aasia properties development vs juhu beach resorts limited and on 19 september, 2006

Company Law BoardAasia Properties Development ... vs Juhu Beach Resorts Limited And ... on 19 September, 2006Equivalent citations: (2007) 1 CompLJ 315 CLB, 2007 74 SCL 153 CLBBench: S Balasubramanian

ORDER S. Balasubramanian, Chairman

1. The petitioner herein above, holding 1/3rd of the paid up capital of M/S Juhu Beach ResortsLimited (the company) has filed this petition under Sections 397/398 of the Companies Act, 1956(the Act) seeking for a declaration that certain transfer of shares registered in 1983 as null and voidand also that further transfers effected subsequently also as null and void and consequently offer allthese shares to the petitioner and for appointing a nominee of the petitioner on the board and alsofor declaring that the management agreement entered into between the company and the 29threspondent as null and void.

2. The facts in brief are: The company was incorporated as a private limited company in the year1974. In 1978, the paid up capital of the company consisted of 1900 equity shares of Rs.l00/-each.Poonamchand Shah group acquired 633 shares representing 1/3rd of the capital and K. Rahejagroup acquired balance 1267 shares constituting 2/3rd of the paid up capital of the company. Shahgroup had two directors and K. Raheja group had three directors. The company had a sub lease of alarge and valuable piece of land at Juhu Beach, Mumbai. In 1981, the director of the petitioner, ShriAshok P. Hinduja (Shri Ashok) was appointed as a director on 26.6.1981. The petitioner acquired633 equity shares from K. Raheja group to become a 1/3rd shareholder. Since Shah group was notinterested in continuing with the company, it transferred their entire holding of 633 shares to B.Raheja group (10th to 13th respondents). The main dispute raised in the petition relates to the datesof transfer of shares from K. Raheja group to the petitioner and Shah group to B. Raheja group.While the claim of the petitioner is that it became a shareholder on 30.8.1982 before B. Rahejagroup became a shareholder on 15.1.2003, it is the contention of the respondents that B. Rahejagroup became a shareholder only on 28.1.1983. Article 38 of AOA of the company provides for preemption rights to existing members in case of transfer of shares. Therefore, the dale of becoming ashareholder becomes relevant for application of the provisions of this Article. On the basis that thepetitioner had become a shareholder earlier to B. Raheja group, the petitioner has staked a claimthat no shares could have been transferred to B. Raheja group without out offering to the petitionerin terms of the preemption right and as such the petitioner has sought for cancellation of thetransfer of shares to B Raheja group and offering the same to the petitioner. Likewise, alleging thatsubsequent transfer of shares without following the procedure of pre-emption rights, should bedeclared to be invalid and offered to the petitioner. The petitioner has also alleged that its nomineeShri P Ashok, who was appointed as a director, had been removed as a director and as the petitionerholds 1/3 shares in the company, proportional representation should be directed.

3. Shri Dave, Senior Advocate, appearing for petitioner submitted: Initially, the paid up capital ofthe company comprised of 1900 equity shares of Rs. 100/- each. The petitioner joined the companyon the understanding that the company would be managed in the guise of a quasi partnership andthat is why Shri Ashok was appointed as a director even earlier to the petitioner becoming a

Aasia Properties Development ... vs Juhu Beach Resorts Limited And ... on 19 September, 2006

Indian Kanoon - http://indiankanoon.org/doc/285889/ 1

shareholder. When the petitioner, which was then known as Mecca Properties, joined the companyas a shareholder, there were two groups, namely, Shah Group holding 633 shares, K. Raheja Groupholding 1267 shares. K. Raheja Group transferred 633 shares to the petitioner on the understandingthat each Group would continue to hold 1/3rd of the. paid up share capital of the company and thatthey would jointly finance and participate in the business of the company. Thus the petitioner joinedthe company with the legitimate expectation of equal shareholding and equal participation in themanagement. The worth of the company is over Rs. 70 crores but the Rahejas in exclusion of thepetitioner, are enjoying the benefits. Induction of B. Raheja group was completely against theoriginal understanding and by committing frauds and manipulating the records, B. Raheja grouphas been inducted as a shareholder. There was an oral agreement that if any of the original 3 groupswere to exist the company, the shares would be offered to the other group in line with Article 38 ofthe Articles of Association and this agreement has been breached by inducting B. Raheja group. Thegrievance of the petitioner is that even though it had become a shareholder on 30th August, 1982, asis evident from the entries in the Share Transfer Register maintained in the company, yet, thecompany has shown as if the petitioner became a shareholder only on 28.1.1983 in the Register ofMembers. The manipulation done by the company is to deprive the petitioner of the pre-emptionright in respect of transfer of shares held by Shah Group of 633 shares to B. Raheja Group on15.1.1983. Since the petitioner had actually become a shareholder on 30th August, 1982, when ShahGroup transferred their shares on 15.1.1983, in terms of the pre emptive rights in Article 38 of theArticles of Association, the petitioner would have opted to buy out the entire shares of Shah Groupand thus would have been holding 2/3rd of the shares i.e. 66.66% shares in the company at thattime. If they had acquired the shares of Shah Group and had become holder of 66.66%, in view ofthe subsequent allotment and transfer of shares impugned in the petition, the petitioner would nowbe holding 88% shares in the company.

4. The learned Counsel further submitted: All along the petitioner believed that it had become ashareholder only on 28.1.1983. Only when the petitioner carried out an inspection of the records ofthe company sometime in September/October, 2004, it came to know that the respondents hadplayed a fraud on the petitioner by manipulation of share records. The company maintains a registerknown as Shares Transfer Register as prescribed in Article 37 of the AOA. In that register, it isindicated that the petitioner had become a member of the company on 30.8.1982 and that thetransfer was approved in a board meeting on the same day. In Folio 24 of Register of Members, it isshown that Bindu Raheja who had transferred the shares to the petitioner had been shown to haveceased to be a member on 30.8.1982. Likewsie, in Folio 26, Meena S. Raheja is shown to haveceased to be a member on 2nd June, 1982. She had transferred 200 shares in favour of thepetitioner and 100 shares in favour of L. Raheja. While the name of L. Raheja has been entered inthe register as a member on 2nd June, 1982, the 200 shares transferred in favour of the petitioner isshown as registered only on 28.1.1983. The register does not show any lodgment of transfer by ShriSuresh L. Raheja on 2.6.1982 nor the minutes on 30th August, 1982 or 28th January, 1983 show anyapproval of registration of the said transfer. Similarly, one Shri G.C.Nichani who had transferred theshares to the petitioner is shown to have ceased to be a member on 30th August, 1982. If thetransferees had ceased to be members by 30.8.1982, then the petitioner should have becomemember on that day as either the name of the transferee or the transferor should be in the register ofmembers on any day as in terms of Section 150 of the Act, every share should stand in the name of a



shareholder. The folio No. 29 in respect of the petitioner in the Register of Members shows erasuremarks on all the dates by which 30th August, 1982 has been changed to 28.1,1983. Similarly, thefolios relating to the transferors also show erasure marks on all the dates whereby 30th August,1982 has been changed to 28.1.1983. The very fact that the folio number assigned to the petitioner ispreceding the folio numbers assigned to respondents 10 and 13 of B Raheja group would indicatethat they had become shareholders before these respondents. Further, in the Share TransferRegister, the correct consideration paid by the petitioner of Rs. 100/-per share has been shownagainst entries dated 30.8.1982, but the entries against transfer on 28.1.1983 show the very saidtransfers at the rate of Rs. 200/- per share.

