Hand Writing Expert for his expert opinion on the genuineness of his alleged signature. Since this respondent was never a director of the Company, the question of having resigned by him on 28.10.2004 does not arise. This respondent never acted in connivance with the respondents 3, 5 & 6. The fourth respondent is an employee of one of the affiliates of Fairfax. While the respondent has agreed to review an investment in the Company, the investment did not materialise for various reasons, upon which neither this respondent nor Fairfax and its affiliates had transactions whatsoever with the Company. None of the shares of the Company or properties belonging to the Company has ever been pledged to Fairfax or any of its affiliated companies. This respondent has been arraigned in two criminal proceedings initiated before the Metropolitan Magistrate at New Delhi, which came to be stayed at his instance by an order of the Delhi High Court. According to the fourth respondent, Odyssey America Reinsurance Corporation ('OARC'), a company incorporated in accordance with the laws of the State of Connecticut, USA had given a loan for an amount of US $ 17,000,000/- (Rs. 78,45,50,000/-) in favour of Data Access US, a body corporate organised under the laws of the State of Delawave, USA and a wholly indirect subsidiary of DAIL. The loan proceeds were to be onward lent to DAIL in accordance with applicable laws and regulatory approvals. However, the loan proceeds were inappropriately remitted by Data Access US in favour of DAIL as payment of receivables for services rendered by DAIL, which came to be diverted to the eighth respondent, out of which a pay order of Rs. 25 crores was issued on 28.10.2004 in the name of the Company. Thus, the sum of Rs. 25 crores brought into the Company through the eighth respondent originally formed part of the loan proceeds wrongfully remitted to the account of DAIL by way of receivables. The petition does not disclose any genuine cause of action against this respondent.

There is no relief sought against this respondent. The various allegations raised against this respondent are frivolous and unnecessary.

5. According to Ms. Shalini Kaul, learned Counsel, the third respondent is not associated in any manner whatsoever with the Company and never consented to act as its director. The alleged signature in Form No. 29 was forged, as borne out by an opinion dated 18.07.2006 of an Hand Writing Expert. Therefore, Form No. 29 is void in law and does not bind the third respondent in any manner whatsoever. This respondent is taking criminal action against the persons responsible for forging his signature in Form No. 29 and other documents.

6. I have considered the arguments-oral and written-advanced for the parties. The arguments set out in the written submissions but not pressed into service at the time of oral submissions are not considered by me. The issues which arise for consideration are whether the acts complained of by the petitioner warrant interference of this Bench and if so, whether the petitioner is entitled for the reliefs claimed in the company petition.

During the pendency of the company petition, the respondents 1,2,5 and 8 to 10 have applied under Section 8 of the Arbitration and Conciliation Act, 1996, to direct the parties for arbitration on the ground that the grievances of the petitioner form part of the agreement dated 19.07.2004 and that the petitioner has already initiated the arbitration proceedings to resolve the disputes, which are interconnected with the acts complained of in the company petition.

