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Wednesday, October 12, 2016

The argument that having regard to the conduct of the Gupta Group in managing the affairs of the Company and all decisions taken being in the best interest of the Company, no case for winding up is made out so as to justify the exercise of powers under Section 397/398 of the Act by the CLB, would hardly require a detailed consideration in view of the specific findings of the High Court in this regard, which are wholly adverse to the Gupta Group- whether a single act of oppression would enable the CLB to intervene or oppression must be the cumulative result of continuous acts should not require any debate in the facts of the present case which demonstrate a series of unacceptable decisions and actions on the part of the Gupta Group. In the last resort, satisfaction that oppression has been committed has to be reached in the facts of each case. In view of the above discussions and for the reasons alluded, Civil Appeal No.589 of 2010 filed by the Gupta Group is dismissed whereas Civil Appeal No.599 of 2010 filed by the Sanwalka Group is disposed of with directions, as contained in the present order.

                                 REPORTABLE

                        IN THE SUPREME COURT OF INDIA
                        CIVIL APPELLATE JURISDICTION

                        CIVIL APPEAL NO. 589 OF 2010

Tin Plate Dealers Association Pvt. Ltd. & Ors.    ...Appellant (s)

                                   Versus
Satish Chandra Sanwalka & Ors.                ...Respondent (s)

                                    With
                         CIVIL APPEAL NO.599 OF 2010

                               J U D G M E N T

RANJAN GOGOI, J.

Both the appeals being against the common judgment and  order  of  the  High
Court of Calcutta dated 14th September, 2005 were  heard  together  and  are
being dealt with by this common order.
 The appellant in Civil Appeal No. 589 of 2010 is a private limited  company
incorporated in the year 1948 with its registered office at  Calcutta.   The
appellants 2 to 5 (hereinafter referred to as the ‘Gupta  Group’)  had  come
into control of the company  by  actions  and  omissions  complained  of  by
respondents 1 to 7 in the said appeal i.e. C.A. No.589  of  2010  which  had
led to the institution of the company petition under Section 397/398 of  the
Companies Act, 1956 (hereinafter  referred  to  as  the  ‘Act’).   The  said
respondents may be conveniently referred to as the “Sanwalka Group”.
At the time of its incorporation, the authorised capital of the company  was
Rs. 10 lakh consisting of 4,000 redeemable cumulative preference  shares  of
Rs. 100/- each and 6,000 ordinary shares of Rs.  100/-  each.   The  paid-up
capital of the company before the issue of new, ordinary and  bonus  shares,
which is the bone of contention  between  the  parties,  consisted  of  4132
partly paid ordinary shares and 1868  fully  paid  ordinary  shares  besides
3065 fully paid preference shares.  One M/s. Gupta Brothers originally  held
the 4132 partly paid shares.  The said shares  were  forfeited  sometime  in
the year 1966 and thereafter the same were issued to the Sanwalka Group  who
paid a total of Rs.45 for each share consisting of payment at  the  time  of
application and allotment and  Rs.10/-  per  share  on  a  call  being  made
subsequently. Whereas, according to Gupta Group, these shares were  held  by
the Sanwalka Group on behalf of Gupta Brothers, the said fact is  denied  by
the Sanwalka Group.  According  to  the  Sanwalka  Group,  the  Gupta  Group
without notice to them had increased the authorized capital of  the  company
to Rs. 5 crores in an Extra Ordinary General Meeting of the Company held  on
5.7.1994.  No notice of the said meeting was given to the Sanwalka Goup.   A
Board Meeting was held on the same day i.e. 5.7.1994 to give effect  to  the
above decision taken in the E.O.G.M. to increase the share  capital  of  the
company. In the said Board meeting, a follow up decision was taken to  allot
bonus shares at the ratio of  60  bonus  shares  for  every  fully  paid  up
preference and equity share held. The said bonus shares were  to  be  issued
against revaluation of the industrial plot in  Okhla  Industrial  Area,  New
Delhi which was the only asset of the company at that  time.  This  was  not
contemplated by the Articles of Association of  the  Company,  according  to
the Sanwalka Group. In any case, no bonus  shares  were  allotted  to  them.
Further more, according to the Sanwalka  Group,  pursuant  to  the  decision
taken on 5.7.1994, in August, 1995 the company issued 3065 equity shares  to
the holders of the preference  shares  (Gupta  Group).  In  February,  1996,
25,000 ordinary equity shares were again issued to the members of the  Gupta
Group against which Rs.40 per share was paid. The said issue was  ostensibly
to raise additional capital for the company. This  allotment  was,  however,
to the exclusion of the Sanwalka Group. Contending that the  aforesaid  acts
had the effect of reducing the Sanwalka Group, which was  otherwise  in  the
majority, to a negligible minority in  the  company,  the  company  petition
alleging oppression was filed before the Company Law Board wherein  the  act
of removing two members of the Sanwalka Group from the  Board  of  Directors
(w.e.f.1.7.1991) and inducting two others of the Gupta Group in their  place
was also called into question.
From the reply  filed  by  the  Gupta  Group  to  the  company  petition  it
transpired that the 4132 partly paid  shares  held  by  the  Sanwalka  Group
stood forfeited. The aforesaid forfeiture was therefore  challenged  in  the
company petition with a claim that  the  said  shares  be  restored  to  the
members of the  Sanwalka  group.  During  the  subsistence  of  the  company
petition, supplementary applications were also filed challenging the  action
of the Gupta Group in leasing out the industrial plot to sister concerns  on
terms claimed to be prejudicial to the interest of the company  and  of  the
shareholders.
 The eventual reliefs prayed for in the Company Petition  in  the  light  of
the averments made in the said petition and the  supplementary  applications
were for:
restoration of the names of  the  members  of  the  Sanwalka  Group  in  the
register of members of the company;

