Shri Rajiv Kant Laxman vs Bobby Electronics Private Limited And 4 Ors.

CNR No : HCBM020026852014

2026:BHC-OS:24315

COAPP 30-14 @ IAL-3027-2022 & IA-6457-2025.doc
Digitally
signed by
NIKITA
YOGESH
GADGIL
Date:
2026.11.11
13:49:17
+0530

NIKITA
YOGESH
GADGIL
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
COMPANY APPEAL NO. 30 OF 2014
Shri Rajiv Kant Laxman
Inhabitant of United Kingdom,
Aged about 55 years and residing at
25, Grimwade Avenue, Croydon,
Surrey-CRO 5 DJ,
London, United Kingdom ...Appellant
V/s.
1. Bobby Electronics Pvt. Ltd.
A company incorporated under
the Indian Companies Act, 1956
and having its registered office at
301, Garden View (Station View),
Sanpada, Plot No. 19, Section 30,
Vashi, Navi Mumbai-400 705.
2. Smt. Nirmala Dindayal Gosain,
An Adult Indian Inhabitant,
Having address at 301, Garden View
(Station View), Sanpada, Plot No. 19,
Section 30, Vashi, Navi Mumbai-400 705.
3. Madhuvi Kushdevsingh Rathore
An adult Indian Inhabitant,
Having address at 301,
Garden View (Station View),
Sanpada, Plot No. 19, Section 30,
Vashi, Navi Mumbai-400 705.
4. Balaji Ganpatrao Sonawane
An adult Indian Inhabitant,
having address at Plot No. 796,
Behind Ashirwad hospital, Section-1,
Shiravane, Nerul, Navi Mumbai-400 706.
5. Bizerba India Private Limited
a company incorporated under
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the Indian Companies Act, 1956
and having address at Plot No. EL 100,
Mahape, MIDC, TTC Industrial Area,
Navi Mumbai (earlier having address at 27 acre,
Basement, Tikujini Wadi, Manpada, Thane, 400610.) ...Respondents
WITH
INTERIM APPLICATION (L) NO. 30279 OF 2022
WITH
INTERIM APPLICATION NO. 6457 OF 2025
Mr. Vishal Kanade with Mr. Ganesh Khemka, Mr. Rohan Savant,
Mr. Prasad Batavia, Ms. Siddhi Rao i/b Batavia Legal, for the Appellant.
Ms. Krupali Rajani with Ms. Sayali Nikam for the Respondents No. 1
and 2.
CORAM : ABHAY AHUJA, J.
th
RESERVED ON : 4 MAY, 2026
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PRONOUNCED ON : 5 NOVEMBER, 2026.
JUDGMENT :
1. This is an Appeal under Section 10F of the Companies Act, 1956
th
(the “Act”) against the order of the Company Law Board dated 4
December, 2013, by which the Appellant’s Petition under Sections 111,
397, 398, 399, 402, 403 and 406 of the Act was dismissed.
2. This is the second round of litigation. In the first round, after the
th
Company Appeal had been dismissed by order dated 15 April, 2014 as
the Court found that no question of law arose, pursuant to a Special
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Leave Petition, the Hon’ble Supreme Court by order dated 4 August,
2017 allowed the Civil Appeal and set aside the order of this Court
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directing this Court to decide the matter afresh after hearing both the
parties, duly considering the allegation that the Respondents had
st
illegally and unauthorisedly increased the share capital of the 1
Respondent-Company and diluted the shareholding of the Appellant
from 50% to 8% and increased that of the Respondent No. 2 from 1%
to 92% which was contended as could not have been done without
notice to the Appellant.
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3. Thereafter, on 5 January, 2022, the matter was stood over to
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19 January, 2022 for final hearing and came to be listed from time to
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time and on 4 August, 2023 it was observed that since the Company
Appeal was pending since 2014, it deserved a final hearing and the
matter was listed for final hearing thereafter.
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4. On 29 November, 2024 the following order was passed:
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“1. Pursuant to order dated 13 September 2024, today
when the matter is called out, Mr.Vishal Kanade, learned
Counsel, appearing for the Appellant submits that since this
Appeal is under Section 10F of the Companies Act, 1956, four
substantial questions of law have been formulated. Learned
Counsel tenders across the bar the four substantial questions
of law which are reproduced as under :
Substantial Questions of Law
(1) Whether the learned CLB was right in not giving any
findings on the issue of siphoning off of funds by Respondent
no.2 and Respondent no.4 on the ground of the issue being
allegedly infructuous ?
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(2) Whether the learned CLB was justified in its finding
that appointment of Respondent no.3 and Respondent no.4
was not illegal,despite giving a finding that it is not certain
from the record whether appointment of Respondent no.3
and Respondent no.4 was regularized in the subsequent EGM
or not ?
(3) Whether the learned CLB was justified in rejecting the
allegations of the Petitioner that the Respondents have
altered the share capital of the company without following
due process of law, despite giving a finding that “the holding
of EGM and allotment of impugned shares may not be strictly
in accordance with the provisions of the Act…”?
(4) Whether the learned CLB was justified in giving a
finding that the Petitioner has suppressed material facts,
when a bare perusal of the complaint/petition clearly shows
that the Petitioner has disclosed the fact of filing of the Suit
in his pleadings ?
2. Learned Counsel has made his submissions with
respect to Question No.4 on delay as well as suppression.
3. For Mr.Kanade to continue his arguments with respect
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to Questions No.1, 2 and 3 as above, list on 17 January
2025 at 3.30 p.m. as part heard.”
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5. On 4 May, 2026, the arguments were concluded and the
judgment was reserved after offering an opportunity to file written
submissions, which have been filed.
6. The Appellant is the original Petitioner, who is a Non-Resident
Indian living in London claiming to be a 50% equity shareholder in the
st
1 Respondent-Company.
7. Before the Company Law Board, the Appellant’s case was that at
the relevant time, the Appellant, his maternal uncle one Mr. Dindayal
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nd
Gosain and the 2 Respondent Smt. Nirmala Dindayal Gosain, were the
st
only shareholders of the 1 Respondent-Company.
8. The contention of the Appellant before the Company Law Board
was that the Respondents were guilty of various acts of oppression and
mismanagement. The Appellant had filed a civil suit in the Court of
Civil Judge, Senior Division, Thane seeking various declarations and at
the time when the Company Petition was decided by the Company Law
Board, the civil suit was pending. It has also been alleged that the
Respondents illegally and unauthorisedly increased the share capital of
st
the 1 Respondent-Company and deleted the shareholding of the
nd
Appellant from 50% to 8% while increasing that of the 2 Respondent
from 1% to 92%. The Appellant also complained of his removal as a
Director of the Company without notice and without any validly called
meeting. Allegations were also made regarding a refusal to grant
inspection. The Respondents contested the Company Petition before the
Company Law Board and denied that the Appellant was ever appointed
as a Director.
9. Questions of maintainability were raised and after the Company
Law Board held that the Petition was maintainable, proceeded to
consider the matter on merits. The Company Law Board on facts held
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that the Appellant was guilty of suppression as in that vital material
was kept from the Petition, although it has been contended by the
learned Counsel appearing for the Appellant that there was no
suppression and that the necessary facts had been mentioned in the
Petition, however, the Company Law Board held that a mere mention
was not sufficient and it required disclosure and copies.
10. As regards the question of increase in authorised share capital,
the Company Law Board came to the conclusion as a matter of fact that
st
the 1 Respondent-Company needed funds to meet certain
requirements, although there may have been some irregularity in the
holding of the Extraordinary General Meeting (the “EGM”). That there
may have been an isolated instance termed as a solitary act of
oppression, however, in order to succeed, the Appellant would have
had to show continuous acts of oppression. The Company Law Board
st
also noted in paragraph 37 of the impugned order that when the 1
Respondent-Company was in dire need of its funds rather than support
the Company, the Appellant demanded a return of his investment.
Accordingly, an amount of Rs. 2,50,000/- was paid out by the
Respondents to the Appellant and the Company Law Board held that in
the face of such conduct it did not lie in the mouth of the Appellant to
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say that there was no justification for increasing the share capital of the
st
1 Respondent-Company.
11. In paragraph 40, the Company Law Board dealt with the
Appellant’s submission regarding directorships. It was observed that not
only there was a delay on the part of the Appellant, but it was also not
established that his consent was ever required for the appointment of
the other Directors.
12. It is to be noted that although Respondents No. 1, 2 and 4 had
been served and the Respondent No. 3 has been served by substituted
service, only Respondents No. 1 and 2 are represented.
