Nekkala Usha Rani, Dr. Manjula Vs. Visakha Imagings and Medical - Court Judgment

Excerpt:
1. the first company petition (c.p. no. 24 of 2006) is filed by the petitioners collectively claiming 52.66% of the paid up capital of m/s.visakha imaging and medical products limited ("the company") invoking the jurisdiction of the company law board under sections 397 and 398 read with sections 402 of the companies act. 1956 ("the act") on account of certain alleged acts of oppression and mismanagement in the affairs of the company, and claimed the following reliefs: a) to declare that the appointment of the respondents 3 & 4 as directors of the company is null and void; b) to declare that the allotment of 24820 shares made in favour of the first petitioner and the respondents 2 and 6 to 9 is illegal and null and void: c) to declare that the transfer of shares effected by the second.....

Judgment:
1. The first company petition (C.P. No. 24 of 2006) is filed by the petitioners collectively claiming 52.66% of the paid up capital of M/s.

Visakha Imaging and Medical Products Limited ("the Company") invoking the jurisdiction of the Company Law Board under Sections 397 and 398 read with Sections 402 of the Companies Act. 1956 ("the Act") on account of certain alleged acts of oppression and mismanagement in the affairs of the Company, and claimed the following reliefs: a) to declare that the appointment of the respondents 3 & 4 as directors of the Company is null and void; b) to declare that the allotment of 24820 shares made in favour of the first petitioner and the respondents 2 and 6 to 9 is illegal and null and void: c) to declare that the transfer of shares effected by the second respondent, in favour of the respondents 3 & 4. being contrary to the articles is invalid: d) to restore the shareholding pattern of the Company as prevailed prior to the impugned allotment of shares, namely. 30.03.2005: and e) to direct the second respondent to render accounts and bring back the misappropriated funds of the Company.

2. The second company petition (C.P. No. 350 of 2006) has been filed under Section 111 read with Section 108 of the Companies Act. 1956 ("the Act") by Shri K. Srinivasa Reddy. who is the seventh respondent in C.P. No. 24 of 2006. seeking directions against M/s. Visakha Imagings & Medical Private Limited ("the Company") to rectify the register of members by reducing the number of equity shares in the name of the second respondent by 2000 shares: the third respondent by 625 shares and the fourth respondent by 1625 shares, which are impugned by the petitioner for the reasons stated therein.

3. The third company petition (C.P. No. 351 of 2006) is under Section 614 of the Companies Act. 1956 ("the Act") by Shri K. Srinivasa Reddy.

who is the seventh respondent in C.P. No. 24 of 2006. compelling M/s.

Visakha Imagings & Medical Private Limited ("the Company") to file Form No. 32 notifying the Registrar of Companies about the cessation of the second respondent herein as a director of the. Company, with effect from 30.09.2004.

4. The parties are common and the contentious issues are arising out of the affairs of the Company and on account of the transfer of shares of the Company and cessation of the office of one of the parties as a director of the Company. Hence with the consent of all the parties these petitions were heard together and are being disposed of by this common order.

5. Shri A.K. Mylsamy. learned Counsel, while initiating his arguments, in support of the petitioners (C.P. No. 24 of 2006) submitted: o The Company incorporated in August 2001 with the second petitioner and the second respondent as the subscribers to the memorandum of association, is running the business of medical and clinical laboratories. While the authorized capital of the Company is Rs. 50.00.000/- divided into 50.000 equity shares of Rs. 100/- each, the paid up capital prior to the impugned allotment of shares accounts for Rs. 25.16.000 consisting of 25.160 shares of Rs. 100/- each, which are held by the petitioners and the respondents in the ratio of 52.66% and 47.34% respectively, in terms of the annual return for the year ended 30.09.2004. The petitioners have clearly set out in their legal notice dated 27.03.2006 that they are holding majority of shares of the Company while the respondents are minority shareholders, which has not been disputed by the latter. The respondents 1 & 2 admitted in the main counter that the petitioners with their majority holding brutally forced themselves on the board on the day-to-day management of the Company and further that the second respondent being short of majority in the Company was left with no choice but simply to tow the line with the petitioners. It is. therefore, evident that the petitioners are holding majority shares of 13250 out of 25160 equity shares of the Company. All the petitioners, save the third petitioner and the second respondent are the first directors. The second respondent is the managing director, while the second petitioner is the executive director. The third petitioner has become one of the director in May. 2004.

o The second respondent using his position as managing director manoeuvred and created documents by recording the proceedings as if the impugned allotment of 24820 equity shares has taken place at the board meeting on 30.03.2005: appointed the respondents 3 & 4 at the board meeting on 15.11.2005 as directors of the Company and transferred his shares stealthily to the respondents 3 & 4. without the authority of the board of directors of the Company. Similarly, the annual general meeting for the year 2004-2005 was convened, without issuing proper notice and hence such meeting is null and void. The allotment of 24820 shares in favour of the first petitioner and the respondents 2 & 6 to 9 is contrary to Clause 33(g) read with Clause 3 of the articles of association of the Company and without prior approval of the board of directors. No board meeting was held on 30.03.2005 allotting any shares nor received any notice of the alleged board meeting and the signature contained in the purported board minutes are forged. Any convening of the board meeting without due notice in terms of Section 286 is illegal and void-ab-initio. The board minutes dated 30.03.2005 do not specify the time of the board meeting. The certificate of posting and copy of the notice dated 21.03.2005 convening the board meeting on 30.03.2005. produced by the respondents are fabricated documents and it is not safe to rely merely upon such certificate of posting. The Company has not produced any document showing any expenses incurred in connection with sending notices of the board meetings held on 30.03.2005. The manipulated board minutes would show that State Bank of India called upon the Company to raise equity capital by modification, thereby bringing additional funds, to sanction a term loan of Rs. 180 lakhs in view of the fact that the existing term loan and term loan working capital are on higher side. The request letter of the Company dated 01.11.2004 on which SB1 sanctioned additional term loan facilities has not been produced by the respondents. The bank did not advise the Company to convert the unsecured loans into equity, by which the bank did not get any benefit by way of additional funds brought in by the allottees. The bank would be interested in bringing only additional monies and not in simply converting the unsecured loans into equity. The impugned allotment of shares, as per the statement reportedly produced before the board is not for the benefit of the Company. But no such statement of unsecured creditors has been produced before the Bench.

The second respondent has contributed a sum of Rs. 1.25 crores towards unsecured loans, without prior sanction of the board of directors of the Company. While there are reportedly 27 shareholders advancing unsecured loans to the Company, loans advanced by the second respondent and his associates alone were converted into capital, and no offer was made to the other existing shareholders, thereby the second respondent acted in breach of his fiduciary duties. The respondents 2 &. 6 were the major beneficiaries on account of the impugned allotments. The second respondent allotted the disputed shares with ulterior motive of converting the petitioners from majority into minority shareholders and gaining control over the Company, which are oppressive, causing enormous prejudice to the petitioners and cannot be justified merely on the ground the respondents group offered their personal guarantee and properties as security in favour of the bank. This would show that the second respondent failed to act in good faith. The respondents 8 & 9 though strangers and held no shares were allotted shares by the Company. The allotment of 2190 shares in favour of the first petitioner was neither with her consent nor was she intimated of the said allotment. No share certificates have been issued to any shareholder by the Company. The board minutes dated 30.03.2005 would reveal that the petitioners 1 to 3 were present at the meeting, whereas they never participated in the proceedings of the board meeting. The fourth petitioner did not seek for leave of absence, as shown in the disputed board minutes. The attendance sheet for the board meeting of 30.03.2005 would indicate that the second petitioner neither signed it nor attended the board meeting. The signature of the first petitioner contained in attendance sheet is forged and never signed by her. All the names of the directors appearing in the relevant attendance sheet are not found in the minutes of the board meeting dated 30.03.2005 which does not even disclose the time of the board meeting purportedly held on 30.03.2005. Whenever, the spouse of the first petitioner had signed the board minutes it was done for and on behalf of the first petitioner and similarly the spouse of the second petitioner signed for the petitioners 2 & 4 being his wife and mother respectively.

