Priyanka Overseas Pvt. Ltd. and Vs. Pasupati Fabrics Ltd., Shri Vijay - Court Judgment

Excerpt:
1. the petitioners claiming to hold 49.38% equity shares in m/s pashupati fabrics limited (the company ) have filed this petition under sections 397/398 of the companies act, 1956 (the act) alleging that one of the nominee directors of the petitioners is being stripped of all her powers relating to financial affairs of the company, that one of their nominees was not being re-elected as a director and that with a malafide intention, the company has proposed to forfeit 4.5% shares held by the petitioners on the ground of non payment of calls.thereafter, the petitioners filed an application alleging that 4 additional directors have been appointed on the board without any justification and that the resolution proposed for removal of the 2^nd respondent as the md was not recorded in the minutes. through another application, they sought for holding of the annual general meeting of the company for the year ending 31^st march, 2005.2. the facts of the case are that the 5^th petitioner and the 2^nd respondent are brothers. the first 4 petitioner companies are under the control of the 5^th petitioner. the company became a sick company and accordingly a reference was made to bifr. bifr has sanctioned a scheme of revival and one of the terms of the revival scheme was that idbi would be allotted shares worth rs. 23 crores with the liberty to the 2^nd respondent, being the promoter of the company, to purchase the shares held by idbi. shares worth rs. 23 crores were allotted to idbi.the petitioners filed the company petition no. 35/2005 alleging that even though the petitioners were also co-promoters of the company, the 2^nd respondent holding around 16% shares in the company, with a view to grab the company, had misrepresented before bifr that he was the sole promoter, thus, getting the right to purchase the shares held by idbi. i had decided the petition in favour of the petitioners and the said order was taken on an appeal before the delhi high court. during the pendency of the appeal, the present petition was filed. in the appeal, the order of this board was set aside. the company had proposed to hold agm for the year ended 31^st march, 2005 on 15.12.2005 and the petitioners challenged the same before delhi high court on the ground that agm should not be held as the accounts were not ready. since the petitioners had already filed an appeal before aaifr against the order of bifr treating the 2^nd respondent as the sole promoter, the high court disposed of the application with the direction that no agm should be held till the disposal of the appeal by aaifr. according to the petitioners, they had already withdrawn their application regarding the agm from the aaifr and as such there was no impediment in holding the agm. however, when the matter was being heard, they could not produce any order of aaifr allowing the withdrawal of the said application.after the hearing was concluded, both the sides filed further affidavits. in their affidavits, the petitioners have enclosed a copy of the order of aaifr dated 8.12.2006 from which it is seen the application of the petitioners for restraining the company from holding the agm has been disposed of as not pressed. in the meanwhile, by a communication dated 10.1.2007, bifr directed the company to finalise and adopt the balance sheets for the years 2004-05 and 2005-06 in the agm to be held by end feb. 2007. this direction was challenged by the company before the aaifr which has stayed the directions of bifr.3. the learned counsel appearing for the petitioners submitted: the petitioners collectively are the largest shareholders in the company.when the public issue failed, the petitioner company invested more than rs. 19 crores and thus their investment had gone upto rs. 38 crores.since the 2^nd respondent is the brother of the 5^th petitioner, the management and control of the company was entrusted to the 2^nd respondent who controls only about 16% shares in the company. he has been managing the affairs of the company to the detriment of the shareholders and the company by his misdeeds. with a view to perpetuate his control over the company, he has been acting in a manner oppressive to the petitioners. ms. poonam manshani is the nominee of the petitioners on the board of the company. she was one of the first, directors and also a signatory to the memorandum. she, in her capacity as a promoter of the company, has been continuing as a director right from the beginning and has been one of the signatories to operate the bank accounts having similar powers as that of the 2^nd respondent. the company had circulated an agenda for the board meeting to be held on 13^th october, 2005. in this agenda, three items, highly oppressive to the petitioners had been proposed. one was to withdraw the cheque signing powers from ms. poonam on the ground that registered office had been shifted to new premises, the second was not to reappoint shri s.s.dhanoa, a nominee of the petitioners on his retirement by rotation on the ground that he had not expressed his desire to seek re-appointment and the third is that to call for the balance money on unpaid snares with 9% interest from november, 1996 till the date of payment.4. elaborating on the above proposals, the learned counsel argued: the reason given in the agenda for withdrawing the cheques signing powers from ms. poonam was that the registered office had been shifted.however, in the sur-rejoinder, it is alleged that her powers had been withdrawn on account of her mis-utilizing the funds of the company. no details have been furnished in this regard. the sole motive to withdraw the powers is to keep the petitioners, who have the largest shareholding, completely in dark about the financial affairs of the company, and as such the said proposal is highly oppressive to the petitioners. in so far as the proposal relating to shri dhanova is concerned, it is wrong on the part of the 2^nd respondent to contend that shri dhanova had not sought for reappointment. shri dhanova is the ex-chairman of lic. he was never informed that he was liable to retire by rotation in the year 2005 only with the view to oust him from the board. only after this petition was filed on 10.1.2005, shri dhanova was informed that he was due to retire by rotation. immediately thereafter, he expressed his consent to be reappointed and thus the matter got resolved. in so far as the proposal to call for the unpaid amount on the shares is concerned, the said proposal is also malafide and against the earlier decision taken by the board not to charge any interest on the unpaid amount. when the public issue failed, the petitioners "subscribed to the shares to the extent of rs. 19 crores. a small percentage of shares of rs. 4.21 crores remained partly paid and since the petitioners were promoters, the company did not deem it necessary to call the balance amount. even when the company submitted a scheme to bifr, this amount had not been called. the petitioners do admit that the amount is payable but the manner in which the company has proposed to call the money after the disputes started, that tod with an interest of 9% from 1996, is highly oppressive. it is on record that in a board meeting held on 30.4.2002 ( annexure -e page 154 of the petition), 'the board had decided not to charge any interest on call in arrears on the ground that in view of the recessionary conditions, the company was not likely to receive interest on call in arrears. in terms of article 33 of aoa, the board has the authority to waive the interest which the board had already done. the 2^nd respondent decided to charge interest only after the disputes started. even though it is contended by the 2^nd respondent that in a meeting of shareholders investors grievance committee on 22.7.2004, it was decided to charge interest on calls in arrears at 9% per annum (annexure r-7), it may be seen that no body has signed the minutes. there is not even an indication that the earlier decision of the board not to charge interest was taken into consideration by the said committee. further when the board had decided the matter, a committee cannot take a decision contrary to the decision of the board. in addition, the decision of the grievance committee had not even been placed before the board for its approval or rectification. in the board meeting held on 13.10.2004, ms. poonam opposed the resolution but the same was overruled by the 2^nd respondent. in terms of the resolution, notices dated 28.10.2005 have been received by the petitioners asking them to pay rs. 4.21 crores being the unpaid money on the shares at the rate of 9% effective from 5.11.1996 stating that if the amount was not paid within 30 days, the shares shall be forfeited. therefore, the calling of the unpaid amount after the disputes had started, that too at an interest of 9%, clearly indicates the malafide intent of the 2^nd respondent. in terms of article 30a, the general body has the power to extend the period within which the calls are to be paid and therefore this matter should be placed before the general body for their decision.5. the learned counsel further submitted: after this petition was filed and during the pendency, the 2^nd respondent had taken further steps to strengthen his control over the company notwithstanding the fact that it was only with the support of the petitioners he could be appointed as the cmd. by a letter dated 3.7.2006, idbi informed the company that idbi was considering invoking the seccuritzaion act as the company had not complied with its requirements. on 11.8.2006, idbi withdrew its nominee. on 8.9.2006, idbi sought to invoke the original liability instead of the reduced liability under the bifr scheme resulting in a huge liability raised against the company. in the agenda circulated for the board meeting on 28.10.2006, there was no reference to the appointment of any additional directors. in the meanwhile, the petitioners by a letter dated 25.10.2006 sought for holding the annual general meeting. in the board meeting on 28.10.2006, 6 directors including the 2^nd respondent and ms. poonam were present. after the agenda items were disposed of, ms. poonam proposed for the removal of the 2^nd respondent as the md in terms of article 150. the reasons for the proposal were that the company was being mismanaged by the 2^nd respondent due to which the losses were increasing, that annual accounts had not been finalized, that idbi had recalled its nominee due to loss of faith in the management and that the company was not in a position to pay the ots amount. since three of the directors had supported the resolution and as the 2^nd respondent could not participate in the discussions on the said proposal, being an interested director, he did not allow the resolution minuted. instead to pre-empt his removal, he proposed for appointment of four additional directors even without tabling their consent or their boi-data.further, their appointment was not in the agenda. when the proposal was opposed by three directors, by misusing his casting vote, the 2^nd respondent declared that the resolution had been approved by the board.the justification given the 2^nd respondent for the appointment of four additional directors is that idbi had withdrawn its nominee. it is on record that idbi withdrew its nominee on 11.8.2006 and no action to fill up that vacancy was taken till 28.10.2006. the sole objective of appointment of four additional directors was only to strengthen the hold of the 2^nd respondent in the board. it is to be noted that even the names of the additional directors were not disclosed nor their bio-date or consent had been placed before the board. when the petitioners had sought for holding of an agm, if at all there was any need to appoint directors, it could have been done in the agm.therefore the appointment of the four directors should be set aside especially when bifr has already appointed a special director