This Bench, on hearing both sides by an order dated 27.12.2005 concluded that the agreement dated 19.07.2004 (a) deals with the terms and conditions for disposing of the petitioner's shareholding, controlling and management interest in the Company in favour of the second respondent; and (b) envisages the rights and obligations of the parties in relation to taking over of the business, assets and liabilities of the Company by the second respondent. The petitioner complained of, inter alia, the breach committed by the second respondent in discharging the liabilities of the Company taken over by him in terms of the agreement and in incurring huge sums of money for and on behalf of the Company, but no relief has been claimed in this behalf before the CLB. However, the petitioner has made a claim against the respondent before the Arbitral Tribunal for the amounts spent by it in relation to the operations and management of the Company and damages of Rs. 5 crores for breach of the contract, which are covered under Clauses 5 & 23A respectively of the agreement. The allegations of oppression and mismanagement brought out in the company petition shall be adjudicated, without reference to the terms of the agreement and accordingly the prayer of the respondents to refer the parties before the CLB to arbitration, in terms of Section 8 of Arbitration and Conciliation Act came to be rejected. The appeal preferred by the respondents against the order dated 27.12.2005 was dismissed by the Madras High Court. In view of these developments, the grievances of the petitioner that the second respondent and his nominees failed (a) to discharge the liabilities of the Company; (b) to relieve the petitioner from the guarantee obligations and (c) to reimburse the expenses incurred by the petitioner in terms of the agreement and the consequent prayer Cor return of the shares by the second respondent and his nominees which have been transferred in their names, pursuant to the agreement shall necessarily be agitated before the Arbitral Tribunal, more so, when these charges are found flowing from the agreement dated 19.07.2004. No remedy is possible before the CLB for the breach of any agreement, as held in R. Balakrishnan v. Vijay Diary and Farm (P) Limited The grievances of the petitioner that (a) the second respondent took over the Company for parking illegal funds by legally pledging all original share certificates issued at the time of transfer of shares by the petitioner and title deeds of the properties belonging to the Company in favour of Fairfax in violation of FEMA; (b) the Company's affairs have been conducted for a fraudulent and unlawful purpose, prejudicial against public interest, the Company's interest and in a manner oppressive of the petitioner; and (c) the respondents 2 to 4 along with Gopinath Athappan, promoted a group of companies without obtaining the government approval for siphoning of the company's funds and assets, apart from quite general and vague remain without being established by any documentary proof, in the absence of which no reliefs can be granted as held in Sangmmsinh P. Gaekwad v. Shantadevi P. Gaekwad & P.S. Offshore Inter Land Services Pvt. Ltd. and Anr. v.Bombay Offshore Suppliers and Services Ltd. and Ors. (supra). The petitioner has neither chosen to make out as to how its interest has been unfairly prejudiced on account of these purported acts of mismanagement in the affairs of the Company. It is not under dispute that the authorised representative of the petitioner took inspection of the original title deeds of the Company and the original share certificates issued in the name of the second respondent and his nominees as early as in November 2005. The assertion of the second respondent that the share certificates and the title deeds are in his custody remain unrepudiated by the petitioner. The second respondent infact offered inspection of these documents to the petitioner. The issue relating to remittance from DAIL in favour of the Company through the eighth respondent is being separately dealt with elsewhere.

The claim of the petitioner in regard to the number of members, it may be observed that though the register of members shows that there are seven members in the Company, yet the register, as admitted by the Company, does not reflect the correct and true picture regarding the names of members and the Company is at liberty to take appropriate action for rectification of the register of members of the Company, in terms of the assurance made by Dr. K. Ravichandran at the time of his oral submissions. It is on record that the fifth respondent one of the directors of the Company has sworn to an affidavit on 13.07.2006 to the effect that the seventh respondent holding only one share in respect of folio No. 28 has already nominated a person by name Mr. K. Chenniappa Gounder, as the holder of the said share retaining the beneficial interest thereof with the seventh respondent, which has been taken on record by the Company at the meeting of the board of directors held on 12.06.2006. It is seen from the extract of the relevant resolutions that the board of directors accorded its consent to the above arrangement in respect of one share bearing distinctive No. 64, which has been followed by necessary declarations filed under Sub-section (2)/sub-section (3) of Section 187C of the Act with the Registrar of Companies. With the nomination of Chenniappa Gounder as the holder of one share in respect of folio No. 28, retaining the beneficial interest with the seventh respondent, the Company at present comprises of seven members. In view of this, the apprehension of the petitioner on account of number of members, does no longer survive.

The criminal prosecutions initiated by DAIL, BSNL, Income Tax Department and K. Vengadachalam on the charges of cheating and other offences, are not in respect of the affairs of the Company. The petitioner has neither established as to how the interest of the Company or its interest has been adversely prejudiced on account of the various criminal prosecutions pending against the second respondent, This Bench by an order dated 26.08.2005 appointed an Advocate Commissioner to visit and inspect the registered office of the Company as given in the company petition namely, No. 19 (new No. 44) Kothari Raod, Nungambakkam, Chennai-600034 for authenticating the statutory records. The Commissioner reported that there was no registered office of the Company located at Kothuri Road premises. However, it was later represented that the registered office of the Company was shifted to No. 22/26, Boat Club Road, Chennai-600028 with effect from 12.08.2005.