There was no need for the spouse of the first petitioner to forge her signature in the board minutes dated 30.03.2005. The respondents are relying on the circumstantial evidence to prove the allotment by producing TDS certificate. The report of the Forensic Science Department clearly shows that the board minutes dated 30.03.2005 and 14.11.2005 do not contain the signatures of the first petitioner.

Thus, it is established that the first petitioner did not attend these board meetings and her signatures in those minutes have been forged. The petitioners having majority shares and majority on the board prior to 30.03.2005. would not have allowed the impugned allotment of shares, converting themselves into minority shareholders. The balance sheet and the auditors' report for the year ended 31.03.2005 do not speak of the impugned allotment of shares. Similarly, the whole of unsecured loans are not disclosed in the balance sheet for the year 31.03.2005. The paid up capital of Rs. 62.58 lakhs is incorrectly stated in the balance sheet.

o The second respondent categorically contended in the counter filed to the company application (C.A. No. 117 of 2006) that the first petitioner (a) attended the board meeting held on 30.03.2005: (b) duly signed the attendance sheet: (c) voted in favour of the resolution authorizing the issue of additional shares: (d) did not dispute her presence at the board meeting on 30.03.2005: (e) the second respondent has not forged her signature: and (f) Dr. N. Ramakrishna has forged the signature of the first petitioner in the attendance registers of board meetings, including the board meetings held on 21.10.2005. 10.11.2005. 14.11.2005 and 15.11.2005. At the same time, the second respondent in the counter to C.A. No. 117 of 2006 asserted that the first petitioner's husband and the second petitioner's husband used to attend the board meetings and signed the attendance sheets for and on behalf of their respective spouse.

Thus, the second respondent has taken different pleas, which are contradictory to each other and of the averments raised in the counter filed to the main petition. It is therefore, clear that neither the first petitioner nor her husband attended the board meeting on 30.03.2005 and that her signature has been forged by the second respondent. Similarly, the purported signature of the second petitioner certifying the board minutes dated 30.03.2005 submitted to the bank for availing the loan amount of Rs. 180 lakhs has been forged by the second respondent. The second petitioner has not certified the board minutes dated 30.03.2005 as claimed by the respondents. Furthermore, no proxies are allowed for the board meetings and therefore, the spouse of first petitioner and second petitioner cannot claim to have attended the board meetings on their behalf and if it were so the meetings are invalid and no resolution passed at such meeting are enforceable.

o The notice dated 11.11.2005 convening the board meeting on 15.11.2005 contained, inter alia, the business relating to confirmation of the previous board meeting held on 14.11.2005, which is highly impossible. The board of directors had resolved earlier on 03.11.2005 that the formal notice and agenda for the board meeting would be circulated at least one week in advance which has not been complied with by the second respondent while convening the board meeting allegedly held on 15.11.2005. The contradictory stand taken by the Company at different points of time, the report of the Forensic Sciences Department and denial of the petitioners regarding the issue of notices of the board meetings would conclusively belie the contentions of the Company.

o The book(s) containing the board minutes and general body minutes are all written afresh for the purpose of this case and the respondents have withheld the original minutes books(s) and no reliance can be placed on the fabricated minutes produced by them.

The minutes not having been regularly maintained in conformity with Section 193. no presumption regarding their validity can be drawn, as contemplated in Section 195 of the Act. It is only a rebuttable presumption. The business of medical laboratories carried on by the Company involve mostly cash transactions coming from the customers.

The second respondent is tampering with the data fed into the computer with regard to the payments received by the Company on account of availing the laboratory facilities by the customers, thereby he has been siphoning of the funds of the Company.

o The second respondent in disregard of Clause 10(b) of the articles of association had transferred his 1250 shares to the respondents 3 & 4. Clause 10(b) stipulates that the board has to be notified about the willingness of selling of the shares and the board has to offer the shares to the existing shareholders and if not accepted by the willing existing shareholders within the stipulated time, the proposer can sell the shares to any one. However, in the present case no such procedure has been followed by the second respondent while transferring his shares to the respondents 3 & 4 with a view to usurp the power of the board and hence the said transfers are violative of the articles. The transfers effected by the second respondent in favour of the respondents 3 & 4 were never witnessed by the petitioners and the documents produced by the respondents substantiating their allegations are forged ones.

o If the impugned allotment is set aside the petitioners will remain to be majority shareholders in which case the respondents will be entitled to purchase the stake of the respondents in the Company, especially when no premium can be conferred on any wrong doer. After setting aside the impugned allotment as well as transfer of shares, the members may be given liberty to constitute the board of directors and carry on the business of the Company. Both the groups are carrying on competing business and the articles do not place any restriction to pursue any competing business and therefore, the petitioners cannot be found fault to carry on any competing business. In these circumstances, the reliefs are sought in terms of the prayer made in the main petition.

6. Shri A.K. Mylsamy learned Counsel, in support of his legal submissions relied on the following decisions: o S. Narayanan and Ors. v. Century Flour Mills Limited and Ors.

(1987) 1 CLJ 25 - to show that it is not always safe to trust mere certificate of posting. It will only show that certain postal envelopes were put into the post office: mere posting by itself will not necessarily mean that there was service on the address concerned. When, on facts, registered posts could be diverted and would not reach addressees, it was held highly risky to place reliance upon the mere certificates of posting.Mrs. Senthamarai Munusamy v. Microparticle Engineers Private Limited and Ors. and S. Munusamy v. Micromeritics Engineers Private Limited and Ors. (2001) Vol. 105 CC 526 to show that when the convening of the disputed board meeting was not substantiated by proof of notice, the allotment of shares purportedly made at such board meetings was invalid.M.S. Madhusoodhanan and Anr. v. Kerala Kaumudi Private Limited and Ors. (2003) Vol. 117 SC 19 to show that the certificate of posting does not in any event amount to conclusive proof of service of the notice on any of the other addressees, mentioned in the certificate.

o Microparticle Engineers Private Limited and Ors. v. S. Munusamy (2004) Vol. 122 CC 150 to show that in the event of non-issuance of any notice for the board meeting any resolution allotting shares and appointing additional directors at such meeting is not valid for want of notice.Goldmark Enterprise Limited v. Pondy Metal and Roiling Mills Private Limited and Ors. (2007) 136 CC 598 - to show that the certificate of posting in the event of serious disputes between the parties, could not amount to conclusive proof of service of notice on the addressee, satisfying the mandatory requirements of Section 172. It is unsafe to place any reliance on mere certificate of posting without any corroborative evidence such as dispatch register, books of account, etc showing the expenses incurred in connection with sending of notices to the share holders. The certificate of posting would show that certain postal envelopes have been put into the post office and could not itself necessarily mean that there had been conclusive proof of service of the notice on the addressee.

The directors who are empowered by the articles to allot shares at then-discretion must (i) exercise their power with utmost good faith for the benefit and interest of the company, (ii) ensure fair play in action in corporate management, and (iii) act bona fide in exercise of their responsibilities in further issue of shares.V.S. Krishna and Ors. v. Westfort Hi-tech Hospital Ltd. and Ors.

(2007) 136 CC 699 - to show that (i) the certificate of posting- in the event of disputes among the parties could not be treated as conclusive proof of service of notice on the addressees. In the absence of other corroborative evidence such as dispatch register, books of account reflecting the expenses incurred in connection with sending of notices to the petitioners and other shareholders, mere production of certificates of posting would not necessarily mean that there was service of notice of the meeting on the petitioners.