on the board by an order dated 4.12.2006. in other words, the justification given for appointment of four additional directors that idbi nominee had been withdrawn, no longer survives in view of the special director appointed by bifr. kerala high court has held in dr. t.k. paul v. city hospital pvt. ltd. 97 cc 216 that even though items not in the agenda could be considered by the board and even additional directors could be appointed without being included in the agenda, yet, the powers should be exercised bonafide and not with a view to strengthen the position of a majority in the board. in the present case, it is quite obvious that only when he was sought to be removed as md, the 2^nd respondent, by exercising his casting vote, got the proposal of appointment of additional four directors through only with the sole objective of strengthening his hold on the board.6. the learned counsel further submitted: the company has not held the agm for the last two years. no doubt , the petitioners sought to restrain the company from holding the agm on 15.1.2.2005, but it was only on account of the fact that the accounts were not ready. the restraint order continued upto 8.12.2006 when aaifr had disposed of the appeal and therefore, there is no impediment in holding the agm for transacting other statutory businesses. therefore, agm should be directed to be held under the supervision of this board with a chairman appointed by this board, with liberty to the shareholders to appoint a suitable person as the md in place of the 2^nd respondent, who controls only 16% shares in the company.7. shri choudhary appearing for respondents submitted: in a petition under sections 397/398, directorial complaints cannot be raised except in cases of closely held companies or companies in the nature of quasi partnership. no doubt the petitioners were associates but not promoters and as such they cannot invoke the principles of quasi partnership.only ms. poonam is a promoter from the petitioners' side. when they acquired the shares at the time when the public issue failed, they did so only in their capacity as investors and not as promoters and as such they cannot claim any right" of management. neither the 5^th petitioner nor any of the other petitioners took any interest in the revival scheme nor they have given any personal guarantee. this itself would indicate that they are only fiananciers/investors. if they were the promoters, they should have participated in the bifr proceedings which they did not do. further, this petition is not an independent petition but only an extension of the previous petition which has been dismissed by the high court on the ground that in case of a sick company, only bifr has jurisdiction and not the clb. whether, the company law board has jurisdiction or not to look into the affairs of a company which is under the purview of bifr, is an issue raised by the petitioners themselves in the slp before the supreme court and therefore, till the issue is decided by the supreme court, the judgment of delhi high court would prevail and therefore, this board has no jurisdiction to adjudicate on the petition. further, except the allegation relating to calls in arrears, other matters are already before 'bifr. the petitioners had filed an application before bifr (annexure r-2) wherein they sought for appointment of a qualified independent person as the md. this application has been disposed of by bifr without any order in october, 2006. their insistence on convening an agm itself is a malafide as is evident from the fact that it is the petitioners who sought for restraining the company from holding the agm for the year 2004-2005. only when they came to know that idbi was not likely to support the 2^nd respondent, they sought for an agm with a view to remove the 2^nd respondent as the md notwithstanding the fact that this petition has been pending for over a year. as a matter of fact, since as per the bifr scheme, the 2^nd respondent is the promoter and he has been charged with revival of the company, h cannot be removed. in the application ca no. 389 of 2006, the only ground given is that four additional directors had been appointed. if the petitioners are aggrieved with the appointment of additional directors, they should have filed an application before bifr challenging their appointment in terms of section 18(2) of sica. calling for unpaid money on the shares can never be considered to be an act of oppression. if the petitioners are aggrieved against the call notice and if the shares are forfeited for non payment of the call money, they have to only file a petition under section 111a of the act. if the petitioners contention is that the bifr scheme does not provide for calling for the unpaid money, then, they should agitate their grievance only before bifr and not before the clb. further, the admitted fact is that even though the board had originally decided not to charge any interest, later on, the investor grievance committee had decided to charge interest at the rate of 9% and the petitioners are bound to pay the same.8. shri dhir, advocate, appearing for the 2^nd respondent submitted: it is the 2^nd respondent who has taken active interest in the rehabilitation of the company. due to his efforts, a scheme was got sanctioned from bifr on 2.4.2004. as per the scheme, shares worth rs. 23 crores were to be allotted in favour of idbi after reduction of equity and issuance of preference shares against the reduction to the existing holders. the scheme sanctioned by bifr has not been challenged by the petitioners. in terms of the scheme, shares worth rs. 23 crores were allotted to idbi where after the petitioners filed cp 38 of 2005 before this board. even though, this board declared the allotment to idbi as a nullity, on appeal, the delhi high court has set aside the said order observing that in respect of a sick company, bifr alone has exclusive jurisdiction. in the slp before the supreme court, the petitioners have raised a specific question of law as to whether in respect of a sick company, clb has the jurisdiction. therefore, till that issue is decided by the supreme court, the decision of delhi high court prevails and the petitioners cannot prosecute the present proceeding. further, the petitioners have already filed an application under section 24 of sica before bifr alleging acts of oppression and mismanagement in the affairs of the company, the act of which would very clearly indicate that even the petitioners admit that only bifr has the jurisdiction. this being the case, the clb has no jurisdiction to entertain the present petition. referring to ngef limited v. chandra developers pvt. ltd.kerala state financial enterprises ltd v. official liquidator 2006 10 scale 28, the learned counsel submitted that in terms of section 32(1) of sica, the provisions of sica have an overriding effect over the provisions of the companies act and therefore, this board has no jurisdiction to entertain this petition.9. he further submitted further, the petitioners have alleged that the 2^nd respondent is mismanaging the affairs of the company. since bifr is seized of the matter and has appointed a special director in terms of section 16(4) of sica, the management of the company has come under the purview of bifr now. as a matter of fact the petitioners have raised similar issues and have sought the removal of the 2^nd respondent as the md before bifr. on that application, bifr has already passed an order on 10.12.2006 directing that if dues of idbi are settled by way of ots, the shares allotted to idbi could be allotted to the promoters and their associates. by this order, bifr has already rejected the prayer of the petitioners for removal of 2^nd respondent as the md. the company has already preferred an appeal before aifr against this order.10. on merits, the learned counsel submitted: in so far as shri dhanova is concerned, since he has already given his consent for reappointment as a director, he will be so appointed and as such this grievance no longer survives. in so far as the allegation relating to withdrawal of powers from ms. poonam is concerned, petitioners can have no grievance as it is for the board of a company to decide about the allocation of responsibilities among directors. on 13.10.2005, ms. poonam was present when the decision to withdraw her powers was taken but she never protested. the main reason for withdrawal of her powers was that in collusion with the petitioners, she was mis-utilizing the funds of the company. she was instrumental in a transaction for acquiring certain land from a company belonging to the 5^th petitioner and in spite of the consideration having been paid, the land has not yet been transferred to the company till date. on 19.7.2002, without the permission or authorization of the board, she issued a cheque for rs. 1 crore in favour of the 1^st petitioner against debts of the 5^th petitioner on account of losses incurred by him in the stock market and in spite of repeated reminders the 1^st petitioner is yet to pay back to the company, a sum of rs. 75.77 lacs. similarly, she issued a cheques for sum of rs. 45 lacs to one m/s l.n. shroff & co. purportedly for supply of cotton. actually, this amount was towards dues of the 5^th petitioner to m/s l.n. shroff & co. and not for purchase of cotton. since l.n. shroff & co. has failed to repay the amount in spite of notices, a police complaint has been filed. while paying this amount, even though the company did not have requisite funds, yet ms.poonam obtained an overdraft against fixed deposits and repaid the personal debt of the 5^th petitioner. in view of these misdeeds, the authorization given in her favour to operate bank accounts was withdrawn.11. in -so far as recovery of calls in arrears on partly paid shares is concerned, the learned counsel submitted: out of 104.9 lakh partly paid shares, the petitioners hold 84.2 lakh while general public hold 20.7 lakh shares. of the total amount of rs. 5.24 crores as calls in arrears, an amount of rs. 4.21 crores is due from the petitioners. in terms of article 29 of aoa, the board has the power to make a call at any time. articles 39/40 permit forfeiture of shares after a due notice, in the event of failure of a shareholder to pay the call money.the very fact that the petitioners have stated that they would be prepared to pay the call money if the shareholders approve the same, it would indicate that their questioning the decision of the board to call the unpaid money is not only malafide but also against the interest of the company when the company being a sick company, is in need of funds.it is to be noted that most of the other shareholders to whom notices were issued to pay the call money, have already paid and only the petitioners are alleging that the same is an act of oppression.12. in so far as the appointment of 4 additional directors on 28.10.2006 is concerned, the learned counsel submitted: under article 117 of the aoa, the board has the power to appoint additional directors to hold office up to the date of the next agm. when idbi withdrew its nominee, the need arose to appoint additional directors more particularly because the company was in a revival path requiring various steps to be taken. they were appointed to look after different activities of the company. the resume of all the four directors were placed before the board and therefore it is wrong on the part of the petitioners to contend that unnamed persons were appointed as additional directors. since 3 of the nominees of the petitioners did not support the resolution and in view of the equality in the voting, the 2^nd respondent exercised his casting vote and by majority, the appointment of 4 additional directors was approved. therefore, when four additional directors have been appointed in accordance with the articles and in the benefit of the company, the petitioners cannot challenge their appointment. the petitioners' allegation that these four directors were appointed only