5. The learned Counsel further submitted: From the narration of facts, it is abundantly clear thateven though the petitioner had become shareholder on 30.8.1982, the respondents/company hadmanipulated the records to show as if the petitioner became a shareholder only on 28.1.2003. Thereason for being so is obvious. In terms of Article 38 of AOA, no share can be transferred to a nonmember so long as any member is willing to purchase the same at face value. In the present case, theadmitted position is that B. Raheja group became a shareholder only on 15.1.1983 by acquiringshares from Shah group. Since the petitioner had become a shareholder on 30.8.1982, Shah groupcould not have transferred their shares to B. Raheja group without offering the same to thepetitioner. Just to deprive the petitioner of its pre-emptive rights under Article 38, therespondents/the company have manipulated the records to show as if the petitioner became ashareholder subsequent to 15.1.1983. The petitioner came to know of the fraud only in October,2004 when it took an inspection of the register of transfers. In Dhananjay Pandey v. Dr. BiasSurgical and Medical Institute Pvt. Ltd.125 CC 626. this Board has held that a person can be ashareholder even if he is not in a position to show any evidence of having become a shareholder inthe company, if the same could be established from the records of the company. In the present case,since the petitioner has come to know of his having become a shareholder on 30.8.1982 only in2004, it has every right to agitate against the fraudulent manipulation of the records of thecompany. It is to be noted that even in the sur rejoinder, the respondents have not answered as tohow the transferor of shares to the petitioner had ceased to be members as recorded in themembers' register on 30.8.1982 and the petitioner became a shareholder of the same shares on28.1.1983. This itself would indicate that there have been manipulation in the records of thecompany to deprive the petitioner of its pre-emptive rights of the shares transferred to B. Rahejagroup only on 15.1.1983.

6. The learned Counsel further submitted: The respondents in their letter dated 29.10.2004 atparagraph 6, have admitted that there are clerical errors in the register of members. Actually theyare not clerical errors but fraudulent manipulation. Therefore when there is a fraud, the question ofdelay or latches do not matter. In Bengal Luxmi Cotton case 35 CC 187, it has been held that delaycannot be a ground for depriving grant of relief if facts otherwise warrant. The signature of ShriAshok in the instruments of transfers cannot bind the petitioner as many transfers had taken placewithout offering the shares to the petitioner. In Syed Shah Gulam v. Syed Shah Ahmed , it has beenheld that in terms of Section 18 of Limitation Act, the limitation would start from the time ofdiscovery of the fraud. Since in the present case, the petitioner discovered the fraud only in Oct.2004 and has tiled the petition in December, 2005, the petition is not barred by limitation. In Smt.



Aparna Ghose v. Shri Sarup Chand 20051 CLJ Cal. it has been held that the pre-emption rightscannot be defeated by fraud. In S.P. Chengalvaraya Naidu v. Jagannath , it has been held that aperson coming to court with a falsehood should be thrown out at any stage of litigation. In thepresent case, having committed a fraud, the respondents have come with a plea of error, whichcannot be accepted. In Bank of India v. Avinash D. Mandivikar , it has been held that in case offraud, even reasonable period for initiating proceedings does not arise. In State of Orissa v.Varindavan Sharma 1995 3 SCC 249, it has been held that even in case of delay of 27 years from thedate of a transaction which was shrouded with suspicious features, since proceedings were initiatedimmediately on coming to know of the said transaction, the court set aside the transaction.

7. The exclusion of the petitioners from exercising the pre-emptive rights is not an isolated actrelating only to the transfer of shares from Shah group to B. Raheja group but there were 29 furthersuch transfers effected by Raheja groups to non members some which are corporate entities,without offering the shares to the petitioner. Transfers to corporate entities even within the group isnot permissible in terms of Article 44 of the AOA. Thus, there have been series of illegal acts and interms of Needle Industries case, such series of illegal acts constitute oppression. Therefore, theshares transferred to B. Raheja group and all subsequent share transfers should be cancelled and theshares should be offered only to the petitioner and not to other respondent shareholders as theyhave been parties to the fraud committed.

8. The learned Counsel further submitted: The company is in the nature of a quasi partnership andthe petitioner entered the company with legitimate expectations of being in management. Presently,the value of the hotel is over Rs. 700 crores and to exclude one of the equal partners from themanagement is highly oppressive. The petitioner entered the company with the clear understandingthat the petitioner will have a right in the management of the company. He was appointed as adirector in 1981. For claiming that the petitioner ceased to be a director from May, 1982, thecompany has not established how Shri Ashok ceased to be a director- whether he was not elected inthe general meeting or whether he resigned from the board or whether he vacated his office in termsof Section 283(1)(g) of the Act. Even though the petitioner is the largest single shareholder holding1/3rd of the shares, yet, it has been completely kept out of the management without anyrepresentation. Since the petitioner has an apprehension that the respondents are siphoning offunds of the company, to have a proper check on the funds and also on the basis of understandingthat it would participate in the management of the company, proportionate representation shouldbe directed. Further, by handing over the management of the hotel which is the sole undertaking ofthe company to Merriot without the approval "of the shareholders, the respondents have actedagainst interests of the company and the shareholders. Even though, an agreement was entered intowith Merriot in 2001, the respondents are not disclosing the details of the said agreement.Obviously, the respondents are siphoning of funds of the company through this agreement. In thebalance sheet, many transactions with the firms and companies in which the respondents aredirectors have been indicated. These contracts have not been entered in the register of contractsunder Section 301 of the Act and by these contracts, the respondents are siphoning of funds of thecompany. The respondents do not care for the shareholders. Shri Vijay v. Raheja 13th respondent,was appointed as MD in the board meeting held on 31.12.2003 for the period from 1.1.2004 to31.12.2004. No intimation was sent to the shareholders about this appointment till 8.9.2004 when



the company sent a notice for the AGM on 30.9.2004 which included the item for his appointment.Even though the petitioner sought for details about Shri P.B. Raheja by a letter dated 24.9.2004,since the explanatory statement did not contain required particulars about him, without any reply,his appointment was approved by the respondent shareholders. Presently, there are two jointmanaging directors, one from K. Raheja group and other from B. Raheja group while the petitionerhas no representation.

9. Summing up his arguments, Shri Dave submitted: The allegations of the petitioners relating tofraud and manipulations are against K. Raheja group. However, it is B. Raheja group which has fileda detailed reply while K. Raheja group has only adopted the same. In Lohia Properties Pvt Ltd. v.Atma Ram Kumar, it has been held that every allegation of fact in the plaint, if not denied in thewritten statement, shall be taken to be admitted by the defendant. In the present case, since K.Raheja group has not specifically denied the allegations of fraud etc., they should be deemed to haveadmitted the allegations. Since B. Raheja group was not in the picture in 1982, they would have nopersonal knowledge and therefore their reply affidavit has to be ignored. In State of Bombay v.Pureshottam Jognaik 1952 SCR 674, it has been held that when a matter is deposed to is not basedon personal knowledge, the sources of information should be disclosed. In the present case, B.Raheja group which has filed reply to the application has not done so. It is strange that beneficiariesof fraud have defended the action while the committer of fraud has only adopted the said defence.Since the petitioner has established oppression committed by the respondents by practicing fraud,the relief sought for in the petition should be granted.

10.Shri Sundaram, appearing for Vijay Raheja group submitted: The admitted fact is that thepetitioner came as a 1/3rd shareholder and it continues to hold 1/3rd shares in the company.Therefore, its claim for 88% shares in the company can never be accepted. Having accepted theposition of 1/3rd shareholder for over 20 years, and after the hotel has become operational, thepetitioner cannot challenge events that took place in 1982/83 on technical grounds. Such a claimwould be highly unjust and inequitable especially when it is the Rahejas who have nurtured thecompany all the years including putting up a huge hotel on the vacant land. The sole claim of fraudas alleged by the petitioner relates to B. Raheja group becoming a shareholder. In page 32 of thepetition, the petitioner has averred that sometime in 1989, the respondents informed the petitionerthat B. Raheja group had acquired the shares before the petitioner became a member of thecompany on 28.1.1983. If the petitioner was aware of this in 1989, it should have sought forenforcing its pre-emptive rights in 1989 but having failed to do so, it should be deemed to havewaived its right and cannot claim any right after 16 years. It is the petitioner's case that its nameshould have been entered in the register of members on 30.8.1982 and when Shah group transferredits shares on 15.1.1983, offer should have been given to the petitioner. Since its name was not in theregister of members on 15.1.1983(Exhibit -3), the question of making any offer to the petitioner didnot arise. Further, if the petitioner were to seek rectification of the register of members, it shouldhave filed a petition under Section 111 of the Act seeking for entry of its name in the register ofmembers as on 30.8.1982. Till such time such a rectification is made, the question of its exercisingpre-emptive rights does not arise. In other words, this petition itself is not maintainable as far as theissues relating to shares are concerned. When shares were transferred from Shah group to B. Rahejagroup, all the shareholders of K. Raheja group had given a no objection letter to the company in