Section 172 of the Companies Act. 1956. being mandatory has to be strictly complied with and non-compliance invalidates the resolutions passed.Dale and Carrington Invt. P. Ltd. and Ors. v. P.K. Prathapan and Ors. (2004) Vol. 122 SC 161 - to show that the directors have a fiduciary duty to act on behalf of a company with utmost good faith, utmost care and skill and due diligence and in the interest of the company they represent. Though Section 81 dealing with the requirements in the matter of issue of further share capital by a company, does not apply to private limited companies, the directors in a private limited company are expected to make a disclosure to the share holders of such a company when further shares are being issued. The acts of directors in a private limited company are required to be tested on a much finer scale in order to rule out any misuse of power for personal gains or ulterior motives, thus casting a heavier burden on its directors.

If a member who holds the majority of shares in a company is reduced to the position of minority shareholder in the company by an act of the company or by its board of directors mala fide, the said act must ordinarily be considered to be an act of oppression to the said member. The member who holds the majority of shares in the company is entitled to by virtue of his majority to control, manage and run the affairs of the company.

o Parmeshwari Prasad Gupta (decd., through legal representatives) v. Union of India (1974) Vol. 44 CC 1 - to show that the notice of the meeting and of the business to be transacted are essential to all the directors of a meeting of the board of directors for the validity of am resolution passed at the meeting. If no notice is given to any one of the directors of the company any resolution passed at such board meeting is invalid.

o Ansar Khan and Ors. v. Finecore Cables (P) Ltd. and Ors. (2007) 2 Comp LJ 298 - to show that by virtue of Section 286 of the Companies Act. 1956, notice of every meeting of the board of directors of a company shall be given in writing to every director in the prescribed manner failing which every officer of the company shall be punishable as specified therein. The requirements of Section 286 being mandatory, notice to all the directors of meeting is essential for the validity of any resolution passed at the board meeting.

Where no notice is given to any of the directors of the company the resolution passed at the meeting of the board of directors becomes invalid.Rashmi Seth v. Tillsoil Farms Pvt. Ltd. and Ors. (1995) Vol. 82 CC 409 - to show that in the absence of any proof to show that the petitioner had notice of the board meeting, the resolutions passed at the alleged meeting are invalid. If the minutes are fabricated, any resolution passed at the alleged meeting is not valid.Canara Bank and Ors. v. Debasis and Ors.

show that whenever legal justice fails natural justice is called in aid of legal justice. Natural justice relieves legal justice from unnecessary technicality.

7. According to the petitioner in C.P. No. 350 of 2006. the transfer of 4250 shares effected in favour of the respondents herein, which are covered in certificate nos. 027. 028 and 030. being in gross violation of the mandatory requirements of Section 108 are invalid and consequently the resolutions passed at the board meeting held on 19.07.2004. giving effect to these transfers must be declared illegal and void-ab-initio.

8. The grievance of the petitioner in C.P. No. 351 of 2006 is that the second respondent was appointed as an additional director under Section 260 of the Act at the board meeting held on 21.05.2004. but no resolution was passed at the annual general meeting held on 30.09.2004 appointing him as a director and therefore, the second respondent ceased to be a director of the Company with effect from 30.09.2004.

Nevertheless, the Company has not filed Form No. 32 notifying the Registrar of Companies, of the cessation of the second respondent as a director of the Company and hence sought appropriate directions under Section 614 of the Act.

9. Shri P.H. Arvind Pandian learned Counsel, while opposing the company petition (C.P. No. 24 of 2006) and arguing the other main petitions submitted: o The petitioners, as at 31.03.2004, collectively held only 9000 shares out of 251600 shares of the Company constituting 35.77% of the paid up capital of the Company and not 52.66% as claimed by them. As on the date of the main petition, the respondents group was majority shareholders and on the death of the third respondent, the management became equal. The board minutes dated 22.08.2004, to which, among others, the petitioners 1 to 3 were parties, would show that the directors discussed the issues in relation to the availing of term loan facilities from SBI, increase of the paid up capital and conversion of the loans of directors into share capital as per the bank norms. The board of directors approved the allotment of 24.820 equity shares of Rs. 100/- each at the meeting held on 30.03.2005 in favour of the first petitioner and the respondents 2 & 6 to 9 and thereby increased the paid up capital to Rs. 49.98.000/-, by converting a part of the unsecured loans to a tune of Rs. 24.00 lakhs as share capital, after sending the notices under certificate of posting, pursuant to the demand by the bank to increase the equity by subsequent modification in paid up and authorized capital of the company, in terms of its communication dated 05.12.2004. The Company has been paying interest to all the shareholders, including the first petitioner, who have given unsecured loans, till 2005 and TDS certificates were also given to them. However, payment of interest came to be stopped on allotment of shares in their favour, of which the first petitioner never complained of and therefore, the signature of the first petitioner in the attendance sheet for the board meeting held on 30.03.2005 could not have been forged. The first petitioner attended the board meeting held on 30.03.2005, signing the attendance sheet maintained by the Company and voted in favour of the resolution authorizing the issue of additional shares.

The first petitioner wantonly disputed her signature in the board minutes and even if her presence is ignored, there was a valid quorum minimum being only three directors, at the aforesaid board meeting, with participation of the respondents 2, 6 & 7 and hence the resolution approving the allotment of impugned shares cannot in any way be ignored. By virtue of Section 10-E(5), the Company Law Board (CLB) has powers, which are vested in a Court under CPC, while trying a suit, in respect of certain specified matters and CLB will have power to regulate its own procedure. The CLB is not, therefore, go by evidence on record but be guided by the principles of natural justice, while adjudicating the present disputes.

o The bank subsequent to the issue of additional shares, sanctioned a mortgage term loan of Rs. 180 lakhs as per its sanction letter dated 08.07.2005. Accordingly, the loan agreement dated 11.07.2005, the hypothecation deed dated 11.07.2005 and the pledge agreement dated 11.07.2005 in favour of the bank have been signed by the second petitioner and second respondent. The deed of guarantee in favour of the bank has been executed by the petitioners 1 to 4, husband of the second petitioner, the second respondent and his son.

All these documents came to be executed pursuant to the disputed issue of further shares and the consequent increase of the financial assistance by the bank. The certified copy of the board minutes dated 30.03.2005 allotting additional shares submitted to the bank for availing the enhanced financial assistance has been signed by the second petitioner and second respondent, thereby the petitioners were aware of the sanction of the mortgage loan of Rs. 180 lakhs, pursuant to the further issue of additional shares impugned in the company petition. The Company did not raise any fresh moneys by issuing the additional shares, save an amount of Rs. 2000/- raised by way of issue of 10 equity shares each in favour of the respondents 8 & 9. With the enhancement of the capital, the paid up capital was raised from Rs. 25.16.000/- to Rs. 49.98.000/- which is within the Company's authorized capital of Rs. 50 lakhs. The respondents 2 & 6 have guaranteed the bank loans to an extent of Rs. 131.601akhs while the petitioners group to a tune of Rs. 29.38 lakhs only. Similarly, the sixth respondent offered her personal assets, valued at Rs. 143 lakhs as collateral security to the bank loan and at the same time the second petitioner has offered her personal assets worth only Rs. 31.59 lakhs. Thus the respondents 2 & 6 hold a substantial 82% stake in the Company, based on which the term loan was sanctioned by the bank. The second respondent and his relatives have further contributed an amount of Rs. 1.25 crores towards unsecured loans of the Company, to establish two branches at Vishakapatnam. The petitioners, on the other hand, have negligible stake in the affairs of the Company.

o Dr. N. Ramakrishna and Dr. M. Siva Sridhar, spouse of the petitioners 1 & 2 respectively employed as Associate/Assistant professor in Andhra Medical College. Vishakapatnam and taking undue advantage of the positions held by their respective spouse in the Company, started interfering in the affairs of the Company by signing all official certificates, service reports, call reports, installation reports, leave applications of employees, expense vouchers, cash bills, credit invoices, signed the demand promissory notes, as witnesses for the unsecured loans availed by the Company, statutory registers on behalf of the Company, copies of which are produced before this Bench despite the fact they are Government Servants. Dr. N. Ramakrishna used to represent the first petitioner while Dr. M. Siva Sridhar. the second petitioner, his wife and the fourth petitioner his mother at the board meetings and sign the attendance sheet on behalf of the directors as borne out by the attendance sheet for the board meeting held on 15.11.2005 and other meetings containing the signature of Dr. N. Ramakrishna an Dr. M. Siva Sridhar.

o The Company convened the fourth annual general meeting on 30.09.2004 after due notice to all the shareholders sent under certificate of posting including the petitioners to consider inter alia adoption of accounts for the year ended 31.03.2004.