to counteract the resolution proposed by them in the board meeting on 28.10.2006 to remove the 2^nd respondent as the md is not correct as no such resolution was proposed by the petitioners and their claim in this regard is nothing but a concocted and an after thought story.13. in so far as the demand of the petitioners to convene an agm is concerned, the learned counsel submitted: the only purpose for which the petitioners seek for an agm is to remove the 2^nd respondent as the md on the ground that he is guilty of mismanaging the affairs of the company and siphoning of funds. it is on record that it is the petitioners who obtained a restraint order from the high court from holding the agm for the year 2004-2005. only when idbi withdrew its nominee from the board, the petitioners withdrew the application before aaifr wherein they have sought for restraining the company from holding agm. they also filed an application before bifr seeking for adoption of accounts in the agm which was permitted by bifr. against the order of bifr, the company has filed an appeal before aaifr which has stayed the order of bifr, further, the allotment of shares to idbi is sub judice before the supreme court and till the matter is finally decided, no meeting of the shareholders should take place. in view of this, there is no scope for directing the company to hold the agm. the main purpose of the petitioners seeking for holding agm is to remove the 2^nd respondent as the md notwithstanding the fact that their application before bifr seeking for removal of the 2^nd respondent as the md has not been allowed by bifr. it is the 2^nd respondent who had incorporated the company and has been managing the affairs right from the beginning. he has undertaken huge liabilities in terms of the scheme sanctioned bifr and has also given personal guarantees to the lenders. further, the 2^nd respondent has been appointed as the md for a period of 5 years and even the bifr has. recognized him as such in the scheme. one of the allegations of the petitioners is that there have been a delay in finalizing the accounts. the company could not finalize the accounts because the statutory auditors of the company m/s n.d. kapoor & co. are biased towards the 2^nd respondent and are colluding with the petitioners. therefore, unless and until the auditors are removed and a neutral auditor is appointed, it is not possible to finalize the accounts. as a matter of fact, the petitioners themselves have agreed before bifr in the hearing held on 24.7.2006 for appointment of another auditor.14. summing up his arguments, the learned counsel submitted that the 2^nd respondent has been managing the affairs of the company to its best interests. so far the company has paid, in spite of all odds, a sum of rs. 21.93 crores to the lenders and is trying to arrive at a settlement with its secured creditors. in spite of this, without caring for the interests of the company, the petitioners are indulging in various litigations which is affecting the revival of the company. but for the malicious and malafide and prejudicial acts of the petitioners, the revival scheme sanctioned by bifr could have been smoothly, implemented. therefore, the petition should be dismissed not only as not maintainable but also on merits.15. in rejoinder the learned counsel for the petitioners submitted: the petitioners are not merely investors. mrs. poonam, a nominee of the petitioners is one of the signatories to the memorandum. the petitioners collectively invested over rs. 19 crores at the time of the public issue. the petitioners supported the appointment of the 2^nd respondent in the agm for the year 2003-2004 at which time there were no disputes. the entire disputes arose only because the 2^nd respondent tried to exclude the petitioners as promoters with a view to grab the shares allotted to idbi for rs. 23 crores. it is on record that even though the 5^th petitioner is not a director, he was authorized to operate the bank accounts of the company by a board resolution dated 28.3.1997. this clearly would show that the 2^nd respondent has recognized the 5^th petitioner as a promoter. further, the very fact that ms. poonam had identical powers in regard to the bank operations as that of the 2^nd respondent would also indicate that she, a nominee of the petitioners, was a promoter of the company.16. the learned counsel further submitted: the contention of the respondents that since the company is under the purview of bifr, this petition is not maintainable is not correct. in deputy commercial tax officers v. corromandal pharmaceuticals , it has been held that once a scheme is approved by bifr, the company can function normally in accordance with the provisions of companies act and articles. in ngef case (supra), the supreme court has only held that in terms of section 32 of sica,- it is the bifr which would have powers to sell assets of the company and high court will not have the power till winding up order is issued. likewise, in terms of section 18 of sica, bifr has exclusive powers only in relation to the sanctioned scheme and not other aspects of a company's affairs to which the provisions of companies act will prevail. it is wrong on the part of the respondents to contend that once a company is before bifr, shareholders have no right. even in case of winding up, the shareholders have rights as contributories. even the sanctioned scheme by bifr exempt the applicability of only four sections of the companies act to the scheme and therefore it has to be presumed that in respect of other matters, the provisions of companies act would prevail. the admitted facts is that petitioners hold 52% shares while the 2^nd respondent holds only 16% shares. when the petitioners sought for restraining the company from holding agm since accounts were not ready, the 2^nd respondent opposed the application before the high court. by packing the board with four of his nominees, the 2^nd respondent had disturbed the equality in the board which is highly oppression to the petitioners.even though the respondents have contended that in the slp the petitioners have raised a question of law whether clb will have powers under sections 397/398 of the act in respect of a company before bifr, yet, the same was with reference to the judgment of the delhi high court and the petitioners still hold the view that clb has complete jurisdiction to deal with the petition. the very fact that the accounts have not been finalized, whatever might be the reasons, that the losses are increasing year by year and that shareholders have no knowledge about the financial affairs of the company, all these would indicate that there is mismanagement in the affairs of the company and as shareholders having substantial shares in the company, petitioners are entitled to prosecute the petition.17. i have considered the pleadings, arguments and written submissions.the respondents have raised the question of jurisdiction of this board in dealing with the petition on the ground that the company is under the purview of bifr. the learned counsel for the respondents relied on the decision of the supreme court in ngef limited (supra). in that case, referring to section 20 and 22a of sica, the supreme court held that once a company is declared sick, bifr retains control over its assets and high court will have no jurisdiction to deal with the property till winding up order is passed. the other case referred to by the learned counsel for the respondents viz. kerala state financial state financial enterprises to the proposition that companies act cannot be held to give way to a special act like sica has no application in the present case. there does not seem to be any decided case wherein the jurisdiction of clb under sections 397/398 of the act in respect of a sick company has been decided except by the delhi high court. it is relevant to refer to certain portions of the judgment of delhi high court on the appeal preferred by the respondents against the order of this board. in paragraph 54 of the judgment, the learned judge has opined "once the legal position and scope of the two acts is understood in the manner explained above, the irresistible conclusion would be that for all matters relating to the ss, it is the bifr alone which shall have the jurisdiction"'. in paragraph 68, the learned judge has further observed " relying upon these judgments, the clb observed that -it was held therein that the non obstante clause contained in sub-section (1) of section 32 of sica does not give the sica a blanket overriding effect on all other laws; the overriding effect is given to the provisions of sica, the rules of scheme made there under only to the extent of inconsistency therewith contained in any law except in few exceptions enumerated therein. there is no quarrel about the legal proposition". in the same paragraph, it is further observed, "section 397/398 deal with mismanagement and oppression, namely section of the shareholders which is aggrieved by oppressive act of the other group of shareholders can approach the court against such oppression or in case their acts of mismanagement that can be complained of. however, once allegation is that this act of oppression flows from the scheme, namely acts of non implementation of the scheme sanctioned by the bifr one will have to approach the bifr as in essence what is complained is that the scheme is not properly implemented". further, in paragraph 80, the learned judge has summed up "therefore i am of the opinion that clb had no jurisdiction to entertain the petition under sections 397/398 of the act to deal with the issues which related to ss and are within the exclusive domain of the bifr". from this judgment it is apparently clear that as long as the acts complained of are not related to the scheme sanctioned by bifr, this board has the jurisdiction to entertain a petition under sections 397/398 of the companies act. this being the legal position, i have to only examine whether the allegations in this petition can be related to the ss and if not whether the petitioners have made out a case of grant of any relief.18. in the petition which was mentioned on 13.10.2005, the challenge was that the company had proposed in the agenda for the board meeting on 13.10.2005 certain items which were allegedly oppressive to the petitioners. the items were to withdraw the cheques signing powers from ms poonam, to call for the unpaid money on the shares and to discontinue shri dhanova as a director. therefore the petitioners sought for setting aside any decision that the board might take on these items'. on 13.10.2005, i directed that if item no. 15 relating to ms. poonam was carried through in the board meeting, the same should not be given effect to. thereafter, the petitioners filed ca 314 of 2005 pointing out that pursuant to the decision in that board meeting, the company had issued notices on 28.10.2005 asking the petitioners to pay the call money with 9% interest failing which the shares shall be forfeited. when this application was mentioned on 30.11.2005, i directed that no forfeiture shall be effected till the petition was disposed of. in so far as shri dhanova is concerned, since he had offered himself for the election, in the notice for the agm convened on 15.12.2005, his re-election had been proposed. during the pendency of the petition, ca 389 of 2006 was filed by the petitioners challenging the appointment of 4 additional directors in the board meeting held on 28.10.2006. from these allegations, it can be seen that none of the allegations has any relation to the ss nor connected with proceeding before bifr. therefore, i am of the firm opinion that this board has jurisdiction to deal with these allegations in the present petition.19. on merits, even though the petitioners have contended that the petitioners are also a part of promoters, i do not propose to deal with this issue as in terms of the judgment of delhi high court, this is a matter connected with ss and only bifr