terms of Article 38. Likewise, B Raheja group had also given a no objection letter to the company on28.1.1983(Exhibit-7) when K. Raheja group transferred its shares to the petitioner. Therefore, noshares could have been transferred in favour of the petitioner before 28.1.1983 without the contentof B, Raheja group. B. Raheja group signed the consent letter on 28.1.1983 after it became ashareholder on 15.1.1983. The petitioner does not have any document or evidence to show that itbecame a shareholder on 30.8.1982 other than basing its claim on errors in the register ofmembers/share transfer register. On. the contrary, its becoming a shareholder on 28.1.1983 isevident from the instruments of transfers executed by Shri Ashok. The transfer forms at Exhibit -5bear the stamp of ROC dated 8.1.1983 and therefore this instrument could not have been executedearlier to this date. They were also signed on 28th January, 1983. The endorsement in the sharecertificates bears the date of 28.1.1983 and the share certificates are in the possession of thepetitioner and as a matter of fact when the petitioner changed its name, the fact was also noted inthe share certificates. When the primary documents executed by the petitioner and the sharecertificates bear the date of transfer as 28.1.1983 which is also reflected in the register of members,the CLB cannot entertain the claim of the petitioner solely based on the incorrect entries in the sharetransfer register. Therefore, there is absolutely no substance in the allegation that by fabricating thedate of its becoming a member to a later date, the petitioner had been deprived of the pre-emptiverights. In so far as proportional representation on the board is concerned, the petitioner has reliedon legitimate expectation. For over 20 years the petitioner never tried to enforce the saidexpectation. Further, the association of the petitioner now on the board would be completely againstthe interest of the company as even without being on the board, the petitioner has been creating allsorts of hurdles in the working of the company. Since neither any act of oppression normismanagement has been established, this petition should be dismissed.

11. Shri Sarkar, Senior Advocate, appearing for Rajan Raheja group submitted: The foundation of apetition under Section 397 is that the petitioners should hold undisputed shares. Further, accordingto its own averment in page 7 of the petition, the petitioner was to have only 1/3rd shares in thecompany which arrangement still continues even after further issue of shares. The proprietary rightsof a member start from the date of his becoming a member and cannot arise from an earlier date byseeking for pre-dating his membership. When the instruments of transfers bear the date of28.1.1983, the petitioner could never claim to have become a member prior to that date. In terms ofSection 108, the provisions of which are mandatory, the company could not have registered thetransfer without instruments of transfer in 1982 and even if had done so, the same would be void interms of Section 108. It is for the petitioner to prove that it had lodged requisite transferinstruments to the company along with share certificates in 1982 and accordingly the company hadregistered the transfer in his favour in 1982 and thereafter had fabricated the documents. Thepetitioner has not done so while the company has produced instruments of transfer dated 28.1.1983.In terms of Section 84 of the Act, it is the share certificate which shall be prima facie evidence of thetitle of a member to such shares and since in the present case, the share certificates bear the date of28.1.1983, the petitioner had become a shareholder only on that date. Even the register of membersindicates only that date as the date of the petitioner becoming a shareholder. Even though, in termsof Articles, register of transfers has to be maintained by the company, no statutory presumption canbe raised in terms of the entries made therein. There is no prayer in the petition to put the name ofthe petitioner as a shareholder in August, 1982 as against January, 1983. Without that prayer, and



granting of the same, no other direction can follow. Even for granting the said relief, there should besupporting primary documents as per law. It is to be noted that the petitioner has not challenged thedate of 28.1.1983 as recorded in the transfer instruments and as a matter of fact, these instrumentshave been signed by Shri Ashok himself as a director of the petitioner. Therefore, neither in law norin equity, he can claim that the petitioner had become a shareholder in August, 1982. Since it hasbeen held in Mannalal Khetan case AIR 1977 SCC 536 that the provisions of Section 108 aremandatory, in the absence of any primary records, like instruments of transfers executed in 1982,the petitioner cannot claim membership effective from 1982 even if the company had wronglyentered the petitioner's name in the register of members as the same would void and the only courseavailable to this Board is to delete the illegal entry. In Vasudev Ramchandra Shelat v. PranlalJayanand Thakar 1974 SC 728, it has been held that to claim antecedent rights, the transfereeshould be in possession of share certificates along with signed blank transfer forms. In the presentcase, the petitioner cannot claim the antecedent rights as the transfer instruments are dated only as28.1.1983. In a petition under Section 397, one cannot ask for relief regarding shares already held.In terms of Article 38, if members holding 2/3 of the shares approve the transfer to an outsider,then there is no need to offer the shares to other members. Therefore, even assuming that thepetitioner had become a shareholder as claimed by him on 30.8.1982, for transfer of shares fromShah group to B. Raheja group, there was approval from 2/3rd shareholders, namely Shah groupand K.Raheja group for transfer of shares to B. Raheja group and therefore, the petitioner could nothave sought for exercising the preemption rights. Further, in terms of Article 38, no vested right iscreated in any shareholder in terms of the pre-emptive clause and the said transfer has to only becancelled and no other shareholder can ask for the shares as a matter of right. This Board has heldso in In Cruickshank Company Ltd. v. Stridewell Leathers Private Ltd. 86 CC 439.

12. In so far as the claim of the petitioner for a representation on the board is concerned, thepetitioner cannot have any legitimate expectation as it had its nominee on the board even before itbecame a shareholder. In other words, its acquiring shares being later in time, such acquisitioncannot create any legitimate expectation of being in management by virtue of the shareholding.Since the petitioner had already a nominee on the board, it was requested to invest and accordinglyit did so. The nominee of the petitioner, Shri Ashok was appointed as an additional director on26.6.1981 to hold office up to the date of next AGM. Since he was not elected as a director, he ceasedto be a director effective from 25.5.1982. In page 31 of the petition, it is stated that the petitionerrealized in 1989 that its nominee had been removed as a director. If the petitioner had thisknowledge in 1989, it cannot agitate this issue in 2005. It is on record, as stated by the petitioner inpage 34 of the petition, that disputes had started in 1989 and in spite of that the petitionersubscribed to the right shares offered in 1990. Even then, in its letter dated 7th September,1989Annexure A-9), the petitioner while asking for various documents on the ground that it had notreceived any notices for any meetings after it had become shareholder of the company, did not raisethe issue of directorship. This letter was replied on 16.9.1989 by the 10th respondent who belongs toB. Raheja group. Thus, the petitioner was aware that B. Raheja group had become a shareholder ofthe company even at that time. If the petitioner had slept over its rights for over 15 years, it cannotinvoke equity in its favour. As a matter of fact, Shri Ashok entered into an understanding with the10th respondent that the shares held by the petitioner would be transferred to the othershareholders as is evident from Annexure A-11 and 12. In his letter dated 5.10.1989 (Annexure



A-12), Shri Ashok had questioned the claim of the 10th respondent that the former had agreed totransfer the shares held by the petitioner, on the ground that Ashok had never been authorized bythe petitioner to negotiate for such a sale. If he had not been authorized, then, the question of anyoral agreement with him regarding participation in the management does not arise. Only in thisletter, Shri Ashok had voiced his grievance that he had not been receiving notices for meetings eventhough he was a director of the company. However, in subsequent letters, there was no whisperabout directorship nor about B. Raheja group being a shareholder in the company. In paragraph 4 ofhis letter dated 12th Oct. 1989 (Annexure A-14) to Shri Ashok, the 10th respondent had pointed outthat the two Rahejas being 2/3rd owners of the company, Shri Ashok P. Hinduja had agreed earlierto transfer the shares held by the petitioner so that two Raheja groups could fully own the company.Therefore, the petitioner was fully aware that B. Raheja group had become a shareholder and itnever enquired as to how and when B. Raheja group become a shareholder since Shri Ashok wasfully aware of the facts. In the same letter, the 10th respondent informed Ashok that the latter wasnot entitled to be a director as he did not hold any qualification shares. In its letter dated 22.2.1990,the petitioner had reiterated that it would continue to maintain 1/3rd shareholding in the company(Annexure A-16).