It may be observed that the owners of the Board Club Road premises namely, EID Parry (India) Ltd. by their letters dated 09.11.2005 and 24.04.2006 advised the petitioner that M/s Cheran Enterprises Private Limited had taken the said premises for a period of two years from 15.01.2005 for the residence of its managing director namely, the second respondent herein and further that the lessee vacated the leased premises as early as on 22.10.2005. The Income Tax assessment order shows that the registered office of the Company was closed. Dr.

Ravichandran, at the time of his submissions contended that the registered office of the Company is functioning at K.S. Mansions, Triplicane, Chennai - 600 005, but the fact remains that the Company failed to produce the statutory records for authentication by the Commissioner in terms of the order of the Bench. The respondents showing their bonafidies neither chose to cause production of the statutory records in the course of the hearing thereby, denying any opportunity in favour of the petitioner to carry out inspection of the statutory records and causing prejudice to its interest, nor established whether the Company is maintaining the statutory records at K.S. Mansions, Triplicane, Chennai-600 005 as claimed by the respondents. The appointment of the respondents 3 & 4, as directors is under serious dispute. It is further observed that the Company has been burdened with additional rental by the frequent shifting of the registered office, involving additional expenditure, which is held to be an act of mismanagement in Akbarali A. Kalvert and Anr. v. Konkan Chemicals Pvt. Ltd. and Ors. (supra). It is claimed by the respondents 3 & 4 that (a) they never consented to act as directors of the Company; (b) their signatures in Form No. 29 are obvious forgery; and (c) they never acted as directors of the Company. The income tax assessment order shows that the signatures of the respondents 3 & 4 as appearing in Form No. 29 are entirely different from their admitted signatures in the joint venture agreement dated 31.01.2004. Similarly, the handwriting expert's opinion dated 18.07.2006 produced by the third respondent confirms that the alleged signature of the third respondent in form No. 29 is forged. Though, Dr. Ravichandran reiterated that the respondents 3 & 4 were directors of the Company till they resigned from the office of director, there is no material such as the register of directors, or the minutes of the board meeting or any other material document evidencing participation of the respondents 3 & 4 in the affairs of the Company as directors, which must, therefore, be seriously viewed by the Bench. Mere production of the disputed Form No.29 and Form No. 32 without being supported by any primary records, the plea of the Company that the respondents 3 & 4 functioned as directors of the Company does not merit any consideration. Similarly, the respondents 5 & 6 belatedly consented to act as directors, contrary to the provisions of Section 264. The provisions of Sub-section (1) of Section 264 being directory and not mandatory like Sub-section (2), non- filing of consent with the Company for the candidature is rather a curable irregularity. The consequence of a director continuing to act as such without filing his consent within the period specified in Section 264(2) would be that penalty under Section 629A would become attracted in the matter. The Company has no managing or whole time director or a manager despite the fact that its paid up capital exceeds the prescribed limit under Section 269. Section 383A stipulates that every company having paid up share capital of Rs. 2 crores and above with effect from 11.06.2002 shall have a whole time secretary, failing which the company and every officer of the company who is in default shall be punishable in the manner specified therein. Nevertheless, the Company does not have a whole-time company secretary in accordance with Section 383A. Section 147 envisages, inter alia, that the name of the Company and address of the registered office should be painted or of fixed outside the office and place of business, failure of which attracts penalty. The report of the Advocate Commissioner dated 30.08.2005 shows that the Company failed to ensure compliance with the requirements of Section 147. There is no material to substantiate that respondents have acted in accordance with the requirements of Section 147 with reference to the registered office reportedly situated at K.S.Mansions, Triplicane, Chennai-600 005. Though, it is vehemently contended by the petitioner that the Company being a public company does not have three directors on its board as required under Section 252, the respondents have not even chosen to furnish the names of the three directors who continue to be directors of the Company. Every public company, in terms of Section 292A, having paid up capital of not less than five crores of rupees has to constitute an "Audit Committee", which has not been so far complied with by the Company, thereby attracting the penal provisions contained in Section 292A. These gross irregularities and violations of the Act would indicate that the affairs of the Company are not being prudently managed by the second respondent and his nominees, causing immense prejudice to the Company and its members. The respondents cannot, therefore, take any shelter under the decision in G. Govindaraj v. Venture Graphics (P) Limited (supra), on the ground that mere irregularities cannot support a petition under Section 397/398. There is not even any explanation from the second respondent and his nominees for their failure to meet the essential statutory requirements of the Act. These state of affairs of the Company indicate beyond doubt that all is not well in the day to day management of the Company warranting an investigation into its affairs. The purpose of investigation is to find out as to whether who are in-charge of the Company and whether those in-charge of the Company are guilty of irregular conduct of the affairs of the Company. The facts and materials before me do reasonably suggest and are sufficient to form a prima facie opinion in tenns of Section 237(b)(i) of the Act that the Company's day to day management is being conducted in a manner oppressive of the minority shareholder which warrants timely intervention of the Bench.

