| SooperKanoon Citation | sooperkanoon.com/48206 |
| Court | Company Law Board CLB |
| Decided On | Nov-20-2007 |
| Judge | V Yadav |
| Appellant | Shri Jiwan Mehta |
| Respondent | Emmbros Forging (P) Ltd. and ors. |
Excerpt:
1. in this order i am considering company petition no. 60 of 2004 filed by sh. jiwan mehta (the petitioner) under sections 397 and 398 of the companies act, 1956 (hereinafter referred to as the "act") against emmbros forging (p) ltd. & others (respondents) alleging illegal consolidation of shareholding and removal as director praying that (i) this hon'ble board declare that the funds were illegally utilized by r-2,3 &. 4 and in contravention to the provision of the law (ii) restore the shareholding in the respondent company, as it existed prior to transfers made in the year 2000, as reflected in the annual return filed on 30.9.2000 in alternate the shareholding of the outgoing shareholders be offered in equal ratio proportion to the continuing shareholder; (iii) declare the documents filed with the state bank of india for availing the various credit facilities as null and void, in so far the bank has released funds without proper authorization/mandate from the respondent company; (iv) direct respondent nos. 2, 3 & 4 to restore the funds and render the account of financial affairs of the respondent company; (v) order the cost of the petition to be paid by respondent nos. 2, 3 & 4 to the petitioner; (vi) pass such other orders under section 402 of the act to prevent oppression and mismanagement of respondent company and further order(s) including punitive damages as this hon'ble bench may deem fit and proper in the nature and circumstances of the case.2. the undisputed facts of the case are: emmbros forging (p) ltd. and ors., (r-1) was incorporated on. 15^th december 1994 having its registered office at sco-60 1st floor, madhya marg, sector-26, chandigarh. the present authorized share capital of the respondent company is rs. 45,00,000/- divided into 4,50,000/- equity shares of rs. 10/- each and -its present issued, subscribed and paid up capital is rs. 44,00,000 divided into 4,40,000 fully paid up equity shares of rs. 10/- each. the main objects of the company are (a) to manufacture, buy, sell exchange, import, export and deal in iron and steel, forging, nuts, bolts, fitting and to do business of miners, melters, forgers, foundry, casting and plantings, (b) to manufacture, buy, sell exchange, import, export and deal in electric and electronic components goods, equipments, accessories, systems, spares & appliance for household, industrial, educational, agricultural, medical, defence and other appliances, metals and metallic sheets, wires, cables, ferrous and non ferrous sheets, brass sheets, hardware, auto parts, chemicals tools and instruments and to work as engineers.3. the family of mr. t.d. mehta consisted inter alia, six sons, namely mr. jiwan mehta, mr. mohinder mehta, mr. ramesh mehta, mr. raj mehta, mr. harish mehta and mr. ashok mehta. mr. t.d. mehta had set up three companies where all the brothers had cross holdings, besides the holdings of their father, sh. t.d. mehta. each company was managed by two set of brothers as follows:emmbros wires & strips ltd. mr. jiwan mehta & mr. ramesh mehtaemmbros forgings p. ltd. mr. raj mehta and mr. mohinder mehtaemmbros metals p. ltd. mr. harish mehta and mr. ashok mehta after the demise of mr. t.d. mehta on 25.06.1996, during early august, 1997, all the brothers arrived at an oral understanding and, inter-alia, agreed to be independent and fully own/run the companies managed by them and also to remove the cross shareholdings over a period of time accordingly, the shares held by mr. t.d. mehta in all the three companies were transmitted amongst the brothers in the proportion that each, brother managing the particular company got the higher shares of that company. consequently, in 2000, four brothers, namely, raj mehta, mohinder mehta, harish mehta and ashok mehta swapped their shareholdings and removed the cross holdings in the companies managed by them. also during 2001, ramesh mehta who was managing the ewsl with the petitioner swapped the cross holdings. thus, all brothers swapped shares but only the petitioner did not swap the shareholding.the petitioner made a disproportionate allotment in the company owned by him on 18.8.1997 (immediately after oral understanding), emmbros wires & strips ltd. this was not objected to by any of the other brothers as it was as clearly agreed between them. mr. jiwan mehta was not the subscriber-director of the company as per the memorandum & articles of association of the company. he was inducted on the board of the company on 22.6.1995, i.e., after about 4 years of the incorporation of the company. on 7.10.2001, all the brothers entered into a written agreement (mou) understanding to incorporate the oral understanding already existing between them, as per clause viii of the memorandum of understanding (hereinafter referred to as "mou") which reads as under: that the oral agreement mutually agreed between all the brothers has been rendered in writing to avoid any disputes or differences in the future.as per this mou, subject to the other terms and conditions contained therein, all the brothers agreed to swap their cross-shareholdings in the three companies so that each company shall exclusively belong to each two set of brothers as set out in the table above. all the brothers, except the petitioner swapped the shareholdings, the swapping of the shares was to be done and no valuation was fixed for the shares.4. shri p. nagesh counsel for the respondents raised preliminary objections on the maintainability of the petition and pointed out that the petitioner has not come to the court with clean hands, he has not disclosed the execution of mqu dated 07/10/2001 wherein the shares held by each of the brothers in the company, which were under their exclusive control, were agreed to be transferred to the other brothers who were exclusively looking after the said companies. in the said agreement the petitioner agreed to swap the shares without consideration as per the mou with his other brothers. the petitioner has not swapped the shares and is holding the shares of the respondent company deliberately and has filed this petition which is without any merit. reliance was placed on the case of sangram singh p. gaekwad v.shantadevi p. gaekwaed 197.... the court may also refuse to grant relief where the petitioner does not come to court with clean hands which may lead to a conclusion that the harm inflicted upon him was not unfair and that the relief granted should be restricted.further, reliance was placed on the case of arun mehra and anr. v.durga builders pvt. ltd. and ors. 2006 (5) comp law journal 575 in para 10 which reads as under: the court, therefore, exercising equity jurisdiction cannot ignore the well known maxims of equity. two such maxims are that he who seeks equity must do equity and he who comes into equity must come with clean hands.it was reiterated that suppression of any fact is material and the petitioner has not come with clean hands by suppressing the fact about the mou dated 07/10/2001.5. next preliminary objection pertains to delay and latches in filing this petition. it was pointed out that the petition is also liable to be dismissed on the ground of delay and latches. the petitioner signed the mou on 07/10/2001. the petitioner was aware of the transfer of the shares on 27/8/2001. even assuming that he did not attend the board meetings in the previous months, the registrar of company in his letter dated 27.08.2001 enclosed the proceedings of the meeting dated 27/07/2000, 23/08/2000, 27/10/2000, 30/11/2000, 30/12/2000 and 27/01/2001. this letter was sent at both the addressees of the petitioner. the petitioner, therefore, has knowledge of the transfer of the shares and his removal as the director of the company. the petitioner has not challenged the said meetings or his removal immediately. the petition was filed on 24/08/2004 after the respondent company was achieving good turn over between 2000-2004.6. further, raising another preliminary objection, it was argued that the petitioner has acquiesced in the swapping and transfer of shares between the brothers in the respondent company and is therefore stopped in law from challenging the transfer of shares. the petitioner was aware of the transfer of the shares on 27/08/2001. even assuming that he did not attend the board meetings in the previous months. the registrar of company in his letter dated 27/08/2001 enclosed the proceedings of the meetings dated 27/07/2000, 