SOMASHEKARA RAO S/O. LATE U. GOPALAKRISHNA RAO AND U.B. KRISHNARAJ RAO S/O. U.B. RAMA RAO Vs. THE CANARA LAND INVESTMENT LTD., A COMPANY REGISTERED UNDER THE INDIAN COMPANIES ACT 1956 HAVING ITS REGISTERED OFFICE AT D.NO. 16/341, TILE FACTORY RO

JUDGEMENT

(1.) COMPANY Appeal No. 222/05 is preferred by the appellants challenging the order dated 16th April 2004, passed by the Company Law Board, under Section 397 and 398 read with Section 402 of the Companies Act, for short, hereinafter referred to as the 'Act'. The parties are referred to as they are referred to in the petition before the Company Law Board. Factual Matrix

(2.) THE Canara Land Investments Limited is a public limited company, for short, hereinafter referred to as the 'Company'. It was esstablished in the year 1932. Dr. T.M.A. Pai was one of the shareholders. His brother, Tonse Upendra Pai was appointed as Manager of the Company till 1941 and then he became the Managing Director of the Company up to 1945. Though seven persons subscribed to the Memorandum of Company, at its inception Dr. T.M.A. Pai, was not one among them. Obviously, he has acquired shares after the Company was incorporated and he held majority of shares. Dr. T.M.A. Pai had sons by name Mohandas Pai, Ramdas M Pai and Ashok Pai. Mohandas Pai was in control of the Company as General Manager. Tonse Upendra Pai died in the year 1956. Dr. T.M.A. Pai died in the year 1979. After his death T.Ashok Pai, T. Ramesh Pai and T. Satish Pai, sons of T. Upendra Pai managed the Company for about two years, till the death of T. Ashok Pai, in the year 1981. Originally, Ramesh U Pai and his other family members held 19% of the shares in the Company. After the demise of T.A. Pai, Ramesh U Pai who was a Director of the Company, acquired shares of the Company and thus he and his other family members acquired shares to the extent of 41.72%. However, the total shareholding of Ramesh U Pai and his family members and the Companies in which he has substantial interest as on today stands at 44%.

(3.) THE petitioners state that both they and the respondents are called "Pal Group" in Manipal and they have established and have been controlling various industries and managing educational institutions. In or about 1990, differences cropped up between the petitioner's group (Ramesh Pai Group) and second respondent's group (Mohandas Pai Group). Both the groups have initiated several cases against each other. Finally, the well wishers and the friends advised them to sort out the differences. Hence Dhirubai Ambani was appointed as the sole arbitrator for settling the differences. He passed an award wherein certain Companies were allotted to the petitioner's group and other Companies were allotted to Mohan Das Pal's Group. The Companies were bifurcated between the two groups and cross holding of shares were purchased by one group from the other group. Similarly, the directors have also resigned from the Companies controlled by the other group and the Board was reconstituted. Thus the award passed by Mr.Ambani on 03.11.1993 settled most of the issues between the two groups. So far as the dispute pertaining to the Company is concerned, the same could not be finalized because of time constraints as well as lack of information. It was agreed that the matter will be sorted out in consultation with Sri. M.L. Bhakta (Solicitor) and Sri. T.N. Chaturvedi (Chartered Accountant) shortly, failing which Sri. Dhirubai Ambani will advise, as to whose advise will be final and binding on both the groups. The petitioners submitted that the said Ambani Award was not implemented, since none of the parties agreed to implement the award for lack of particulars and time as set out earlier to resolve the dispute with regard to Canara Land Investment Limited. Thereafter, parties have referred the entire matter once again to Sri C. Subramaniam, former Finance Minister of India to resolve the disputes. So far as the educational institutions are concerned, C. Subramaniam has given a detailed award on 27.05.1997. Apart from that C. Subramaniam also seemed to have passed another Award with regard to the other disputes relating to Pai's family. As per this award the Arbitrator has held that the bifurcation of the Company has now been ironed out with the concurrence of both the groups. It is stated that 7 acres of land has been leased to Mohan Pal's group and it has been agreed that proportionate extent of land on the basis of the shareholding of each group in the Company should be leased to the petitioner's group and the corporate office and staff quarters to Mohandas Pai's group for a period of 99 years. Sri C.Subramaniam's Award has not been implemented in toto. even though it is mentioned in the Award that proportionate land according to the shareholding be allotted to the petitioner's group. So far it has not been given effect to. If the award is implemented based upon the shareholding pattern and on the basis of the land already leased to the respondent's group, namely, 21 acres, then the petitioner's group should get at least 18.60 acres of land on the same terms and conditions of the lease. Even though Awards have been passed one after the other, the respondents were not keen on implementing the same, since they are in control and management of the entire assets of the Company. After the passing of the awards, negotiations were on to settle the issues amicably. Therefore the petitioners did not take any legal action against the respondents, even though they have not been receiving notices for the general meetings and the balance sheets. In fact, in the proceedings initiated before the Company Law Board for rectification, both the parties were seeking adjournments on the ground that the negotiations for settlement were going on. Otherwise, the petitioners would have immediately challenged the action of the respondents in not re -electing the first petitioner as a Director and other acts of the respondents -2 to 7 which are detrimental to the affairs of the Company.