PERCY RUTTON KAVASMANECK Vs. GHARDA CHEMICALS LTD.

JUDGEMENT

(1.) This Petition is filed under Sections 397, 398, 402, 403 and 433(1)(f) of the Companies Act, 1956 (hereinafter referred to as 'the Act'). It was originally presented by seven Petitioners (hereinafter referred to as 'the Petitioners group') claiming to be minority group having 27.21% share in Respondent No.1 Company. However, after the admission of the Company Petition and before the same could proceed for final hearing, the Petitioner Nos.1, 2, 3, 6 and 7 have withdrawn from the proceedings unconditionally. Thus, it is only the original Petitioner Nos.4 and 5 (hereinafter referred to as 'the present Petitioners') have decided to pursue this action. Notably, the shares held by the Petitioners 4 and 5 together would constitute only about 6.66% of the share capital of the Respondent No.1 Company.

(2.) Briefly stated, sometime in or around 28th April 1962, a partnership firm consisting of four partners came into being which operated in the name and style as Gharda Chemicals Industries. The four partners were none other than the predecessor of the present Petitioners Mr.Rutton Kavasmaneck who held 30% in profits. The mother of Respondent No.2 Mrs.Ratanbai Gharda having 15% share in profits. The Respondent No.2 Dr.Keki Hormusji Gharda having 40% share in profits. The 4th partner Mrs.Coomi Warden had 15% share in profits. The partnership firm was running business of selling chemical process know-how and of manufacturing dyes, chemicals and textile auxiliaries. On 30th November 1965, one of the partner namely mother of Respondent No.2 Ratanbai Gharda expired. After her demise, new partnership firm in the same name Gharda Chemical Industries was constituted consisting of three partners. The predecessor of the present Petitioners (Rutton Kavasmaneck) was assigned 35% share in profits; whereas, Respondent No.2 (Dr.Keki Hormusji Gharda) was assigned 45% share in profits and the third partner (Mrs.Coomi Warden) was assigned 20% share in profits. Thereafter, on 7th March 1967, Respondent No.1 was incorporated and registered as Private Limited Company to take over the running business of the firm Gharda Chemical Industries. The Respondent No.1 had a paid up capital of 2000 shares of Rs.100/-each (total Rs.2,00,000/-). The holding of the erstwhile three partners, predecessor of the present Petitioners (Rutton Kavasmaneck), the Respondent No.2 (Dr.Keki Hormusji Gharda) and the third partner (Mrs.Coomi Warden) was 600 shares, 1100 shares and 300 shares respectively. In terms of percentage, they respectively held 30:55:15 shares of the Company. When the Respondent No.1 Company was incorporated, the predecessor of the present Petitioners had credit balance in Rutton Kavasmaneck's capital account with the partnership firm in the sum of Rs.2,90,000/- (Rupees Two Lakhs Ninety Thousand). However, he chose to invest only Rs.60,000/- (Rupees Sixty Thousand) for purchasing 600 shares towards his capital contribution in the Respondent No.1 Company. He deposited Rs.1,80,000/- (Rupees One Lakh Eighty Thousand) with the Respondent No.1 Company on interest basis. That deposit was later on returned by the Respondent No.1 Company on 30th June 1968. The predecessor of the present Petitioners (Rutton Kavasmaneck) withdrew the balance amount of Rs.50,000/- (Rupees Fifty Thousand) lying in his capital account of the firm. These facts are relevant in the context of the stand taken by the present Petitioners that the Respondent No.1 Company was a glorified partnership company incorporated and registered in furtherance of confidence reposed by the three erstwhile partners interse.