23/08/2000, 27/10/2000, 31/11/2000; 30.12.2000 and 27/01/2001. this letter was sent at both the addresses of the petitioner. the petitioner, therefore, had knowledge of the transfer of the shares and his removal as the director of the company. further, it was pointed out that the petitioner himself has admitted that he has withdrawn from the affairs of respondent company.in para 12 of the petition he mentions that he had left the respondent company owing to serious differences between the petitioner and respondent. having shown no interest in the affairs of the respondent company, the petitioner cannot obviously have any knowledge of the affairs of the respondent company to file the present petition it was contended that the supreme court in several cases has held that the acts complained of must be continuous till the date of filing of the petition. it should be a continuous act till the date of filing of the petition. further, my attention was drawn to para 198 in the case of sangram singh p. garkwas v. shantadevi p. gaekwas in which reads as under: 198.... furthermore, when the petitioners have consented to and even benefited from the company being run in a way which would normally be regarded as unfairly prejudicial to their interests or they might have shown no interest in pursuing the legitimate interest in being involved in the company.7. further, it was argued that the petitioner has not sought any relief against his removal as director from the company. only a bald allegation is made against his removal but no relief has been claimed in the petition. in the absence of claiming any relief against the removal, the petitioner is estopped in law to pray for the said relief.the registrar of company in his letter dated 27/08/2001 enclosed the proceedings of the meetings dated 27/07/2000, 23/08/2000, 27/10/2000, 30/11/2000, 30/12/2000 and 27/01/2001. this letter was sent at both the addressees of the petitioner. the petitioner, therefore, has knowledge of his removal as the director of the company.8. shri p. nagesh counsel for the respondents argued that transfer of shares not in violation of articles of association, no sale of shares has taken place for invoking article 8, hence, article 7 and article 8 would not be applicable to the said transfer. the transfer of the shares was done in terms of the understanding, which finally culminated in the memorandum of understanding dated 07/10/2001. further as per the proceedings of the meeting of the board of directors held on 27/07/2000, 27/01/2001, the petitioner was director of the company when the transfer took place on 27/07/2000 and he was aware of the said transfer when the minutes of the proceedings of the meeting dated 27/07/2000, 17/10/2000, 30/11/2000, 31/12/2000 and 27/01/2001 were forwarded by registrar of companies to the petitioner on 27/08/2001.the petitioner despite the knowledge of the transfer gave no reply. the transfer was within the knowledge of the petitioner who acquiesced the transfer by singing the mou. the respondents no. 2 & 3 in due recognition to the agreement reached between the parties even swapped the shares in embross metal which was a cash rich company as compared to the respondent company which was debt ridden at that point of time.however, in the interest the understanding and the mou respondent nos.2 & 3 without any protest or complaint transferred their shares in embross metal to give affect the mou dated 07/10/2001.9. further, it was pointed out that the petitioner ceased to be director of the respondent company on 27/01/2001 and he has been alleging that the said signature of the petitioner has been forged in the annual return for the year 2000-2001. he does not reveal who has forged his signatures nor has claimed that any of the respondents have forged the signatures. in the absence of any specific allegation, this company law board cannot adjudicate on such allegations which require trial. issues of forgery cannot be decided by the company law board in summary proceedings under section 397 and 398 of the companies act, 1956 as held by the clb and the hon'ble supreme court in a number of judgments. my attention was drawn to the case of ansar khan v. fincore cables (petitioner) ltd. 2007 (2) companies act, 1956 lj 298 at page 319 it has been held by the company law board as under: the dispute involve substantial rights of the parties and where the allegations are forgery and fabrication of records, which could not be resolved by oral testimony tested by cross-examination of witnesses, cannot be resolved on the strength of the averments made in the affidavits filed by the parties, defeating the purpose and object of the summary procedure prescribed by section 397 and 398. however, the complicated question of facts and serious controversies involved in the present petition necessitate a regular investigation and therefore the contentious issues regarding the genuineness of purchase of shares by the petitioners or the respondents 2 & 3 cannot be decided in a summary jurisdiction by this board at this stage, but such controversies can be tested and adjudicated upon only by a civil court whose jurisdiction is not barred in the light of the decision in cds financial services (mauritius) ltd. v. bpl communications ltd. and ors. (2005) 10 comp cas 127 (bom.).10. as regard falsification of records of company furnishing false stock statement to the bank and selling the assets of the company, it was contended that no particulars have been given in respect of allegations made by the petitioner with regard to falsification of records of company, furnishing false stock statement to the bank and selling the assets of the company. only vague and bald allegations have been made. it is a well-settled position of law the petition will have to disclose each and every aspect of the allegations made and cannot be vague. and also no particulars have been given with regard to misappropriation of funds & misuses of assets, only vague and bald allegations have been made and in terms of the well settled position of law the petition will have to disclose each and every aspect of the allegations made and cannot be vague. on the other hand the profits of the company have gone up under the respondents. the supreme court in omar salay mohamed sait v. cit (1959) 37 itr 151 (sc) and dhirajlal v.cit (1954) 26 itr 736 (sc) has observed that the tribunal should not base its findings on suspicion, surmises or conjectures and it should not act on no evidence.11. sh. p. nagesh counsel for the respondents reiterated that the petitioner was removed as director of the company as he has failed to attend three consecutive board meetings. he was aware of the said transfer when the minutes of the proceedings of the meeting dated 27.7.2000, 23.8.2000, 17.10.2000, 30.11.2000, 30.12.2000 and 27.1.2001 were forward by roc on 27.8.2001. no reply was given by the petitioner despite the knowledge of his removal. he has not challenged his removal in any forum including company law board. under article 23 of the articles of association, board of directors shall have powers from time to time to appoint any other person or persons to be additional directors, such additional directors shall hold office so long as the board of directors considers fit. accordingly, the wives of r-2 & 3 were appointed as director. further, after the mou dated 7.10.2001, respondent company came into the exclusive control of r-2 & 3. no shares have been allotted in the name of their respective wives as alleged by the petitioner. the annual return filed by the respondents proves the said point.12. further, it was pointed out that the petitioner has not participated in the affairs of the company as admitted by him so he does not know whether any meetings were held. as mentioned in the reply even the registrar of companies has forwarded the minutes of the company to the petitioner by its letter dated 27.2.2001 acknowledging the holding of meetings by the respondent company. the petitioner is guilty of not honouring the mou dated 7.10.2001. all the brothers have transferred their respective shares except the petitioner in the respondent company. the petitioner is guilty of misappropriation. the petitioner has withdrawn his guarantee to the respondent company and for which mr. raj mehta and mr. mohinder mehta substituted. emmbros wires and strips is a company controlled by the petitioner, which had several cases before the debt recovery tribunal. the factory has been sold to pay of the debts. admittedly, the respondents contributed equally to discharge the debts.13. furthermore, it was argued that the petitioner has handed