Nevertheless the petitioners failed to attend the annual general meeting and the contrary allegations made by them are untrue.

o The transfer of 750 equity shares to the third respondent and 500 equity shares to the fourth respondent has been effected after due compliance with Clause 10(b) of the articles of association of the Company and in accordance with Section 108 of the Act. Accordingly the second respondent by his letter dated 14.11.2005. addressed to the board of directors duly notified the board of his intention to transfer 1250 equity shares out of 13.020 equity shares held by him to the respondents 3 & 4 as required under Clause 10(b) of the articles of association of the Company, for a fair value of Rs. 200/- per share, to meet the medical expenses on account of his son who was undergoing treatment and who has since deceased. The letter dated 14.11.2005 of the second respondent accordingly, addressed to the board of directors has been also acknowledged by among others the third petitioner the spouse of the petitioners 1 & 2 and the respondents 6 & 7. Thus the petitioners are aware of the sale of the shares by the second respondent in due compliance with the relevant articles of the Company which was never objected by them till filing of the company petition and the rest of the board of directors accepted the impugned transfers.

o The appointment of the respondents 3 & 4 as additional directors of the Company and the transfer of 1250 shares of the second respondent in favour of the respondents 3 & 4 were approved at a duly convened board meeting held on 15.11.2005, after sending proper notice and agenda to all the directors under certificate of posting.

The third petitioner and the respondents 2, 6 & 7 were parties to the resolution passed at the said board meeting, as reflected in the attendance sheet for having attended the board meeting on 15.11.2005 and Form No. 32 filed on 21.11.2005 with the Registrar of Companies.

When the second respondent had convened a board meeting on 18.01.2006, the third petitioner set out in his communication dated 10.01.2006, certain items to be placed at the board meeting held on 15.11.2005, which included the item relating to approval of the minutes of the board meeting held on 15.11.2005, wherein the resolutions appointing the respondents 3 & 4 as directors and approving the impugned transfers were duly passed. Therefore, the allegation of the petitioners that the board minutes dated 15.11.2005 are fabricated are contrary to the facts and records produced before the: Bench. With regard to directorship of the respondents 3 & 4. this Bench suggested that on adjudicating the validity of the impugned allotment of shares the shareholders will decide the constitution of the board of directors of the Company which has been conceded to by the petitioners as well as the respondents.

o The business of the Company being medical and clinical laboratories, most of the customers, not having any bank account pay for services rendered to them in cash which is a common practice prevailing in the similar industry across the country. The Company has a good system of internal contracts and internal checks. The allegation that the second respondent is siphoning of the Company's funds by tampering the data is malicious and not supported by any concrete evidence. The CLB will not exercise its discretion to give any relief, on account of the conduct of the petitioners.

o The impugned 4250 shares being the subject matter of C.P. No. 350 of 2006, were not backed by the transfer instruments duly executed by the transferors and transferees and stamped as required under section of the Act. The board inadvertently gave the approval on 19.07.2004 for the transfer of 4250 shares without ensuring compliance with the provisions of Section 108 of the Act. The respondents as and when duly lodge with the Company the transfer instruments and the original share certificates in due compliance with the requirements of Section 108 the latter will register the transfers and act in accordance with law.

10. Shri P.H. Arvindh Pandian, learned Counsel in support of his legal submissions relied on the following decisions: o Amanulluh v. Safina Construction Private Limited (2004) 53 SCL 271 to show that when the petitioner was a party to the decision to allot shares and for appointment of the additional directors on the basis of the petitioner's signature on the board minutes containing those decisions the petition had to be dismissed.Mrs. M.R. Shah v. Vardhman Dye Stuff Industries Private Limited and Ors. (2005) 128 CC 710 to show that when the petitioner and her husband were fully and actively involved and participating in the management of the financial affairs of the company the petitioner could not turn back at a later stage to invoke the equitable jurisdiction of the CLB challenging the decisions taken by the company on the ground that the petitioner was not aware of the affairs of the company.

o Jermyn Street Turkish Baths Limited (1971) 41 CC 999 to show that the allotment of shares was found to be a legitimate act done in good faith and in the interest of the company and was not oppressive in any sense. Any protest made about the allotment of shares after a period of 15 years cannot be construed to be an act of oppression.

o London School of Electronics Limited (1995) BCLC 273 to show that the conduct of the petitioner could be relevant in a number of ways for remedying the grievances by the CLB. o Anugraha Jewellers Limited and Ors. v. K.R.S. Mani and Ors. (1999) 111 CC 501 to show that the court has to satisfy itself that the person who comes forward seeking relief is a proper person to do so.

If it is shown that the person who has come forward has conduct tainted in some way then the court will not be justified in allowing the person to maintain such an application. If he had participated in the wrong of which he complains he cannot maintain an action.

o Pearson Education Inc. v. Prentice-Hall of India Private Limited and Ors. (2007) 136 CC 211 to show that when the petitioner was carrying on a competing business, the nominees of the petitioner on the board of the company would definitely result in conflict of interests and would not be in the interest of the company.Needle Industries (India) Limited and Ors. v. Needle Industries Newey (India) Holding Limited and Ors. (1981) 51 CC 743 to show that the conversion of the existing majority into a minority was a consequence of what the directors were obliged lawfully to do. Such conversion was not the motive force of their action. The directors did not exercise their fiduciary powers over the shares merely or solely for the purpose of destroying an existing majority or for creating a new majority which did not previously exist but for the purpose of preventing the affairs of the company from being brought to a grinding halt. The resolution passed at the meeting of the board of directors held on April 6, 1977 for the issue of rights shares at par could not therefore, be said to amount to "oppression" within the meaning of Section 397 of the Companies Act. 1956.

o Bengal Luxmi Cotton Mills Limited (1965) 35 CC 187 to show that if there is evidence of acquiescence or condonation of the wrongful acts on the part of the petitioners, the discretionary relief under Section 397 & 398 will not be granted. It is for the petitioners to check and prevent any wrongful acts or misappropriation and prevent them. But not having done so the petitioners should not be allowed to complain and take advantage of their own acts and hold the respondent responsible for the same.Rajinder Kumar Malhotra and Ors. v. Harbanslal Malhotra and Sons Limited and Ors. (1996) Vol. 87 CC 146 to show that the practice and procedure of the Company Law Board, as laid down in Sub-sections (4C), (4D) and (6) of Section 10E, will have to be within the framework of the principles of natural justice and the Company Law Board Regulations and shall act in its discretion. In view of this the question of applicability of the Evidence Act and the code of Civil Procedure to proceedings before the CLB does not arise.Nannalai Zaver and Anr. v. The Bombay Life Assurance Co. Limited and Ors. AIR 1950 SC 172 to show that the object of Section 397 is to prevent discrimination amongst shareholders and prevent the directors from offering shares to outsiders before they are offered to the shareholders. If these two requirements are complied with, the action of the directors in selecting the time when they will issue the shares as also the proportion in which they should be issued is a matter left to their discretion and it is not the province of the Court to interfere with the exercise of that discretion. This is of course subject to the general exception that the directors are not to act against the interest of the company or mala fide.Dale and Carrington Investments Private Limited and Anr. v. P.K. Prathapan and Ors. (supra) to show that any order of the CLB is not known to reward the wrongdoer and penalize the opposite party.

o Jaladhar Chakraborty and Ors. v. Power Tools and Appliances Co.