has the jurisdiction to decide this matter. as far as the cheques signing powers of ms. poonam is concerned, it is on record that she has been exercising the powers similar to that of the md right from the beginning, being a signatory to the memorandum and therefore she has the legitimate grievance that she is being stripped of the long held powers. in the board meeting held on 13.10.2005, the reason given for withdrawal of power was that the registered office had been shifted. only in the pleading that too in the sur rejoinder, allegations have been made that she had mis-utilized the cheque signing powers. normally, the validity of the decision of the board must be judged by the reasons mentioned in the minutes and the same cannot be supplemented by fresh reasons in the shape of affidavit or otherwise. otherwise, a decision which is bad in the beginning may, by the time it comes to court on account of a challenge, get validated by additional grounds later brought out. time and again this board has held that decisions/actions taken during the period of cordial relationship cannot be challenged after the relationship had become sour. there is nothing on record that at any time ms. poonam was confronted with the alleged misutilisation of powers. it is not made clear as to how shifting of registered office has any relation to the cheques signing powers. it is to be noted that the alleged misutilisation of the cheque signing powers occurred in 2002 when the parties had cordial relationship. since ms. poonam has been enjoying the powers for a very long time and she is obviously a nominee of the petitioners, striping of her powers is definitely an act of oppression against ms. poonam particularly and the petitioners generally.20. in so far as call notices for unpaid amount on the shares is concerned, it is the prerogative of the company to call for the unpaid money at any time in accordance with the articles. in the normal circumstances, no shareholder can allege oppression when the company call for the unpaid money. but in the present case, the circumstances are different. it is on record that the shares were issued as partly paid in the year 1996 and the unpaid money does not appear to have been called for at any time and as a matter of fact it did not even find as a source of funds in the scheme submitted to the bifr. it is also on record that nearly 80% of the unpaid money is to come from the petitioners and perhaps because of the good relations then existing between the 2^nd respondent and the petitioners, not only the principal amount was not called for but even the board took a decision on 30.4.2002 not to charge any interest. the decision to call for the unpaid money was taken after the disputes started and during the pendency of the proceedings before delhi high court. it is a settled law that even a legal act could be oppressive. in the present case it is exactly so. when the board had decided not to charge interest in its meeting held on 30.4.2002, there is nothing on record to show that the investors grievances committee which took the decision to charge interest was aware of the earlier board resolution. secondly, from the item no 15 of the board minutes dated 21.10.2004, i find that the responsibility entrusted to the said committee was in relation to complaints of share transfers and non receipt of balance sheets and allied matters. thus whether the said committee had the power to decide on interest on unpaid money itself is doubtful as a committee has to function in accordance with the powers assigned to it by the board.21. in so far as the appointment of 4 additional directors is concerned, the petitioners have alleged that these appointments were made solely with a view to strengthen the hold of the 2^nd respondent on the board in which earlier there was equality of 3 directors of the petitioners and 3 directors of the 2^nd respondent. it is further alleged that without any details of these appointees being placed before the board, they were appointed by the exercise of casting vote by the 2^nd respondent. minutes of the board meeting held on 28.10.2006 in which these appointments were made does not appear to be on record.however from the letter dated 30.10.2006 signed by the company secretary and addressed to the petitioners, i find that the appointments were made with a view to strengthen the management as the idbi had withdrawn its nominee from the board. it is also stated in that letter that during the course of the meeting, copies of bio-datas were furnished to all the directors. in the written submissions it is stated that additional directors were appointed to look after different activities of the company. since there is controversy as to whether the three directors supporting the petitioners moved a resolution to remove the 2^nd respondent as the md or not, i do not propose to examine this issue. it is on record that just a few days before the board meeting, one of the petitioners had sought for holding the agm by a letter dated 25.10.2006 and since additional directors can hold office only up to the date of the next agm, there was no need to appoint 4 additional directors. the petitioners have questioned these appointments on the ground that the same did not find a place in the agenda. if the petitioners could attempt to remove the 2^nd respondent as the md without the same being in the agenda, then the 2^nd respondent could also appoint additional directors without the same being in the agenda.even though, in terms of the kerala high court judgment in city hospital case , additional directors could be appointed even without the same being in the agenda, yet, as has been pointed out by the high court itself, the circumstances under which the appointments were made could be examined. since the admitted position is that after the removal of the idbi nominee, there was equality in the board which would definitely result in stalemate which would necessitate the exercise of casting vote by the 2^nd respondent. this being the case, there would have been no objection if only one additional director had been appointed. in the written submissions, it is submitted that they are appointed to look after different activities of the company. since they were only non functional directors, the question of their looking after the activities of the company would never arise. now that bifr has already appointed a special director on the board, there would be no necessity to have four additional directors.22. the petitioners have sought that this board should direct holding of agm of the company. the agms for the year 2004-2005 and 2005-2006 have not been held yet. obviously no agm could have been convened in view of the restraint order of delhi high court dated 15.12.2005 which continued up to 8.12.2006 when the aaifr disposed of the matter. with this order of the aaifr, there would have been no impediment in holding the agm. however, the respondents have brought to my notice that the bifr by a communication dated 10.1.2007 directed the company to finalise/adopt the balance sheets for two years in the agm by the end of february, 2007 and this communication has been stayed by aaifr by an order dated 17.1.2007 and as such this board cannot direct holding of agm. as far as agms are concerned, in terms of section 166 of the companies act, every company shall have to hold a general meeting within the time prescribed by that section. in other words, it is mandatory to hold agm. section 210 prescribes that at every agm held in pursuance to section 166, the balance sheet and profit & loss account have to be laid before the members. therefore from these provisions it is apparent that holding of agm in terms of section 166 does not depend on the availability of the balance sheet and the profit & loss account.one of the most important statutory rights of shareholders is to attend general meetings and as a matter of fact in terms of section 167 of the act, if a company does not hold an agm, any member of the company could apply to this board with a prayer to call or direct the calling of an annual general meeting. in the present case, the aaifr has only stayed the directions of bifr that the company should adopt the annual accounts in the agm to. be held before the end of february. as observed earlier, holding of agm and adoption of accounts are two different issues as besides adoption of accounts, the agm transacts other statutory businesses, like, appointment of directors in place of retiring directors in terms of section 255, appointment of auditors in terms of section 224 and declaration of dividend in terms of section 205. i find from the notice issued for the agm convened on 15.12.2005, that two directors were retiring by rotation. in addition, shri d.k.jain who had been appointed as an additional director had to be confirmed as also his remunerationhad to be approved in the agm. it is quite possible that a few more directors might have become liable for retirement by rotation thereafter. their positions can be filled in only in the annual general meeting. likewise, it is a statutory requirement that appointment of auditors has to be approved in the agm.in so far as dividend is concerned, obviously the company being a sick company, no dividend appears to be declarable. therefore, i do not find any impediment in holding the agm for both the years to transact these statutory businesses. the respondents have alleged that the sole motive of the petitioners to seek for an agm is to remove the 2^nd respondent as a director, which in terms of the scheme sanctioned by the bifr, cannot be done. according to the petitioners, there is no stipulation in the scheme that the 2^nd respondent would continue to be the md. i do not propose to enter into this controversy. no company can refuse to hold an agm on the ground that one or more directors would be removed in the agm, if held. non holding of the agm on the sole ground that he would be removed as the md itself is highly oppressive to the shareholders at large who alone have the statutory right to appoint director/md. i find from the shareholding pattern of the company that after allotment of shares to idbi, the petitioners' group holds 38.18%, the 2^nd respondent group holds 16.90%, idbi holds 43.33% and the balance 4.78% by others. thus neither the petitioners nor the 2^nd respondent hold absolute majority. however, should, in the agm, the petitioners succeed in getting the proposal to remove the 2^nd respondent through, he would always be at liberty to approach the bifr if, in terms of the ss he cannot be removed as the md. the respondents have contended that since the matter of allotment of shares of rs. 23 crores to idbi is under challenge before the supreme court, no agm could be held till the determination of the said issue. i find from the judgment of delhi high court that it has upheld the allotment of shares to idbi and that decision will prevail since no order of stay of that judgment has been passed by the supreme court. (1) ms. poonam will continue to have the cheques signing powers as per the earlier practice. (2) the four additional directors shall not participate in any board meeting till their appointments are confirmed in the agm. (3) the issue relating to charging of interest on the unpaid amount shall be again placed before the board with the participation of the special director appointed by bifr and the decision taken thereat shall be binding on the company and the petitioners. (4) on or before 25^th february, 2007, the board of the company will hold a board meeting to convene, not later than 31^st march, 2007, general meetings of the company for the years ended 25^th march, 2005 and 31^st march, 2006 successively on the same day, to transact all statutory businesses except adoption of accounts. the two agms will be convened with a gap of two hours. (5) once the agms are convened, if the petitioners desire to have an independent chairman to chair these meetings, they are at liberty to apply to this board.