13. Section 10F of the Act reads as under:-
“10F. Appeals against the orders of the Company Law Board:
Any person aggrieved by any decision or order of the Company
Law Board [made before the commencement of the Companies
(Second Amendment) Act, 2002] may file an appeal to the
High Court within sixty days from the date of communication
of the decision or order of the Company Law Board to him on
any question of law arising out of such order:Provided that the
High Court may, if it is satisfied that the appellant was
prevented by sufficient cause from filing the appeal within the
said period, allow it to be filed within a further period not
exceeding sixty days. ”
14. As can be seen, the said section permits any person aggrieved by
any decision of the Company Law Board to file an appeal within 60
days from the date of communication of the decision or order of the
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Company Law Board to him on any question of law arising out of such
order.
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15. On 29 November, 2024, this Court had framed the following
questions of law:
(1) Whether the learned Company Law Board was right in not giving
any findings on the issue of siphoning off of funds by Respondent no.2
and Respondent no.4 on the ground of the issue being allegedly
infructuous ?
(2) Whether the learned Company Law Board was justified in its
finding that appointment of Respondent no.3 and Respondent no.4 was
not illegal,despite giving a finding that it is not certain from the record
whether appointment of Respondent no.3 and Respondent no.4 was
regularized in the subsequent EGM or not ?
(3) Whether the learned Company Law Board was justified in
rejecting the allegations of the Petitioner that the Respondents have
altered the share capital of the company without following due process
of law, despite giving a finding that “the holding of EGM and allotment
of impugned shares may not be strictly in accordance with the
provisions of the Act…”?
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(4) Whether the learned Company Law Board was justified in giving
a finding that the Petitioner has suppressed material facts, when a bare
perusal of the complaint/petition clearly shows that the Petitioner has
disclosed the fact of filing of the Suit in his pleadings ?
16. This Court has on various dates heard the learned Counsel
appearing for the Appellant as well as the Respondents.
17. Mr. Kanade, learned Counsel appearing for the Appellant has
addressed this Court on eight aspects relating to the aforesaid four
questions.
18. With respect to Question No.3 regarding increase in authorised
share capital, Mr. Kanade has submitted that :
A. Article 5(b) of the Articles of Association (the “AoA”) was
breached and therefore the entire 2009 dilution collapses as :
(i) Respondent No. 2 submits at paragraphs 64 to 66 of her written
submissions that no shareholder has an inherent right to proportionate
allotment and at paragraph 61 that no notice was due to the Appellant
because his name was "not consistently reflected" in the register.
Learned Counsel went so far as to submit that no clause of the AoA had
been violated. That is incorrect.
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(ii) Article 5(b) of the AoA contains a mandatory pre-emption
restriction: a member may not transfer shares to a non-member so long
as an existing member is willing to purchase. Respondent No.2's own
authority in the decision of the Hon’ble Supreme Court in the case of
1
Smt. Claude-Lila Parulekar v. Sakal Papers Pvt. Ltd. , and V.B. Rangaraj
2
v. V.B. Gopalakrishnan , hold such restrictions in the AoA to be valid,
mandatory and binding. The decision of the Hon’ble Supreme Court in
3
the case of John Tinson & Co. v. Surjeet Malhan confirms the AoA is a
binding contract between the parties.
(iii) On Article 5(b), the Respondents' case collapses in five steps :
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Step 1- On 19 April, 2007, the Respondent No. 3 was appointed as the
Additional Director holding zero shares; the Respondent No. 2
thereafter caused 50 shares to be transferred to Respondent No. 3
without offer to the Appellant. This transfer is ultra vires Article 5(b)
and void: Smt. Claude-Lila Parulekar v. Sakal Papers Pvt. Ltd. (supra) ,
and V.B. Rangaraj v. V.B. Gopalakrishna (supra) and M.S.
4
Madhusoodhanan Vs. Kerala Kaumudi (P) Ltd. .
Step 2: With that transfer void, only two valid members remained-the
Appellant and the Respondent No.2.
1. (2005) 11 SCC 73.
2. (1992) 1 SCC 160.
3. (1997) 9 SCC 651.
4
(2004) 9 SCC 204
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Step 3: Section 174 of the Act fixes quorum for a private company at
two members personally present.
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Step 4: It is undisputed that no notice of the EGM dated 20 March,
2009 was given to the Appellant, nor did the Appellant in fact attend
the EGM. The Appellant having received no notice and not having
attended, the Respondent No.2 was the sole member present; Section
174 quorum was therefore not met.
Step 5: Therefore, the Special Resolution increasing authorised capital
from Rs.10 lakh to Rs. 70 lakh is non-est; the 55,910 shares allotted to
Respondent No. 2 fall with it. 50:49:1 is the only legally recognizable
shareholding structure.
(iv) This argument is independent and dispositive. Even if every other
Respondent contention were accepted, Article 5(b) alone restores the
original shareholding. Construction of the AoA is a pure question of law
squarely within Section 10F.
B. The 2009 increase fails the test laid down in Dale & Carrington
5
Investments (P) Ltd. v. P.K. Prathapan on every limb:-
(i) The decisions of the Hon’ble Supreme Court in the cases of Dale
& Carrington Investments (P) Ltd. v. P.K. Prathapan (supra) and Kamal
5. (2005) 1 SCC 212.
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6
Kumar Dutta v. Ruby General Hospital , hold an allotment invalid
where (i) made without a valid meeting/notice/quorum, (ii) without
bona fide need for funds, or (iii) for an extraneous purpose. The
burden is on the directors. The Respondent No.2 fails each limb :
(a) No valid meeting established under Article 5(b) above.
(b) No bona fide need: the original alleged MIDC demolition notice
of 2006 has never been produced; no Board minutes authorising
reconstruction or discussing necessity of fresh issue of shares exist on
record; no valuation was conducted for the new share allotment;
allotment of new shares was at par value despite a steep capital
increase; the Respondent No.1 owned a fully developed industrial
property generating stable rentals from the Respondent No. 5 and
could have raised debt. There is also evidence on record to suggest that
the structure was never in fact "demolished" as claimed by the
Respondent No.2, but only rectified and partly reconstructed.
(c) Extraneous purpose: the Respondent No.2's shareholding
increased from 1% to 92%; Appellant from 50% to 7%. The 2007
share-transfer to the Respondent No.3 (the Respondent No.2's sister)
was the precursor designed to manufacture a voting bloc. The pattern
is on all fours with the decision of the Madras High Court in the case of
6. (2006) 7 SCC 613.
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7
Micromeritics Engineers Pvt. Ltd. v. S. Munusamy - "abuse of fiduciary
power, intended to create an artificial majority".
(d) The Company Law Board’s self-contradiction: at paragraph 36 of
the impugned order, it is expressly recorded that the EGM "may not be
strictly in accordance with the provisions of the Companies Act", yet
found no oppression. That is the very perversity captured by Question
No. 3.
8
C. Nanalal Zaver v. Bombay Life Assurance Co. Ltd. does not assist
the Respondent No.2 :
(i) The Respondent No.2's reliance on the decision of the Hon’ble
Supreme Court in the case of Nanalal Zaver v. Bombay Life Assurance
Co. Ltd. (supra) , is misplaced. Therein, the further issue was in fact
proportional and the Hon'ble Supreme Court therefore upheld the
allotment while emphasising that "every shareholder will get his
proportion if he so desires". Here, no proportional offer was made to
the Appellant; the object was to change control, not to retain it.
Nanalal Zaver v. Bombay Life Assurance Co. Ltd. (supra) therefore
condemns, rather than supports, the present allotment.
7. 2002 SCC OnLine Mad 325.
8. 1950 SCR 391.
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D. The Respondent No. 2's "statutory certificates" and "insufficient
capital" points fail :
(i) The Respondent No.2 relies (paragraphs 50 and 53 to 54) on the
Occupation Certificate, Building Completion Certificate, drainage and
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tree-plantation certificates of 11 June, 2008 to argue she must have
funded the work. The certificates only show that a building exists, they
do not show who funded it. The letter produced by the Respondent
th
No.2, as MIDC demolition notice of 11 June, 2008 is in fact is
th
reissuance letter of Expansion Notice dated 28 August, 2006.
(Referred to paragraph 14 of the Additional IA and Ex."F" filed by the
Respondent No.2 with her written submission). The Respondent No.2
has produced no contractor invoices, no rejected loan application, no
bank trail from her personal account to the Respondent No.1's
contractors. Furthermore, it is unexplained by the Respondent No.2
how the Respondent No.5 continued as lessee on the Respondent No.1’s
premises through 2006 to 2012, despite them undergoing "demolition"
and "reconstruction" in the interregnum, as claimed by the Respondent
No. 2. The burden under Dale & Carrington Investments (P) Ltd. v. P.K.