Limited and Ors. (1994) Vol. 79 CC 505 to show that if the shares are issued in the larger interest of the company the decision to issue the shares cannot be struck down on the ground that it has incidentally benefited the directors in their capacity as shareholders. The question whether a particular action of the directors was within the limits of the law or was in contravention of any provision of law is not a proper subject-matter of inquiry in a petition under Section 397 or 398 of the Companies Act. 1956. If an action of the directors is illegal or invalid, the company or the shareholders may take appropriate action in a court of law challenging the validity of such action, but a petition under Section 397 or 398 is not an appropriate remedy for the purpose. The only question is with which the court is concerned in a petition under Section 397 or 398 is whether the action of the directors-whether within the law or outside the law is oppressive to the minority shareholders or is prejudicial to the interests of the company.

o Fireproof Doors, Limited Ummey v. The Co. (1916) C.D. 142 to show that the minutes of a meeting are not exclusive evidence of what takes place there. An unrecorded resolution may be proved aliunde.

o Fakruddin v. The State of Madhya Pradesh (1967) AIR SC 1326 to show that the sole evidence of a handwriting expert is not normally sufficient for recording a definite finding about the writing being of a person or not.Shashi Kumar Banerjee and Ors. v. Subodh Kumar Banerjee 1964 AIR SC 529 to show that the evidence of the handwriting expert is not conclusive and the mere opinion of the expert cannot override the positive evidence of the contesting witnesses where there are no suspicious circumstances.

11. I have considered the pleadings and arguments of learned Counsel for the parties. While the petitioners are mainly challenging the allotment and transfer of shares impugned in the main petition, apart from accusing the second respondent of siphoning of the funds of the Company, the respondents took enormous efforts to justify the disputed allotment as well as transfer of shares, satisfying the legal requirements and further denied the charges of misappropriation of any funds of the Company. Against this background, the main issue that arises for consideration is whether the CLB in exercise of the powers under Sections 397 and 398 read with Section 402 of the Act shall remedy the grievances of the petitioners, as claimed by them, in the facts and circumstances of the case. Before proceeding to adjudicate the crux of the alleged acts of oppression and mismanagement in the affairs of the Company the rival claims with reference to the shareholding of the respective groups in the Company must be considered. The petitioners collectively claim to be majority shareholders which is however seriously disputed by the respondents. A close scrutiny of the relevant materials on record would emerge the following situation: There are no primary records, like share certificates or minutes of the board or general meeting(s) allotting shares, to substantiate the shareholding of either of the contesting parties. Nevertheless, the annual return for the period made upto 30.09.2004 admittedly signed by the second respondent would reveal that the petitioners collectively hold 13280 equity shares, (first petitioner - 5625: second petitioner - 4625: third petitioner - 2000 and fourth petitioner - 1000) out of the issued and subscribed 25.160 equity shares of Rs. 100/- each of the Company thereby constituting 52.66% of the paid up capital of the Company. The shares statement bearing the signature of among others, the respondents 2 & 7. the latter signed on 16.11.2005 would confirm the shareholding of the petitioners thus: (i) first petitioner -5625: (2) second petitioner - 5125: (3) third petitioner - 2250: and (4) fourth petitioner - 1000 aggregating 14000 shares out of the total number of 25OO0 shares of Rs. 100/- each, which would constitute 56% of the paid up capital of the Company. The shares statement further does confirm the payment of total consideration of Rs. 14.00.000 by way of cheques towards 14000 shares held in the name of the petitioners.

The genuiness of the shares statement has not been challenged by the respondents. The notice dated 24.03.2006 calling a board meeting on 07.04.2006 issued by the petitioners sent to the: second respondent with copies endorsed to the respondents 6 & 7 and the: lawyers notice dated 27.03.2006 caused to the respondents 2, 6 & 7 on behalf of the petitioners categorically claim that the petitioners are 56% shareholders of the Company. There is no material on the part of the: respondents denying the claim of the petitioners over 56% of the shares of the Company. The categorical averment of the petitioners made in C.P. No. 13 of 2006 filed before the High Court of Andhra Pradesh, prior to invoking the jurisdiction of CLB, that the petitioners possessed 56% of major shares in the Company has not been specifically repudiated at all by the second respondent herein, in the counter filed to the main petition in C.P. No. 13 of 2006.

The admissions of the second respondent that "...the petitioners with their majority holding brutally forced themselves on the board and on the day-to-day management of the respondent company" (para 4.12 of counter to C.P. No. 24 of 2006) and further that "...the second respondent with shares just short to be in a position of a majority shareholder in the respondent company' was left with no choice but to simply tow the line with the petitioners in all matters...." (para 4.13 of counter to C.P. No. 24 of 2006). being clear, precise and unambiguous, are the best and substantive evidence of the majority share holding of the petitioners group and would establish the falsity of the averment of the second respondent that the petitioners as at 31.03.2004 collectively hold only 9000 shares constituting 35.7% of the paid up capital of the Company. The above sequence of events which is supported by adequate materials discussed supra would drive me to conclude prima facie that the petitioners collectively command the majority shareholding of the Company, prior to the disputed allotment of shares on 30.03.2005, as reiterated by the petitioners.

12. The main dispute relates to the allotment of 24820 shares in favour of the first petitioner and the respondents 2 & 6 to 9 at a board meeting reportedly held on 30.03.2005. The board minutes dated 30.03.2005 which are seriously disputed would reveal that "The Chairman informed the board that Stale Bank of India made the pre-requisite to raise the paid up capital of the company to Rs. 50 lakhs in order to sanction the Term Loan of Rs. 180 lakhs to meet the cost of new units proposed to be established at Gajuwaka and Gopalapatnam. The Board discussed the matter in detail and decided to convert the existing unsecured loans given by the Directors of the company into share capital." After due deliberation the board of directors resolved to allot 24820 equity shares of Rs. 100/- each in favour of the first petitioner (2190 shares) second respondent (7270 shares), sixth respondent (14090 shares), seventh respondent (1250 shares), eighth respondent (10 shares) and ninth respondent (10 shares). The respondents 8 & 9 who reportedly brought in cash of Rs. 2000/- towards allotment of 10 shares each are neither shareholders nor directors of the Company. There is no explanation as to why shares have been allotted to the respondents 8 & 9 in spite of the decision of the board "to convert the existing unsecured loans given by the Directors of the company". The allotments made indiscriminately in favour of the remaining allottees namely the first petitioner and the respondents 2, 6 & 7, ignoring completely the other shareholder-unsecured creditors by mere conversion of the unsecured loans without generating any additional funds or accruing any material benefit in favour of the Company are liable to be set aside in view of the object of Section 397 being prevention of discrimination amongst shareholders which has been re-enforced in Nannalal Zaver and Anr. v. The Bombay Life Assurance Co.