According to the respondents (i) the share capital has been increased from Rs. 27 crores to Rs. 53 crores with a view to settle the dues of the Company, after due notice of the extra ordinary general meeting sent to the petitioner on 01.10.2004 by ordinary post; and (ii) the petitioner is aware of the increase in the authorised capital and the issue of further shares as early as February 2005 as borne out by (a) the Income Tax assessment order; (b) the letters dated 22.01.2005, 04.02.2005 and 04.03.2005 of the petitioner demanding only settlement of the liabilities of the Company; and (c) the legal notice dated 26.03.2005 issued on behalf of the petitioner notifying the appointment of an arbitrator. The sequence of events may indicate that the petitioner might be aware of the extra ordinary general meeting convened and held by the Company as well as the allotment of shares, but mere knowledge of the meeting would not tantamount to serving of notice in terms of Section 172 of the Act, which provides that notice of every meeting of the Company shall be given to every member, whose name appears on its register of members in any manner authorised by sub-sections (1) to (4) of Section 53. It is, therefore, beyond doubt that the requirements of Section 172 being a mandatory requirement must strictly be complied with, non-compliance of which invalidates the resolution passed at such meeting. Though, it is contended that notice of the extra ordinary general meeting was sent by ordinary post yet there is no material to show that any such notice was in fact sent by ordinary post. The assertion of the respondents without any primary documents such as the despatch register or the books of account of the Company showing that expenses were incurred by the Company for sending the notices to the petitioner will lend little support to substantiate its claim regarding service of notice on the petitioner, in which case the presumption on the basis of Section 53(2) of the Act cannot be drawn. The petitioner neither, by virtue of the agreement dated 19.07.2004, dispensed with the requirement of service of notice of the general meeting. Any meeting held without proper notice is invalid and proceedings of such a meeting are illegal as held in Akbarall A.Kalvert and Anr. v. Konkan Chemicals Pvt. Ltd. and Ors. and Martin Castelino v. Alpha Omega Shipmanagement (P) Limited (supra). Similarly, any allotment of further shares bypassing the prescribed procedure of sending the notice of meeting would constitute an act of oppression, as held in C.N. Setty v. Hillock Hotels (P) Ltd. and Ors. (supra).

The Company, while elaborating before the Delhi High Court in the proceedings in connection with DAIL initiated by one of its creditors, about the arrangement reached between the petitioner and the second respondent on disposing of the petitioner's shareholding, controlling and management interest in the Company in favour of the second respondent, by virtue of the agreement dated 19.07.2004, categorically contended that the eighth respondent, herein, a nominee of the second respondent invested a sum of Rs. 25 crores in the equity of the Company as per the payment made in the month of October, 2004 thereby increasing the total paid up capital of the Company to Rs. 52 crores.