over a copy of the writ petition being 3765 of 2004 filed by the petitioner himself before the high court punjab and chandigarh wherein an application was filed under order 1 rule 8a by all the other brothers.the averments made in the said application are being wrongly mentioned by the petitioner. the petitioner alleged that respondents have reiterated that the family settlement dated 7.10.2001 has not been acted upon. firstly this document was not filed alongwith petition nor with the rejoinder by the petitioner. however, it is submitted that the respondents have not made such a statement. the averments made in the said petition by the respondents and other brothers is being quoted out of context and in the said application the respondents and other brothers have clearly stated that the family settlement dated 7.10.2001 has been kept in abeyance only on account of non fulfilment of petitioner of his part by way of payment of various amount and also on account of his non fulfilment of other obligations. it has been kept in abeyance only in respect of the obligations of the petitioner and not for anything else. the shares have been transferred, the guarantees have been replaced in terms of the mou. even in the said application the respondents have made it clear that the petitioner has deliberately concealed and not placed the family settlement. as far as all other aspects of the family settlement relating to the transfer of shares they have been complied with the respondents. the said allegation that the family settlement is not being recognized by any other brother is therefore incorrect. on the one hand, the petitioner seeks shelter in the mou by stating that the house no. 939, sector-8, panchkula, chandigarh should not be attached on the ground that this is the only dwelling house for him. at the same time, he wants to deny the mou when it comes to the understanding reached between all the other brothers in respect of the shares and other aspect mentioned in the mou. the petitioner cannot approbate and reprobate at the same time. further, it was pointed out that the petitioner has wrongly impleaded r-4 in the petition who is neither a director nor a shareholder in the respondent company. the petitioner has not rebutted this in the rejoinder.14. sh. rohit choudhary, counsel for the petitioner argued that the respondent company was incorporated as a 'private limited company' and the said respondent company was a family company, wherein the entire shareholding was held in manner, as set out in para 8(iii) of the petition. as per the shareholding in the six brothers including the petitioner, held the shareholding in equal proportion with each of the brother holding 15.36% (presently 16.66% after the demise of smt. devi rani mother in the year 2007, who was holding 7.84% shares in the respondent company, divided equally between all six brothers) of the total paid up capital of the respondent company and the said shareholding pattern is duly admitted by the respondents in their reply. the petitioner was the promoter director" of the company as per the memorandum and articles of association and was managing the affairs of the company along with respondent no. 4 till the respondent nos. 2 to 4 in collusion with the other shareholders, except for the petitioner swapped their shareholding in the respondent company on 27.07.2000 and thus consolidated their holding in the respondent company. subsequently, they removed the petitioner as a director in the company in the board meeting dated 27.01.2001. no notices were served to the petitioner for the any of the board meetings.15. replying to the respondents' contention that there was an oral agreement between the brothers to control and own their respective companies and thereafter the same was reduced to writing by way of mou dated 7^th october, 2001, it was argued that the said submission made by the respondents is false submission and without any basis for the reasons, firstly, had there been any oral understanding by way of which the respondent company was to be only belong to respondent nos. 2 and 3 and the petitioner was to run the other company, namely, emmbros wires and strips limited (ewsl), then where was the question of respondent's issuing a public notice dated august, 2001 wherein the respondent no. 4 has specifically stated that petitioner has no right to deal with ewsl clearly this demonstrates that the respondent's contention that there was any oral settlement is without any basis. secondly, the transfers by way of swapping of the shares between the respondent directors/other shareholders, which are duly admitted to by respondents in their reply, were made on 02/06/2000 and 27/07/2000 which is prior to the mou dated 07/10/2001 and accordingly the respondent had no right whatsoever to reduce the petitioner to minority. thirdly, all the respondents along with other brothers themselves filed an application in the year 2003-2004 (before filing of this petition) before the hon'ble high court of punjab and haryana, wherein the respondents alongwith other brothers have a made the following categorical statement with regard to the alleged mou: 7 that jiwan mehta petitioner has concealed the fact that though a family settlement was entered into according to which, subject to his fulfillment of other conditions mentioned therein, the said house was to fall to his individual independent share, yet the said family settlement remained in abeyance on account of non-fulfillment by jiwan mehta of his part in the said settlement by way of payment of various amounts to the present applicants and also on account of his non-fulfillment of other obligations. jiwan mehta has, therefore, deliberately concealed and not placed on record the family settlement entered into. a copy of the same is attached herewith as annexure-a with this application. it is reiterated that this family settlement was not acted upon and house no. 939 sector 8, panchukula continues to be in the ownership of jiwan mehta and ashok mehta who are owners in equal shares of the said house.consequently, the hon'ble high court ordered vide order dated 18.03.2004 that all six brothers including respondents, pursuant to their undertaking, to pay their respective shares in settling the liabilities of emmbros wires & strips. the acceptance of the above order shows the contentions of the respondents in not acting upon the mou in the year 2004 itself thus nullifying the same. the above said averment made by the respondent and other brothers of the petitioner clearly demonstrates that the said mou was never acted upon by them and as such there arise no question of the respondents 2 and 3 coming into control of the respondent company. fourthly, it was argued that the respondent no. 4 filed a suit before the court of ld. civil judge, panchkula, seeking partition of house no. 939 sector 8, panchkula after the date of mou and before filing of this petition. as per the terms of the mou, the said hduse was to solely belong to the petitioner.additionally, in a statement made on 13.10.2006 infront of the civil judge by respondent no. 4, it was admitted by him that he is unaware of the mou and its terms and conditions. that being so, it does not lie in the mouth of the respondents to contend that the mou was acted upon or anything pursuant to mou has happened and the said mou is of no consequences whatsoever. it was pointed out that the mou has not been executed and remains unfulfilled to the extent that the various properties have been sold in averment to the terms listed therein.fifthly, it was contended that it is settled legal position and as upheld by this hon'ble board in catena of cases that such mou cannot restrict the rights of a shareholder to approach this hon'ble board under the provisions of sections 397/398 of the companies act. the scope of section 397,398 is completely different from that of the family settlement as in the former, it is the right of the petitioner as a shareholder and the internal affairs of the company which is in issue, whereas, family settlement deals with the rights of various members of the family in diverse properties of the family including the company.16. further, drawing my attention to the illegal consolidation of shareholding, it was pointed out that the copy of annual return of 29/09/2000 filed by the respondent company shows the transfer of the shares by the respondent between themselves alongwith other shareholders/brothers on 02/06.2000 and 27/07/2000 reducing the petitioner to minority, which is again prior to the mou dated 07/10/2001. additionally all the board meetings held on 27/07/2000, 