(3.) This Petition, which was originally presented by seven Petitioners claiming to have held between themselves to the extent of 27.21% of the subscribed and paid up capital of the Company. The allegation in the Petition in substance was that the Petitioners group was being sidelined by the majority group and the Respondent No.2 by his continuous acts of commission and omission, was bent upon to take the complete control of the Respondent No.1. The Petitioners relied on instances which according to them constituted oppression on the minority group and claimed that the mischief committed by the Respondent No.2 should be remedied. The grievance is that the second Respondent has taken over complete control of the company after the demise of predecessor of present Petitioners (Rutton Kavasmaneck). During the life time of the said Rutton Kavasmaneck, he was admittedly the Chairman of the Board of Directors of the Respondent No.1 Company. It is alleged that even during his life time, the Respondent No.2 attempted to rest complete control of the Company with himself. With that end in mind, the Respondent No.2 delayed the transmission of shares of the deceased Rutton Kavasmaneck in favour of the present Petitioners and other heirs of the deceased and at the same time allowed transfer of substantial other shares in complete violation of Article 57 of the Articles of Association (hereinafter referred to as 'the A.O.A.'). It is asserted that there was consistent campaign on the part of the second Respondent to oust the Petitioners and for that repeated attempts were made interalia to prevent them any access to even the basic information, which the Petitioners as members and shareholders of the company were entitled to. Thus, not only causing harassment but also oppression on the minority shareholders. In Paragraph 14 of the original Petition, the Petitioners have then referred to illustrative instances such as Extra Ordinary General Meeting was purportedly held on 15th October 1988 and Resolution was passed purporting to authorise the Board of Directors of the Company to borrow moneys (pursuant to Section 293 of the Act) to the extent of Rs.20 Crores. However, no notice of the purported meeting was given to the Petitioners or any of them. Besides, it is stated that Company had huge free reserves and had no expansion plan or proposal which would warrant any borrowing by the Company as purportedly authorised. In other words, the purported Resolution was not in the interests of the Company, for which reason, the Resolution was void and of no effect. It is then stated that the Company issued a notice dated 4th December 1989 informing the shareholders that the Annual General Meeting of the Company would be convened on 29th December 1989 to consider the Accounts as on 30th June 1989, to declare the dividend and to reappoint the third Respondent Director who had retired by rotation and eligible for reappointment, to appoint Auditors. According to the Petitioners, the original second Petitioner and one Dr.Rebello (the father of Petitioners 6 and 7) who held shares in the Company jointly with Petitioners 6 and 7, had attended the Registered Office of the Company on 29th December 1989 where the meeting was to be held. But found that neither Respondent No.2 nor Respondent No.3 were present nor any shareholder was present. It is their case that in fact no meeting was held on 29th December 1989. It is then stated that the original second Petitioner had requested the Company to forward the list of shareholders as on 30th June 1989 and by his subsequent letter dated 10th January 1990 to forward the up-dated list of shareholders i.e. as on 10th January 1990. It is then stated that it has come to light after verification of the list of shareholders supplied by the Company that the second Respondent in violation of Article 57 of the A.O.A. purported to transfer to himself 3000 equity shares of the Company hitherto held by one N.K.Warden. According to the Petitioners, as per Article 57 of the A.O.A., those shares should have been offered to them on prorata basis. It is then stated that the third Respondent was not a member of the Company, for which reason, he was not qualified for being appointed and to continue as Director, having failed to acquire qualification shares within two months from his appointment as Director. Inspite of having ceased to be a Director on 29th December 1988 in terms of Article 123 of A.O.A., the third Respondent purports to hold Office as Director with full knowledge and connivance of 2nd Respondent. It is then stated that the 2nd Respondent decided to institutionalise and perpetuate the research culture of the Company by starting the Gharda Research Foundation, for which he issued Circular on 24th August 1989 addressed to all shareholders of the Company. According to the Petitioners, the sole purpose thereof was to usurp complete control over the Company. The Petitioners further allege that the Company was not declaring fair dividends inspite of high earnings. The main cause for the Petitioners group to rush to file the present Petition was issuance of notice by the Company dated 16th January 1990 purportedly convening an Extra Ordinary General Meeting on 15th February 1990 to transact the business mentioned in the notice. The Agenda of items to be considered at the meeting were to increase borrowing powers, delete 'Pvt.' from the name, as Company had become a deemed Public Limited Company, increase the authorised capital of the Company, substitute Article 8 of the A.O.A., substitute Articles 18 and 19 of the A.O.A., to amend Article 57 of the A.O.A. of Gharda Chemicals, to delete Article 123 which pertains to requirement for qualification shares.