13. Dr. Singhvi appearing for Chandu Raheja group submitted: It is for the petitioner to dischargethe burden of proving that it was the transferee of shares in 1982. It has only relied on thecompany's non statutory, non prescribed register to claim the right of membership from August,1982. The company never communicated to the petitioner that it was a shareholder in 1982 nor anyrecord in the ROC depicts likewise. Neither the respondents nor the company had acted on the basisthat the petitioner had become a shareholder in August, 1982 to claim estoppel against them. Thepetitioner cannot claim that half of the entries in the register of transfer are correct while the otherhalf is wrong. In State of Bihar v. Radhakrishna Sinh , the Supreme Court has held that a petitionerhas to discharge his burden by proving the facts alleged by him, and that the defendants could notbe called upon to rebut the claim of the petitioner. Similarly, in Meenakshi Ammal v.Chandersekharan wherein it was alleged that the Will had been executed under undue influence, theSupreme Court held that the onus of proving undue influence is upon the person making suchallegation and mere presence of motive and opportunity are not enough. In the present case, whilealleging fraud, the petitioner has not given any proof or evidence to substantiate the same. The veryfact that the company has produced all the registers would indicate that it had nothing to hide. Theretention of the old registers alleged to have been fabricated itself is the best proof of the honesty ofthe respondents. Further, the petitioner knew at least in 1989 that B. Raheja group had become ashareholder. There is no explanation as to why the petitioner waited for so long to allege fraud etc.Knowledge coupled with the silence and inaction would amount to latches, waiver and estoppel.When one does not assert his right even when there was a fraud, he has no remedy. Third partyrights enjoyed for over 20 years cannot be undone on the plea of unsubstantiated fraud. In case ofbilateral relationship, latches will squarely apply and there is no larger public interest to ignore thelatches. Likewise, equitable consideration does not override latches and discretion should not beexercised in favour of a person who has not asserted his alleged rights. In Ferro Alloys CorporationLtd. v. Union of India , the Supreme Court has held that once a party acquiesces and has consciouslywaived its rights, the party can be non suited on the ground of estoppel.



14. Shri Devitre appearing for K. Raheja group submitted: To claim the principles of quasipartnership, the petitioners have not produced any written agreement to that effect. The person whohas affirmed the petition joined the 1st petitioner company only in 2004 and as such he cannotclaim any oral agreement that the company would be managed in the guise of a quasi partnershipwhen the petitioner entered the company in 1982/1983. Even the subsequent-conduct that thepetitioner never asserted its right of joint management for over 20 years would indicate that eventhe alleged oral agreement had never been insisted or acted upon. The very fact that in para 6.4 ofthe petition it is averred that right from the beginning, the representative of the petitioner has beenkept out of the management would indicate that there could have been no agreement of jointmanagement. As a matter of fact, this averment itself could be destructive of the alleged oralagreement. Shri Ashok was appointed as a director in June, 1981 and ceased to be so in May, 1982.Thereafter, he never took any interest in the company even after being categorically informed in1989 that he was not a director. The prayer of the petitioner at "L" at page 69 that his removal as adirector in 1982 should be declared as illegal cannot be granted in the year 2005. Therefore, thepetitioner cannot seek proportional representation and rejection of the same is not an act ofoppression. Further, there is no deadlock in the board and the company has been making profitsand it has also declared dividend which has been accepted by the petitioner. The very fact that thepetitioner's holding of 1/3ld right from the beginning has not been disturbed itself would show thatthe respondents have been acting fairly. In so far as the alleged fraud relating to the entry of thepetitioner as a member is concerned, mere entry in the register of transfer de-hors the factualaspects of the dates in the transfer forms/share certificates and register of members cannot give thepetitioner to right to claim membership effective from 30.8.1982. In terms of Section 164, entry inthe register of members in terms of Section 150 is prima facie evidence of the date on which aperson becomes a shareholder and in terms of Section 184, the share certificate shall be prima facieevidence of the title of the member to such shares. In the present case, both the register of membersand the share certificates bear the date of 28.1.1983 which prima facie establishes that the petitionerbecame a shareholder only on that date. Further, both the main allegations relating to date of entryas a member and removal as a member are hopelessly time barred. In paragraph 6.6, the petitionerhas averred that in a meeting held on 27.8.1989, Shri Ashok came to know that Shah group hadexited and Rahejas had taken over the estates. Further, it is also stated in the last line of thatparagraph that the respondents had misled the petitioner that he would not succeed in obtaininglegal redress and therefore had to remain silent and continuously subscribe to the shares offered tomaintain its share in the venture and appreciation of value in the assets. This itself would show thatthe petitioner had acquiesced to the state of things and remained content with 1/3rd shares in thecompany. There were 5 subsequent right issues which were all subscribed to by the petitionerknowing frilly well that Raheja group as a whole held 2/3rd shares in the company. The very factthat the petitioner never took interest in the company would indicate that it is nothing but aninvestor and it is Rahejas who had all along nurtured the company to build a 5 Star Hotel. In spite ofthe fact that in terms of Article 9 of the AOA, the board has full powers to allot shares, therespondents never varied the shareholding of the petitioner and were offering right shares all thetime. This itself would show the bonafide of the respondents. One another important aspect to benoted is that the authorized representative of the petitioner took inspection of various records of thecompany in 1993, including the register of members and obtained a copy of the same and thereforethe petitioner was aware that B. Raheja group had become a shareholder. Further, the affidavit filed



by the deponent of the petitioner is not in conformity with the CLB Regulations. The very fact thatthe deponent has relied on an alleged oral agreement to which he could not have been a party sincehe joined the company only in 2004, on this sole ground that the petition deserves to be dismissed.The petitioner has not established discovery of any new material which was not available in1989/1993 to file the petition belatedly in 2005. This undue delay has actually prejudiced therespondents in the sense that they are not in a position to provide any relevant evidence tosubstantiate their stand. Further, as held in Sangram Sink P. Gaekwad v. Shantadevi P. Gaekwadand Bagri Cereals case 105 CC 465, the petitioner should establish that the company deserves to bewound up on just and equitable grounds.

15. Shri S.N. Mookherjee, Sr. Advocate for A. Raheja group submitted: On the basis of the avermentsof the petitioner in the petition itself, the petition deserves to be dismissed with cost. From theaverments of the petitioner in paragraph 6.3.2 to 6.3.6, it is evident that the petitioner knew that thetransfer to its name was effected on 28.1.2003 at which time Shah group was not a shareholder. Ifthe claim of quasi partnership was with Raheja group and Shah group, then, he should haveprotested at that time itself. Therefore, the petitioner has not come with clean hands. In the petition,the petitioner conveniently omitted to disclose the share certificates. The petitioner deliberatelywithheld the document. Further, when the transfer instrument bears ROC stamp as of 8.1.1982, notransfer could have been effected before that date. Therefore, the claim of the petitioner that therewas delay in registering the transfer of shares is baseless. In Needles case AIR 1981 SC 1898 theSupreme Court has held that a person who comes to equity must come with clean hands and if hedoes not, he cannot ask for relief on the ground that the other man's hands are unclean. Likewise, inS.P. Chemgalvaraya Naidu v. Jagannath, it has beenheld that non disclosure of relevant andmaterial documents with a view to obtain advantage amounts to fraud. The aim of the petitioner, onthe basis of entries in the share transfer register that he should have been entered as a member inAugust, 1982 cannot be accepted in view of primary documents indicating otherwise. In terms of theentries in share certificates, the petitioner became a shareholder only on 28.1.1983. In SatishChandra Sanwarka v. Tinplate Dealers Assn. Pvt. Ltd. 1998 2 CLJ 354, this Board has held that evenin case of dispute between the entries in the share certificate and the share register, the prima facieevidence through share certificates under Section 84 gets precedence over prima facie evidence ofregister of members under Section 164 for the reason that the register of members being under thecontrol, of the company is susceptible to manipulations. In Maneckji v. Wadilal AIR 1926 PC 38, ithas been held that the title to get on the register consists in the possession of a certificate togetherwith a transfer instrument signed by the registered holder. In the present case, the instrument oftransfer has been signed only on 28.1.1983 and therefore the petitioner could get the right to get intothe register of member on that day or later and not before. Having all along exercised rights as a1/3rd shareholder, he cannot claim anything higher now on flimsy grounds. It is to be noted thateven after carrying out inspection in September, 2004, in the letter dated 20.5.2005 (AnnexureA-55), the petitioner has sought for a representation on the board on the ground that it was holding33% shares in the company. In other words, even after finding out the alleged fraud in September,2004, the petitioner did not assert its alleged right. Even when dividend was declared in accordancewith entries in the register of members, the petitioner never protested. It is not in dispute that it isthe respondents who have nurtured the company and have given personal guarantees. Nomismanagement has been alleged. Presently, the hotel has been given on management contract to



Marriot and none of the directors is getting any remuneration.