cancellation of the allotment of bonus shares;

cancellation of the issue and allotment of  25000 partly  paid  up  ordinary
equity shares to the Gupta Group;

cancellation of 3065 equity shares to the holders  of  the  3065  preference
shares;

cancellation of the lease agreement in respect of the industrial plot and

restoration of the names of the concerned members of the Sanwalka  Group  as
Directors of the Company.


6.    The Company Petition was opposed by Gupta Group  as  not  maintainable
in law. According to the Gupta Group, the shares held by the members of  the
Sanwalka Group stood forfeited and the holders  thereof  had  ceased  to  be
members of the company.  Such forfeiture, according to the Gupta Group,  was
in the following circumstances.
The said shares were held by the Sanwalka Group as beneficiaries  on  behalf
of the original holders i.e. M/s. Gupta Brothers. As the shares held by  the
Gupta Brothers were partly paid, the Sanwalka Group as beneficiary  holders,
was liable to pay the unpaid value of the said shares  along  with  interest
therein on a call being made by the company. Such a call, according  to  the
Gupta Group, was made on 05.01.1991  which  went  unanswered.  Consequently,
the aforesaid shares were forfeited. There  was  an  alternative  contention
advanced by Gupta Group to the effect that in any event the  Sanwalka  Group
were holders of partly paid shares and they  having  not  responded  to  the
call notice dated 5.1.1991, the company petition was not maintainable  under
Section 399 of the Act.
7.    The claim of the Sanwalka Group that the issue  of  bonus  shares  was
not authorized as the same could not have been issued again the  revaluation
reserve was resisted by  the  Gupta  Group  by  specific  reference  to  the
relevant provisions of the Companies Act, details of which will  be  noticed
later.  It  was  claimed  that  in  the   Board   Meeting   dated   5.7.1994
proportionate allotment of bonus shares against the 4132 partly paid  shares
in which the Sanwalka Group held a beneficial interest was  offered  subject
to payment of the dues against the said shares in term of  the  call  notice
dated  5.1.1991.  Insofar  as  the  issue  of  25,000  ordinary  shares   is
concerned, it was contended by the Gupta Group that  the  said  shares  were
issued to infuse badly needed capital into  the  company.  In  view  of  the
clear and expressed disinterest of the Sanwalka Group in the affairs of  the
company evidenced by their long silence and failure to respond to  the  call
notice dated 5.1.1991 and also to participate in the Board meetings, it  was
understood by  the  Gupta  Group  that  they  would  not  be  interested  in
allotment of any part of the newly issued share capital i.e. 25,000  shares.
In any case, according to the Gupta Group, as the members  of  the  Sanwalka
Group had ceased to be members of the company (1995) by the time the  25,000
shares were issued/allotted (February,  1996)  they  were  not  entitled  to
allotment of any of the said newly issued shares.
8.    Insofar as the lease in respect of the industrial plot  is  concerned,
it  was  urged  on  behalf  of  Gupta  Group  that  the  same  was  done  in
consideration  of  the  funds  made  available  by  the  lessees  to   raise
construction on the  land  which  was  necessary  to  pre-empt  an  imminent
forfeiture of the lease itself. The actions of the company, therefore,  were
claimed to be in the interest of the company.
9.    The Company Law Board (CLB)  by  an  elaborate  order  dated  1.3.2001
overruled the objections raised by the Gupta Group  to  the  maintainability
of the petition. The CLB concluded that the shares held by  the  members  of
the Sanwalka Group were in their own right,  independent  of  any  right  of
M/s. Gupta Brothers all of which stood extinguished upon forfeiture  of  the
shares held by the said Gupta Brothers. The  CLB  further  held  that  under
Article 18 of the Articles of Association of the Company, it is  M/s.  Gupta
Brothers who were liable to pay the dues, if  any,  on  the  said  forfeited