Prathapan (supra) is unmet.
19. As regards the Question No.1 on siphoning of funds, Mr. Kanade
has submitted that :
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(i) The Company Law Board declined to render any finding on
siphoning on the sole ground that the Respondent No.5 had vacated in
2012, treating the issue as "infructuous". The finding is perverse:
(a) The Respondent No.5 occupied the Respondent No.1's premises
th
under the Leave and Licence Agreement dated 30 April, 2006 at
nd
Rs.1,30,608/- p.m., later revised to Rs. 1,58,755/- p.m. by 22 July,
2010 agreement; these licence fees through 2006-2012 were
demonstrably diverted and never accounted for. The Respondent No.5's
subsequent vacating of the Respondent No.1’s premises is irrelevant to
the already completed diversion of income.
(b) The rental stream did not stop in 2012. By Board Resolution
th
dated 8 April, 2013, the Respondent No.1 (through the Respondent
No.2's unilateral action) appointed G-Source Technologies (I) Pvt. Ltd.
as licensee at Rs. 2.5 lakh p.m., despite the Appellant's recorded
objection. Thereafter, from 2015, Aramex India Pvt. Ltd. occupied the
premises again without notice to or consent of the Appellant. Aramex's
th
own email dated 6 April, 2020 confirms it holds registered Lease &
Licence with the Respondent No.1. The premises have been
continuously rented; rentals have continuously been received by the
Respondent No.1 and no dividend has ever been declared and no funds
have flowed to the Appellant despite him holding significant shares in
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the Respondent No.1. Instead, the Respondent No.1 has declared losses
almost every year since the Respondent No.2 forcefully assumed
control.
(c) The Respondent No.2 has not denied the extraction. The
Respondent No.2’s plea recorded in her written statement before the
Company Law Board that the rental was needed for the maintenance of
herself and her children is itself an admission of breach of fiduciary
duty under Section 166 of the 2013 Act. The Respondent No.1's rental
is corporate income; its conversion to personal use is misappropriation.
It has been submitted that the Respondent No.2's failure to furnish
accounts, Leave & Licence agreements and bank statements of the
Respondent No.1 despite numerous requests for production by
Appellant Counsel as well as enquiries by the Bench. During the course
of final arguments, necessarily invites adverse presumption under
Section 114 of the Indian Evidence Act, 1872 as these bank records
were exclusively within the possession of the Respondent No.2
(d) The Respondent No.1's own ROC filings disclose director
remuneration of Rs. 1,5 lakh in FY 2017-18 jumping to Rs. 10.25 lakh
in FY 2018-19, Rs. 10.54 lakh in FY 2019-20 and Rs.11.34 lakh in FY
2020-21-a 656% spike while the Respondent No.1 concurrently
declared losses of Rs.1.65/4.18/3.46/3.55 lakh for those four years
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respectively. The spike coincides precisely with the Respondent No.2's
induction of her sons (Krishna and Rishabh, both appointed invalidly)
as purported directors, therefore, evidencing how the Respondent No.2
converted the Respondent No.1 from a healthy corporate rent-yielding
enterprise into a private family vehicle stripped of shareholder value.
(ii) Mr. Kanade has submitted that this disregard of the
contemporaneous record, reliance on an irrelevant event (the
Respondent No.5's 2012 vacating) for a 2006-2012 issue and a finding
contrary to the Respondent No.2's own admissions, all squarely within
the perversity threshold of the decision of the Hon’ble Supreme Court
9
in the case of Purnima Manthena v. Renuka Datla .
20. Coming to the Question No.2 regarding appointment of the
Respondent No.2's relatives as directors, Mr. Kanade has submitted
that:
(i) The Question No.2 2 is on the precise contradiction at Paragraphs
39 to 40 of the impugned order: the Company Law Board upheld the
appointments while expressly admitting it was "not certain from the
material available on record" whether they had been regularised at any
subsequent AGM. A finding rendered on acknowledged uncertainty is
per se perverse.
9.(2016) 1 SCC 237 (Para 45).
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(ii) Statutory position: Under Section 260 of the Act (Section 161(1)
of the 2013 Act), an Additional Director holds office only until the next
AGM and ceases automatically if not regularised: Krishnaprasad
10
Jwaladutt Pilani v Colaba Land & Mills Co. Ltd. . The Respondent No.3
th st
was appointed on 19 April, 2007 and the Respondent No. 4 on 21
August, 2010 per the ROC. The Respondents have produced no
regularisation across seventeen years of AGMs. Their offices stand
vacated by operation of law.
(iii) Mr. Rishabh Gosain has resided in Australia for several years.
Under Section 167(1)(b) of the 2013 Act, a director vacates office by
operation of law on absence from board meetings for twelve
consecutive months. His office is, therefore, vacant. Any remuneration
drawn post-vacation is ultra vires the Respondent No.1 and amounts to
misappropriation.
21. As regards Question No.4 regarding suppression and delay, Mr.
Kanade has submitted as under :
A. No suppression.
(i) Suppression in law requires deliberate concealment of a material
fact such that its absence renders the decision unjust: The decision of
the Hon’ble Supreme Court in the case of S.P. Chengalvaraya Naidu v.
10. AIR 1959 Bom 543.
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11 12
Jagannath ; Government of NCT of Delhi v. BSK Realtors LLP . None
of these elements is present.
(ii) The Thane Suit (S.C.S. No. 668/2008) was explicitly disclosed at
paragraphs 22, 23 and 29 of the Company Petition and its withdrawal
st
on 31 August, 2012 was disclosed at paragraph 15 of the Rejoinder.
(iii) The Respondents were themselves Defendants in the Thane Suit;
the existence of the proceedings was within their personal knowledge:
"where facts are known to both parties, the omission by one... does not
13
render it suppression": Pushpam Pharmaceutical Co. v. CCE . Mere
non-annexing of the actual Plaint in its entirety as filed before the
Thane Court cannot amount to suppression.
B. The Respondent No. 2's own authorities cut against her.
14
(i) Arunima Baruah v. Union of India holds that a litigant who
returns with disclosed facts approaches with clean hands precisely the
Appellant's position. S.J.S. Business Enterprises (P) Ltd. v. State of
15
Bihar , requires materiality a fact whose absence would have affected
the merits. The Thane Suit (concerning a 2006 directorship) had no
bearing on the 2009 dilution challenge.
11. (1994) 1 SCC 1.
12. (2024) 7 SCC 370.
13. 1995 Supp (3) SCC 462.
14. (2007) 6 SCC 120.
15. (2004) 7 SCC 166.
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(ii) The Respondent No.2's reliance on Sangramsinh P. Gaekwad &
16
Ors Vs. Shantadevi P. Gaekwad (Dead) Thr. Lrs & Ors. , on "clean
hands" applies against the Respondent No.2, who has failed to produce
the alleged original 2006 demolition notice; failed to produce the board
minutes; produced an Abbey Bank statement when called upon to
prove HDFC encashment; and has failed to produce the Respondent
No.1's bank statements from 2007 despite the Appellant's repeated
requests.
C. No delay.
th
(i) Knowledge of the 2009 dilution arose only on 9 June, 2010 (the
Respondent No.2's written statement in the Thane Suit) and through
th
the ROC search of 6 September, 2011. The Petition was filed in
February, 2012. The Respondents' own concealment delayed discovery;
they cannot now profit from it. Continuing oppression is independently
17
actionable: V.S. Krishnan v. Westfort Hi-Tech Hospital Ltd. .
22. With respect to disgorgement of rental income, Mr. Kanade has
submitted as under :
(i) Interim Application (L) No. 30279 of 2022 and Interim
Application (L) No. 29050 of 2022 were filed for protection and
disgorgement of the Respondent No. 1’s rental income usurped by the
16. (2005) 11 SCC 314.
17. (2008) 3 SCC 363.
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th
Respondent No.2 since Mr. Dindayal Gosain’s demise on 25 January,
2007. The relief was specifically pleaded at prayer (k) of the Interim
Application: "That this Hon'ble Court be pleased to order Respondent
No. 1 and Respondent No. 2 to compensate the Appellant 50%... from
the rental income received since 2007 which totals to approximate 5
Crore".
(ii) The Respondent No.1's only asset is Plot No. EL-100, Mahape,
MIDC, TTC Industrial Area, Navi Mumbai; its only income source is the
rental from that property. The Appellant has been a 50% shareholder
th
since 6 March, 2000 a position admitted by the Respondent No.2 in
th
her advocate's letter dated 10 April, 2007 (Exhibit T to the Petition)
and unchanged on the Respondent No. 2's own case until the impugned
2009 dilution.