16. In rejoinder, Shri Dave submitted: When the petitioner entered the company, it was with certainunderstanding and expectation. Therefore, when the understanding has been breached and theexpectation has not been fulfilled, the petitioners can always allege oppression and mismanagement.Even in the register of members, the transferors of the shares transferred to the petitioner had beenshown to have ceased to be members on 30.8.1982. If so, then, the petitioner being the transfereeshould also have been entered as a member on that date. There is no explanation from therespondents as to how the shares could be in limbo during this period. However, its name has beenentered in the register of member only on 28.1.1983 notwithstanding the fact that in the sharetransfer register the transfer is shown to have been effected on 30.8.1982. Whether it is a fraudulentmanipulation as claimed by the petitioner or a mistake as claimed by the respondent has to bedecided on the basis of the motive of the respondents. It is to be noted that neither the K. Rahejagroup nor the company in the affairs of which the allegations have been made has filed any reply. InCharanjit Lal Choudhary v. Union of India , it has been held that in case of allegations against thecompany, it should defend.. In Dhananjay Pande v. Dr. Bias Surgical & Medical Institute Pvt. Ltd.125 CC 626, this Board has held that even when the petitioner was not in a position to establish thathe had been allotted shares by producing any documentary proof, yet, the Board on the basis of thecircumstances held that there was a pre- ponderance of probabilities that shares had been allotted tothe petitioner. When the share records indicate that the petitioner had become a shareholder on30.1.1982, the same should be taken as conclusive proof of the petitioner having become a shareholder on that date. In a quasi partnership, directors owe duty to all the members. Since thepetitioner is an outsider, with a view to grab the control of the company by way of manipulation ofthe records, the shares held by Shah group had been transferred to other Raheja group. In terms ofArticle 2(o) of AOA, shareholder or members mean duly registered holders from time to time of theshares of the company. In view of the entry in the shares transfer register indicating the date oftransfer as 30.8.1982, the petitioner had become registered holder on that day and thereforepre-emptive rights in respect of all subsequent transfers vest in the petitioner. The contention of therespondents that if shareholders holding not less than 2/3rd of the share capital approves thetransfer, there is no need for offering to other shareholders cannot be accepted as transferor cannotbe a party to such an approval. The 2/3rd approval would arise only when no other member willingto purchase the shares. The Raheja groups have subsequently transferred substantial number ofshares to entities within their control which could not have been done without making an offer tothe petitioner as in terms of Article 44, the transfer could be among close relations and individualsand not to corporate entities. Since fraud has been established beyond doubt, even though petitionerwould be entitled to 88% shares in the company, yet, the petitioner is prepared to accept 50% sharesso that there is equality between Rahejas and the petitioner. Similarly, the petitioner should also getequal representation on the board.

17.Shri Sarkar, in rejoinder, submitted: It is strange that having agreed to be 1/3'd shareholder andthereafter claiming 88% shares in the company and now the petitioner claims 50% shares. Thepetitioner has not produced any evidence that there was an agreement that if one group were to goout of the company, the other two groups would have equal shares. Even assuming that the claim ofthe petitioner that it had become a shareholder on 30.8.1982, in the absence of any instrument of



transfer, the entry in the register would be void in terms of Section 108 of the Act. Right to title toproperty has to be in accordance with law and any lapses or mistake or even assuming fraud on thepart of the company cannot give a title to the petitioner. Since the petitioner derives his title fromthe transferor, only the date on which the transferor signs the instruments of transfer, the petitionercould get title from that date. It is on record that the transfer instruments bear the stamp of ROC as8.1.1983 and the instruments could have been signed by the transferors only on that day orthereafter. In so far as the allegation relating to entries in the minutes book is concerned, the personwriting the minutes expired in 1992 and therefore, it is not possible to ascertain the reasons for thedifference. Further, the minutes book is a bound one and not maintained in loose leaf form whichcould be manipulated/fabricated. Article 38 refers to 2/3r shareholder and does not exclude thetransferor in computing the 2/3rd shares.

18. I have considered the pleadings, arguments and written submissions. After the conclusion of thehearing on 12.4.2006, the petitioner filed an application CA 138 of 2006 dated 8.5.2006 pointingout that the photocopies of page numbers 99 and 100 of the minutes book were got verified from ahandwriting expert who has given the opinion that the writings in the two pages are not of the sameperson clearly indicating that there has been manipulation. In the written submission, it has beensubmitted that in page No. 99 it is recorded that the notice calling for the meeting was read and inpage No. 100, the minutes record the termination of the meeting. No meeting would be calledwithout having some business to transact. When in the register of members, it is recorded that thetransfer of shares to the petitioner was approved in the board meeting held on 30 th August, 1982and when the minutes do not show any business having been transacted, it is quite obviousconsidering the fact that page No. 99 and 100 are not in the same handwriting and that page No. 101has been scored out would indicate that the business transacted on that day approving the transferhas been erased. It is also submitted in the application that if necessary, this Board should obtain ahandwriting expert opinion afresh to ascertain whether the handwriting in page No. 99 and 100 areof the same person. In the reply to this application, the respondents have contended that thepetitioner has not made out any case of manipulation of records and that the allegation relating tothe minutes are inconsequential and incorrect and does not amount to "tampering" and that eventhe hand writing experts opinion only shows difference in the hand writing and it does not evenwhisper of "tampering."

19. Before I deal with the merits of the case, the issue of limitation raised by the respondents has tobe dealt with. It is contended that since Shri Ashok himself has admitted that in 1989, he wasinformed of the entry of B. Raheja group as members and he had also been corresponding with the10th respondent who is a member of B.Raheja group, the petitioner cannot challenge admission ofthe B.Raheja group now after a delay of over 15 years. It is also contended that the petitioner hadtaken inspection of the records of the company in 1993 and therefore must have been aware of thealleged manipulation of records and therefore, its silence during all these years, would amount towaiver, acquiescence and would act as estoppel. As against this, the petitioner contends that it cameto know of the manipulations in the share records of the company only in 2004 and therefore, thereis no delay in approaching this Board. In paragraph 6.6 of the petition, the petitioner has averred Italso transpired at this meeting that Shah group has exited and the Raheja group had taken overtheir shares and effective control over the company contrary to and in breach of the agreement and



understanding referred to above. Mr. Ashok P. Hinduja was also informed by the said respondentsthat the shares of Shah group have been transferred and registered in favour of Raheja group evenprior to transfer and registration of even a single share in favour of the petitioner and that, in viewthereof, the petitioner has no remedy in view of the restrictive provisions regarding transfer ofshares contained in the Articles of Association of the respondent company. The petitioner wasmisled by the statement of the said respondents and was misled into believing that the petitionerwill not succeed in obtaining legal redress and therefore had no choice but to remain silent and tocontinuously subscribe to the rights offer to maintain its shares in the venture and appreciation ofthe value in assets . According to the respondents, this averment would indicate that the petitionerwas aware of the entry of B. Raheja group as members of the company and since it had notchallenged the same for over 15 years, it would amount to waiver, acquiescence and estoppel. I am ofthe view that this averment would in no way prejudice the right of the petitioner to file this petitionas only after inspection of the share records of the company in 2004, he has alleged that B. Rahejagroup had entered the company by manipulation of records which knowledge the petitioner did notdefinitely have in the year 1989. Further, I have seen the report of the inspection carried out by thepetitioner in January, 1993. While the report shows that register of members had been inspected,neither the share transfer register nor the board minutes had been inspected which are the primaryrecords on the basis of which, after taking inspection of the same in 2004, the petitioner allegesfraudulent manipulation. Therefore in so far as the challenge to the transfer of shares to B. Rahejagroup is concerned, I do not find that this petition is time barred as the cause of action for thepetitioner to file this petition has arisen only after inspection in 2004. The cases cited by the learnedCounsel for the petitioner viz Syed Shah Gulam, Bank of India and State of Orissa (supra) areapplicable, while the case of Fero Alloys Corporation Ltd. cited by the respondents is not applicable.