shares. The Board also found that the members  of  the  Sanwalka  Group  had
paid Rs.45 per share and though there were an obligation to pay the  balance
on a call being made the materials on record did not disclose that any  such
call was made at any  point  of  time.  In  this  regard  the  notice  dated
5.1.1991 was held by the CLB not to be  duly  proved  to  have  been  issued
following the procedure under Section 53 of the Act. It was also  held  that
the said notice dated 5.1.1991 did not contemplate forfeiture of the  shares
in the event of failure to pay the call money as required  under  Clause  14
of the Articles of Association of the Company. On  the  basis  of  the  said
findings  the  twin  objections  raised  by   the   Gupta   Group   to   the
maintainability of the company petition was held against them.
10.   The CLB by its order dated 01.03.2001 further held that the  issue  of
bonus shares against revaluation reserve was contrary to the  provisions  of
Article 96 of Table A of the Act of 1956. So far  as  the  issue  of  25,000
ordinary equity shares is concerned, the CLB decided the issue in favour  of
the Gupta Group. However, as the members of the Sanwalka Group continued  to
be members of the company, it was held that proportionate allotment  of  the
said equity shares should have been made to them also. The  removal  of  the
two representatives of the Sanwalka Group from the Board was  also  held  to
be bad on the aforesaid count.  Of  particular  significance  would  be  the
finding of the Board that notice of the  EOGM  held  on  5.7.1994  in  which
decision  was  taken  to  raise  the  share  capital  of  the  company  was,
admittedly, not given to the Sanwalka Group though  they  were  entitled  to
such notice. Insofar as correctness of the issue  of  3065  ordinary  equity
shares against the preference shares is concerned,  the  Company  Law  Board
felt that it would be inappropriate to  go  into  the  said  question  as  a
related issue was pending before the Delhi High Court  with  regard  to  the
very same preference shares. In  fact,  the  issue  before  the  High  Court
involved the question as to whether the said shares  did  exist  at  all  or
stood extinguished prior to the date of conversion. Insofar as the lease  of
the industrial plot is concerned, the CLB felt that the same should be  left
open for an appropriate decision of the company in a  General  Body  Meeting
to be held on the basis of the revised share holding as ordered by the  CLB.

11.   Aggrieved by the aforesaid  order  of  the  CLB  with  regard  to  the
maintainability of the company petition, issue of bonus  shares  and  25,000
ordinary equity shares and also the  re-induction  of  the  members  of  the
Sanwalka Group in  the  Board  of  Directors,  the  Gupta  Group  moved  the
Calcutta High Court by filing an  appeal  under  Section  10F  of  the  Act.
Challenging the  decision  of  the  Board  insofar  as  the  issue  of  3065
preference shares and the  lease  in  respect  of  the  industrial  plot  is
concerned, the Sanwalka Group had filed a separate appeal. The  High  Court,
by its impugned  order  dated  14.9.2005,  dismissed  both  sets  of  appeal
leading to the institution of the present appeals before this Court.
12.   On the basis of the issues dealt with by the CLB and  the  High  Court
and the arguments advanced on behalf of the parties the  issues  arising  in
the two appeals may be summarised as follows:
Maintainability of the company petition filed by the Sanwalka  Group  before
the Company Law Board.
Legality of the issue of bonus shares by the company;
Legality of the issue of 25,000 new ordinary shares ;
Legality of the removal of the representatives of the  Sanwalka  Group  from
the Board of Directors and the induction of the members of  Gupta  Group  in
their place;
Legality of the lease agreement executed by the company in  respect  of  the
industrial plot;
Legality of the  issue  of  3065  ordinary  equity  shares  as  against  the
preference shares.