(iii) That despite multiple directions and opportunities, the
Respondent No.2 has not filed the Respondent No.1's books of account
or rental statements on the record of this Appeal. The Appellant has,
therefore, reconstructed the rental stream from the Respondent No.1's
own ROC filings (Annual Returns and Financial Statements) for the
years where filings are available, supplementing for the remaining
years on the basis of the contemporaneous Leave & Licence Agreements
at Rs.1,30,608 p.m. (2006 Agreement with the Respondent No. 5),
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Rs.1,58,755 p.m. (2010 Agreement with the Respondent No. 5) and
rentals receivable from Aramex from 2013 and has set out the
Appellant's reconstruction in the following table :
Sr.
No.
Financial Year &
Approximate annual
Particulars
rental income of the
Respondent No. 1:
1 FY 2007- 15,67,296 12 months Rs.1,30,608 (Para 3 of Bizerba
Leave & Licence)
2 FY 2008 15,67,296 assumed same as previous year, despite 5%
annual increase clause in lease agreement
3 FY 2009- 15,67,296 assumed same as previous year, despite 5%
annual increase clause in lease agreement
4 FY 2010-18,79,560 from ROC return
5 FY 2011-21,36,304 from ROC return
6 FY 2012-21,36,304 (assumed same annual increase clause in
lease agreement) previous year, despite 5%
7 FY 2013-15,73,280 from ROC return
8 FY 2014 nil reported.
9 FY 2015-9,83,150 from ROC return
10 FY 2016-21,52,500 from ROC return
11 FY 2017-22,81,650 from ROC return
12 FY 2018-24,15,210 from ROC return
13 FY 2019-40,26,115 from ROC return
14 FY 2020-49,96,324 from ROC return
15 FY 2021 -27,98,250 from ROC return
16 FY 2022-45,83,900 from ROC return
17 FY 2023-31,44,100 from ROC return
18 FY 2024-36,39,600 from ROC return
19 FY 2025 36,39,600 assumed same as previous year, despite 5%
annual increase clause in lease agreement
20 FY 2026 36,39,600 assumed same as previous year, despite 5%
annual increase clause in lease agreement
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(iv) Aggregate rental: Rs. 5.07 crore. The Appellant's 50% share,
approximately Rs. 2.5 crore, remains payable to him by way of
disgorgement, with interest.
23. It has further been submitted by Mr. Kanade that since Section
10F intervention lies on perversity, error of law, its record on irrelevant
material, each of the said grounds have been independently made out
as in :-
(i) Perversity: self-contradictory finding at paragraph 36;
"uncertainty" at paragraphs 39 and 40; treatment of siphoning as
"infructuous" upon the Respondent No.5's vacating.
(ii) Error of law: construction of Article 5(b); application of Section
174 quorum; operation of Section 167(1)(b).
(iii) Disregard of relevant material: auditors' correspondence
including Income-Tax PAN Services Unit, treating the Appellant as a
nd th
director and seeking his PAN (2 November, 2006, 28 November,
th th
2006, 4 January, 2007, 7 April, 2007); Exhibit B to the Rejoinder
showing the GBP 13,500 personal-loan debit; the Appellant's
th
remittances of GBP 3,500 (27 January, 2003) and Rs.13.65 lakh across
2003-2004, and the nine remittances by Appellant at Exhibit EE (Colly)
showing total payments of Rs. 43,08,706/-.
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(iv) Reliance on irrelevant material: treating the Respondent No.5's
2012 vacating dispositive of a 2006-2012 issue; treating an Abbey Bank
statement as proof of HDFC DD encashment.
24. It has been submitted that the Respondent No.2's authorities
support the Appellant. Malleswara Finance & Investments Co. v.
18
Company Law Board , holds that propriety is a question of fact but
only when Company Law Board findings are sound; on facts therein,
the Company Law Board's striking-down of the impugned allotment
was upheld. Micromeritics Engineers Pvt. Ltd. v. S. Munusamy (supra)
upheld a Company Law Board finding of "abuse of fiduciary power,
intended to create an artificial majority" a description that fits this case
precisely.
25. As regards the refund narrative, Mr. Kanade has submitted that
the same is falsified in view of the following :
A. GBP 14,000 repayment was against a personal loan advanced by
Appellant to DG; in any case, unilateral repayment cannot lead to
redemption of the Respondent No.1’s shares :
(i) At Paragraph 11 of the Rejoinder, the Appellant pleaded that the
GBP 14,000 represented (i) repayment of GBP 13,500 advanced to Mr.
th
Dindayal Gosain personally on 8 January, 1999 and (ii) GBP 500 paid
18. (1995) 82 Comp Cas 836 (Mad).
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in cash on a holiday. Exhibit B to the Rejoinder is the bank statement
showing the GBP 13,500 debit. The Respondents have produced no
document evidencing that this sum related to the Respondent No.1
rather than to DG personally no receipt from RI, no entry in the
Respondent No.1's books, no Board minute authorising any refund.
B. The Rs.2,50,000 DD: documentary chasm :
(i) The Company Law Board at paragraph 37 held that DD No.
nd
433055 dated 22 December, 2005 of HDFC Bank was "encashed" by
the Appellant. That finding rests on nothing:
(a) The only account summary annexed by the Respondent No.2 is at
pages 292-293, it is of an Abbey Bank account held by Mr. V. M. Kapil
and Dindayal Gosain, not HDFC.
(b) The DD copy at Page 294 is on its face from HDFC Bank.
(c) There is no entry on any document on record evidencing
encashment of DD No. 433055. At best, the Respondent No.2 has
proved "dispatch", not "delivery" or "encashment".
(d) The Appellant categorically denied receipt at paragraph 11 of the
st
Rejoinder, the postal receipt is dated 21 December, 2005 - a day before
the alleged DD.
(ii) Even assuming without admitting the Respondent No. 2's refund
theory, the Appellant made a total of 9 transfers between 2000-2004,
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totalling to Rs.43,08,706/- (Exhibit E and Exhibit EE) being Rs. 3.5
Lakhs towards 50% purchase cost of the land and remainder Rs.39.58
Lakhs towards development of structure thereon. Even assuming that
GBP 14,000 has been returned, it would account for only 25% of the
original investment and cannot extinguish the Appellant's entire stake
in the Respondent No.1 in any case.
(iii) Equity shareholding of the Respondent No.1 cannot be
extinguished by a personal cheque. Section 108 of the Act mandates a
duly stamped, executed instrument of transfer. None exists between the
Appellant and the Respondent No. 2/ Respondent No.1. The burden of
proving dispatch, delivery and encashment lies on the Respondent No.2
under Section 103 of the Indian Evidence Act. The Respondent No. 2
has proved none.
26. With respect to the Appellants quasi partnership and contested
nd
Wills, it has been submitted that the 2 November, 2006 Board
Resolution was an appointment and not a provisional offer. That the
nd
Board Resolution dated 2 November, 2006 reads as "Mr. Rajiv Kant
Laxman be and is hereby appointed as Director of the Company… " and
it was signed by both Mr. Dindayal Gosain and the Respondent No.2,
the only directors at the time. That the Appellant's acceptance letter of
the same date concluded the contract of directorship and the
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Appellant's presence at the meeting is admitted by the Respondent No.2
th th
in her advocate's letter dated 10 April, 2007 (Exhibit T). That on 4
November, 2006, Mr. Dindayal Gosain further wrote offering the
Appellant the Managing Directorship, which was accepted in writing on
the same letter.
27. It has been submitted that the Company Law Board's
characterisation of this as a "provisional offer" is perverse, the
resolution contains no language of contingency -no "subject to no
“provisionally" and non-filing of Form 32 was a ministerial default of
the Respondent No.1/the Respondent No.2. That a wrongdoer cannot
benefit from its own default, especially when the law requires the
Respondent No.1 to file within 30 days with the ROC, information
regarding a director's appointment as per Section 170(2) of the 2013
Act.
28. It has been submitted that the Respondent No. 2’s s allegation of
force and fraud is a bare assertion and fraud must be specifically
pleaded with particulars and strictly proved as per the decisions of the
Hon’ble Supreme Court in the cases of Bishundeo Narain v. Seogeni
19 20
Rai , and Ananthaswamy v. Boraiah . That the Naupada complaint is
not evidence, it is the Respondent No.2's allegation and not proof of
19. AIR 1951 SC 280.
20.(2004) 8 SCC 588.