Ltd. and Ors. (supra). The details of the statement said to have been placed before the directors at the time of the impugned allotment are not even placed before the Bench. It is rather evident from the board minutes that there has been no application of mind on the part of the directors that the proposed conversion of the existing unsecured loans into share capital of the Company', would result in conversion of the petitioners from majority into minority shareholders. There has been absolutely no discussion whatsoever at the time of allotment of shares on this vital aspect which prejudicially affected the interests of the petitioners. There is neither any material to show whether the respondents have at any point of time brought to the knowledge of the petitioners, the consequences of any conversion of the existing unsecured loans given by the directors into share capital of the Company thereby the respondents failed to act bonafide for the general advantage of the Company. The petitioners would not have conceded to reduce themselves to the position of minority shareholders. The balance sheet for the year ended 31.03.2005, does not reflect the true and correct picture of the increase in capital and the reduction in unsecured loans consequent upon conversion of the unsecured loans into share capital of the Company, as reportedly approved at the board meeting of 30.03.2005. The auditors' report for the year ended 31.03.2005 indicates an amount of Rs. 37.42 lakhs towards capital raised during the year which does not fall in line with the claim of the respondents. The respondents 2, 6 & 7 in my considered view, failed in their fiduciary duties to make appropriate disclosures to the petitioners being directors and other shareholders either before or after allotting the major chunk of shares to themselves without generation of any additional funds more so when it is expected of the directors in a private limited company to make necessary disclosures to the shareholders of such a company when further shares are being issued which is absolutely lacking in the case before me. Non-payment of any interest by the Company on conversion of unsecured loans into share capital on which no complaint was reportedly ever made by the first petitioner is of little consequence when the resolution allotting the impugned shares is already found to be inoperative. The communication dated 05.12.2004 of SBI requesting the Company to "consider increasing the equity by subsequent modifications in paid up and authorized capital", does not even whisper about the conversion of "the existing unsecured loans given by the directors of the company into share capital". The acts of directors in a private limited company are required to be tested on a much finer scale in order to rule out any misuse of power for personal gains or ulterior motives. Even in the event of SBI communication implying the conversion of the existing unsecured loans into share capital the respondents 2, 6 & 7 ought to have acted with utmost care skill and due: diligence in view of a heavier burden cast on the directors in a private company, as cautioned by the Supreme Court in Dale and Carrington Invt. P. Ltd. and Ors. v.P.K. Prathapan and Ors. (supra) and the principles re-iterated in Goldmark Enterprise Ltd. v. Pondy Metal and Roiling Mills P. Ltd. and Ors. (supra) that the directors must exercise then power bonafide and with utmost good faith for the benefit and interest of the Company, ensuring fair play in the corporate management, by analysing the pros and cons of conversion of the unsecured loans given by the directors into share capital of the Company. Any issue of further shares gaining control over the Company ought not to be allotted and the petitioners enjoying the majority status in the Company has been reduced to the position of minority shareholders by the act of the board of directors of the Company, which is nothing but an act of oppression to the petitioners, as held by the Supreme Court in Dale and Carringtom Investments Private Limited and Ors. v. P.K. Prathapan and Ors.

(supra). It is a settled principle that further shares are normally issued for augmentation of funds for the company or towards complying with statutory requirements or requirements of banks and financial institutions. The allottees save the respondents 8 & 9 neither brought any additional funds for the impugned shares nor was there any requirement for any additional capital for the purpose of the Company.

The further issue of shares was admittedly not to meet any statutory compliances. The support drawn by the respondent on the requirement of SBI, which is however, silent on conversion of the unsecured loans into share capital, does not appear to be justifiable. At the same time, the interest of the banker with its enormous credit exposure to the Company is not to be sacrificed on account of the oppressive conduct of the respondents. The respondents without making any offer to all the existing shareholders made the impugned allotments exclusively in their favour and selectively to the first petitioner without her consensus before converting her part of the unsecured loans given to the Company.

The directors are prohibited to use the power for the purpose of usurping the Company. This action of the respondents having serious and continuous impact permanently prejudicing the interest of the petitioners is unfair and burdensome. Even when the CLB exercises the powers within the framework of the principles of natural justice and the Company Law Board Regulations 1991 as contemplated in Rajinder Kumar Malhotra and Ors. v. Harbanslal Malhotra and Sons Limited and Ors. (supra), it cannot go to the rescue of the respondents. The impugned allotment of shares is not found to a legitimate act on the part of the second respondent and protest came form the petitioners within a period of one year by approaching the High Court, unlike in the case of Jermyn Street Turkish Baths Limited (supra). The petitioners cannot therefore, said to be guilty of acquiescence so as to deny the discretionary relief, citing the case of Bengal Luxmi Cotton Mills Limited (supra). The Supreme Court in the facts of Needle's case found that the directors issued rights shares for the purpose of preventing the affairs of the Company from being brought to a grinding halt and consequently approved the action of the directors which resulted in conversion of the existing majority into a minority, which are thus distinguishable from the facts of the present case on hand. The issue of further shares impugned in the main petition is oppressive to the petitioners for the reasons elaborated here above and hence the respondents cannot derive any benefit on account of the decision in Jaladhar Chakraborty and Ors. v. Power Tools and Appliances Co. Limited and Ors. (supra).

13. Having found that the conversion of the petitioners group into a minority status would definitely constitute an act of oppression in the facts of the present case, the various irregularities and illegalities alleged by the petitioners in the conduct of the board meeting of 30.03.2005, allotting the impugned shares are being examined. Section 186 of the Act stipulates that notice of every meeting of the board of directors of a company shall be given in writing to every director, in the manner prescribed therein, failing which any resolution passed at the meeting of the board of directors shall become invalid. This mandatory requirement has been reenforced by the courts from time to time including in the decisions cited by Shri A.K. Mylsamy, learned Counsel, namely. (1) Mrs. Senthamarai Munusamy v. Microparticle Engineers Private Limited and Ors. and S. Munusamy v. Micromeritics Engineers Private Limited; (2) Parmeshwari Prasad Gupta (deed., through legal representatives) v. Union of India; (3) Ansar Khan and Ors. v.Finecore Cables Private Limited and Ors.; and (4) Rashmi Seth v.Tillsoil Farms Private Limited and Ors. (supra). The respondents are merely planking on the certificates of posting to discharge the onerous obligation of issuance of the notice of the board meeting held on 30.03.2005 in favour of the petitioners. The certificate of posting would only establish the entrustment of certain postal envelops/articles with the post office, which does not however, conclusively establish the service of the notice on the addressee concerned and therefore it is not safe to trust mere certificate of posting, without supported by any corroborative evidence in connection with serving of notice as repeatedly reiterated in (1) S. Narayanan and Ors. v. Century Flour Mills Limited and Ors.; (2) S. Madhusoodhanan and Anr. v. Kerala Kaumudi Private Limited and Ors.Goldmark Enterprise Limited v. Pondy Metal and Rolling Mills Private Limited and Ors.V.S. Krishnan and Ors. v. Westfort Hi-tech Hospital Limited and Ors. (Supra).

14. The Company has been undisputedly convening and conducting the board meetings periodically during the period between 14.04.2002 and 30.11.2005, as borne out by as many as 29 board minutes signed by the second respondent, which are undisputed and produced before the Bench.

Nevertheless, there is no material to show that notices of those meetings have been dispatched under certificate(s) of posting, whereas the notices of the disputed meetings have been reportedly sent under certificate of posting. It is not known as to what prompted and provoked the second respondent to send the notices of the disputed meetings under certificate(s) of posting. While the board minutes dated 26.05.2005 speak of the a ailment of SBI mortgage loan and execution of the collateral securities they are conspicuously silent about the purported allotment of shares at the earlier purported board meeting on 30.03.2005, thereby raising suspicion on the stand taken by the respondents. A lot of controversies have arisen on the issue of participation by the first petitioner in the proceedings of the board meetings held on 30.03.2005 and 14.11.2005. Nevertheless there has bam no explanation for the inconsistent pleas and contradictory stand taken by the second respondent, elaborately dealt with by Shri A.K. Mylsarny, learned Counsel, elsewhere, thereby the second respondent failed to establish conclusively the participation of the first petitioner in the board meeting held on the above dates. The opinion of the Forensic Science Department that the board minutes dated 30.03.2005 and 14.11.2005 do not contain the signatures of the first petitioner on weighing along with the weak evidence produced for having reportedly sent the notices of the disputed board meetings and the unexplained inconsistent assertions on the participation of the first petitioner in the proceedings of those meetings would go in support of the first petitioner ventilating her grievances canvassed in enforcement of the statutory rights before the CLB. In this context the decisions in Fakruddin v. The State of Madhya Pradesh and Sashikumar Shashi Kumar Banerjee and Ors. v. Subodh Kumar Banerjee (supra) on reliability of-sole evidence of a handwriting expert and conclusiveness of the evidence of the handwriting expert will in no way be of any assistance to the respondents. The board minutes dated 30.03.2005, are found to be fabricated, thereby invalidating the allotment of shares made at the alleged board meeting, in view of the decision of this Board in Rashmi Seth v. Tillsoil Farms Private Limited and Ors. (Supra), notwithstanding the assertion of Shri Arvindh Pandian learned Counsel that there was a valid quorum with participation of the respondents 2.