Judgment:
1. The petitioners claiming to hold 49.38% equity shares in M/S Pashupati Fabrics Limited (the company ) have filed this petition under Sections 397/398 of the Companies Act, 1956 (the Act) alleging that one of the nominee directors of the petitioners is being stripped of all her powers relating to financial affairs of the company, that one of their nominees was not being re-elected as a director and that with a malafide intention, the company has proposed to forfeit 4.5% shares held by the petitioners on the ground of non payment of calls.

Thereafter, the petitioners filed an application alleging that 4 additional directors have been appointed on the board without any justification and that the resolution proposed for removal of the 2^nd respondent as the MD was not recorded in the minutes. Through another application, they sought for holding of the annual general meeting of the company for the year ending 31^st March, 2005.

2. The facts of the case are that the 5^th petitioner and the 2^nd respondent are brothers. The first 4 petitioner companies are under the control of the 5^th petitioner. The company became a sick company and accordingly a reference was made to BIFR. BIFR has sanctioned a scheme of revival and one of the terms of the revival scheme was that IDBI would be allotted shares worth Rs. 23 crores with the liberty to the 2^nd respondent, being the promoter of the company, to purchase the shares held by IDBI. Shares worth Rs. 23 crores were allotted to IDBI.The petitioners filed the Company Petition No. 35/2005 alleging that even though the petitioners were also co-promoters of the company, the 2^nd respondent holding around 16% shares in the company, with a view to grab the company, had misrepresented before BIFR that he was the sole promoter, thus, getting the right to purchase the shares held by IDBI. I had decided the petition in favour of the petitioners and the said order was taken on an appeal before the Delhi High Court. During the pendency of the appeal, the present petition was filed. In the appeal, the order of this Board was set aside. The company had proposed to hold AGM for the year ended 31^st March, 2005 on 15.12.2005 and the petitioners challenged the same before Delhi High Court on the ground that AGM should not be held as the accounts were not ready. Since the petitioners had already filed an appeal before AAIFR against the order of BIFR treating the 2^nd respondent as the sole promoter, the High Court disposed of the application with the direction that no AGM should be held till the disposal of the appeal by AAIFR. According to the petitioners, they had already withdrawn their application regarding the AGM from the AAIFR and as such there was no impediment in holding the AGM. However, when the matter was being heard, they could not produce any order of AAIFR allowing the withdrawal of the said application.

After the hearing was concluded, both the sides filed further affidavits. In their affidavits, the petitioners have enclosed a copy of the order of AAIFR dated 8.12.2006 from which it is seen the application of the petitioners for restraining the company from holding the AGM has been disposed of as not pressed. In the meanwhile, by a communication dated 10.1.2007, BIFR directed the company to finalise and adopt the Balance sheets for the years 2004-05 and 2005-06 in the AGM to be held by end Feb. 2007. This direction was challenged by the company before the AAIFR which has stayed the directions of BIFR.3. The learned Counsel appearing for the petitioners submitted: The petitioners collectively are the largest shareholders in the company.

When the public issue failed, the petitioner company invested more than Rs. 19 crores and thus their investment had gone upto Rs. 38 crores.

Since the 2^nd respondent is the brother of the 5^th petitioner, the management and control of the company was entrusted to the 2^nd respondent who controls only about 16% shares in the company. He has been managing the affairs of the company to the detriment of the shareholders and the company by his misdeeds. With a view to perpetuate his control over the company, he has been acting in a manner oppressive to the petitioners. Ms. Poonam Manshani is the nominee of the petitioners on the board of the company. She was one of the first, directors and also a signatory to the memorandum. She, in her capacity as a promoter of the company, has been continuing as a director right from the beginning and has been one of the signatories to operate the bank accounts having similar powers as that of the 2^nd respondent. The company had circulated an agenda for the board meeting to be held on 13^th October, 2005. In this agenda, three items, highly oppressive to the petitioners had been proposed. One was to withdraw the cheque signing powers from Ms. Poonam on the ground that registered office had been shifted to new premises, the second was not to reappoint Shri S.S.Dhanoa, a nominee of the petitioners on his retirement by rotation on the ground that he had not expressed his desire to seek re-appointment and the third is that to call for the balance money on unpaid snares with 9% interest from November, 1996 till the date of payment.

4. Elaborating on the above proposals, the learned Counsel argued: The reason given in the agenda for withdrawing the cheques signing powers from Ms. Poonam was that the registered office had been shifted.

However, in the sur-rejoinder, it is alleged that her powers had been withdrawn on account of her mis-utilizing the funds of the company. No details have been furnished in this regard. The sole motive to withdraw the powers is to keep the petitioners, who have the largest shareholding, completely in dark about the financial affairs of the company, and as such the said proposal is highly oppressive to the petitioners. In so far as the proposal relating to Shri Dhanova is concerned, it is wrong on the part of the 2^nd respondent to contend that Shri Dhanova had not sought for reappointment. Shri Dhanova is the ex-Chairman of LIC. He was never informed that he was liable to retire by rotation in the year 2005 only with the view to oust him from the Board. Only after this petition was filed on 10.1.2005, Shri Dhanova was informed that he was due to retire by rotation. Immediately thereafter, he expressed his consent to be reappointed and thus the matter got resolved. In so far as the proposal to call for the unpaid amount on the shares is concerned, the said proposal is also malafide and against the earlier decision taken by the board not to charge any interest on the unpaid amount. When the public issue failed, the petitioners "subscribed to the shares to the extent of Rs. 19 crores. A small percentage of shares of Rs. 4.21 crores remained partly paid and since the petitioners were promoters, the company did not deem it necessary to call the balance amount. Even when the company submitted a scheme to BIFR, this amount had not been called. The petitioners do admit that the amount is payable but the manner in which the company has proposed to call the money after the disputes started, that tod with an interest of 9% from 1996, is highly oppressive. It is on record that in a board meeting held on 30.4.2002 ( Annexure -E Page 154 of the petition), 'the board had decided not to charge any interest on call in arrears on the ground that in view of the recessionary conditions, the company was not likely to receive interest on call in arrears. In terms of Article 33 of AOA, the board has the authority to waive the interest which the board had already done. The 2^nd respondent decided to charge interest only after the disputes started. Even though it is contended by the 2^nd respondent that in a meeting of shareholders investors grievance committee on 22.7.2004, it was decided to charge interest on calls in arrears at 9% per annum (Annexure R-7), it may be seen that no body has signed the minutes. There is not even an indication that the earlier decision of the board not to charge interest was taken into consideration by the said committee. Further when the board had decided the matter, a Committee cannot take a decision contrary to the decision of the board. In addition, the decision of the Grievance Committee had not even been placed before the board for its approval or rectification. In the board meeting held on 13.10.2004, Ms. Poonam opposed the resolution but the same was overruled by the 2^nd respondent. In terms of the resolution, notices dated 28.10.2005 have been received by the petitioners asking them to pay Rs. 4.21 crores being the unpaid money on the shares at the rate of 9% effective from 5.11.1996 stating that if the amount was not paid within 30 days, the shares shall be forfeited. Therefore, the calling of the unpaid amount after the disputes had started, that too at an interest of 9%, clearly indicates the malafide intent of the 2^nd respondent. In terms of Article 30A, the general body has the power to extend the period within which the calls are to be paid and therefore this matter should be placed before the general body for their decision.

5. The learned Counsel further submitted: After this petition was filed and during the pendency, the 2^nd respondent had taken further steps to strengthen his control over the company notwithstanding the fact that it was only with the support of the petitioners he could be appointed as the CMD. By a letter dated 3.7.2006, IDBI informed the company that IDBI was considering invoking the Seccuritzaion Act as the company had not complied with its requirements. On 11.8.2006, IDBI withdrew its nominee. On 8.9.2006, IDBI sought to invoke the original liability instead of the reduced liability under the BIFR Scheme resulting in a huge liability raised against the company. In the agenda circulated for the board meeting on 28.10.2006, there was no reference to the appointment of any additional directors. In the meanwhile, the petitioners by a letter dated 25.10.2006 sought for holding the annual general meeting. In the board meeting on 28.10.2006, 6 directors including the 2^nd respondent and Ms. Poonam were present. After the agenda items were disposed of, Ms. Poonam proposed for the removal of the 2^nd respondent as the MD in terms of Article 150. The reasons for the proposal were that the company was being mismanaged by the 2^nd respondent due to which the losses were increasing, that annual accounts had not been finalized, that IDBI had recalled its nominee due to loss of faith in the management and that the company was not in a position to pay the OTS amount. Since three of the directors had supported the resolution and as the 2^nd respondent could not participate in the discussions on the said proposal, being an interested director, he did not allow the resolution minuted. Instead to pre-empt his removal, he proposed for appointment of four additional directors even without tabling their consent or their boi-data.

Further, their appointment was not in the agenda. When the proposal was opposed by three directors, by misusing his casting vote, the 2^nd respondent declared that the resolution had been approved by the board.

The justification given the 2^nd respondent for the appointment of four additional directors is that IDBI had withdrawn its nominee. It is on record that IDBI withdrew its nominee on 11.8.2006 and no action to fill up that vacancy was taken till 28.10.2006. The sole objective of appointment of four additional directors was only to strengthen the hold of the 2^nd respondent in the board. It is to be noted that even the names of the additional directors were not disclosed nor their bio-date or consent had been placed before the board. When the petitioners had sought for holding of an AGM, if at all there was any need to appoint directors, it could have been done in the AGM.Therefore the appointment of the four directors should be set aside especially when BIFR has already appointed a Special Director on the board by an order dated 4.12.2006. In other words, the justification given for appointment of four additional directors that IDBI nominee had been withdrawn, no longer survives in view of the Special director appointed by BIFR. Kerala High Court has held in Dr. T.K. Paul v. City Hospital Pvt. Ltd. 97 CC 216 that even though items not in the agenda could be considered by the board and even additional directors could be appointed without being included in the agenda, yet, the powers should be exercised bonafide and not with a view to strengthen the position of a majority in the board. In the present case, it is quite obvious that only when he was sought to be removed as MD, the 2^nd respondent, by exercising his casting vote, got the proposal of appointment of additional four directors through only with the sole objective of strengthening his hold on the Board.