23/08/2000, 17/10/2000, 30/11/2000, 30/12/2000 & 27/01/2001, out of which some are the ones in which the transfers had taken place aria in which the petitioner was removed as a director were presided by respondent no. 4 (director in the respondent company in the year 2000), who is also a director in other group company emmbros metals and a respondent in the case of jiwan mehta (petitioner) v. emmbros metals in c.p 82 of 2004, which once again refutes the alleged oral agreement between the brothers as claimed by the respondents in their reply, firstly, had there been any oral understanding, by way of which the respondent company was to only belong to respondent nos. 2 and 3 then where is the question of respondent no. 4 presiding the meetings of the respondent company for overseeing the share transfers/swap between shareholders/directors of respondent company & emmbros metals and removal of the petitioner of the company. secondly, it was pointed out that respondent no. 3 was appointed as a director in the respondent company only on 07/07/2000 prior to which the company was being managed by petitioner alongwith respondents no. 2 & 4. it was argued that the collusion between directors/shareholders of both the companies - emmbros forgings (respondent company) and emmbros metals of c.p 82 of 2004, to increase and consolidate their respective shareholdings in the two group companies and then ousting the petitioner after gaining majority in both of the companies is obvious. the respondent's have no right whatsoever to change the nature and character of the respondent company or to increase their shareholding to the detriment of the petitioner and reducing the petitioner to minority, the petitioner being an equal shareholder in the respondent company, which was being run and managed in the nature of 'partnership' with all six brothers holding equal shareholding therein. the respondents have swapped their shareholding in the respondent company by transferring their shareholding in other family owned company, namely, emmbros metals ltd. only with a view to disturb the petitioner whose signatures were forged by the respondent. my attention was drawn to the report from national institute of forensic science, giving a finding that the signatures on the said annual return are not of the petitioner. further, without prejudice to the arguments on merits, the petitioner stated that this hon'ble board may pass orders under provisions of section 402(b) of the act and the petitioner is willing to sell his entire shareholding to the tune of 16.66% as per valuation of said shareholding under the orders of this hon'ble board.17. considering the pleadings and the documents filed therewith as well as the arguments in this case, i find that the petitioners have not been able to refute the preliminary objections raised by the respondents on the maintainability of the petition. the preliminary objections raised are tenable in the background of the facts and circumstances of this case. it is true that as on date neither the petitioner nor the respondents want to rely on the oral agreement mutually agreed between all the brothers in may 2000 and later reduced to writing on 7.10.200] apparently to avoid disputes. in the mou it has been specifically agreed that each set of two brothers will manage a company and will swap their cross holdings in the three companies so that each company shall exclusively belong to each two set of brothers.it is also true that the allotments, swapping etc. (except by the petitioner) were made pursuant to the oral understanding as early as on 27.7.2000. the petitioner's contention that the scope of section 397, 398 is completely different from that of the family settlement as in the former, it is the right of the petitioner as a shareholder and the internal affairs of the company which is in issue, whereas, family settlement deals with the rights of various members of the family in diverse properties of the family including the company is correct but the respondents have successfully demonstrated that the swapping of the shares was with the full knowledge, consent and acquiescence of the petitioner. the petitioner has deliberately concealed the mou from the company law board. the respondents' allegation that the mou was concealed from the hon'ble punjab and haryana high court deliberately not placing the family settlement entered into on record and, in fact, the mou had to be kept in abeyance due to the non fulfillment of the obligations and non-swapping of shares by the petitioner which is a part of the record with the higher court is also true. the petitioner's contention that the mou was never acted upon is also incorrect. the respondents' allegation that the petitioner has not come with clean hands had turned out to be true. the petitioner is allegedly guilty of misappropriation. the petitioner has withdrawn his guarantee to the respondent company and for which mr. raj mehta and mr. mohinder mehta substituted. emmbros wires and strips is a company controlled by the petitioner, which had several cases before the debt recovery tribunal.the factory has been sold to pay of the debts. the respondent contributed equally to discharge the debts.18. it has been repeatedly emphasized in several decisions that family settlements are governed by a special equity and are to be enforced if honestly made. the terms may have been agreed to on the basis of an error of the parties or originate in a mistake or ignorance of fact as to what the rights of the-parties actually are, or of the points on which their rights actually depend. this is because the object of an arrangement is to protect the family from long drawn out litigation, and to bring about harmony an goodwill in the family. the court leans heavily in favour of family arrangements. further, i agree that it is a settled proposition of law that the conduct of the parties is a very relevant factor to be considered in the equitable proceedings under sections 397/398. in sri kama datta narasimharaja wadiyar v.venkateshwar real estates private ltd. (1991) 3 comp. lj 336 (karn) (1991)72 comp cas 211 (karn), it was held that the petitioner seeking equitable relief must come with clean hands and good conduct, failing which the petitioner would constitute a gross abuse of the process of court, and the petitioner is not entitled for any relief under sections 397 and 398. regarding the principle of equity in shrimati abnash kaur v. lord krishna sugar mills ltd. 44 cc 390 the division bench of delhi high court has held that while exercising equity jurisdiction, which clothes the court with discretionary powers "...the discretion cannot be exercised arbitrarily or according to one's own will or whim. it has to be regulated by law, allay its rigour advance the remedy and to relieve against abuse. the court, therefore, exercising equity jurisdiction, cannot ignore the well known maxims of equity. two such maxims are that he who seeks equity must do equity and he who comes into equity must come with clean hands." the petitioner has not come with clean hands. this petition deserves to be dismissed on this ground alone. furthermore, the petition suffers from delay and laches.swapping of share was done on 27.7.2000. his vacation of office from director under section 283(1)(g) was also as early as on 27.1.2001 the petitioner had reached the registrar of companies office for inspection of records on 8.5.2000 but the petition has been filed only on 31.8.2004. there has been considerable delay in making this petition.even if the provisions of the limitation act are not applicable to the proceedings before the company law board yet there is an abnormal delay in bringing the matter before the company law board and on this ground alone, the petition should be dismissed. further, there is no plea for condoning the delay and laches on the part of the petitioners in initiating proceedings before the company law board. besides, the allotments, swapping, vacation of office was with the full knowledge, consent/acquiescence of the petitioner who cannot challenge past and concluded transactions. the principles of estoppel, wavier and acquiescence also apply in this case. further, it is noted that the petitioner has made an allegation regarding his removal as director but his prayers in the petition do not include any prayer seeking his restoration as director in the respondent company.19. in view of the foregoing, the petition is not maintainable i find no justification to consider the arguments on merits. the petition is hereby dismissed. all interim orders stand vacated. all cas stand disposed of. no order as to cost.