6 & 7 at the board meeting and the presence of the first petitioner was rather immaterial and the first petitioner cannot, therefore, the said to be a parry to the decision to allot the impugned shares and thus, the decision in Amanullah v. Safina Construction (P) Limited (supra), will not strength the stand of the respondents. The mere certification of the board minutes dated 30.03.2005 by the second petitioner and the second respondent, which is under dispute, cannot validate them if otherwise, the minutes are invalid and inoperative. Furthermore, the oppressive and irregular allotment of additional shares can in no way be justified on the strength of the subsequent extension of financial assistance by the bank and execution of the loan and security documents by the petitioners 1 to 4. The cumulative effect of these events would evidently show that the conduct of the respondents by indiscriminately converting the unsecured loans into share capital is not only harsh; and oppressive but also shrouded with a series of irregularities, warranting intervention of this Bench, which, cannot be denied by virtue of the decisions in London School of Electronics Limited and Anugraha Jewellers Limited and Ors. v. K.R.S. Mani and Ors. (supra).

15. This Bench at the time of advancing arguments on behalf of the petitioners as well as the respondents, suggested that on determination of the validity of the allotment of shares impugned in the main petition the shareholders may exercise their wisdom and decide the constitution of the board of directors and if so, there would not be any need to go into the rival claims putforth in regard to appointment of the respondents 3 & 4 as directors of the Company. which was acceptable to learned Counsel representing both the groups and accordingly the contentious issues raised in this behalf including the validity of the board meeting of 15.11.2005 whereat the respondents 3 & 4 reportedly became the directors of the Company and the defence putforth by the respondents are not being adjudicated by me.

The validity or otherwise of the transfer of 1250 shares by the second respondent in favour of the third respondent (750 shares) and the fourth respondent (500 shares) must be tested in the light of Clause 10(b) of the articles of association of the Company, which runs as follows: Any member desiring to sell any of his shares must notify the Board of Directors of the number of shares, the fair value and the name of the proposed transferee and the Board must offer to the other shareholders the shares at the fair value and if the offer is accepted, the shares shall be transferred to the acceptor and if the shares or any of them are not so accepted within one month from the date of notice to the Board the member proposing transfer shall, at any time, within three months afterwards, be at liberty to sell and transfer the shares to any persons at the same or at the higher price. In case of any dispute regarding the fair value of the share if shall be decided by and fixed by the company's Auditor whose decision shall be final.

16. It is far from doubt that any member willing to sell his shares must notify the: board of directors, about (i) number of shares: (ii) fair value: and (iii) name of proposed transferee, thereafter, which the board must offer to other shareholders, the shares at fair value.

If the other shareholders do not accept the offer within one month from the date of notice to the board, the member proposing transfer is at liberty within three months thereafter to sell the shares to any other person at not less than fair price. It is on record that the second respondent notified the board of directors of his desire to sell 1250 equity shares out of 13020 shares held by him to the respondents 3 & 4 for a fair value of Rs. 200/- per share. The communication of the second respondent notifying his willing for transfer of his shares has been acknowledged inter-alia by the third petitioner the spouse of the petitioners 1 & 2 and the respondents 6 & 7 thereby they are abreast with the offer made by the second respondent. There is no material to show that the petitioners evinced any interest in accepting the offer of the second respondent. The petitioners have not even attempted to point out whether the offer notified by the second respondent was acceptable to them, but are merely challenging the transfer on the ground of non-compliance with Clause 10(b) of the articles of association of the Company. The communication of the second respondent categorically indicates that 1250 shares were sought to be sold for the medical expenses on account of his son who was undergoing treatment and later died. The voluminous records produced by the second respondent and meticulously referred to by Shri Arvind Pandian, learned Counsel, in the course of his arguments would show that the spouse of the petitioners 1 & 2 have been involving in the day-to-day affairs and management of the Company for and on behalf of the petitioners 1 & 2 and. therefore, the letter of offer selling the shares of the second respondent acknowledged by the spouse of petitioners 1 & 2 is squarely binding upon the petitioners 1 & 2 and cannot be disowned as held in Mrs. M.R. Sham v. Vardkman Dye Stuff Industries Private Limited and Ors. (sapra). It is relevant to point out that the petitioners 1 & 2 have never disputed the offer letter sent by the second respondent to the board of directors of the Company and duly acknowledged by their spouse. It is therefore, beyond doubt that the sale of 1250 shares by the second respondent is found to be made transparently and in substantial compliance with the spirit of Clause 10(b) of the articles of association of the Company, which is found to be approved at the board meeting held on 15.11.2005, to which the third petitioner was undisputedly a party. The plea of the petitioners (para 6.7 of main petition) that the second respondent passed unanimous resolutions without the approval of the board of directors does not lie in their mouth.

17. The yet another serious concern of the petitioners on account of the purported tampering by the second respondent with the data fed into the computer in regard to all the receipts of the Company and siphoning of the entire cash generated in the course of day-to-day operations of the Company, apart from being bald lacks full particulars and remains unsupported by any material whatsoever. Nevertheless, this Bench, with a view to ensure that the petitioners' purported grievances should not be left without being remedied, during the pendency of the present proceedings by an order dated 30.08.2006 restored the authority of the second petitioner to operate the bank account jointly with any director from the respondents' group with effect from 07.09.2006, which did not yield any desired result, but ended in the following interim order dated 15.11.2006: The bank account of the Company by way of interim arrangement, will jointly be operated in accordance with the order dated 30.08.2006.

Towards this end as and when the cheques are sent by the Managing Director for joint signature of the second petitioner in terms of the order dated 30.08.2006, he will forward a copy of the bank statement to show that there is sufficient bank balance in the account maintained by the Company as on the relevant dates. The second respondent will ensure that sufficient bank balance is maintained to honour the cheques. In any event, the second petitioner will not be held responsible for any insufficiency of funds in the bank account. The second petitioner will sign and forward the cheques within three days on receipt of the cheques and the bank statement. While the petitioner will return 14 cheques which were sent earlier for her joint signature, the remaining cheques forwarded in September. 2006. will be signed and sent to the Managing Director within three days on receipt of the bank statement from the Managing Director, showing the adequate bank balance to meet the amount of these cheques....

It may be observed that the petitioners instead of exercising their authority in operating the bank account jointly with the respondents group, thereby safeguarding the interests of the Company as well as their interest, they chose to challenge the order by preferring an appeal before the High Court of Andhra Pradesh. However this Bench does not question the lawful right of the petitioners to challenge the above order. Furthermore an independent Chartered Accountant came to be appointed in May 2006 for the purpose of inter-alia verifying the books of account and other records of the Company as well as the transactions as required by the petitioners and valuing shares of the Company, with the ultimate object of one of the groups exiting the Company. The verification and valuation process which ought to have been completed by 10.07.2006. were given up on account of certain differences which cropped up for want of necessary understanding between the Chartered Accountant and the respondents, the merits of which being irrelevant are not looked into at this stage. With all the attempted remedial measures, the petitioners cannot have any grievances on account of the purported mismanagement the affairs of the Company by the second respondent.