By virtue of the said investment, the eighth respondent is holding 48% of the equity in the Company. The Company had also duly complied with the necessary statutory compliances as required by the Act by filing necessary declarations in Form No. 5 giving notice of increase in share capital and the return of allotment in Form No. 2, confirming the allotment of 2.50 crores equity shares of Rs. 10/- each. Thus, the Company claimed before the Delhi High Court that the investment of Rs. 25 crores by the eighth respondent was towards the share capital of the Company for clearing the liabilities of the Company and that the allotment was completed by the Company as early as on 28.10.2004, prior to the restraint order made by the High Court on 17.12.2004. It was further pleaded before the High Court that the eighth respondent had applied to the Foreign Investment Promotion Board in December 2004 seeking approval for the investments made by the eighth respondent in various companies including the first respondent Company therein. In this situation, the Company attempted to impress upon the High Court that its Order dated 17.12.2004 is now restraining the Company from fulfilling its obligations under the agreement dated 19.07.2004 which is causing great prejudice to the Company and therefore, sought before the Delhi High Court to vacate the restraint order dated 17.12.2004, on the ground that the amount of Rs. 25 crores legitimately belongs to the Company. The Delhi High Court after weighing the arguments of the Company and other concerned parties, by an Order dated 18.11.2005, while confirming the interim order dated 17.12.2004 directed that the amounts which were transferred to the first respondent Company and other entities by the eighth respondent out of the remittance received from DAIL account must be remitted with Canara Bank on account of the admitted liability of the bank and charge of the bank over the remittance, in the following words: Interim order dated 17^th December, 2004 is accordingly confirmed.

Consequence would be that the amount which has been transferred from ABN AMRO Account No. 1014374 of the company to CHPL and other companies shall be remitted back by those parties to the account of the company maintained with ABN AMRO Bank. Needful in this respect shall be done within two weeks. After receiving this amount the ABN AMRO Bank shall remit this amount to Canara bank. It is because of the admitted liability of the bank and charge of the bank over this money. Furthermore, in case it is found ultimately that the money is to be refunded to Odyssey Re etc., appropriate orders can be passed directing Canara Bank to refund the amount and the bank has sufficient means to carry out such directions. Appropriate orders shall be passed in the company petition as to how this amount is to be dealt with depending on the nature of the final orders passed in the company petition.

By virtue of the order dated 18.11.2005, the plea of the Company that the amount of Rs. 25 crores belong to it stands rejected. The consequence of the High Court Order would be that the amount of Rs. 25 crores invested in the Company by the eighth respondent, out of the remittance from DAIL will either go to Canara Bank or DAIL, as may be ordered by the High Court in terms of para 72 of the Order dated 18.11.2005. It shall be borne in mind that the income tax assessment order dated 23.02.2005 describes the amount of Rs. 25 crores in the Company's account as unexplained share capital. It is immaterial to look into the source of obtaining the assessment order by the petitioner, in view of the fact that the second respondent has himself produced the relevant portion of the assessment order and placed reliance on the same. In the event of the Commissioner of Income Tax (Appeals) raises the order of attachment made pursuant to the assessment order dated 23.02.2005 as claimed by the second respondent, the entire amount which may be released must be dealt with strictly in accordance with the order dated 18.12.2005 of the High Court.

Therefore, the Company can no longer claim that this amount of Rs. 25 crores brought in by the eighth respondent belongs to the Company. In view of this, it will be futile to go into the source of funds aggregating Rs. 78.45 crores in DAIL's account (out of which Rs. 25 crores was transferred to the eighth respondent which was later remitted to the Company's account) which according to the Delhi High Court, "needs a thorough probe" as observed in para 69 of the Order dated 18.11.2005. The net result would be that the allotment of 2,50 crores equity shares in favour of the eighth respondent impugned in the company petition, is not supported by any valid consideration. In this context, the decisions in Needle Industries (India) Ltd. v. Needle Industries Newey (India) Holding Limited & Pearson Education Inc. and Ors. v. Prentice Hall India (P) Ltd. and Ors. (supra) cited by the learned Authorised Representative of the respondents, justifying the impugned allotment, will be of little assistance to them. At this juncture, the categorical statement made on behalf of the second respondent at the Bar that he is not willing to bring in any money towards the consideration of 2.50 crores equity shares, assumes relevance. The declaration of the second respondent made in his affidavit on 13.07.2006 to the effect that "when the Income Tax Department clears attachments the same moneys could be paid to the petitioners..." runs parallel to the undertaking given on behalf of DA1L to Canara Bank in its communication dated 18.08.2004, the relevant portion of which reads as under: We wish to apprise you that we desire too open a Current Account with ABN Amro Bank, Chennai Branch, Chennai.