Judgment: 1. In this order I am considering Company Petition No. 60 of 2004 filed by Sh. Jiwan Mehta (the petitioner) under Sections 397 and 398 of the Companies Act, 1956 (hereinafter referred to as the "Act") against Emmbros Forging (P) Ltd. & others (Respondents) alleging illegal consolidation of shareholding and removal as director praying that (i) this Hon'ble Board declare that the funds were illegally utilized by R-2,3 &. 4 and in contravention to the provision of the law (ii) restore the shareholding in the Respondent Company, as it existed prior to transfers made in the year 2000, as reflected in the annual return filed on 30.9.2000 in alternate the shareholding of the outgoing shareholders be offered in equal ratio proportion to the continuing shareholder; (iii) declare the documents filed with the State Bank of India for availing the various credit facilities as null and void, in so far the bank has released funds without proper authorization/mandate from the respondent company; (iv) direct respondent Nos. 2, 3 & 4 to restore the funds and render the account of financial affairs of the respondent company; (v) order the cost of the petition to be paid by Respondent Nos. 2, 3 & 4 to the petitioner; (vi) pass such other orders under Section 402 of the Act to prevent oppression and mismanagement of Respondent Company and further order(s) including punitive damages as this Hon'ble Bench may deem fit and proper in the nature and circumstances of the case.
2. The undisputed facts of the case are: Emmbros Forging (P) Ltd. and Ors., (R-1) was incorporated on. 15^th December 1994 having its registered office at SCO-60 1st Floor, Madhya Marg, Sector-26, Chandigarh. The present authorized share capital of the Respondent Company is Rs. 45,00,000/- divided into 4,50,000/- equity shares of Rs. 10/- each and -its present issued, subscribed and paid up capital is Rs. 44,00,000 divided into 4,40,000 fully paid up equity shares of Rs. 10/- each. The main objects of the company are (a) to manufacture, buy, sell exchange, import, export and deal in iron and steel, forging, nuts, bolts, fitting and to do business of miners, melters, forgers, foundry, casting and plantings, (b) to manufacture, buy, sell exchange, import, export and deal in electric and electronic components goods, equipments, accessories, systems, spares & appliance for household, industrial, educational, agricultural, medical, defence and other appliances, metals and metallic sheets, wires, cables, ferrous and non ferrous sheets, brass sheets, hardware, auto parts, chemicals tools and instruments and to work as engineers.
3. The family of Mr. T.D. Mehta consisted inter alia, six sons, namely Mr. Jiwan Mehta, Mr. Mohinder Mehta, Mr. Ramesh Mehta, Mr. Raj Mehta, Mr. Harish Mehta and Mr. Ashok Mehta. Mr. T.D. Mehta had set up three companies where all the brothers had cross holdings, besides the holdings of their father, Sh. T.D. Mehta. Each company was managed by two set of brothers as follows:Emmbros Wires & Strips Ltd. Mr. Jiwan Mehta & Mr. Ramesh MehtaEmmbros Forgings P. Ltd. Mr. Raj Mehta and Mr. Mohinder MehtaEmmbros Metals P. Ltd. Mr. Harish Mehta and Mr. Ashok Mehta After the demise of Mr. T.D. Mehta on 25.06.1996, during early August, 1997, all the brothers arrived at an oral understanding and, inter-alia, agreed to be independent and fully own/run the companies managed by them and also to remove the cross shareholdings over a period of time Accordingly, the shares held by Mr. T.D. Mehta in all the three companies were transmitted amongst the brothers in the proportion that each, brother managing the particular company got the higher shares of that company. Consequently, in 2000, four brothers, namely, Raj Mehta, Mohinder Mehta, Harish Mehta and Ashok Mehta swapped their shareholdings and removed the cross holdings in the companies managed by them. Also during 2001, Ramesh Mehta who was managing the EWSL with the Petitioner swapped the cross holdings. Thus, all brothers swapped shares but only the Petitioner did not swap the shareholding.
The Petitioner made a disproportionate allotment in the company owned by him on 18.8.1997 (immediately after oral understanding), Emmbros Wires & Strips Ltd. This was not objected to by any of the other brothers as it was as clearly agreed between them. Mr. Jiwan Mehta was not the subscriber-director of the Company as per the Memorandum & Articles of Association of the Company. He was inducted on the Board of the Company on 22.6.1995, i.e., after about 4 years of the incorporation of the Company. On 7.10.2001, all the brothers entered into a written agreement (MOU) understanding to incorporate the oral understanding already existing between them, as per Clause VIII of the Memorandum of Understanding (hereinafter referred to as "MOU") which reads as under: That the oral agreement mutually agreed between all the brothers has been rendered in writing to avoid any disputes or differences in the future.
As per this MOU, subject to the other terms and conditions contained therein, all the brothers agreed to swap their cross-shareholdings in the three companies so that each company shall exclusively belong to each two set of brothers as set out in the table above. All the brothers, except the Petitioner swapped the shareholdings, The swapping of the shares was to be done and no valuation was fixed for the shares.
4. Shri P. Nagesh counsel for the respondents raised preliminary objections on the maintainability of the petition and pointed out that the petitioner has not come to the Court with clean hands, he has not disclosed the execution of MQU dated 07/10/2001 wherein the shares held by each of the brothers in the company, which were under their exclusive control, were agreed to be transferred to the other brothers who were exclusively looking after the said companies. In the said agreement the petitioner agreed to swap the shares without consideration as per the MOU with his other brothers. The petitioner has not swapped the shares and is holding the shares of the respondent company deliberately and has filed this petition which is without any merit. Reliance was placed on the case of Sangram Singh P. Gaekwad v.Shantadevi P. Gaekwaed 197.... The court may also refuse to grant relief where the petitioner does not come to court with clean hands which may lead to a conclusion that the harm inflicted upon him was not unfair and that the relief granted should be restricted.
Further, reliance was placed on the case of Arun Mehra and Anr. v.Durga Builders Pvt. Ltd. and Ors. 2006 (5) Comp Law Journal 575 in para 10 which reads as under: The court, therefore, exercising equity jurisdiction cannot ignore the well known maxims of equity. Two such maxims are that he who seeks equity must do equity and he who comes into equity must come with clean hands.
It was reiterated that suppression of any fact is material and the petitioner has not come with clean hands by suppressing the fact about the MOU dated 07/10/2001.
5. Next preliminary objection pertains to delay and latches in filing this petition. It was pointed out that the petition is also liable to be dismissed on the ground of delay and latches. The petitioner signed the MOU on 07/10/2001. The petitioner was aware of the transfer of the shares on 27/8/2001. Even assuming that he did not attend the Board Meetings in the previous months, the Registrar of Company in his letter dated 27.08.2001 enclosed the proceedings of the meeting dated 27/07/2000, 23/08/2000, 27/10/2000, 30/11/2000, 30/12/2000 and 27/01/2001. This letter was sent at both the addressees of the Petitioner. The petitioner, therefore, has knowledge of the transfer of the shares and his removal as the Director of the company. The petitioner has not challenged the said meetings or his removal immediately. The petition was filed on 24/08/2004 after the respondent company was achieving good turn over between 2000-2004.
6. Further, raising another preliminary objection, it was argued that the petitioner has acquiesced in the swapping and transfer of shares between the brothers in the respondent company and is therefore stopped in law from challenging the transfer of shares. The petitioner was aware of the transfer of the shares on 27/08/2001. Even assuming that he did not attend the Board Meetings in the previous months. The Registrar of Company in his letter dated 27/08/2001 enclosed the proceedings of the meetings dated 27/07/2000, 23/08/2000, 27/10/2000, 31/11/2000; 30.12.2000 and 27/01/2001. This letter was sent at both the addresses of the petitioner. The petitioner, therefore, had knowledge of the transfer of the shares and his removal as the Director of the company. Further, it was pointed out that the petitioner himself has admitted that he has withdrawn from the affairs of respondent company.