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forgery, the very issue the Appellant disputes and in any case, this
complaint is merely an afterthought, crafted deliberately as a ploy to
manufacture evidence after filing of the Company Law Board Petition
by the Appellant, having been registered after a delay of 7 years in
2013, and therefore, ought not to be given any probative value.
29. It has been submitted that the Respondent No. 1 was
incorporated by the Appellant and Mr. Dindayal Gosain on near-equal
capital with mutual confidence and an expectation of joint
st
management and Mr. Dindayal Gosain’s letter dated 21 January, 2000
at Exhibit C expressly records that the Appellant's remittances were in
consideration towards the "partnership" of the Appellant and Late Mr.
Dindayal Gosain in the MIDC property, which is the very definition of a
quasi-partnership as held in the cases of Sangramsinh P. Gaekwad & Ors
Vs. Shantadevi P. Gaekwad (Dead) Thr. Lrs & Ors. (supra) and Ebrahimi
21
v. Westbourne Galleries Ltd. . That the Company Law Board's rejection
on the ground of the Appellant's UK residence is legally untenable as
the residence is irrelevant to the existence of a quasi-partnership.
30. It has been submitted that the Respondent No. 2’s assumption of
Mr. Dindayal Gosain’s entire 49% shareholding rests on the Will dated
th
5 April, 2006 and that foundation is contested at every level. That
21. (1973) AC 360.
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Probate was granted by the Civil Judge, Senior Division, Thane only on
th
19 December, 2020 i.e., eleven years after the Respondent No. 2 voted
th
Mr. Dindayal Gosain’s shares at the impugned EGM of 20 March,
2009. That under Section 213 of the Indian Succession Act, 1925, a
legatee can establish no right under a Will until probate is granted and
th
on 20 March, 2009, the Respondent No. 2 had not probated,
adjudicated or uncontested title to Mr. Dindayal Gosain’s 49% and the
Respondent No. 2 voted shares, she did not lawfully hold. That the
probate itself is now under challenge before this Court in First Appeal
th
No. 524 of 2021 (admitted on 4 October, 2024) and the Respondent
No. 2 has undertaken not to execute the decree pending the first appeal
and therefore, her title remains inchoate and defeasible; as a contested
testamentary claim cannot be bootstrapped into a fait accompli of
corporate control.
31. It has been submitted that the Appellant's case is further that Mr.
th
Dindayal Gosain’s true last Will and Testament dated 6 November,
th
2006, which post dates and revokes the 5 April, 2006 Will confirms
the Appellant's 50% share in the said property and the income arising
therefrom and the Will issue remains sub judice and cannot disentitle
the Appellant in this Appeal.
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32. Mr. Kanade has submitted that in any event, even taking the 5
April 2006 Will at its highest, it bequeaths Mr. Dindayal Gosain's
interest to the Respondent No.2 and her two minor sons equally and
the Respondent No.2 was therefore entitled, on her own case, to only
one-third of 49% plus her original 1% approximately 17.33%, not the
entire 49% as she has wrongfully assumed, to the exclusion of her own
minor children, in breach of the very Will on which she relies. That the
Respondent No. 2 ought not to be allowed her own document
th
selectively. That there exists no Will dated 5 April, 2007 as repeatedly
referred to by learned Counsel for the Respondents No. 1 and 2 in
written submissions of the Respondent No. 2.
33. Mr. Kanade has also relied upon the following decisions in
support of his contentions :
22
(i) T. Ashok Pai vs. CLB , and
23
(ii) K.C. Builders vs. ACIT .
34. Mr. Kanade has submitted that accordingly this Court may grant
the following reliefs:
(a) Allow Company Appeal No. 30 of 2014 and set aside the
th
Impugned Order dated 4 December 2013 passed by the Company Law
Board in Company Petition No. 29 of 2012;
22
(2007) 7 SCC 162
23
(2004) 2 SCC 731
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(b) Declare that the purported Special Resolution dated 20 March
2009 increasing the authorised share capital of RI from INR 10,00,000
to INR 70,00,000, and the consequential allotment of 55,910 equity
shares to the Respondent No. 2, are non-est, mull and void ab initio,
and of no legal effect;
(c) Declare the transfer of 50 equity shares to the Respondent No. 3
in 2007 as ultra vires Article 5(b) of the Articles of Association of the
Respondent No. 1, null and void;
(d) Declare that the Appellant continues to hold 50% of the issued
and paid-up equity share capital of the Respondent No. 1, and direct
rectification of the register of members of the Respondent No. 1
accordingly under Section 59 of the Companies Act, 2013;
(e) Declare that the appointments of the Respondents No. 3 and 4,
and Mr. Krishna Gosain as directors of the Respondent No. 1 stand void
and/or vacated for non-regularisation under Section 260 of the
Companies Act, 1956; and further declare that Mr. Rishabh Dindayal
Gosain's office as director stands vacated by operation of law under
Section 167(1)(b) of the Companies Act, 2013;
nd
(f) Declare that the Board Resolution dated 2 November 2006
appointing the Appellant as Director of the Respondent No.1 is legal,
valid and binding on the Respondent No.1 and its directors, and direct
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the Respondents No.1 and 2 to complete all consequential formalities
with the Registrar of Companies;
(g) Direct rendition and accounting of the Respondent No.1's
accounts from 2006 till date,and order complete disgorgement and
payment to the Appellant of his 50% share, presently estimated at INR
2.5 Crore, plus additional interest thereon;
(h) Direct that all future rental income earned from the said property
be deposited with this Court pending final disposal, with the Appellant
entitled to his 50% share thereof,
th
(i) Restore status quo ante as existing on 25 January 2007, being
the date of the demise of Late Mr. Dindayal Gosain; and
(j) Pass such further and other orders as this Court may deem fit and
proper in the facts and circumstances of the case.
35. On the other hand, Ms. Rajani, learned Counsel, appearing for
Respondents No.1 and 2 has opposed the submissions by Mr. Kanade on
behalf of the Appellant, reiterating the submissions made in the written
statement before the Company Law Board.
36. The arguments on behalf of the Respondents can be summarised
as under :
(i) The Appellant holds 7.70% of the issued share capital of
Respondent No.1. He is thereby below the mandatory threshold of
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10% prescribed under Section 399 of the Act, and his Petition is, for
this reason alone, not maintainable at its inception.
(ii) The Company Law Board’s findings on share capital increase
(Q3), siphoning (Q1), director appointments (Q2), and quasi-
partnership are all findings of fact, supported by evidence on record,
and are not susceptible to interference in an appeal under Section 10F.
(Malleswara Finance & Investments Co. v. Company Law Board (supra)
Para 136; Purnima Manthena v. Renuka Datla (supra), Para 45 .
(iii) The bona fide requirement of funds for factory reconstruction is
th
conclusively established by the MIDC Circular dated 11 June 2008
th
(page 304 of Written Statement), the Board Resolution dated 25 August
2008 (page 327 of Written Statement), documenting the loan-to-equity
nd
conversion mechanism , the Chartered Accountant’s Report dated 2
June 2009 (page 328 of Written Statement), and the completion
certificates (Exhibit F). The Company Law Board’s positive finding at
Para 36 of the Impugned Order (page 86) merits full deference.
(iv) The Appellant suppressed the parallel Thane Civil Suit No.668 of
2008 before the Company Law Board, demanded and received
nd
repayment of his investment (HDFC Bank Demand Draft dated 22
December 2005; page 294 of Written Statement, Saraswat Bank
record). He does not approach this Court with clean hands.
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(v) The foundational documents relied upon by the Appellant, the
nd rd
Board Resolution dated 2 November 2006, the letter dated 3
th
November 2006 and the Will dated 6 November 2006, are fabricated
documents. These documents have not been proved as required by
Section 68 of the Indian Evidence Act, 1872, and are accordingly no
evidentiary value.
(vi) The Appellant's claim that GBP 13,500 was a personal loan to
Late Mr. Dindayal Gosain and that GBP 500 was paid in cash ‘during a
holiday’ is directly falsified by the record : the Bobby Electronics letter
nd
dated 2 September 2006 at page 205 (Exhibit F, pages 375-377)
establishes that the Appellant was only present in the United Kingdom
between April 1999 and July 1999. He has been called upon but has
failed to identify the occasion of this alleged holiday, there is none on
the record.
(vii) Further, as reflected in the Company’s Annual Returns for 2001-
2002 the Appellant is recorded therein as a debenture holder, and not
as a shareholder. The AoA, on its final page, records the equity
subscriptions solely of Mr. Dindayal Gosain and Mrs. Nirmala Gosain,
100 shares each. The Appellant’s name does not appear.
th
37. This Court, in compliance with the directions in order dated 4
August 2017 passed by the Hon’ble Supreme Court, has heard both the
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learned Counsel at length and examined the matter afresh and
considered the rival contentions as also the Appellant’s allegation of
illegality and unauthorised increase in share capital as will be seen
hereinafter in discussion with respect to Question No.3.