13.   We have heard Shri Arvind P. Datar learned  senior  counsel  appearing
for the Gupta Group and Shri C.A. Sundaram learned senior counsel  appearing
for the Sanwalka Group.
14.   The questions arising, as noticed above,  may  now  be  taken  up  for
consideration.
            Maintainability of the Company Petition –
      Notwithstanding the very elaborate and persuasive  arguments  made  by
both sides a resolution of the above question is possible by  a  close  look
of the share certificates issued to the members of the Sanwalka Group  after
allotment of the shares in question following the forfeiture of the same  in
the hands of  M/s.  Gupta  Brothers.  Some  of  the  share  certificates  in
question  are  on  record.  A  reading  thereof  discloses  that  the   same
constitute a fresh and independent allotment of the shares by  reference  to
their distinctive  numbers  specified  therein.   The  certificates  do  not
contain any stipulation or condition that the same are being held either  on
account of a third person  or  as  beneficiaries  on  behalf  of  any  third
person. The shares in question were allotted on payment of Rs.35  being  the
application money (Rs.25) and allotment money (Rs.10).  A further amount  of
Rs.10/- per share  was  paid  against  the  first  call  made  on  7.8.1986.
Therefore, the share certificates, ex facie,  do  not  support  any  of  the
contentions advanced on behalf of Gupta Group, details of  which  have  been
noticed hereinabove. If the shares were held by the members of the  Sanwalka
Group in their own right without any connection to  the  erstwhile/forfeited
shares held by  M/s.  Gupta  Brothers,  the  second  question  arising  i.e.
failure to respond to the call notice dated 5.1.1991 really does not  arise.
Be that as it may, the said notice required  the  members  of  the  Sanwalka
Group to pay the unpaid value of the forfeited shares (which  coincidentally
was also Rs.55/- per share i.e. same as the unpaid amount of the  shares  at
the time of  forfeiture  when  held  by  M/s.  Gupta  Brothers)  along  with
interest. In this regard it was found by the CLB as well as the  High  Court
that even issue of notice of the call in terms of Section 53 of the Act  had
not been proved by the Gupta  Group.  That  apart,  the  call  notice  dated
5.1.1991 and forfeiture of the shares held  by  the  Sanwalka   Group,  upon
alleged failure to comply with the  said  notice,  does  not  appear  to  be
inconformity with Clauses 14 to 18 of the Articles  of  Association  of  the
Company, which are extracted below:–
“14. If any member fails to pay any call or instalment on or before the  day
appointed for the payment  of  the  same  the  Directors  may  at  any  time
thereafter during such time as the call or instalment or  any  part  thereof
remains unpaid serve a notice on such member requiring him to pay  the  same
together with any interest that may have accrued and all expenses  that  the
company may have incurred. They may also write in any such  notice  that  in
the event of failure to pay the amount so due before a particular  date  the
Directors shall proceed to forfeit the shares.”          (emphasis is ours)

15. If the amount still remains unpaid the Directors may proceed to  forfeit
the shares.

16. A notice of the resolution of forfeiture shall be given  to  the  member
whose shares have been forfeited.

17. Any shares so forfeited shall be deemed to  held  the  property  of  the
company and  the  Directors  may  sell,  reallot  annul  the  forfeiture  or
otherwise dispose of the same in such a manner as they may think fit.

