SANGRAMSINH P GAEKWAD Vs. SHANTADEVI P GEAKWAD

JUDGEMENT

(1.) THESE appeals are directed against a judgment and order dated 9.8.2000 passed by a Division Bench of the High Court of Gujarat at Ahmedabad in O. J. Appeal Nos. 6, 7 and 8 of 1995 whereby and whereunder the judgment and order dated 17.12.1994 passed by a learned Single Judge of the said Court dismissing Company Petition No. 51 of 1991 filed by the first respondent herein, was set aside. BACKGROUND FACTS :

(2.) SIR Pratapsinhrao Gaekwad was the Ruler of Baroda. Maharani Shantadevi Gaekwad was his wife. They had eight children. For certain reasons with which we are not concerned, the estate of Gaekwad came into the hands of their elder son, Fatehsinhrao P. Gaekwad (FRG) even during the life time of SIR Pratapsinh. FRG floated several companies, three of which are Baroda Rayon Corporation Ltd. (BRC), Gaekwad Investment Corporation Company Ltd. (GIG) and Alaukik Trading and Investment Corporation Pvt. Ltd. (Alaukik). BRC came into existence in 1958. At the outset, it was being run under Managing Agency System which was abolished in or about 1968 and later on the same was being managed by the Board of Directors with the assistance of professional executives. Appellant no. 1 herein, the youngest son of Pratapsinhrao Gaekwad, joined the said company in 1968. He was the Director of Managing Agents till 31.12.1969 whereafter he became the Additional Director with effect from 1st January, 1970. He in the same year became Joint Managing Director. In April 1976, he became the Managing Director of BRC. He was reappointed as Managing Director for two periods of five years each with effect from 19th February, 1980 and 19th February, 1985. FRG passed away on 1st September, 1988, whereafter he was appointed as Chairman and Managing Director on 23.9.1988.

(3.) ALLEGEDLY, GIC suffered a loss during the financial years ending 31st March, 1987 and 31st March, 1988 as a result whereof substantial parts of the equity and reserves were wiped out. It could not even pay off the loans and credits. It had no funds to subscribe for the rights issue made in 1989 by BRC. Its share holding in BRC was likely to fall with which its forged fortunes were closely linked as the dividend from the shares of BRC was the major source of income of the company. GIC came into financial trouble when BRC did not declare dividend in 1986-87. The value of BRC shares also declined and, thus, it became difficult to avail of an overdraft facility from the Banks. It was then decided to raise funds from the existing members. The Board of Directors of GIC in a meeting held on 10.11.1987, decided to broad-base the company, whereafter an extraordinary general meeting was convened on17.12.1987. In the said EGM, a decision was taken to increase the capital by issuing 25000 equity shares of Rs. 100/- each. The matter was again placed in a Board Meeting of GIC on 8th January, 1988. In the said Board meeting presided over by appellant no. 1 and attended by Mr. P.U. Rana and Mr. P.M. Chinoy, a resolution was passed that 15000 equity shares of Rs. 100/- each be issued at par to the members of the company. The said resolution reads as under: "Resolved that out of 25000 equity shares of Rs. 100/- each, 15000 equity shares of Rs. 100/- covering Rs. 15,00,000/- be issued at par to the members of the company at present and the balance as and when required. Further resolved that the Management Committee of the company be and is hereby authorized to issue equity shares to members in such proportion as it deems fit. Further resolved that the Management Committee be and is hereby authorized to do all such acts, deeds and things necessary for the purpose."