38. A Company Law Board, as it then was, was the final authority on
finding of fact unless such findings were perverse, based on no
evidence or was arbitrary. The jurisdiction of the Appellate Court
under Section 10F was restricted to the question as to whether or by
the facts as noticed by the Company Law Board and placed before it, an
inference could reasonably be arrived at that such conduct was against
probity and good conduct or was mala fide or for a collateral purpose
or was burdensome, harsh or wrongful. The only basis on which the
Appellate Court would interfere under Section 10F was if such
conclusion was (a) against law or (b) arose from consideration of
irrelevant material or (c) omission to consider relevant materials.
39. A question of law as is contemplated in Section 10F of the Act
would arise indubitably if a decision which was the foundation thereof
suffers from perversity, following a patent error on a fundamental
principle of law or disregard to relevant materials or cognizance of
irrelevant or non-germane determinants.
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40. With the above background, let us consider the first question of
law.
40.1 In my view the contention that Respondents No. 2 to 4 siphoned
off funds through a Leave and License Agreement and that the
Company Law Board’s rejection of this allegation is perverse, is not
sustainable. The Company Law Board’s decision constitutes a factual
determination based on the evidence or the absence thereof produced
by the Appellant. The matters raised by the Appellant are in the nature
of direct challenge to factual findings and the sufficiency of evidence,
both of which the Company Law Board, has, as the final fact finding
authority already considered and adjudicated.
40.2 The increase in share capital was necessitated by a bona fide and
pressing requirement for factory reconstruction in light of a demolition
notice. In my view therefore it was not necessary for the Company Law
Board to give any finding on the issue of siphoning of funds.
40.3 As far as oppression is concerned, the oppression necessitates a
clear and visible departure from standards of probity and fair dealing in
the conduct of the Company’s affairs, causing prejudice to its members
in their capacity as such. In my view the Appellant has failed to
establish such a departure.
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40.4 The first question of law is accordingly answered in the
affirmative against the Appellant.
41. Coming to the second question of law whereby the Appellant has
contested that the appointment of Respondents No.3 and 4 were made
st
at a General Body Meeting on 21 August 2010, entirely in compliance
with the Act and the AoA, I am of the view that the Appellant, not
being a director and holding only 8% shares at the time, had no right of
contest or veto board appointments. Regarding the Appellant's
submissions with respect to the directorships, apart from the delay, the
Appellant has not been able to establish that his consent was required
for the appointment of the other directors. Also challenge after two
years’ delay disentitles him to relief. A directorship is a personal
fiduciary office and cannot be bequeathed by Will. The Hon’ble
Supreme Court in the case of John Tinson & Co. (P) Ltd. Vs. Mrs.
Surjeet Malhan (supra) has observed that an AoA is a binding contract,
and since the Appellant’s name was not included, he had no contractual
right to the position of director. The appointments have been validated
by the Respondents by lawfully exercising its power. I am therefore of
the view that the Company Law Board was justified in its finding that
the appointment of Respondents No.3 and 4 was not illegal.
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41.1 The second question of law is also answered in the affirmative in
favour of the Respondents and against the Appellant.
42. As regards the third question of law, while there cannot be any
quarrel with the principle laid down by the Hon’ble Supreme Court in
the case of Dale and Carrington Investments (P) Ltd. Vs. P.K. Prathapan
(supra) regarding the fiduciary duty of directors to act in the
Company’s best interest and to disclose relevant information to
shareholders, particularly in matters of share allotment, however, in the
present case, all allotments were made in good faith and in accordance
with corporate requirements and circumstances must be considered in
order to sustain a presumption.
42.1 It is seen that the increase in authorised share capital was a
gradual and bona fide process undertaken solely to meet the
Company’s urgent financial requirements, and cannot be characterised
as an oppressive measure within the meaning of Sections 397 and 398
of the Act. It was not executed in one sudden step but implemented
over a period of time, in response to genuine business exigencies,
culminating in the Special Resolution passed at the Extra Ordinary
th
General Meeting on 20 March 2009.
42.2 The increase from Rs.10,00,000/- to Rs.70,00,000/- was
necessitated by an external compulsion, viz. the demolition notice
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th
issued by the MIDC on 28 August 2006 which required reconstruction
of the factory premises. Respondent No.2 undertook the reconstruction
over a period of time, ultimately completing a new 1011.66 sq. meter
facility. This was supported by the requisite statutory documentation,
including the occupation certificate, building completion certificate,
drainage completion certificate, and tree plantation certificate, all
annexed as Exhibit E to the Respondents’ written statement before the
Company Law Board.
42.3 I therefore agree with the submission on behalf of the
Respondents that this capital enhancement was not an isolated
manoeuver to dilute the Appellant’s shareholding, but a carefully
considered business decision for the long-term benefit of all
shareholders.
42.4 The Company Law Board specifically found, as a matter of fact,
that the increase was to meet the requirement of funds and therefore is
not an oppressive act. Such a finding is entitled to deference under the
restricted scope of Section 10F jurisdiction under the Act, which
precludes re-appreciation of evidence or substitution of factual
determinations unless the finding is perverse, unsupported by evidence,
or arbitrary none of which has been demonstrated by the Appellant.
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42.5 The Appellant's assertion that no proof was adduced for
Respondent No.2's investment of Rs.70,00,000/- is directly contradicted
by the evidence on record. The Respondents have produced not only
the statutory certificates but also Exhibit G to the Written Statement
before the Company Law Board, along with the Company's ledger and
supporting bills, all of which confirm the investment and the increase in
fixed assets to Rs.1,07,92,150/-. The Appellant has not disputed the
authenticity of these documents before the Company Law Board.
42.6 It is also noteworthy that, at the time of reconstruction, the
Company's capital was substantially less than Rs.70,00,000/-, making it
financially impossible for the Company to have funded the construction
from its own resources. This fact alone disproves the Appellant's
speculative contention that the expenditure came from Company funds.
42.7 The Hon'ble Supreme Court in the case of Nanalal Zaver v.
Bombay Life Assurance Co. Ltd. (supra) has clarified that directors hold
fiduciary duty to act in the Company's best interest, and that the bona
fide exercise of such powers for the benefit of the Company cannot be
impugned as oppressive merely because it affects shareholding
proportions. In the facts of this case, the capital increase appears to be
in furtherance of the Company's commercial survival and growth and
not for any collateral purpose. The capital increase was done to save
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the Company, not for personal gain or to oppress the Appellant. The
said decision in my view protects this kind of bona fide corporate
purpose. The onus is on the Appellant to prove that the appointments
were part of a continuous scheme of oppression, rather than isolated
instances of alleged irregularity, which the Appellant has failed to
prove.
42.8 The increase in authorised share capital from Rs. 10 lakh to Rs.
70 lakh in my view was therefore a legitimate and necessary corporate
action, in compliance with Sections 94 to 104 of the Act and the
Company's AoA. The Appellant's challenge rests entirely on conjecture,
is unsupported by probative evidence, and is therefore liable to be
rejected.
42.9 The increase in the Company's shareholding was necessitated
th

due to the demolition notice issued by the MIDC on 28 August 2006

which required reconstruction of the factory premises, and not by any
mala fide act of the Respondents. The percentage of shareholding is
inherently dependent on the level of investment made. The Hon'ble
Supreme Court in the case of Shanti Prasad Jain Vs Kalinga Tubes
24
Limited has held that one holding a greater number of shares is the
majority share-holder.
24 AIR 1965 SC 1535
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42.10 The observation of the Company Law Board that even when the
st
1 Respondent was in dire need of funds, the Appellant demanded
return of his investment and Rs.2,50,000/- was paid out by the
Respondents to the Appellant is a conduct in the face of which it does
not lie in the mouth of the Appellant to say that there was no
st
justification for increasing the share capital of the 1 Respondent-
Company.
42.11 As regards the Appellant's reliance on Smt. Kanak Lata Ghose
25
vs. Amal Kumar Ghose , this Court is of the view that any presumption
in his favour is rebutted by the documentary proof of repayment of his
investment. The Appellant has failed to produce any documents
establishing substantial investment in the Company and it is an
admitted fact that Respondent No. 2 refunded the investment upon the
Appellant's demand.
42.12 The Appellant's grievance proceeds on a misconception of law
and fact. While the percentage of shareholding may fluctuate upon
further issue of shares, the quantum of shares actually subscribed by
the Appellant has never been reduced, cancelled, or altered. The
Appellant's financial interest in the Company remains precisely what
was invested.