20. Before dealing with the main allegations, I consider it proper to deal with certain peripheralissues raised by the petitioner. According to the petitioner, the company could not have entered intoa contract with Marriott without the approval of the members in a general meeting as in terms ofSection 293(1)(a), the approval of the shareholders is necessary. Provisions of Section 293 areattracted only in cases of sale, lease or otherwise disposal of an undertaking. In hotel industry, it iscommon to enter into a management contract with reputed international hotel chains, which usesits expertise in manning and managing the hotel for an agreed consideration as management fees.The entire revenue accrues to the company. The property does not vest in the hotel chain. Therefore,in such contracts, no sale or lease is involved to apply the provisions of Section 293(1)(a). From thebalance sheets of the company for the past two years, I find that the hotel has done exceptionallywell under the management contract, which enabled the company to declare handsome dividends.Except expressing an apprehension that that by this contract, the respondents might be siphoning offunds of the company, no other instances of mismanagement is alleged except that certain statutoryrecords are not maintained property. In so far as the allegation that the petitioner is not allowedaccess to records of the company is concerned, from the documents attached with the petition itself,I find that the petitioner has been repeatedly asking for information and on every occasion, thecompany has provided the same. The petitioner has also complained that since it had madeallegations of fraud etc against K.Raheja group and the company, they have not filed any counter butthe counter has been filed only by B.Raheja group. It is to be noted that the entire petition is basedon an understanding with Shri Ashok, but, he has not filed the petition, but the petition has been



filed by an employee who has joined the petitioner only in the recent past, who would have nopersonal knowledge of the alleged oral agreement. Thus the decision in Purshotam Jognath, cited bythe learned Counsel against the K.Raheja group is squarely applicable to the petitioner also.However, even though the main counter has been filed by B.Raheja group, yet all other respondentshave filed affidavits adopting the said counter and all of them were also represented during thehearing. Therefore, the decision in Lohia Properties Ltd. that if allegations are not denied by thepersons against whom the same are made, then the allegations should be taken as admitted, is notapplicable. The petitioner has made allegations against the appointment of MD, which I do notconsider necessary to deal with as the said appointment has been approved in a general meetingattended by the representative of the petitioner.

21. In so far as the merits are concerned, the entire claim of the petitioner in regard to shares restson two premises. One is that in terms of Article 38, the petitioner had pre-emption rights and thesecond is that to deprive the petitioner of the said pre-emptive rights, the respondents hadfraudulently manipulated the share records. Article 38 reads A share may be transferred by themember or other persons entitled to transfer the same to any member selected by the transferor or aperson approved by the holders of not less than 2/3rd of the issued capital of the company, but saveas aforesaid, and save as provided by Articles 42 to 45 hereof, no share shall be transferred to aperson who is not a member so long as any member is willing to purchase the same at the face value.From this Article, it is apparent that shares could be transferred by a member to another memberselected by him and that unless shareholders holding not less than 2/3rd of the issued capitalapprove, shares cannot be transferred to a non member but has to be offered to a willing existingmember. In other words, except in case of transfer of shares from a member to another member andtransfer to an outsider with the approval of holders of 2/3r of the shares, no transfer can betransferred without offering the shares to the existing members. In other words, the existingmembers have a right of pre-emption and if the procedure prescribed under Article 39 and 40 is notfollowed in terms of the pre-emption right, any transfer effected shall be invalid.

22. Now, the claim of the petitioner relating to pre-emption right in respect of shares transferredfrom Shah Group to B Raheja Group. This claim is based on the allegation that there had beenfraudulent manipulation in the share records of the company i.e. share transfer register and registerof members. Additionally it is also claimed that the minutes of the board meeting on 30.8.1982 havebeen fabricated by removing/erasing the decision of the board approving the registration of transferof shares in favour of the petitioner on that date. Four shareholders belonging to L. Raheja grouphad transferred their shares to the petitioner. A perusal of the share transfer register shows thatthere are two different sets of entries in respect of the shares transferred by that Group to thepetitioner. On 30.8.1982,there are three entries indicating transfer of shares to the petitioner notingthe consideration at Rs. 100/- per share. The serial numbers of these transfers are 22,23 and 24. It isalso indicated against these entries that the board had approved the registration on 30.8.1982.However, there is no entry relating to transfer of 33 shares from Ms Kaushlya Raheja to thepetitioner on 30.8.1982. In serial numbers 35 to 38 of the share register, again entries are foundrelating to transfer of the same shares on 28.1.1983 with consideration noted at Rs. 200/- per share.The transfer of 33 shares from Ms Kaushalya Raheja to the petitioner also finds a place. Similarly, aspointed out by the petitioner, in the members' register, the transferors of the shares to the petitioner



have been shown to have ceased to be the members on 30.8.1982. In the register of members, inFolio number 29 relating to the petitioner, the corrections, in the dates of transfer are clear anddistinct. From the photo copy of the minutes of the board meeting held on 30.8.1982, it is seen thatthe handwritings in page 99 and 100 are apparently different and no Board would meet to transact"NIL" business. In other words, the petitioner has established that there are discrepancies in thenature of corrections, additions, alterations, deletions and omission in the register of members,share transfer register as also in the minutes. The respondents do not contest these discrepancies.The only difference in the stand of the petitioner and that of the respondents is that the petitionerclaims fraudulent manipulation of records while the respondents contend that they are correction oferrors. Errors could occur by mistake on one or two occasions and in one record or two records butmultiple corrections in many records like register of members, share transfer register and theminutes of the Board meeting etc could justifiably give rise to the claim of fraud as alleged by thepetitioner.

23. Whether the respondents have made the changes in the share records fraudulently is the issue tobe considered. Fraud means cheating or deceiving a person to his injury and it aims at thedisadvantage of another. Likewise, to defraud means to deprive one of his some rights, interests inor of property by deceitful devices. Therefore, in the present case, to claim fraud on the part of therespondents, the petitioner has to establish that it had been deprived of certain rights or interestswhich it had and which has been affected by the alleged fraudulent manipulation of records.

24.The entire case of the petitioner regarding its rights is based on the share records of thecompany. To rely on the share records of the company that the petitioner had become a shareholderon 30.8.1982, it has to establish, if not categorically, atleast prima facie, that the original sharerecords reflected the true state of affairs on that date i.e. the petitioner was entitled to be a memberon that date and therefore, the records reflected the same. In other words, it has to corroborate thisfact independently of the share records. When a person alleges the existence of a particular state ofaffairs, it is for him to establish the same by proper material/evidence and the burden to do so is onthat person. Radhakrlshna Sinh casesupra Legally a person is entitled to become a shareholder ontransfer only if he has paid the consideration for the shares and is in possession of share scriptstogether with instrument of transfer and has lodged the same with the company. In the present case,the petitioner has not established any of the above as on 30.8.1982. It has not even averred in thepleadings that it had paid the consideration on or before 30.8.1982 or that it had received the sharescripts from the transferors or that the transferors had executed transfer instruments in favour ofthe petitioner before that date and they were lodged with the company. Unless and until itsentitlement to the shares on 30.8.1982 is established, it can not allege fraudulent manipulation ofrecords since this alleged manipulation of records has not deprived the petitioner of its rights orinterests in the shares to which the petitioner has not established that it was entitled to on30.8.1982. On the contrary, the details available in the instruments of transfer indicate that thepetitioner could not have become a shareholder earlier than 8.1.1983, since the ROC seal as foundon all the four instruments of transfer bears the said date. In other words, transfer instrumentscould not have been executed before that date. The date of execution is shown as 28.1.83 and it hasbeen signed by Shri Ashok on behalf of the petitioner as the transferee. The share scripts as availablewith the petitioner bear the date of transfer as 28.1.1983. Further, even though in the petition, it has