In para 12 of the petition he mentions that he had left the respondent company owing to serious differences between the petitioner and respondent. Having shown no interest in the affairs of the respondent company, the petitioner cannot obviously have any knowledge of the affairs of the Respondent Company to file the present petition It was contended that the Supreme Court in several cases has held that the acts complained of must be continuous till the date of filing of the petition. It should be a continuous act till the date of filing of the petition. Further, my attention was drawn to para 198 in the case of Sangram singh P. Garkwas v. Shantadevi P. Gaekwas in which reads as under: 198.... Furthermore, when the petitioners have consented to and even benefited from the company being run in a way which would normally be regarded as unfairly prejudicial to their interests or they might have shown no interest in pursuing the legitimate interest in being involved in the company.
7. Further, it was argued that the petitioner has not sought any relief against his removal as Director from the company. Only a bald allegation is made against his removal but no relief has been claimed in the petition. In the absence of claiming any relief against the removal, the petitioner is estopped in law to pray for the said relief.
The Registrar of Company in his letter dated 27/08/2001 enclosed the proceedings of the meetings dated 27/07/2000, 23/08/2000, 27/10/2000, 30/11/2000, 30/12/2000 and 27/01/2001. This letter was sent at both the addressees of the petitioner. The petitioner, therefore, has knowledge of his removal as the Director of the company.
8. Shri P. Nagesh Counsel for the respondents argued that transfer of shares not in violation of articles of association, no sale of shares has taken place for invoking Article 8, Hence, Article 7 and Article 8 would not be applicable to the said transfer. The transfer of the shares was done in terms of the understanding, which finally culminated in the Memorandum of Understanding dated 07/10/2001. Further as per the proceedings of the meeting of the Board of Directors held on 27/07/2000, 27/01/2001, the petitioner was director of the company when the transfer took place on 27/07/2000 and he was aware of the said transfer when the minutes of the proceedings of the meeting dated 27/07/2000, 17/10/2000, 30/11/2000, 31/12/2000 and 27/01/2001 were forwarded by Registrar of Companies to the petitioner on 27/08/2001.
The petitioner despite the knowledge of the transfer gave no reply. The transfer was within the knowledge of the petitioner who acquiesced the transfer by singing the MOU. The respondents No. 2 & 3 in due recognition to the Agreement reached between the parties even swapped the shares in Embross Metal which was a cash rich company as compared to the respondent company which was debt ridden at that point of time.
However, in the interest the Understanding and the MOU respondent Nos.
2 & 3 without any protest or complaint transferred their shares in Embross Metal to give affect the MOU dated 07/10/2001.
9. Further, it was pointed out that the petitioner ceased to be director of the respondent company on 27/01/2001 and he has been alleging that the said signature of the petitioner has been forged in the annual return for the year 2000-2001. He does not reveal who has forged his signatures nor has claimed that any of the respondents have forged the signatures. In the absence of any specific allegation, this Company Law Board cannot adjudicate on such allegations which require trial. Issues of forgery cannot be decided by the Company Law Board in summary proceedings under Section 397 and 398 of the companies Act, 1956 as held by the CLB and the Hon'ble Supreme Court in a number of judgments. My attention was drawn to the case of Ansar Khan v. Fincore Cables (petitioner) Ltd. 2007 (2) Companies Act, 1956 LJ 298 at page 319 it has been held by the Company Law Board as under: The dispute involve substantial rights of the parties and where the allegations are forgery and fabrication of records, which could not be resolved by oral testimony tested by cross-examination of witnesses, cannot be resolved on the strength of the averments made in the affidavits filed by the parties, defeating the purpose and object of the summary procedure prescribed by Section 397 and 398.
However, the complicated question of facts and serious controversies involved in the present petition necessitate a regular investigation and therefore the contentious issues regarding the genuineness of purchase of shares by the petitioners or the respondents 2 & 3 cannot be decided in a summary jurisdiction by this Board at this stage, but such controversies can be tested and adjudicated upon only by a civil court whose jurisdiction is not barred in the light of the decision in CDS Financial Services (Mauritius) Ltd. v. BPL Communications Ltd. and Ors. (2005) 10 Comp cas 127 (Bom.).
10. As regard falsification of records of company furnishing false stock statement to the Bank and selling the assets of the company, it was contended that no particulars have been given in respect of allegations made by the petitioner with regard to falsification of records of company, furnishing false stock statement to the bank and selling the assets of the company. Only vague and bald allegations have been made. It is a well-settled position of law the petition will have to disclose each and every aspect of the allegations made and cannot be vague. And also no particulars have been given with regard to Misappropriation of funds & misuses of assets, only vague and bald allegations have been made and in terms of the well settled position of law the petition will have to disclose each and every aspect of the allegations made and cannot be vague. On the other hand the profits of the company have gone up under the respondents. The Supreme Court in Omar Salay Mohamed Sait v. CIT (1959) 37 ITR 151 (SC) and Dhirajlal v.CIT (1954) 26 ITR 736 (SC) has observed that the Tribunal should not base its findings on suspicion, surmises or conjectures and it should not act on no evidence.
11. Sh. P. Nagesh counsel for the respondents reiterated that the petitioner was removed as director of the company as he has failed to attend three consecutive Board Meetings. He was aware of the said transfer when the minutes of the proceedings of the meeting dated 27.7.2000, 23.8.2000, 17.10.2000, 30.11.2000, 30.12.2000 and 27.1.2001 were forward by ROC on 27.8.2001. No reply was given by the petitioner despite the knowledge of his removal. He has not challenged his removal in any forum including Company Law Board. Under Article 23 of the Articles of Association, Board of Directors shall have powers from time to time to appoint any other person or persons to be additional directors, such additional directors shall hold office so long as the Board of Directors considers fit. Accordingly, the wives of R-2 & 3 were appointed as Director. Further, after the MOU dated 7.10.2001, Respondent Company came into the exclusive control of R-2 & 3. No shares have been allotted in the name of their respective wives as alleged by the petitioner. The annual return filed by the Respondents proves the said point.
12. Further, it was pointed out that the petitioner has not participated in the affairs of the company as admitted by him so he does not know whether any meetings were held. As mentioned in the reply even the Registrar of Companies has forwarded the Minutes of the company to the petitioner by its letter dated 27.2.2001 acknowledging the holding of meetings by the respondent company. The petitioner is guilty of not honouring the MOU dated 7.10.2001. All the brothers have transferred their respective shares except the petitioner in the Respondent Company. The petitioner is guilty of misappropriation. The petitioner has withdrawn his guarantee to the Respondent Company and for which Mr. Raj Mehta and Mr. Mohinder Mehta substituted. Emmbros Wires and Strips is a company controlled by the petitioner, which had several cases before the Debt Recovery Tribunal. The factory has been sold to pay of the debts. Admittedly, the respondents contributed equally to discharge the debts.