25 AIR 1970 CAL 328
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42.13 In the present case, the Appellant alleges that his holding
reduced from 50% to 8%. The Company had no discretion in the
matter and was legally bound to implement the increase. Furthermore,
the Appellant was merely a shareholder and not a director, he cannot
claim prejudice in the manner of management decisions taken pursuant
to judicial directions, particularly when his ownership of the originally
subscribed shares has not been impaired.
42.14 In response to the contention of the Appellant that no notice of
the EGM was given to him despite being a 50% shareholder, the
Respondents have submitted that the formal shareholder status of
Appellant was questionable, particularly considering his residence in
London and lack of a Permanent Account Number ("PAN") prior to his
alleged temporary directorship and that the Appellant's name was not
consistently reflected in the AoA or the register of members, which
would ordinarily entitle a person to formal notifications. I am unable to
disagree.
42.15 The Respondents have contended that the documents relied
upon by the Appellant to assert his alleged 50% shareholding including
nd
the purported Board Resolution dated 2 November 2006 and the
alleged Will of Late Dindayal Gosain are fabricated and that if the
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Appellant was not a duly registered director in the records of the
Company, there existed no legal obligation upon the Company to issue
notices of meetings to him. I agree.
42.16 The Hon'ble Supreme Court in the case of T.N.K. Govindaraju
26
Chetty and Co Limited and Ors. Vs. Kadri Mills CBE Limited and Ors.
has held that persons not registered in the official records of the
Company do not have the standing to demand notice for corporate
actions or to seek remedies under oppression and mismanagement
provisions.
42.17 The non-inclusion of one's the shareholders' register or AoA
generally means that formal notification for corporate changes is not
legally required. In relation to share allotments, unless the AoA
specifically provide otherwise, no shareholder inherently possesses a
right proportionate allotment of future shares. Therefore, in the
absence of a clause in the AoA granting proportionate entitlement, any
increase in share capital and resulting dilution of a shareholder's
percentage if effected in accordance with the Company's rules and for
bona fide purposes cannot constitute oppression.
42.18 A notice of a meeting is not required to be sent to persons not
registered on the records of the Company or its transfer agent on the
26
(1999) 96 Comp Cas 871 (CLB)
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relevant date. Since the Appellant's name was never formally recorded,
the Appellant was under no legal entitlement to receive notifications
for any change, including those related to share capital increases or
other corporate adjustments.
42.19 The decision in the case of John Tinson & Co. (P) Ltd. v. Mrs.
Surjeet Malhan (supra) is relevant. The Hon'ble Supreme Court
observed that the AoA of a private Company constitutes a contract
between the parties. The Appellant not being named in the AoA, no
such contractual relationship existed.
42.20 Having demanded and received repayment of the investment,
the Appellant cannot now, after more than two years, allege oppressive
management.
42.21 With respect to the allegation of allotment of 0.8% shares to
Respondent No. 3 without a resolution or notice, the Respondents have
denied the same and stating that all allotments were made in
accordance with the needs of the Company. The increase in Respondent
No.2's shareholding to 92% and the reduction of the Appellant's to 8%
are direct consequences of a bona fide capital increase and the
Appellant's own failure to subscribe to new shares. I agree.
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th
42.22 An EGM was duly convened on 20 March 2009 to alter the
share capital, in compliance with Sections 94 to 104 of the Act and the
Company's AoA.
42.23 In view of the above discussion, the conclusion of the Company
st
Law Board as a matter of fact that the 1 Respondent-Company needed
funds to meet certain requirements, although there may have been
some irregularity in the holding of the EGM which in my view cannot
be faulted with as the Respondent No.1-Company is also a Private
Limited Company. An isolated instance cannot be termed as an act of
oppression and also the Appellant would have to show continuous acts
of oppression which is not the case here.
42.24 Therefore, I am of the view that the Company Law Board was
justified in rejecting the allegations of the Appellant that the
Respondents have altered the share capital of the Company without
following due process of law.
42.25 Accordingly, Question No.3 that whether the Company Law
Board was justified in rejecting the allegations of the Appellant that the
Respondents have altered the share capital of the Company, is
answered in the affirmative in favour of the Respondents and against
the Appellant as the alteration has been by following due process of
law.
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43. Coming to Question No.4, I agree with the Respondents that
scattered references buried within pleadings, without making the fact
of the parallel proceedings clear and candid, do not constitute
meaningful disclosure.
43.1 The Hon'ble Supreme Court in the case of G. Narayanaswamy
27
Reddy (Dead) By L.Rs. vs. Government of Karnataka and Anr. held in
Paragraph 5:
" It is well settled in law that the relief under Article 136 of the
Constitution is discretionary and a petitioner who approaches
this Court for such relief must come with frank and full
disclosure of facts. If he fails to do so and suppresses material
facts, his application is liable to be dismissed. We accordingly
dismiss the special leave petitions ."
43.2 Disclosure after the fact such as in a rejoinder, merely attempts
to cure the initial suppression at the time of filing. This undermines the
integrity of proceedings, as both the respondent and the adjudicating
body are deprived of the opportunity to address the facts from the
outset. The fact that the Company Law Board examined the issue at all
is proof that the alleged clear disclosure was neither clear nor
sufficient, thereby wasting judicial time and resources.
27 1991 AIR 1726
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43.3 It is pertinent to observe that events relating to allotment of
shares and appointment of new directors took place in 2010, during the
pendency of the suit, yet the Appellant did not seek any interim reliefs
therein and withdrew the civil suit with Senior Division Civil Judge in
nd
Thane praying for declaration that alleged Board Resolution dated 02
November 2006 be given legal effect of the Appellant being appointed
as the Director of Respondent No.1 Company. The Appellant withdrew
the said suit after the conclusion of the final hearing without providing
a clear reason. Respondent No. 2 has lodged a complaint at Naupada
Police Station, Thane, which is under investigation as the genuineness
of the Will is thus sub judice in civil as well as criminal proceedings. It
appears that the Appellant was well aware of his non-appointment as
director of the Respondent No.1.
43.4 The Appellant's Appeal Memo stating they have done no
suppression disregards the settled principle that materiality must be
assessed at the time of filing as the later withdrawal of the suit does not
retrospectively erase the existence of parallel proceedings at the time
the petition was lodged, nor does it absolve the duty of full disclosure
before the Company Law Board. While such withdrawal may have
some bearing on the merits of the substantive relief sought, it does not
cleanse the impropriety of withholding relevant facts.
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43.5 The Calcutta High Court in the case of Rohini Nandan Goswami
28
Vs. Ocean Accident and Guarantee Co. held that materiality does not
always require independent proof, at times, it is evident from the
nature of the fact itself. The test remains whether the fact bears on the
risk (or issue) in question. If it does, it is material; if it does not, it is
immaterial. Therefore, in my view, the Company Law Board was justified
in giving a finding that the Appellant has suppressed material facts.
43.6 In view of the above discussion, the Question No.4 that whether
the Company Law Board was justified in giving the finding that the
Appellant has suppressed material facts, is answered in the affirmative
against the Appellant.
44. Appropos the above discussion, in my view, there is therefore,
neither any perversity, nor a patent error on any principle of law nor
disregard of relevant material nor cognizance of irrelevant or non-
germane determinants in the findings of the Company Law Board, nor
a case where the conclusion is against the law or arising from the
consideration of irrelevant material or omission to consider relevant
material nor conduct against probity and good conduct or conduct that
was mala fide or for a collateral purpose or was burdensome, harsh or
wrongful has been made out.
28 AIR 1960 CAL 696
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45. The Appellant's assertion that there was no delay in filing the
Company Petition is contradicted by the record, which shows that
several petitions were filed and withdrawn over time. In 2008, the
Appellant instituted a civil suit and subsequently withdrew it without
satisfactory explanation. Such actions not only undermine the
credibility of the Appellant's claim of delayed awareness but also
demonstrate an abuse of the legal process.
46. Mr. Kanade has relied upon the decision of the Hon’ble Supreme
Court in the case of Claude-Lila Parulekar Vs. Sakal Papers (supra)
however, the said decision is distinguishable on two counts: first, the
Appellant was not a named party to the AoA and accordingly, cannot
invoke Article 5(b) and second, whether a pre-emption clause was or
was not breached is a question of fact decided by the Company Law
Board adversely to the Appellant and is not open to re-examination
under Section 10F of the Act. Further, in the said decision, the
Petitioner was an undisputed named member with clear rights unlike
the Appellant herein and therefore, the said decision does not aid the
case of the Appellant.