The above account is required to be opened on account of the fact that the investor has an account with ABN Amro Bank at Chennai and the opening of an a current account by Data Access (India) Ltd with ABN Amro Bank Chennai Branch, Chennai would facilitate the smooth transfer of funds in the minimum possible time.

The funds need to be transferred immediately to Canara Bank as we are in urgent need of funds for meeting some of our urgent commitments.

We assure you that this account will be closed by us as soon as the funds arc transferred to the Consortium Bankers.

Therefore, the above undertaking of DAIL clearly indicates that the moneys namely, Rs. 78.45 crores must be transferred by DAIL to Consortium Bankers in which case the Company cannot make any claim over Rs. 25 crores brought in by the eighth respondent from the remittance of DAIL. The second respondent has agitated in the present proceedings the very same plea regarding the source of funds, increase of capital, infusement of funds by the eighth respondent and allotment of 2.50 crores equity shares in favour of the eighth respondent, which has been raised before and rejected by the Delhi High Court. I cannot, therefore, come to any other conclusion than the categorical finding of the High Court elaborated herein above. It is relevant to observe that the application made by Company before the Delhi High Court to vacate the interim order dated 17.12.2004 on the ground the said order is restraining the Company from fulfilling its obligations under the agreement dated 19.07.2004 came to be rejected. Form No. 23 notifying the alteration of articles of association of the Company pursuant to the increase of share capital from Rs. 27 crores to Rs. 53 Crores as borne out by the special resolution dated 28.10.2004 has been filed with the Registrar of Companies after a lapse of one year on 31.01.2005. Form No. 5 notifying the increase of share capital in accordance with the resolution dated 28.10.2004 has been filed with the Registrar of Companies only on 03.02.2005. Similarly, Form No. 2 dated 24.01.2004 disclosing the allotment of 2.50 crores equity shares of the Company reportedly made on 28.02.2004 in favour of the eighth respondent has been filed with the Registrar of Companies on 31.10.2005, after a delay more than a year. The delay in filing Form No. 23. Form No. 5 and Form No. 2 has not at all been justified by the Company, All these returns have been filed with the Registrar of Companies after the interim order of 17.12.2004 of the Delhi High Court. Therefore, no credentials can be attached to any of these returns filed by the Company with the Registrar of Companies to sustain the increase of share capital and the allotment of impugned shares in favour of the eighth respondent. The allotment of impugned shares by the directors in breach of their fiduciary responsibility is nothing but an act of oppression against the minority shareholder, which would justify the making of a winding up order against the Company on just and equitable grounds. However, any such order of winding up of the Company would without any doubt unfairly prejudice the Company and its members, in view of the assertion of the second respondent that the problems faced by the Company are temporary, that the Company will be in a position to implement and commence the golf course project in due course of time and also the fact that it owns extensively immovable properties.

In view of my foregoing conclusion and (i) in exercise of the powers under Sections 237(b)(i) and 402; (ii) to make appropriate orders bringing to an end the acts complained of and (iii) to regulate the conduct of the future affairs of the Company, it is hereby declared that- (i) the enhancement of authorised capital of the Company from Rs. 27 crores to Rs. 53 crores is illegal and void; (ii) the further issue of shares by the Company in favour of the eighth respondent impugned in the company petition, being illegal is set aside; and (iii) the Central Government will appoint one or more competent persons as inspectors to investigate the affairs of the Company and take the appropriate action if warranted, on receipt of the investigation report.

With the above directions, the company petition stands disposed of. No order as to cost.