13. Furthermore, it was argued that the petitioner has handed over a copy of the writ petition being 3765 of 2004 filed by the petitioner himself before the High Court Punjab and Chandigarh wherein an application was filed under Order 1 Rule 8A by all the other brothers.
The averments made in the said application are being wrongly mentioned by the petitioner. The petitioner alleged that Respondents have reiterated that the family settlement dated 7.10.2001 has not been acted upon. Firstly this document was not filed alongwith petition nor with the rejoinder by the petitioner. However, it is submitted that the Respondents have not made such a statement. The averments made in the said petition by the Respondents and other brothers is being quoted out of context and in the said application the respondents and other brothers have clearly stated that the family settlement dated 7.10.2001 has been kept in abeyance only on account of non fulfilment of petitioner of his part by way of payment of various amount and also on account of his non fulfilment of other obligations. It has been kept in abeyance only in respect of the obligations of the petitioner and not for anything else. The shares have been transferred, the guarantees have been replaced in terms of the MOU. Even in the said application the respondents have made it clear that the petitioner has deliberately concealed and not placed the family settlement. As far as all other aspects of the family settlement relating to the transfer of shares they have been complied with the respondents. The said allegation that the family settlement is not being recognized by any other brother is therefore incorrect. On the one hand, the petitioner seeks shelter in the MOU by stating that the House No. 939, Sector-8, Panchkula, Chandigarh should not be attached on the ground that this is the only dwelling house for him. At the same time, he wants to deny the MOU when it comes to the understanding reached between all the other brothers in respect of the shares and other aspect mentioned in the MOU. The petitioner cannot approbate and reprobate at the same time. Further, it was pointed out that the petitioner has wrongly impleaded R-4 in the petition who is neither a director nor a shareholder in the respondent company. The petitioner has not rebutted this in the rejoinder.
14. Sh. Rohit Choudhary, counsel for the petitioner argued that the respondent company was incorporated as a 'private limited company' and the said respondent company was a family company, wherein the entire shareholding was held in manner, as set out in para 8(iii) of the petition. As per the shareholding in the six brothers including the petitioner, held the shareholding in equal proportion with each of the brother holding 15.36% (presently 16.66% after the demise of Smt. Devi Rani mother in the year 2007, who was holding 7.84% shares in the respondent company, divided equally between all six brothers) of the total paid up capital of the respondent company and the said shareholding pattern is duly admitted by the respondents in their reply. The petitioner was the promoter director" of the company as per the Memorandum and Articles of Association and was managing the affairs of the company along with respondent No. 4 till the respondent Nos. 2 to 4 in collusion with the other shareholders, except for the petitioner swapped their shareholding in the respondent company on 27.07.2000 and thus consolidated their holding in the respondent company. Subsequently, they removed the petitioner as a director in the company in the board meeting dated 27.01.2001. No notices were served to the petitioner for the any of the board meetings.
15. Replying to the respondents' contention that there was an oral agreement between the brothers to control and own their respective companies and thereafter the same was reduced to writing by way of MOU dated 7^th October, 2001, it was argued that the said submission made by the respondents is false submission and without any basis for the reasons, firstly, had there been any oral understanding by way of which the respondent company was to be only belong to respondent Nos. 2 and 3 and the petitioner was to run the other company, namely, Emmbros Wires and Strips Limited (EWSL), then where was the question of respondent's issuing a public notice dated August, 2001 wherein the respondent No. 4 has specifically stated that petitioner has no right to deal with EWSL Clearly this demonstrates that the respondent's contention that there was any oral settlement is without any basis. Secondly, the transfers by way of swapping of the shares between the respondent directors/other shareholders, which are duly admitted to by respondents in their reply, were made on 02/06/2000 and 27/07/2000 which is prior to the MOU dated 07/10/2001 and accordingly the respondent had no right whatsoever to reduce the petitioner to minority. Thirdly, all the respondents along with other brothers themselves filed an application in the year 2003-2004 (before filing of this petition) before the Hon'ble High Court of Punjab and Haryana, wherein the respondents alongwith other brothers have a made the following categorical statement with regard to the alleged MOU: 7 That Jiwan Mehta petitioner has concealed the fact that though a family settlement was entered into according to which, subject to his fulfillment of other conditions mentioned therein, the said house was to fall to his individual independent share, yet the said family settlement remained in abeyance on account of non-fulfillment by Jiwan Mehta of his part in the said settlement by way of payment of various amounts to the present applicants and also on account of his non-fulfillment of other obligations. Jiwan Mehta has, therefore, deliberately concealed and not placed on record the family settlement entered into. A copy of the same is attached herewith as Annexure-A with this application. It is reiterated that this family settlement was not acted upon and House No. 939 sector 8, Panchukula continues to be in the ownership of Jiwan Mehta and Ashok Mehta who are owners in equal shares of the said house.
Consequently, the Hon'ble High Court ordered vide Order dated 18.03.2004 that all six brothers including respondents, pursuant to their undertaking, to pay their respective shares in settling the liabilities of Emmbros Wires & Strips. The acceptance of the above order shows the contentions of the respondents in not acting upon the MOU in the year 2004 itself thus nullifying the same. The above said averment made by the respondent and other brothers of the petitioner clearly demonstrates that the said MOU was never acted upon by them and as such there arise no question of the respondents 2 and 3 coming into control of the respondent company. Fourthly, it was argued that the respondent No. 4 filed a suit before the Court of Ld. Civil Judge, Panchkula, seeking partition of House No. 939 Sector 8, Panchkula after the date of MOU and before filing of this petition. As per the terms of the MOU, the said hduse was to solely belong to the petitioner.
Additionally, in a statement made on 13.10.2006 infront of the Civil Judge by Respondent No. 4, it was admitted by him that he is unaware of the MOU and its terms and conditions. That being so, it does not lie in the mouth of the respondents to contend that the MOU was acted upon or anything pursuant to MOU has happened and the said MOU is of no consequences whatsoever. It was pointed out that the MOU has not been executed and remains unfulfilled to the extent that the various properties have been sold in averment to the terms listed therein.
Fifthly, it was contended that it is settled legal position and as upheld by this Hon'ble Board in catena of cases that such MOU cannot restrict the rights of a shareholder to approach this Hon'ble Board under the provisions of Sections 397/398 of the Companies Act. The scope of Section 397,398 is completely different from that of the family settlement as in the former, it is the right of the petitioner as a shareholder and the internal affairs of the company which is in issue, whereas, family settlement deals with the rights of various members of the family in diverse properties of the family including the company.