6. The learned Counsel further submitted: The company has not held the AGM for the last two years. No doubt , the petitioners sought to restrain the company from holding the AGM on 15.1.2.2005, but it was only on account of the fact that the accounts were not ready. The restraint order continued upto 8.12.2006 when AAIFR had disposed of the appeal and therefore, there is no impediment in holding the AGM for transacting other statutory businesses. Therefore, AGM should be directed to be held under the supervision of this Board with a Chairman appointed by this Board, with liberty to the shareholders to appoint a suitable person as the MD in place of the 2^nd respondent, who controls only 16% shares in the company.

7. Shri Choudhary appearing for respondents submitted: In a petition under Sections 397/398, directorial complaints cannot be raised except in cases of closely held companies or companies in the nature of quasi partnership. No doubt the petitioners were associates but not promoters and as such they cannot invoke the principles of quasi partnership.

Only Ms. Poonam is a promoter from the petitioners' side. When they acquired the shares at the time when the public issue failed, they did so only in their capacity as investors and not as promoters and as such they cannot claim any right" of management. Neither the 5^th petitioner nor any of the other petitioners took any interest in the revival scheme nor they have given any personal guarantee. This itself would indicate that they are only fiananciers/investors. If they were the promoters, they should have participated in the BIFR proceedings which they did not do. Further, this petition is not an independent petition but only an extension of the previous petition which has been dismissed by the High Court on the ground that in case of a sick company, only BIFR has jurisdiction and not the CLB. Whether, the company Law Board has jurisdiction or not to look into the affairs of a company which is under the purview of BIFR, is an issue raised by the petitioners themselves in the SLP before the Supreme Court and therefore, till the issue is decided by the Supreme Court, the judgment of Delhi High Court would prevail and therefore, this Board has no jurisdiction to adjudicate on the petition. Further, except the allegation relating to calls in arrears, other matters are already before 'BIFR. The petitioners had filed an application before BIFR (Annexure R-2) wherein they sought for appointment of a qualified independent person as the MD. This application has been disposed of by BIFR without any order in October, 2006. Their insistence on convening an AGM itself is a malafide as is evident from the fact that it is the petitioners who sought for restraining the company from holding the AGM for the year 2004-2005. Only when they came to know that IDBI was not likely to support the 2^nd respondent, they sought for an AGM with a view to remove the 2^nd respondent as the MD notwithstanding the fact that this petition has been pending for over a year. As a matter of fact, since as per the BIFR scheme, the 2^nd respondent is the promoter and he has been charged with revival of the company, h cannot be removed. In the application CA No. 389 of 2006, the only ground given is that four additional directors had been appointed. If the petitioners are aggrieved with the appointment of additional directors, they should have filed an application before BIFR challenging their appointment in terms of Section 18(2) of SICA. Calling for unpaid money on the shares can never be considered to be an act of oppression. If the petitioners are aggrieved against the call notice and if the shares are forfeited for non payment of the call money, they have to only file a petition under Section 111A of the Act. If the petitioners contention is that the BIFR scheme does not provide for calling for the unpaid money, then, they should agitate their grievance only before BIFR and not before the CLB. Further, the admitted fact is that even though the board had originally decided not to charge any interest, later on, the investor grievance committee had decided to charge interest at the rate of 9% and the petitioners are bound to pay the same.

8. Shri Dhir, Advocate, appearing for the 2^nd respondent submitted: It is the 2^nd respondent who has taken active interest in the rehabilitation of the company. Due to his efforts, a scheme was got sanctioned from BIFR on 2.4.2004. As per the scheme, shares worth Rs. 23 crores were to be allotted in favour of IDBI after reduction of equity and issuance of preference shares against the reduction to the existing holders. The scheme sanctioned by BIFR has not been challenged by the petitioners. In terms of the scheme, shares worth Rs. 23 crores were allotted to IDBI where after the petitioners filed CP 38 of 2005 before this Board. Even though, this Board declared the allotment to IDBI as a nullity, on appeal, the Delhi High Court has set aside the said order observing that in respect of a sick company, BIFR alone has exclusive jurisdiction. In the SLP before the Supreme Court, the petitioners have raised a specific question of law as to whether in respect of a sick company, CLB has the jurisdiction. Therefore, till that issue is decided by the Supreme Court, the decision of Delhi High Court prevails and the petitioners cannot prosecute the present proceeding. Further, the petitioners have already filed an application under Section 24 of SICA before BIFR alleging acts of oppression and mismanagement in the affairs of the company, the act of which would very clearly indicate that even the petitioners admit that only BIFR has the jurisdiction. This being the case, the CLB has no jurisdiction to entertain the present petition. Referring to NGEF Limited v. Chandra Developers Pvt. Ltd.Kerala State Financial Enterprises Ltd v. Official Liquidator 2006 10 SCALE 28, the learned Counsel submitted that in terms of Section 32(1) of SICA, the provisions of SICA have an overriding effect over the provisions of the Companies Act and therefore, this Board has no jurisdiction to entertain this petition.

9. He further submitted Further, the petitioners have alleged that the 2^nd respondent is mismanaging the affairs of the company. Since BIFR is seized of the matter and has appointed a Special Director in terms of Section 16(4) of SICA, the management of the company has come under the purview of BIFR now. As a matter of fact the petitioners have raised similar issues and have sought the removal of the 2^nd respondent as the MD before BIFR. On that application, BIFR has already passed an order on 10.12.2006 directing that if dues of IDBI are settled by way of OTS, the shares allotted to IDBI could be allotted to the promoters and their associates. By this order, BIFR has already rejected the prayer of the petitioners for removal of 2^nd respondent as the MD. The company has already preferred an appeal before AIFR against this order.

10. On merits, the learned Counsel submitted: In so far as Shri Dhanova is concerned, since he has already given his consent for reappointment as a director, he will be so appointed and as such this grievance no longer survives. In so far as the allegation relating to withdrawal of powers from Ms. Poonam is concerned, petitioners can have no grievance as it is for the board of a company to decide about the allocation of responsibilities among directors. On 13.10.2005, Ms. Poonam was present when the decision to withdraw her powers was taken but she never protested. The main reason for withdrawal of her powers was that in collusion with the petitioners, she was mis-utilizing the funds of the company. She was instrumental in a transaction for acquiring certain land from a company belonging to the 5^th petitioner and in spite of the consideration having been paid, the land has not yet been transferred to the company till date. On 19.7.2002, without the permission or authorization of the board, she issued a cheque for Rs. 1 crore in favour of the 1^st petitioner against debts of the 5^th petitioner on account of losses incurred by him in the stock market and in spite of repeated reminders the 1^st petitioner is yet to pay back to the company, a sum of Rs. 75.77 lacs. Similarly, she issued a cheques for sum of Rs. 45 lacs to one M/S L.N. Shroff & Co. purportedly for supply of cotton. Actually, this amount was towards dues of the 5^th petitioner to M/S L.N. Shroff & Co. and not for purchase of cotton. Since L.N. Shroff & Co. has failed to repay the amount in spite of notices, a police complaint has been filed. While paying this amount, even though the company did not have requisite funds, yet Ms.

Poonam obtained an overdraft against fixed deposits and repaid the personal debt of the 5^th petitioner. In view of these misdeeds, the authorization given in her favour to operate bank accounts was withdrawn.

11. In -so far as recovery of calls in arrears on partly paid shares is concerned, the learned Counsel submitted: Out of 104.9 lakh partly paid shares, the petitioners hold 84.2 lakh while general public hold 20.7 lakh shares. Of the total amount of Rs. 5.24 crores as calls in arrears, an amount of Rs. 4.21 crores is due from the petitioners. In terms of Article 29 of AOA, the board has the power to make a call at any time. Articles 39/40 permit forfeiture of shares after a due notice, in the event of failure of a shareholder to pay the call money.

The very fact that the petitioners have stated that they would be prepared to pay the call money if the shareholders approve the same, it would indicate that their questioning the decision of the board to call the unpaid money is not only malafide but also against the interest of the company when the company being a sick company, is in need of funds.

It is to be noted that most of the other shareholders to whom notices were issued to pay the call money, have already paid and only the petitioners are alleging that the same is an act of oppression.

12. In so far as the appointment of 4 additional directors on 28.10.2006 is concerned, the learned Counsel submitted: Under Article 117 of the AOA, the board has the power to appoint additional directors to hold office up to the date of the next AGM. When IDBI withdrew its nominee, the need arose to appoint additional directors more particularly because the company was in a revival path requiring various steps to be taken. They were appointed to look after different activities of the company. The resume of all the four directors were placed before the board and therefore it is wrong on the part of the petitioners to contend that unnamed persons were appointed as additional directors. Since 3 of the nominees of the petitioners did not support the resolution and in view of the equality in the voting, the 2^nd respondent exercised his casting vote and by majority, the appointment of 4 additional directors was approved. Therefore, when four additional directors have been appointed in accordance with the Articles and in the benefit of the company, the petitioners cannot challenge their appointment. The petitioners' allegation that these four directors were appointed only to counteract the resolution proposed by them in the board meeting on 28.10.2006 to remove the 2^nd respondent as the MD is not correct as no such resolution was proposed by the petitioners and their claim in this regard is nothing but a concocted and an after thought story.