18. The petitioners group and the respondents group are accusing each other of carrying on similar business in competition with the Company, in support of which a number of documents have been produced before the Bench in the course of the hearing. In this connection it is reported that there are two entities under the name and style of Vijaya Hospital and Vijaya Clinic established before the incorporation of the first respondent Company, which are under the management of the respondent's group. The remaining two entities namely. Visakha MRI Centre and Visakha Medical Centre established, after the formation of the first respondent Company, in May 2002 and August 2002 respectively, are under the manegemnt of both the petitioners and the respondents. Though the respondents group has been running Vijaya Clinic as well as Vijaya Hospital over since the years 1985 and 1998. the petitioners have belatedly raised for the first time at the stage of arguments the issue of rival business said to be carried on by the respondents group without however establishing the competitive business reportedly carried on by the respondents group. It is on record that the petitioners have established a firm under the name of Vijetha Medical Centre as late as in May 2006, which is admittedly engaged in the business of medical and clinical laboratory, which clearly shows that they are engaged in competing business with the Company. The petitioners are justifying their engagement in the similar line of business on the premises that the respondents are engaged in the same activity which is already found to be devoid of any merits and must appropriately be remedied in the interest of the Company, on the principles enunciated in Pearson Education Inc. v. Prentice-Hail of India Private Limited and Ors. (supra).

The relationship between the petitioners group and the respondents group as borne out by the subsequent developments and the consequent criminal proceedings initiated against each other on record plays a vital role in moulding the reliefs in order to bring to an end the acts complained of in the main petition. The first petitioner has lodged a criminal complaint on 24.04.2006, against the second respondent with the local Police at Visakhapatnam for abusing and manhandling her husband at the office premises of the Company. The second respondent and the employees of the Company have also lodged a police complaint on 24.04.2006, against the petitioners for having reportedly abused the complainants and ransacked the office premises of the Company. The third petitioner has been allegedly arrested and remanded to judicial custody on the complaint made by the sixth respondent on account of the purported manipulation of the records while obtaining copies of partnership deed registration certificate of Ms Vijaya Hospital and income tax return of the sixth respondent. The connected criminal proceedings initiated against the third petitioner before the Court of Chief Metropolitan Magistrate. Visakhapatnam are said to be pending.

The parties have preferred not less than 12 interlocutory applications fighting their cause generating bitterness among themselves. The respondents have filed affidavits from as many as 117 employees and 15 unsecured creditors pledging their support in favour of the second respondent, which cannot however influence the present proceedings yet at the same time the sentiments of the employees and the constituents of the Company will have to be respected, while resolving the rival claims of both the parties. It is undoubtedly found beyond doubt that these two warring groups have irretrievably fallen from each other and their continued collaboration in the management of the Company is absolutely out of question and beyond redemption and hence, one of the groups shall exit the Company on fair terms, to meet the ends of justice. While the petitioners are undoubtedly majority shareholders, the stake of the respondents group apart from their contribution towards share capital of the Company by way of personal guarantee and collateral security offered in favour of the bank is substantially higher as pointed out by Shri P.H. Arvindh Pandian. learned Counsel for the respondents. In view of these peculiar circumstances each warring group must be given equal opportunity to purchase the stake of the other group so as to do substantial justice between the parties. While reaching this conclusion it is ensured that the proposed order does not reward the wrongdoer and penalise the opposite party as propounded by the Supreme Court in Dale and Carrington Investments Private Limited and Ors. v. P.K. Prathapan and Ors.

19. The transfer 4250 shares of Company (625 shares in favour of third respondent 1625 shares in favour of fourth respondent and 2000 shares in favour of the second respondent) which is the subject matter of C.P.No. 350 of 2006 as well as the registration of the impugned transfers has not been effected in accordance with the mandatory requirements of Section 108 of the Act. The Company will therefore approve the transfer of 4250 shares, on due compliance with the formalities prescribed in Section 108 of the Act by the respective transferor(s) and transferee(s) as assured on behalf of the Company, in the course of the hearing of the main petition.

20. The prayer of the petitioner in C.P. No. 351 of 2006, seeking directions against the Company, to file Form No. 32 notifying the Registrar of Companies, of the cessation of the second respondent namely. Major (Retd.) P. Rama Rao, as a director of the Company does not survive, in view of the serious disputes raised in regard to convening and holding of the annual general meeting itself on 30.09.2004, wherein, no resolution was reportedly passed, appointing the second respondent as a director of the Company Where in a proceeding initiated under Section 614, any disputes are raised by any party on the merits of such proceeding, involving question of facts or law, the CLB will not exercise its jurisdiction under that section, conceding to the prayer of the petitioner. In view of the rival claims, on account of the appointment or otherwise of the second respondent as a director, the question of directing the Company to file Form No. 32, under Section 614 does not at all arise.

In view of the foregoing conclusions and in exercise the powers under Sections 397 and 398 read with Section 402 and with a view to regulate the conduct of the affairs of the Company, the following order is passed: i) The allotment of 24820 shares made on 30.03.2005 in favour of the first petitioner and the respondents 2 and 6 to 9, being oppressive and illegal is set aside.

ii) The Company is at liberty to allot 24820 shares afresh in favour of the existing shareholders at the face value of Rs. 100/- per share in proportionate to their shareholding in the Company. The unsubscribed capital, if any shall be allotted to the willing shareholders.

iii) The shareholders shall appoint the directors in accordance with the relevant articles of association of the Company ensuring proportional representation to both the groups, in the ratio of their shareholding in the Company.

iv) The directors appointed in terms of this order, are to appoint a Managing Director/Whole-Time Director on such terms and conditions as may be fixed by them and carry on the day-to-day affairs of the Company in strict compliance with the articles of association of the Company till the exit of either of the groups from the Company in terms of this order.

v) The Company shall ensure compliance with the directions at Sl.

Nos. (ii) to (iv) here-above within 45 days of the receipt of a copy of this order.

vi) All notices of the board and general meetings, shall henceforth be sent by registered post with acknowledgment due until and unless waived by the general body of shareholders.

vii) M/s Sudhakar and Kumar Associates. Chartered Accountants.

Visakhapatnam [Phone Nos. (0891) 2755814 and (0891) 2759083] are appointed to determine the price of each share in the Company as at 31.03.2006, being the date proximate to the date of company petition after verifying the books of account and other records of the Company and on taking into account the submissions of both the groups, on valuation of the shares. After completion of the valuation process, which shall be within 45 days of the receipt of a copy of this order, the report of the Chartered Accountants shall be made known to each group and thereafter, each group shall quote in sealed cover before the CLB the competitive price of each share in the Company, at the price higher than the price determined by the Chartered Accountants agreeing to buy the shares of other group or to sell its shares to other group at the aforesaid higher price. The group quoting its price higher than the one quoted by the other group shall have the first option to buy the shares of the other group. Thereupon, the CLB will give appropriate directions ordering the group quoting higher price to purchase the shares of other group quoting lower price. Towards this end the parties shall remain present on 29.02.2008 at 2.30 P.M. The parties are at liberty to apply, in the event of any difficulty in implementation of the working modalities on the exist of either group and no seisin is retained in respect of any of the other issues involved in the main petition. The remuneration of the Chartered Accountants will be borne by the Company.

viii) The petitioners shall not continue to engage in any business in competition with that of the Company against its interest until the entire formalities for parting ways of both the groups are duly completed, in terms of this order.

ix) The Company shall register the transfer of 4250 shares, being the subject matter of C.P. No. 350 of 2006 in favour of the second respondent (2000 shares): third respondent (625 shares): and fourth respondent (1625 shares), within 30 days of due lodgement of the relative share certificates together with the instruments of transfer duly executed by the transfero(s) as well as transferee(s) in strict compliance with Section 108 of the Act: and With the above directions, all the three company petitions stand disposed of. In view of this, the interim orders in force are vacated.

No order as to costs.