18. Any member whose shares have been forfeited shall  notwithstanding  such
forfeiture be liable to pay, and shall forthwith  pay  to  the  company  all
calls instalments, interest and expenses owing upon or in  respect  of  such
shares at the time of forfeiture/together with interest  thereon,  from  the
time of forfeiture until  payment  at  nine  per  cent  per  annum  and  the
Director may enforce the payment of such moneys or any part thereof if  they
think fit, but shall not be under any  obligation  to  do  so.   The  member
whose shares have been forfeited shall not be entitled  to  claim  the  sale
proceeds of such shares.”

15.   Not only the call notice dated 5.1.1991 had not been  proved  to  have
been issued in the matter required under Section 53 of the Act,  the  notice
also does not mention  the  consequences  of  non-payment  i.e.  forfeiture.
Also the fastening of the liability on the Sanwalka Group to pay the  unpaid
amount of the forfeited shares along with interest is  plainly  contrary  to
the provisions of Article 18  of  the  Articles  of  Association,  extracted
above. Besides, the date of the forfeiture  also  is  not  clear  though  it
appears that in a Board Meeting held on 2.8.1995 a  decision  was  taken  to
restore the said shares to M/s. Gupta Brothers.  The  reason  for  the  said
decision appears to be to comply with an order of attachment of  the  shares
passed earlier by the Civil Court. All these would demonstrate the  apparent
falsity of the claim now made that the forfeiture was due to failure of  the
Sanwalka Group to comply with the terms of the call notice dated 5.1.1991.
16.   To overcome the aforesaid difficulties, an argument has been  made  on
behalf of Gupta Group that even if the call notice dated 5.1.1991 is not  to
be relied upon, in the Balance Sheet dated 31.3.1992 the  amounts  due  have
been shown as calls-in-arrears. The said document was duly  circulated.  The
Sanwalka Group, therefore, had full knowledge  that  unpaid  call  money  is
due.
17.   Besides the fact that there is  no  co-relation  between  the  amounts
mentioned in the call notice dated 5.1.1991  and  the  Balance  Sheet  dated
31.3.1992, the members of the Sanwalka Group were removed from the Board  of
Directors on 1.7.1991 i.e. before the  finalisation  of  the  Balance  Sheet
dated 31.3.1992. In any case, the procedure for forfeiture of  shares  as  a
consequence of failure to respond to a call  notice  are  unambiguously  set
out in details in the Articles of  Association  of  the  Company,  extracted
above. A balance sheet does not and cannot operate as an  alternative  to  a
call notice.
18.   If the primary question i.e. maintainability of the  company  petition
has to be answered in favour of the Sanwalka Group, as we are  inclined  to,
the other issues highlighted in the earlier part of  this  order  would  now
have to be considered.
Issue of 25,000 ordinary equity shares  -
19.   There is no denial of the fact  that  notice  of  the  E.O.G.M.  dated
5.7.1994 was not given to the members of the  Sanwalka  Group  though  they,
admittedly, continued to be members of  the  company  on  the  date  of  the
meeting. It is pursuant to the decision taken in  the  said  E.O.G.M.  dated
5.7.1994 to raise the share capital of the company from Rs.10 lakh  to  Rs.5
crores that the other decisions with regard to bonus shares;  the  issue  of
25,000 ordinary equity shares and the conversion  of  preference  shares  to
equity shares  were  made  subsequently.  Such  notice  is  mandatory  under
Section 172(2) read with Section 41 of the Act. This is, ex facie,  apparent
from the reading of the said  provisions  of  the  Act.   Reference  to  the
elaborate case laid before  us  on  this  score  would,  therefore,  not  be
required.
20.   Specifically, so far as the issue of bonus shares  is  concerned,  the
arguments laid down before us would require a consideration whether  Section
205(3) of the Act, particularly, the proviso thereto permits issue of  bonus
shares out of revaluation reserves of a company.  The further question  that
would arise is the correct interplay between the provisions of the  Act  and
those contained in the Articles of Association of a Company. So far  as  the
issue with regard to utilization of reserves  arising  from  revaluation  of
assets for the purpose of issuing fully paid bonus shares is concerned,  the
same has been held to be permissible in  Bhagwati  Developers  Vs.  Peerless
General Finance & Investment Co. & Ors.[1]. However, it has  to  be  noticed
that in Bhagwati Developers  (supra) the Articles  of  Association  (Article
182) specifically permitted/contemplated such a course of  action.   In  the
present case, the Articles of Association of the Company do not empower  the
Directors to so act.  No such situation i.e. issue of bonus  shares  out  of
revaluation reserve is contemplated.  When the Articles of  the  Company  do
not confer any such power in the Board exercise thereof on  the  basis  that
the Act so provides would be impermissible. Enabling  provisions  under  the
Act would require incorporation in the Articles of a company. To  the  above
effect the view of this Court  in  Para  25  of  the  Claude-Lila  Parulekar
(Smt.) Vs. Sakal Papers (P) Ltd. & Ors.[2] is relevant –
“25. Section 36  of  the  Companies  Act,  1956  makes  the  memorandum  and
articles of the company, when registered, binding not only  on  the  company
but also the members inter se to the same extent as if they had been  signed
by the company and by each member and covenanted to by the company and  each
shareholder to observe all the provisions  of  the  memorandum  and  of  the
articles. The articles of  association  constitute  a  contract  not  merely
between  the  shareholders  and  the  company  but  between  the  individual
shareholders also. The articles are a source of power of the  Directors  who
can as a result exercise only those powers  conferred  by  the  articles  in
accordance therewith. Any action referable  to  the  articles  and  contrary
thereto would be ultra vires.”