been averred that the correct consideration pain for the shares was Rs. 100/- per share, theinstrument of transrer indicate that the consideration paid was Rs. 200/- per share and the samehas been noted in the register of transfer on 28,1,1993. Thus, how the petitioner has averred inparagraph 6.3.6 of the petition that there was a deliberate time lag in completion of formalities fortransfer and registration of the shares in the name of the petitioner and intimation thereof came inJanuary 1983 is not clear. Even though no statutory pre-emption is provided in the Companies Actin respect of entries in the register of transfers, assuming that since Article 37 provides formaintenance of a register of transfer, this Board has taken a decision in Tinplate Dealers Associationcase (supra) that in case of disputes in relation to entries in the register of members and sharecertificates, the prima-facie evidence in respect of share certificates under Section 84 getsprecedence over prima-facie evidence of register of members under Section 164 for the reason thatthe register of members being under the control of the company is susceptible to manipulation. Inthe present case, admittedly the share certificates indicate the date 28.1.1983 as the date of entry ofthe petitioner as a member. If the petitioner were to challenge that the share certificates should bearthe date of its entry as 30.8.1982, then, as I have already pointed out, it should establish the samewith proper 'evidence with independent materials, which the petitioner has not done. Evenassuming that the Board had in fact approved the transfer on 30.8.1982 and accordingly entrieswere made in the register of transfers on that day, in the. absence of any proof that the petitionerhad lodged the transfer instruments along with the share scripts, even the approval by the Boardwould be void in terms of Section 108. The main contention of the petitioner is that it had beendeprived of preemption rights. There is nothing in record to show that when the entries were madein the register of members on 30.8.1982 indicating that the petitioner had become a shareholder onthat date, Shah group, being the other shareholders on that day, had given a no objection as it wouldbeen entitled for the pre-emptive rights. However, in respect of the transfer on 28.1.1983, B RahejaGroup had given a no objection for transfer of shares by L Raheja Group to the petitioner. Thepetitioner has relied on the decision of this Board in Dr. Bais case, wherein, even though thepetitioner was not a registered member of the company, yet, this Board treated him as a shareholder for the purposes of maintaining the petition in terms of Section 399, when his locus standiwas challenged. It was a case of allotment of shares and the petitioner had paid application money ofRs 148 lakhs and the dispute was whether he had become a member by allotment of shares or not.In a civil suit against the company, the petitioner claimed the money invested by him as shareapplication money but the company contested the same on the ground that since shares had beenallotted to the petitioner, he could not seek refund of his investment. In the present case, there isnothing on record to show that either the respondents or the company had treated petitioner as ashareholder before 28.1.1983. Therefore, the decision in that case has no application. Thus, on anover all assessment of the facts, I find that the allegation of the petitioner that there had beenfraudulent manipulation of share records of the company with a view to deprive of the petitioner ofits pre-emption rights has not been established. Even otherwise, transfer of shares in breach of thepre-emption clause would only invalidate the transfer, and the shares transferred shall revert backto the transferor and no other shareholder, as a matter of right, can seek for acquiring the sharesunless the transferor once again makes an offer. In other words, no vested interest is created in anymember to seek for acquisition of shares, the transfer which has been declared to be bad due tonon-compliance with the provisions of the pre-emption Clause (Cruickshank casesupra).



25.In this connection, I may only point out that in the petition itself, other than discrepancies inrelation to the impugned shares, the petitioner has also pointed out various other deficiencies bothprior to and after the transfer of the impugned shares and in relation to transfer of shares to othermembers also. This would only indicate that the records maintenance in the company isnot up tothe mark.

26. Assuming, that the contention of the petitioner that it had become a shareholder on 30.8.1982 iscorrect, the next issue for determination is whether it would have got the entire 633 sharestransferred by Shah group in exercise of the pre-emptive rights. In the matter of transfer of shares,the provisions of the Articles have to be strictly followed. In terms of Article 39, the transferor has toissue a transfer notice to the company and in terms of Article 40, the company has to find apurchasing member. It would mean, that to find out a purchasing member, the company has toissue notices to all the existing members. The Articles do not specify the modalities to be adopted ifthere were more than one willing/purchasing member. This being the case, an equitable way ofdistribution would be to offer the shares in proportion to the shares applied for. It is on record thateven after K. Raheja group had transferred 633 shares to the petitioner, 3 other shareholdersbelonging to K. Raheja group continued to hold shares as on 15.1.1983 when Shah group transferredtheir shares. They are Kausalya Raheja, Sheela Raheja and Joyti Raheja. Since group concept hasnot been provided in the Articles, everyshareholder, irrespective of the group, would have to betreated as a member for the purposes of pre-emptive rights, as, in the matter of transfer of sharesthe provisions in the Articles override any private agreement regarding the same. (V.B. Rangarajcase73 CC 201). If all the thred had applied, then, the petitioner would have been entitled to only1/4th of the shares transferred by Shah group. Therefore, to consider that the petitioner was entitledto all the shares, it has to be presumed that the petitioner alone would have applied for all the sharesand that the other three shareholders would not have applied for any share. No one can claim a righton the basis of assumptions and presumptions. Therefore the foundation on which the petitionerhas staked its claim that if its name had been entered in the register of members on 30.8.1982, itwould have acquired the entire shares of Shah group, is not only very weak but also unsustainable.

27. One important aspect which I would like to mention is that it is the averment of the petitioneritself that before it became a shareholder, it was K. Raheja Group which held 66% of the shares ofthe company and it had agreed to transfer 33% shares to the petitioner so that it could have 1/3rshares in the company. Presently also, the petitioner holds 1/3rd shares and Raheja group as awhole holds 2/3rd shares. At every time, when further shares were issued, the petitioner was offeredand allotted shares on a right basis to ensure that it continues to hold 1/3rd shares in the company.In other words, the respondents have not acted in any manner prejudicial to the shareholdinginterests of the petitioner and as per the understating as claimed by the petitioner, it continues tohold 1/3rd shares. Therefore, its prayer during the hearing that both the petitioner and the Rahejas'should hold 50% shares each is not supported either by the alleged oral understanding or in terms ofthe Articles.

28. The petitioner has also challenged subsequent transfers of shares by both the Raheja groupsalleging that the provisions of Article 38 had not been followed and therefore all these shares shouldbe offered to the petitioner after declaring these transfers as invalid. The stand of the respondents is



that all these transfers were within among the Raheja groups and not to any outsiders and thereforecovered under the provisions of Article 44. This Article reads Any share may be transferred by amember to any child or their issue, father or mother of such member and any share of a deceasedmember may be transferred by his executor or administrators or other legal representatives subjectto the approval of directors to any child or other issue, father or mother of such deceased member towhom such deceased member may have specifically bequeathed the same and where there has beenno bequeathal of his share by a deceased member, such shares may be transferred to the legalrepresentative of such member From this Article, it is evident that a living member can transfer hisshares only to his child, father or mother without attracting the pre-emptive provision. No transferis permissible to any other non member without offering the shares to other existing members interms of Article 38 and following the procedure prescribed in Articles 39 and 40. There have been anumber of transfers within Rahejas group including transfers to a number of companies under theircontrol. A strict application of Article 44 would result in a declaration that transfers other than tothe children of the members or their father or mother are invalid resulting in the shares revertingback to the original transferors. As I have already held, the petitioner would not have a vested rightin acquiring those shares declared as invalidly transferred. Considering the fact that the shareswould continue to be within Rahejas group even after declaring the transfers as invalid, such adeclaration and reversion back to the original transferors would be a fruitless exercise and thereforeI do not propose to do so as the petitioner is not going to be in any way benefited by declaring thesetransfers as invalid. In this connection, I note that the respondents have contended that holders ofnot less than 2/3rd of the issued capital can approve the transfer to a non member in terms ofArticle 38, and since Raheja group as a whole holding 2/3rd of the issued capital have approved thetransfer, the transfers cannot be declared as invalid. Even though it is only academic since I havealready held that I do not propose to cancel the transfers, I am to point out that there is nothing onrecord in writing that the Raheja group had given their consent in writing for such transfers, as theydid in the case of transfer of shares to the petitioner and to B. Raheja group. Thus, in so far as theallegations relating to the shares and the consequent relief sought, I do not find any scope to supportthe petitioner.