13. In so far as the demand of the petitioners to convene an AGM is concerned, the learned Counsel submitted: The only purpose for which the petitioners seek for an AGM is to remove the 2^nd respondent as the MD on the ground that he is guilty of mismanaging the affairs of the company and siphoning of funds. It is on record that it is the petitioners who obtained a restraint order from the High Court from holding the AGM for the year 2004-2005. Only when IDBI withdrew its nominee from the board, the petitioners withdrew the application before AAIFR wherein they have sought for restraining the company from holding AGM. They also filed an application before BIFR seeking for adoption of accounts in the AGM which was permitted by BIFR. Against the order of BIFR, the company has filed an appeal before AAIFR which has stayed the order of BIFR, Further, the allotment of shares to IDBI is sub judice before the Supreme Court and till the matter is finally decided, no meeting of the shareholders should take place. In view of this, there is no scope for directing the company to hold the AGM. The main purpose of the petitioners seeking for holding AGM is to remove the 2^nd respondent as the MD notwithstanding the fact that their application before BIFR seeking for removal of the 2^nd respondent as the MD has not been allowed by BIFR. It is the 2^nd respondent who had incorporated the company and has been managing the affairs right from the beginning. He has undertaken huge liabilities in terms of the scheme sanctioned BIFR and has also given personal guarantees to the lenders. Further, the 2^nd respondent has been appointed as the MD for a period of 5 years and even the BIFR has. recognized him as such in the scheme. One of the allegations of the petitioners is that there have been a delay in finalizing the accounts. The company could not finalize the accounts because the statutory auditors of the company M/S N.D. Kapoor & Co. are biased towards the 2^nd respondent and are colluding with the petitioners. Therefore, unless and until the auditors are removed and a neutral auditor is appointed, it is not possible to finalize the accounts. As a matter of fact, the petitioners themselves have agreed before BIFR in the hearing held on 24.7.2006 for appointment of another auditor.

14. Summing up his arguments, the learned Counsel submitted that the 2^nd respondent has been managing the affairs of the company to its best interests. So far the company has paid, in spite of all odds, a sum of Rs. 21.93 crores to the lenders and is trying to arrive at a settlement with its secured creditors. In spite of this, without caring for the interests of the company, the petitioners are indulging in various litigations which is affecting the revival of the company. But for the malicious and malafide and prejudicial acts of the petitioners, the revival scheme sanctioned by BIFR could have been smoothly, implemented. Therefore, the petition should be dismissed not only as not maintainable but also on merits.

15. In rejoinder the learned Counsel for the petitioners submitted: The petitioners are not merely investors. Mrs. Poonam, a nominee of the petitioners is one of the signatories to the Memorandum. The petitioners collectively invested over Rs. 19 crores at the time of the public issue. The petitioners supported the appointment of the 2^nd respondent in the AGM for the year 2003-2004 at which time there were no disputes. The entire disputes arose only because the 2^nd respondent tried to exclude the petitioners as promoters with a view to grab the shares allotted to IDBI for Rs. 23 crores. It is on record that even though the 5^th petitioner is not a director, he was authorized to operate the bank accounts of the company by a board resolution dated 28.3.1997. This clearly would show that the 2^nd respondent has recognized the 5^th petitioner as a promoter. Further, the very fact that Ms. Poonam had identical powers in regard to the bank operations as that of the 2^nd respondent would also indicate that she, a nominee of the petitioners, was a promoter of the company.

16. The learned Counsel further submitted: The contention of the respondents that since the company is under the purview of BIFR, this petition is not maintainable is not correct. In Deputy Commercial Tax Officers v. Corromandal Pharmaceuticals , it has been held that once a scheme is approved by BIFR, the company can function normally in accordance with the provisions of Companies Act and Articles. In NGEF case (supra), the Supreme Court has only held that in terms of Section 32 of SICA,- it is the BIFR which would have powers to sell assets of the company and High Court will not have the power till winding up order is issued. Likewise, in terms of Section 18 of SICA, BIFR has exclusive powers only in relation to the sanctioned scheme and not other aspects of a company's affairs to which the provisions of Companies Act will prevail. It is wrong on the part of the respondents to contend that once a company is before BIFR, shareholders have no right. Even in case of winding up, the shareholders have rights as contributories. Even the sanctioned scheme by BIFR exempt the applicability of only four Sections of the Companies Act to the scheme and therefore it has to be presumed that in respect of other matters, the provisions of Companies Act would prevail. The admitted facts is that petitioners hold 52% shares while the 2^nd respondent holds only 16% shares. When the petitioners sought for restraining the company from holding AGM since accounts were not ready, the 2^nd respondent opposed the application before the High court. By packing the board with four of his nominees, the 2^nd respondent had disturbed the equality in the board which is highly oppression to the petitioners.

Even though the respondents have contended that in the SLP the petitioners have raised a question of law whether CLB will have powers under Sections 397/398 of the Act in respect of a company before BIFR, yet, the same was with reference to the judgment of the Delhi High Court and the petitioners still hold the view that CLB has complete jurisdiction to deal with the petition. The very fact that the accounts have not been finalized, whatever might be the reasons, that the losses are increasing year by year and that shareholders have no knowledge about the financial affairs of the company, all these would indicate that there is mismanagement in the affairs of the company and as shareholders having substantial shares in the company, petitioners are entitled to prosecute the petition.

17. I have considered the pleadings, arguments and written submissions.

The respondents have raised the question of jurisdiction of this Board in dealing with the petition on the ground that the company is under the purview of BIFR. The learned Counsel for the respondents relied on the decision of the Supreme Court in NGEF Limited (supra). In that case, referring to Section 20 and 22A of SICA, the Supreme Court held that once a company is declared sick, BIFR retains control over its assets and High Court will have no jurisdiction to deal with the property till winding up order is passed. The other case referred to by the learned Counsel for the respondents viz. Kerala State Financial State Financial Enterprises to the proposition that Companies Act cannot be held to give way to a special act like SICA has no application in the present case. There does not seem to be any decided case wherein the jurisdiction of CLB under Sections 397/398 of the Act in respect of a sick company has been decided except by the Delhi High Court. It is relevant to refer to certain portions of the judgment of Delhi High Court on the appeal preferred by the respondents against the order of this Board. In paragraph 54 of the judgment, the learned judge has opined "Once the legal position and scope of the two Acts is understood in the manner explained above, the irresistible conclusion would be that for all matters relating to the SS, it is the BIFR alone which shall have the jurisdiction"'. In paragraph 68, the learned judge has further observed " Relying upon these Judgments, the CLB observed that -it was held therein that the non obstante clause contained in sub-Section (1) of Section 32 of SICA does not give the SICA a blanket overriding effect on all other laws; the overriding effect is given to the provisions of SICA, the rules of scheme made there under only to the extent of inconsistency therewith contained in any law except in few exceptions enumerated therein. There is no quarrel about the legal proposition". In the same paragraph, it is further observed, "Section 397/398 deal with mismanagement and oppression, namely section of the shareholders which is aggrieved by oppressive act of the other group of shareholders can approach the court against such oppression or in case their acts of mismanagement that can be complained of. However, once allegation is that this act of oppression flows from the scheme, namely acts of non implementation of the scheme sanctioned by the BIFR one will have to approach the BIFR as in essence what is complained is that the scheme is not properly implemented". Further, in paragraph 80, the learned judge has summed up "Therefore I am of the opinion that CLB had no jurisdiction to entertain the petition under Sections 397/398 of the Act to deal with the issues which related to SS and are within the exclusive domain of the BIFR". From this judgment it is apparently clear that as long as the acts complained of are not related to the scheme sanctioned by BIFR, this Board has the jurisdiction to entertain a petition under Sections 397/398 of the Companies Act. This being the legal position, I have to only examine whether the allegations in this petition can be related to the SS and if not whether the petitioners have made out a case of grant of any relief.

18. In the petition which was mentioned on 13.10.2005, the challenge was that the company had proposed in the agenda for the Board meeting on 13.10.2005 certain items which were allegedly oppressive to the petitioners. The items were to withdraw the cheques signing powers from Ms Poonam, to call for the unpaid money on the shares and to discontinue Shri Dhanova as a director. Therefore the petitioners sought for setting aside any decision that the board might take on these items'. On 13.10.2005, I directed that if item No. 15 relating to Ms. Poonam was carried through in the board meeting, the same should not be given effect to. Thereafter, the petitioners filed CA 314 of 2005 pointing out that pursuant to the decision in that board meeting, the company had issued notices on 28.10.2005 asking the petitioners to pay the call money with 9% interest failing which the shares shall be forfeited. When this application was mentioned on 30.11.2005, I directed that no forfeiture shall be effected till the petition was disposed of. In so far as Shri Dhanova is concerned, since he had offered himself for the election, in the notice for the AGM convened on 15.12.2005, his re-election had been proposed. During the pendency of the petition, CA 389 of 2006 was filed by the petitioners challenging the appointment of 4 additional directors in the board meeting held on 28.10.2006. From these allegations, it can be seen that none of the allegations has any relation to the SS nor connected with proceeding before BIFR. Therefore, I am of the firm opinion that this Board has jurisdiction to deal with these allegations in the present petition.