21.   That apart, the resolution of the Board  dated  5.7.1994  pursuant  to
which bonus shares were issued indicates that the real purpose for issue  of
the bonus shares is to raise funds which were badly needed  by  the  company
at that point of time. On the very face of it, the purpose indicated in  the
resolution is a sham and a pretence inasmuch as revaluation of the  existing
assets of the company and issuance of bonus shares against such  revaluation
could not and did not  generate  any  additional  funds  as  the  additional
capital available is purely fictional or notional.  A self serving  interest
of the Gupta Group (who received all the bonus  shares  issued)  in  issuing
the bonus shares, therefore, is evident.
22.   So far as the issue of 25,000 equity shares is  concerned,  there  can
be no manner of doubt that the decision of  the  Board  to  issue  the  said
shares has to be tested in the light of the wide powers of the Board to  act
in such matters as has been laid down by this  Court  in  Needle  Industries
(India) Ltd. & Ors. Vs. Needle  Industries  Newey  (India)  Holding  Ltd.  &
Ors.[3].  The power of the Board of Directors of the Company to issue  fresh
shares must always be viewed as an adjunct of  its  extensive  powers  under
the Act and the bona fides  of  such  an  exercise  cannot  be  called  into
question by construing the power to issue fresh shares to be limited by  any
particular purpose or purposes.  This was the view of the Company Law  Board
also.  However, the same would not detract from  the  fundamental  principle
of fair play that is to be expected from the Board of Directors in making  a
fair and proportionate distribution/allotment of  such  fresh  shares.   The
direction of the Company Law Board upheld by the High  Court,  namely,  that
allotment from the aforesaid 25,000  newly  issued  ordinary  equity  shares
should be proportionate to the share holding of the two  groups  taking  the
members of the Sanwalka Group as having  continued  to  be  members  of  the
company, will, therefore, not require any interference.
23.   Insofar the issue of 3065 ordinary  equity  shares  in  lieu  of  3065
preference shares is concerned, the CLB and the High Court  had  thought  it
proper to leave the matter for a just determination by the Delhi High  Court
in view of the suit filed by the Sanwalka Group  contending  that  the  said
shares had ceased to exist in the year 1967 and therefore no  equity  shares
could have been issued in lieu of the said preference  shares  as  has  been
done.  The suit in question which is of the year 1996 may take some  further
time for  resolution.   In  such  circumstances,  the  apprehension  of  the
Sanwalka group is  that  if  the  equity  shares  issued  against  the  said
preference shares are allowed to remain alive and valid  the  balance  would
still tilt in favour of the Gupta Group.
24.    It is not known whether the High Court  had  been  requested  by  the
parties to make an  interim  arrangement  and  if  so  the  result  thereof.
However, before us, the Gupta Group has sought to  contend  that  the  above
apprehension of the Sanwalka Group is unfounded. It is claimed  that  it  is
not correct that by virtue of the conversion of the 3065  preference  shares
into equity shares the Gupta Group has  emerged  in  the  majority  for  the
first time. Even prior  to  such  conversion,  the  Gupta  Group  was  in  a
majority inasmuch as the preference shares always carried a right  to  vote.
Therefore, even on the basis of the original share holding, the Gupta  Group
was in majority.
25.   We cannot countenance the aforesaid submission advanced on  behalf  of
the Gupta Group in  view  of  the  provisions  of  Section  87  of  the  Act
particularly sub-section (2) thereof which is in the following terms:

“(2) (a) Subject as aforesaid and save as provided in  clause  (b)  of  this
sub-section, every member of a company limited by  shares  and  holding  any
preference share capital therein shall, in respect of such capital,  have  a
right to vote only on resolutions placed before the company  which  directly
affect the rights attached to his preference shares.


Explanation. :  Any resolution  for  winding  up  the  company  or  for  the
repayment or reduction of its share capital  shall  be  deemed  directly  to
affect the rights attached to preference shares within the meaning  of  this
clause.


(b) Subject as aforesaid, every member of a company limited  by  shares  and
holding any preference share capital  therein  shall,  in  respect  of  such
capital, be entitled to vote on every resolution placed before  the  company
at any meeting, if the dividend due on such capital  or  any  part  of  such
dividend has remained unpaid :


(i) in the case of cumulative preference shares, in respect of an  aggregate
period of not less than two years preceding the date of commencement of  the
meeting ; and


(ii) in the case of non-cumulative preference shares, either in  respect  of
a period of not less than two years ending with the expiry of the  financial
year immediately preceding the commencement of the meeting or in respect  of
an aggregate period of not less than three years comprised in the six  years
ending with the expiry of the financial year aforesaid.


Explanation. : For the purposes of this clause, dividend shall be deemed  to
be due on preference shares in respect of any  period,  whether  a  dividend
has been declared by the company on such shares for such period or not,


(a) on the last day specified for the payment  of  such  dividend  for  such
period, in the articles or other instrument executed by the company in  that
behalf ; or


(b) in case no day is so specified, on the day  immediately  following  such
period.


(c) where the holder of any preference share has a  right  to  vote  on  any
resolution in accordance  with  the  provisions  of  this  sub-section,  his
voting right on a poll, as the holder of such share, shall, subject  to  the
provisions of section 89 and sub-section (2) of section 92, be in  the  same
proportion as the capital paid up in respect of the preference  share  bears
to the total paid-up equity capital of the company.”


26.   A reading of the aforesaid Section 87 (2) would clearly indicate  that
except in  situations  where  dividends  have  not  been  paid,  holders  of
preference shares do not have a  right  to  vote  except  in  matters  which
directly affects the rights attached to the preference shares.
27.   Reliance has been placed on Articles 20, 21 and 22 of the Articles  of
Association of the Company to claim voting  rights  against  the  preference
shares held by the Gupta Group.  It will  therefore  be  necessary  to  take
note of the said Articles which are in the following terms:
      “20. The following rights are attached  to  these  shares  as  regards
dividends, voting rights and redemption –

Preference  shares  shall  carry  a  fixed  cumulative  free  of  Income-tax
dividend @ of 6% per annum in preference to ordinary or any other  class  of
shares.
Preference shares shall be redeemable at any time after a period of 5 or  10
years from the date of allotment at the option of Directors of  the  company
or at the option of the holder thereof respectively, provided  a  notice  of
three months in writing is given by the company to the  holders  thereof  or
vice-versa as the case may be.

After payment cumulative dividend of 6% free of tax  on  preference  shares,
the balance of the net divisible profits  (as  may  be  recommended  by  the
directors) shall be utilized for  payment  of  dividend  @  9%  on  ordinary
shares.

Any net divisible profits as may be recommended by the  Directors  remaining
after payment of cumulative dividend or preference shares  and  dividend  on
ordinary shares as mentioned above shall be divided between  the  preference
and ordinary shares equally on the basis of paid up capital in the  company.


Preference shares shall also have a preference for repayment of  capital  at
the time of the winding up of the company in  preference  to  any  class  of
shares.

21. On show of hand every shareholders present in shall have  one  vote  and
upon poll every shareholder present in person or any proxy  shall  have  one
vote for each share  held  by  him  or  her.  A  poll  may  be  demanded  in
accordance with law.