29.In so far as the claim of the petitioner to have a representation on the Board of the company onthe ground that it had entered the company with an understanding and legitimate expectation ofbeing in joint management, is concerned, I do not find any substantive material to establish thesame other than the alleged oral understanding. It is on record that after having been appointed asan additional director on 26/8/81, Shri Ashok not did not bother to find out whether he continuedas a director, but raised issue of directorship only in 1989 and thereafter, now doubt, he has beenagitating about the same by. correspondence off and on. The question of legitimate expectationwould arise only if a person who has been exercising/enjoying legitimate rights and suddenly findshimself deprived of the same. Once a person has abandoned his rights and legitimate expectation foryears, he can not revive the said expectation on the basis of certain understanding 20 years back.Therefore, the question of declaring his cessation of office as invalid or directing any representationof the petitioner on the basis of legitimate expectation does not arise. However, such a claim canalways be considered on equitable grounds. It is an admitted fact that the petitioner is the singlelargest shareholder holding 33% shares in its own name. The share capital has been increased fivetimes and on every occasion, the petitioner has subscribed to the shares offered and it has



continuously maintained the position of holding 1/3rd shares. In addition to investing Rs 26 croresin the share capital, it had also subscribed to redeemable debentures to the tune of Rs 41 crores(which now stand redeemed now). There are only two other groups in the company and both haverepresentation on the board. In the recent past the petitioner is also seeking a representation on theBoard. It will be highly inequitable to deny one out of three groups, any representation on the boardon the ground that that group has not taken any interest in the affairs of the company. On the onehand, the respondents deny any representation on the Board and on the other hand they allege thatthe petitioner is not taking any interest in the affairs of the company. The very fact that thepetitioner had funded the company to the tune of more that Rs 65 crores at the time when thecompany needed funds while the hotel was under construction, would indicate the interests of thepetitioner in the company. The respondents have alleged that the petitioner has been putting spokesin the functioning of the company but have not elaborated the same. From the variouscorrespondences exchanged between the petitioner and the respondent/company, I find that thepetitioner has been asking only the details regarding the affairs of the company which, as a 1/3rdshareholder, the petitioner is entitled to and this cannot be considered to be of hindrance to thefunctioning of the company. One other ground of not associating the petitioner is that it is only afinancier. Even a financier, if it holds 1/3rd of the shares, can legitimately seek for a position on theBoard to protect its interest. Therefore, considering the facts of the case, that the petitioner has beenassociated with the company for a long time and that it is the largest single shareholder holding1/3rd shares in the company and that it has helped the company in providing finance in times ofneed, the denial of its equitable right to have a nominee on the Board is definitely an act ofoppression. Relying on Needles Industries case, the respondents have contended that to allegeoppression there should be continuous course of acts amounting oppression for grant of relief and asingle act cannot give rise to a claim of oppression. Denying the request of the petitioner, inspite ofits being the largest single shareholder for a representation on the Board has a continuous effect ofdeprival and as such the said grievance could be redressed in terms of Section 402 of the Act. It is tobe noted that the support of the petitioner is necessary for passing any special resolution. Therefore,I am of the firm view that having a representative of the petitioner would not only be in the interestof the company but also is likely put an end to the disputes paving way for restoration of the earliercordial relationship. The petitioner has sought for proportional representation, which in facts of thecase is not warranted, as even at the initial stage, only one director, viz Shri Ashok represented thepetitioner. Further, in addition to holding 2/3rd of the shares in the company, Rahejas have giventheir personal guarantees and have been instrumental in brining the project into fruition. Therefore,proportional representation is not justified. Therefore, I am of the view that ends of justice andequity would be met, if I declare that the petitioner is entitled to nominate one director on the Boardof the company. Accordingly, I declare that as long as the petitioner holds 1/3rd shares in thecompany, it will have the right to nominate one non functional director on the Board who does nothave to hold any qualification shares. The petitioner will communicate the name of its nominee tothe company at the earliest and thereafter, the company shall send notices for all Board meetings tothat nominee without fail Only the petitioner will have the right to change the said nominee.

30. Before parting with this order it is necessary to note that the respondents have urged that unlessthe petitioner makes out a case oppression or mismanagement and establish that the company isliable to be wound up on just and equitable grounds, no relief can be granted. The counsel have



relied on the decision of the supreme Court in Bagree Cereals and Geakwad cases in this regard. Thedecision in Needles Industries case, that even if oppression is not established, the Court is notpowerless to do justice between the parties, which held the field for a long time and which had beenapplied by many High Court and this Board also in a number of cases, has been somewhat upset bythe decision in Bagree Cereals case. In Gaekwad case it has been held on the one hand Further morethe fact situation obtaining in the case must enable the Court to invoke just and equitable rules evenif a case has been made out for winding up for passing an order of winding of the company, but suchwinding up order would be unfair to the minority member.(para 187) and on the other hand, it hasalso been held In a given case, the court, despite holding that no case of oppression has been madeout may grant such relief so as to do substantial justice between the parties (para 207). In thisconnection I may refer to a recent judgment of the Supreme Court in Kamal Kumar Gupta v. RubyGeneral Hospital 2006 7 SCALE 668. It was a case, wherein the promoter of the company wasdeclared to have vacated his office as a director in terms of Section 283(1)(g). In a petition filed bythe said promoter under Sections 397/398 alleging oppression not only in regard to his removal butalso on other allegations, this Board held that his removal was an act of oppression as the companycould not establish that notices were sent to him for the Board meetings which he had not allegedlyattended, to attract the provisions of Section 283(1)(g). Accordingly this Board directed restorationof his directorship in regard to this allegation and granted reliefs in respect of other allegations. 108Conucases 312) When the matter went on appeal, the Calcutta High Court set aside the order of thisBoard on the ground that the petitioner should have moved the civil court in regard to hisdirectorship and also applied the decision in Bagree Cereals case that this Board had not given afinding on the just and equitable clause. The Supreme Court set aside the order of the High Courtand restored the order of this Board. This judgment would indicate that even directorial complaintscan be entertained in a petition under Sections 398/398 if the circumstances so warrant and that itis not necessary that in every case relief of winding up should be made. The Court held Thereforewhat transpires in the present context is, we have to examine whether the acts of the company wereoppressive to any member or members justifying the winding up as just and equitable. It is notnecessary that in every case, the relief of winding up should be made. It is an option with thetribunal if considers that in order to bring an end to the matters complained of it can pass orders onwinding up if it is just and equitable or it can pass such order as it thinks fit. It does not necessarilymean that in every case such winding up Order need to be passed. In the present case, I have heldthat by not associating the petitioner in the management, the respondents have acted in anoppressive manner against the petitioner. A careful analysis of Section 397 would show that onceoppression is established, the winding up on just and equitable grounds would be automatic and thisBoard has to only form an opinion that such winding up would not be in the interests of thecompany/shareholders and accordingly to mould relief with the view to put an end to the matterscomplained of. In the present case, the company has been doing extremely well declaring handsomedividends and the question of winding up of the company does not arise. That is why, with the viewto put an end to the complaint regarding participation in the management, I have directed arepresentation for the petitioner on the Board.

31. The petition is disposed of in the above terms with out any order as to costs.



CORRIGENDUM I have disposed of the above petition by my order dated 19th September, 2006.since there are some errors in that order, the following corrections are made:

(1) In the Heading "New Deli" be read as "New Delhi"

(2) Under "Present on behalf of parties", Serial No. 7 be read as Shri S.N.Mukherjee, Sr. Advocate.

(3) In the penultimate line of para 29, the words "and he shall in terms of the Act/Articles" beomitted.




aasia properties development vs juhu beach resorts limited and on 19 september, 2006

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