19. On merits, even though the petitioners have contended that the petitioners are also a part of promoters, I do not propose to deal with this issue as in terms of the judgment of Delhi High Court, this is a matter connected with SS and only BIFR has the jurisdiction to decide this matter. As far as the cheques signing powers of Ms. Poonam is concerned, it is on record that she has been exercising the powers similar to that of the MD right from the beginning, being a signatory to the memorandum and therefore she has the legitimate grievance that she is being stripped of the long held powers. In the board meeting held on 13.10.2005, the reason given for withdrawal of power was that the registered office had been shifted. Only in the pleading that too in the sur rejoinder, allegations have been made that she had mis-utilized the cheque signing powers. Normally, the validity of the decision of the board must be judged by the reasons mentioned in the minutes and the same cannot be supplemented by fresh reasons in the shape of affidavit or otherwise. Otherwise, a decision which is bad in the beginning may, by the time it comes to court on account of a challenge, get validated by additional grounds later brought out. Time and again this Board has held that decisions/actions taken during the period of cordial relationship cannot be challenged after the relationship had become sour. There is nothing on record that at any time Ms. Poonam was confronted with the alleged misutilisation of powers. It is not made clear as to how shifting of registered office has any relation to the cheques signing powers. It is to be noted that the alleged misutilisation of the cheque signing powers occurred in 2002 when the parties had cordial relationship. Since Ms. Poonam has been enjoying the powers for a very long time and she is obviously a nominee of the petitioners, striping of her powers is definitely an act of oppression against Ms. Poonam particularly and the petitioners generally.

20. In so far as call notices for unpaid amount on the shares is concerned, it is the prerogative of the company to call for the unpaid money at any time in accordance with the Articles. In the normal circumstances, no shareholder can allege oppression when the company call for the unpaid money. But in the present case, the circumstances are different. It is on record that the shares were issued as partly paid in the year 1996 and the unpaid money does not appear to have been called for at any time and as a matter of fact it did not even find as a source of funds in the scheme submitted to the BIFR. It is also on record that nearly 80% of the unpaid money is to come from the petitioners and perhaps because of the good relations then existing between the 2^nd respondent and the petitioners, not only the principal amount was not called for but even the board took a decision on 30.4.2002 not to charge any interest. The decision to call for the unpaid money was taken after the disputes started and during the pendency of the proceedings before Delhi High Court. It is a settled law that even a legal act could be oppressive. In the present case it is exactly so. When the board had decided not to charge interest in its meeting held on 30.4.2002, there is nothing on record to show that the investors grievances committee which took the decision to charge interest was aware of the earlier board resolution. Secondly, from the item No 15 of the Board minutes dated 21.10.2004, I find that the responsibility entrusted to the said committee was in relation to complaints of share transfers and non receipt of Balance sheets and allied matters. Thus whether the said committee had the power to decide on interest on unpaid money itself is doubtful as a committee has to function in accordance with the powers assigned to it by the Board.

21. In so far as the appointment of 4 additional directors is concerned, the petitioners have alleged that these appointments were made solely with a view to strengthen the hold of the 2^nd respondent on the board in which earlier there was equality of 3 directors of the petitioners and 3 directors of the 2^nd respondent. It is further alleged that without any details of these appointees being placed before the board, they were appointed by the exercise of casting vote by the 2^nd respondent. Minutes of the board meeting held on 28.10.2006 in which these appointments were made does not appear to be on record.

However from the letter dated 30.10.2006 signed by the Company Secretary and addressed to the petitioners, I find that the appointments were made with a view to strengthen the management as the IDBI had withdrawn its nominee from the board. It is also stated in that letter that during the course of the meeting, copies of bio-datas were furnished to all the directors. In the written submissions it is stated that additional directors were appointed to look after different activities of the company. Since there is controversy as to whether the three directors supporting the petitioners moved a resolution to remove the 2^nd respondent as the MD or not, I do not propose to examine this issue. It is on record that just a few days before the board meeting, one of the petitioners had sought for holding the AGM by a letter dated 25.10.2006 and since additional directors can hold office only up to the date of the next AGM, there was no need to appoint 4 additional directors. The petitioners have questioned these appointments on the ground that the same did not find a place in the agenda. If the petitioners could attempt to remove the 2^nd respondent as the MD without the same being in the agenda, then the 2^nd respondent could also appoint additional directors without the same being in the agenda.

Even though, in terms of the Kerala High Court Judgment in City Hospital case , additional directors could be appointed even without the same being in the agenda, yet, as has been pointed out by the High Court itself, the circumstances under which the appointments were made could be examined. Since the admitted position is that after the removal of the IDBI nominee, there was equality in the board which would definitely result in stalemate which would necessitate the exercise of casting vote by the 2^nd respondent. This being the case, there would have been no objection if only one additional director had been appointed. In the written submissions, it is submitted that they are appointed to look after different activities of the company. Since they were only non functional directors, the question of their looking after the activities of the company would never arise. Now that BIFR has already appointed a special director on the board, there would be no necessity to have four additional directors.

22. The petitioners have sought that this Board should direct holding of AGM of the company. The AGMs for the year 2004-2005 and 2005-2006 have not been held yet. Obviously no AGM could have been convened in view of the restraint order of Delhi High Court dated 15.12.2005 which continued up to 8.12.2006 when the AAIFR disposed of the matter. With this order of the AAIFR, there would have been no impediment in holding the AGM. However, the respondents have brought to my notice that the BIFR by a communication dated 10.1.2007 directed the company to finalise/adopt the balance sheets for two years in the AGM by the end of February, 2007 and this communication has been stayed by AAIFR by an order dated 17.1.2007 and as such this Board cannot direct holding of AGM. As far as AGMs are concerned, in terms of Section 166 of the Companies Act, every company shall have to hold a general meeting within the time prescribed by that Section. In other words, it is mandatory to hold AGM. Section 210 prescribes that at every AGM held in pursuance to Section 166, the balance sheet and profit & loss account have to be laid before the members. Therefore from these provisions it is apparent that holding of AGM in terms of Section 166 does not depend on the availability of the balance sheet and the profit & loss account.

One of the most important statutory rights of shareholders is to attend general meetings and as a matter of fact in terms of Section 167 of the Act, if a company does not hold an AGM, any member of the company could apply to this Board with a prayer to call or direct the calling of an annual general meeting. In the present case, the AAIFR has only stayed the directions of BIFR that the company should adopt the annual accounts in the AGM to. be held before the end of February. As observed earlier, holding of AGM and adoption of accounts are two different issues as besides adoption of accounts, the AGM transacts other statutory businesses, like, appointment of directors in place of retiring directors in terms of Section 255, appointment of auditors in terms of Section 224 and declaration of dividend in terms of Section 205. I find from the notice issued for the AGM convened on 15.12.2005, that two directors were retiring by rotation. In addition, Shri D.K.Jain who had been appointed as an additional director had to be confirmed as also his remunerationhad to be approved in the AGM. It is quite possible that a few more directors might have become liable for retirement by rotation thereafter. Their positions can be filled in only in the annual general meeting. Likewise, it is a statutory requirement that appointment of auditors has to be approved in the AGM.In so far as dividend is concerned, obviously the company being a sick company, no dividend appears to be declarable. Therefore, I do not find any impediment in holding the AGM for both the years to transact these statutory businesses. The respondents have alleged that the sole motive of the petitioners to seek for an AGM is to remove the 2^nd respondent as a director, which in terms of the scheme sanctioned by the BIFR, cannot be done. According to the petitioners, there is no stipulation in the scheme that the 2^nd respondent would continue to be the MD. I do not propose to enter into this controversy. No company can refuse to hold an AGM on the ground that one or more directors would be removed in the AGM, if held. Non holding of the AGM on the sole ground that he would be removed as the MD itself is highly oppressive to the shareholders at large who alone have the statutory right to appoint director/MD. I find from the shareholding pattern of the company that after allotment of shares to IDBI, the petitioners' group holds 38.18%, the 2^nd respondent group holds 16.90%, IDBI holds 43.33% and the balance 4.78% by others. Thus neither the petitioners nor the 2^nd respondent hold absolute majority. However, should, in the AGM, the petitioners succeed in getting the proposal to remove the 2^nd respondent through, he would always be at liberty to approach the BIFR if, in terms of the SS he cannot be removed as the MD. The respondents have contended that since the matter of allotment of shares of Rs. 23 crores to IDBI is under challenge before the Supreme Court, no AGM could be held till the determination of the said issue. I find from the judgment of Delhi High Court that it has upheld the allotment of shares to IDBI and that decision will prevail since no order of stay of that judgment has been passed by the Supreme Court.

(1) Ms. Poonam will continue to have the cheques signing powers as per the earlier practice.

(2) The four additional directors shall not participate in any Board meeting till their appointments are confirmed in the AGM. (3) The issue relating to charging of interest on the unpaid amount shall be again placed before the board with the participation of the special director appointed by BIFR and the decision taken thereat shall be binding on the company and the petitioners.

(4) On or before 25^th February, 2007, the board of the company will hold a Board meeting to convene, not later than 31^st March, 2007, general meetings of the company for the years ended 25^th March, 2005 and 31^st March, 2006 successively on the same day, to transact all statutory businesses except adoption of accounts. The two AGMs will be convened with a gap of two hours.

(5) Once the AGMs are convened, if the petitioners desire to have an independent Chairman to chair these meetings, they are at liberty to apply to this Board.