22. A holder of any shares shall not be entitled to a vote  either  by  show
of hand or at poll unless there have been paid to the company  all  sums  of
money then due from that holder in respect of these shares.”

28.   The aforesaid Articles must necessarily have to be understood  in  the
light of the provisions of Section 87 particularly those contained  in  sub-
Section (2).  The meaning sought to be given to  Articles  20,  21  and  22,
extracted above, namely, that every share holder including the holder  of  a
preference share has a  right  to  vote  cannot  be  readily  accepted.  The
resolution of the  Board  dated  5.7.1994  relating  to  the  conversion  of
preference shares into equity shares proceeds on the  basis  that  dividends
in respect of the 3065 shares have not been paid and  in  lieu  thereof  the
shareholders had agreed to receive an equivalent number  of  equity  shares.
The above statement of fact is difficult to accept. Neither  is  the  period
during which dividends had not been paid is specified,  nor  is  the  amount
due indicated. No material has been  laid  to  show  that  the  3065  equity
shares represent a fair value of the dividends claimed to  be  unpaid.  What
cannot also be lost sight of is that the preference shares in question  were
held by the Gupta Group who was in control of the company at that  point  of
time. A number of self serving decisions by the Gupta Group and its  conduct
of the business of the company in a manner detrimental to  the  interest  of
the company, as discussed hereinabove, would make it extremely  perilous  to
rely on the version available in the resolution of the Board  for  allotment
of 3065 equity shares in place of the preference  shares  in  question.   In
the above circumstances it would be just  and  proper  to  strike  down  the
conversion of the 3065 preference shares into equity shares and  revert  the
preference shares to its earlier status to be dealt with in  the  future  in
accordance with law. This is, of course, subject to the orders of the  Delhi
High Court in the appeal pending before it.
Lease of the Industrial Plot
29.    If  the  forums  below  have  left  the  above  matter  for  a   just
determination in an Extra Ordinary General Meeting of the Company,  in  view
of the directions hereinabove, we do not consider it necessary to deal  with
the said aspect of the case any further.
30.   Before parting, certain subsidiary issues  raised  on  behalf  of  the
parties may be briefly noticed if only to make the discussion complete.
The failure of the High Court to frame a  substantial  question  of  law  to
hear the appeal before it can  hardly  invalidate  the  order  passed.   The
order of the High Court is an order of  affirmation;  further  there  is  no
provision in Section 10F  of  the  Act  which  is  akin  to  the  provisions
contained in Section 100 (4) of the Code of Civil Procedure, 1908.
31.   The argument that having regard to the conduct of the Gupta  Group  in
managing the affairs of the Company and all decisions  taken  being  in  the
best interest of the Company, no case for winding up is made out  so  as  to
justify the exercise of powers under Section 397/398 of the Act by the  CLB,
would hardly require a  detailed  consideration  in  view  of  the  specific
findings of the High Court in this regard, which are wholly adverse  to  the
Gupta Group. The said view and the conclusions reached  have  our  approval,
as already indicated. Besides, the High Court in the order  under  challenge
has taken into account that apart from the industrial plot in  question  the
Company has no subsisting business and that the terms of the  lease  entered
into by the Gupta Group in respect of the said property are  wholly  adverse
to the Company’s interest.
32.   The question whether a single act of oppression would enable  the  CLB
to intervene or oppression must be the cumulative result of continuous  acts
should not require any debate  in  the  facts  of  the  present  case  which
demonstrate a series of unacceptable decisions and actions on  the  part  of
the Gupta Group. In the last resort, satisfaction that oppression  has  been
committed has to be reached in the facts of each case.
33.   In view of the above discussions and for the  reasons  alluded,  Civil
Appeal No.589 of 2010 filed by the Gupta Group is  dismissed  whereas  Civil
Appeal No.599 of 2010 filed by  the  Sanwalka  Group  is  disposed  of  with
directions, as contained in the present order.

                                               ….……......................,J.
                                                           [RANJAN GOGOI]



                                               ….……......................,J.
                                                               [PRAFULLA C.
                                    PANT]

NEW DELHI;
OCTOBER 07, 2016.
-----------------------
[1]    (2005) 6 SCC 718
[2]    (2005) 11 SCC 73
[3]    (1981) 3 SCC 333

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