16. Further, drawing my attention to the illegal consolidation of shareholding, it was pointed out that the copy of Annual Return of 29/09/2000 filed by the Respondent company shows the transfer of the shares by the respondent between themselves alongwith other shareholders/brothers on 02/06.2000 and 27/07/2000 reducing the petitioner to minority, which is again prior to the MOU dated 07/10/2001. Additionally all the board meetings held on 27/07/2000, 23/08/2000, 17/10/2000, 30/11/2000, 30/12/2000 & 27/01/2001, out of which some are the ones in which the transfers had taken place aria in which the petitioner was removed as a director were presided by respondent No. 4 (director in the respondent company in the year 2000), who is also a director in other group company Emmbros Metals and a respondent in the case of Jiwan Mehta (petitioner) v. Emmbros Metals in C.P 82 of 2004, which once again refutes the alleged oral agreement between the brothers as claimed by the respondents in their reply, firstly, had there been any oral understanding, by way of which the respondent company was to only belong to respondent Nos. 2 and 3 then where is the question of respondent No. 4 presiding the meetings of the respondent company for overseeing the share transfers/swap between shareholders/directors of respondent company & Emmbros Metals and removal of the petitioner of the company. Secondly, it was pointed out that respondent No. 3 was appointed as a director in the respondent company only on 07/07/2000 prior to which the company was being managed by petitioner alongwith respondents No. 2 & 4. It was argued that the collusion between directors/shareholders of both the companies - Emmbros Forgings (Respondent company) and Emmbros Metals of C.P 82 of 2004, to increase and consolidate their respective shareholdings in the two group companies and then ousting the petitioner after gaining majority in both of the companies is obvious. The respondent's have no right whatsoever to change the nature and character of the respondent company or to increase their shareholding to the detriment of the petitioner and reducing the petitioner to minority, the petitioner being an equal shareholder in the respondent company, which was being run and managed in the nature of 'partnership' with all six brothers holding equal shareholding therein. The respondents have swapped their shareholding in the respondent company by transferring their shareholding in other family owned company, namely, Emmbros Metals Ltd. only with a view to disturb the petitioner whose signatures were forged by the respondent. My attention was drawn to the report from National Institute of Forensic Science, giving a finding that the signatures on the said Annual Return are not of the petitioner. Further, without prejudice to the arguments on merits, the petitioner stated that this Hon'ble Board may pass orders under provisions of Section 402(b) of the Act and the petitioner is willing to sell his entire shareholding to the tune of 16.66% as per valuation of said shareholding under the orders of this Hon'ble Board.
17. Considering the pleadings and the documents filed therewith as well as the arguments in this case, I find that the petitioners have not been able to refute the preliminary objections raised by the respondents on the maintainability of the petition. The preliminary objections raised are tenable in the background of the facts and circumstances of this case. It is true that as on date neither the petitioner nor the respondents want to rely on the oral agreement mutually agreed between all the brothers in May 2000 and later reduced to writing on 7.10.200] apparently to avoid disputes. In the MOU it has been specifically agreed that each set of two brothers will manage a company and will swap their cross holdings in the three companies so that each company shall exclusively belong to each two set of brothers.
It is also true that the allotments, swapping etc. (except by the petitioner) were made pursuant to the oral understanding as early as on 27.7.2000. The petitioner's contention that the scope of Section 397, 398 is completely different from that of the family settlement as in the former, it is the right of the Petitioner as a shareholder and the internal affairs of the company which is in issue, whereas, family settlement deals with the rights of various members of the family in diverse properties of the family including the company is correct but the respondents have successfully demonstrated that the swapping of the shares was with the full knowledge, consent and acquiescence of the petitioner. The petitioner has deliberately concealed the MOU from the Company Law Board. The respondents' allegation that the MOU was concealed from the Hon'ble Punjab and Haryana High Court deliberately not placing the family settlement entered into on record and, in fact, the MOU had to be kept in abeyance due to the non fulfillment of the obligations and non-swapping of shares by the petitioner which is a part of the record with the higher court is also true. The petitioner's contention that the MOU was never acted upon is also incorrect. The respondents' allegation that the petitioner has not come with clean hands had turned out to be true. The petitioner is allegedly guilty of misappropriation. The petitioner has withdrawn his guarantee to the Respondent Company and for which Mr. Raj Mehta and Mr. Mohinder Mehta substituted. Emmbros Wires and Strips is a company controlled by the petitioner, which had several cases before the Debt Recovery Tribunal.
The factory has been sold to pay of the debts. The respondent contributed equally to discharge the debts.
18. It has been repeatedly emphasized in several decisions that family settlements are governed by a special equity and are to be enforced if honestly made. The terms may have been agreed to on the basis of an error of the parties or originate in a mistake or ignorance of fact as to what the rights of the-parties actually are, or of the points on which their rights actually depend. This is because the object of an arrangement is to protect the family from long drawn out litigation, and to bring about harmony an goodwill in the family. The Court leans heavily in favour of family arrangements. Further, I agree that it is a settled proposition of law that the conduct of the parties is a very relevant factor to be considered in the equitable proceedings under Sections 397/398. In Sri Kama Datta Narasimharaja Wadiyar v.Venkateshwar Real Estates Private Ltd. (1991) 3 Comp. LJ 336 (Karn) (1991)72 Comp Cas 211 (Karn), it was held that the petitioner seeking equitable relief must come with clean hands and good conduct, failing which the petitioner would constitute a gross abuse of the process of Court, and the petitioner is not entitled for any relief under Sections 397 and 398. Regarding the principle of equity in Shrimati Abnash Kaur v. Lord Krishna Sugar Mills Ltd. 44 CC 390 the Division Bench of Delhi High Court has held that while exercising equity jurisdiction, which clothes the Court with discretionary powers "...the discretion cannot be exercised arbitrarily or according to one's own will or whim. It has to be regulated by law, allay its rigour advance the remedy and to relieve against abuse. The court, therefore, exercising equity jurisdiction, cannot ignore the well known maxims of equity. Two such maxims are that he who seeks equity must do equity and he who comes into equity must come with clean hands." The petitioner has not come with clean hands. This petition deserves to be dismissed on this ground alone. Furthermore, the petition suffers from delay and laches.
Swapping of share was done on 27.7.2000. His vacation of office from director under Section 283(1)(g) was also as early as on 27.1.2001 the petitioner had reached the Registrar of Companies office for inspection of records on 8.5.2000 but the petition has been filed only on 31.8.2004. There has been considerable delay in making this petition.
Even if the provisions of the Limitation Act are not applicable to the proceedings before the Company Law Board yet there is an abnormal delay in bringing the matter before the Company Law Board and on this ground alone, the petition should be dismissed. Further, there is no plea for condoning the delay and laches on the part of the petitioners in initiating proceedings before the Company Law Board. Besides, the allotments, swapping, vacation of office was with the full knowledge, consent/acquiescence of the petitioner who cannot challenge past and concluded transactions. The principles of estoppel, wavier and acquiescence also apply in this case. Further, it is noted that the petitioner has made an allegation regarding his removal as director but his prayers in the petition do not include any prayer seeking his restoration as director in the respondent company.
19. In view of the foregoing, the petition is not maintainable I find no justification to consider the arguments on merits. The petition is hereby dismissed. All interim orders stand vacated. All CAs stand disposed of. No order as to cost.