47. Mr. Kanade has also relied upon the decision of the Hon’ble
Supreme Court in the case of M.S. Madhusoodhanan Vs. Kerala
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Kaumudi (P) Ltd. (supra) however, the said decision involved an
established family Company with undisputed membership and the
foundational dispute about the Appellant’s membership did not arise in
the facts of that case. Further, the said decision was decided on facts
and the findings of the Hon’ble Supreme Court were based on the
evidence before the subordinate Courts and the quasi-partnership
finding in the said decision was based in a genuine family nexus
whereas in the facts of the present case, the Appellant is unrelated to
the Gosain family by blood or marriage and therefore, the said decision
is also distinguishable and does not aid the case of the Appellant.
48. The Hon’ble Supreme Court in the case of Purnima Manthena Vs.
Renuka Datla (supra) has observed that a patent error on a
fundamental principle of law or disregard to relevant materials is
required and as the Company Law Board has considered the MIDC
Notice, construction documents, lease chronology, investment evidence
and the Appellant’s non-participation and as the Appellant offers
alternate inferences precisely what paragraph 45 of the said decision
excludes therefore, the decision also does not aid the case of the
Appellant.
49. The Madras High Court in the case of Malleswara Finance &
Investments Co. v. Company Law Board (supra) in paragraph 136 has
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held that the questions of share capital increase are pure questions of
fact not amenable to Section 10F appeals. Further, in the facts of that
case, the Court struck down an improper allotment upholding the
Company Law Board’s fact-finding and in the facts of the present case,
the Company Law Board upheld the allotment, equally a factual finding
protected from appellate disturbance and therefore, the said decision
does not aid the case of the Appellant.
50. Mr. Kanade has also relied upon the decision of the Madras High
Court in the case of Micrometrics Engineers Vs. S. Munusamy (supra)
however, in the facts of that case, the Court upheld the Company Law
Board’s fact finding on oppression whereas in the facts of the present
case, the Company Law Board found no oppression, a finding equally
entitled to appellate protection. The said decision does not aid the case
of the Appellant who seeks to reverse a Company Law Board’s finding
of no oppression as it is settled law that Section 10F cannot be used to
re-examine the Company Law Board’s factual conclusions and
therefore, the said decision does not aid the case of the Appellant.
51. The Hon’ble Supreme Court in the case of S. P. Chengalvaraya
Naidu Vs. Jagannath (supra) has observed that a litigant
approaching the Court on a false or suppressed factual basis is not
entitled to relief and the Appellant’s non-disclosure of the prayers in
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the Thane Suit and conduct in suppressing parallel proceedings falls
squarely within the mischief identified in this decision and therefore,
the said decision also does not aid the case of the Appellant.
52. Mr. Kanade has also relied upon the decision of the Hon’ble
Supreme Court in the case of T. Ashok Pai Vs. CLB (supra) however, the
concealment of prayers in the Thane Suit, a Suit filed on identical
directorship question by the Appellant was deliberate and material and
as the Company Law Board found the Appellant’s disclosure of the
Thane Suit insufficient, I am of the view that the Appellant’s reliance on
the said decision does not aid their case.
53. Mr. Kanade has also relied upon the decision of the Hon’ble
Supreme Court in the case of K.C. Builders Vs. ACIT (supra) however,
the Appellant’s pattern of filing and withdrawing Suits without
disclosure of the prayers or outcomes, reflects a deliberate and strategic
withholding that falls within the definition of suppression articulated in
this decision and further, the non-disclosure of the Thane Suit was not
a bona fide mistake, the Appellant was a party to both the proceedings
on an identical question and therefore, the said decision does not aid
the case of the Appellant.
54. Mr. Kanade has also relied upon the decision of the Hon’ble
Supreme Court in the case of Govt. of NCT Vs. BSK Realtors LLP
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(supra) however, the suppression of the parallel directorship
proceedings on the precise question at the heart of the Company Law
Board petition was to be disclosed by the Appellant and therefore, the
finding of the Company Law Board on the suppression of material is a
factual finding and therefore, the said decision also does not aid the
case of the Appellant.
55. Mr. Kanade has also relied upon the decision of the Hon’ble
Supreme Court in the case of Pushpam Pharmaceutical Co. Vs.
Collector of Central Excise (supra) however, the principle laid down in
this decision applies to suppression before an authority that itself
possessed the knowledge and as the Company Law Board did not
possess knowledge of the prayers and proceedings of the Thane Suit
which had to be excavated from the Appellant’s buried references. The
duty of frank disclosure runs to the adjudicating authority and not
merely to the opponent and therefore, the said decision also does not
aid the case of the Appellant.
56. The Hon’ble Supreme Court in the case of Arunima Baruah Vs.
Union of India (supra) had held that the appropriate remedy upon
prior suppression is to withdraw and refile with full disclosure whereas
the Appellant has not followed this course. This decision presupposes a
fresh petition with full candour which is the very step that the
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Appellant has declined to take and therefore, the said decision does not
aid the case of the Appellant.
57. In the case of S.J.S Business Enterprises Vs. State of Bihar
(supra) , the omitted facts were genuinely minor and unrelated to the
merit however, in the present case, the Thane Suit was on the identical
directorship question and was pending at the time of the filing of the
petition before the Company Law Board and was withdrawn only upon
after the Company Law Board’s final hearing which are neither minor
nor non-material omissions as they go to the foundation of the
Appellant’s claim to the directorship and the bona fides of his approach
to the Company Law Board and therefore, the said decision does not
aid the case of the Appellant.
58. Mr. Kanade has also relied upon the decision of the Hon’ble
Supreme Court in the case of V. S. Krishnan Vs. Westfort Hi-Tech
Hospital (supra) however, the said decision would only assist the case
of the Appellant if the conduct complained of was itself oppressive and
continuing however, as the Company Law Board found no oppression,
the Appellant cannot invoke continuing oppression in in respect of
conduct that has been adjudicated as non-oppressive as the same does
not alter the underlying finding and therefore, the said decision does
not aid the case of the Appellant.
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59. Mr. Kanade has relied upon the decision of the Hon’ble Supreme
Court in the case of Ananthaswamy Vs. Boraiah (supra) for the
proposition that the Respondents’ fraud allegation must be ‘strictly
th
proved’ however, the FIR (JMFC Thane, 29 July 2013), the medical
evidence of Mr. Dindayal Gosain’s progressive paralysis, the
th
inconsistency in signatures, and the affidavit of 20 April 2006
collectively constitute cogent evidence and the Appellant’s own
documents viz. the alleged Board Resolution and November 2006 Will
have not been proved per Section 68 Evidence Act and as the said
decision requires strict proof which has not been provided by the
Appellant, the said decision does not aid the case of the Appellant.
60. The Hon’ble Supreme Court in the case of Sangramsinh P
Gaekwad Vs. Shantadevi P. Gaekwad (supra) held that strict satisfaction
of criteria was required against easily accepting the quasi-partnership
plea. In the facts of the present case, the Company was incorporated
2000, before Appellant’s involvement; Appellant not in AoA; invested
only in 2003 for construction; demanded money back; never
participated in management and therefore, none of the criterias are
met. Further, Appellant suppressed the Thane Suit, relied on allegedly
forged documents, and demands re-examination of facts meaning that
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they did not approach the Company Law Board with clean hands and
as the Company Law Board found no oppression; same events cannot
be relabelled as ‘continuing’ and therefore, the said case does not aid
the case of the Appellant.
61. Mr. Kanade has relied upon the decision in the case of Ebrahimi
Vs. Westbourne Galleries Ltd. (supra) which proceeds on the premise of
a mutual understanding of joint participation in management between
persons who associate on the basis of personal trust however, in the
facts of the present case, the Appellant was not a promoter; was not
named in the AoA; invested only in 2003 for a limited construction
purpose demanded return of his investment; and never participated in
management and therefore, this decision does not aid the case of the
Appellant.
62. In view of the aforesaid, the other arguments by the learned
Counsel have not been deemed necessary to be dealt with.
63. Consequently, even the other decisions cited by the Appellant,
although enunciating and elucidating the settled principles of law do
not aid the case of the Appellant as also are distinguishable on facts
and therefore, this Court has deemed it appropriate to not deal with the
same.
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64. In view of the above discussion and the questions of law
answered as above, this Court does not find any merit in the Appeal
and therefore, the reliefs sought for by Mr. Kanade on behalf of the
Appellant cannot be granted.
65. Ergo, the Appeal deserves to be dismissed and is hereby
dismissed. The pending Interim Applications to accordingly stand
disposed. No costs.
(ABHAY AHUJA, J.)
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