P.K. Prathapan Vs Dale and Carrington Investments (P.) Ltd.

Koshy, J.@mdashAll these three appeals are filed u/s 10F of the Companies Act, 1956 (''the Act'') against the common order passed by the Company Law Board, Principal Bench, Chennai in C.P. Nos. 13 of 1999 and 65 of 1999 under Sections 111, 397 and 398 of the Act and in the matter of Dale and Carrington Investments (P.) Ltd. (''the Company''). Since M.F.A. No. 284 of 2001 was the earliest appeal filed against the above order, for convenience sake appellants in that appeal are referred to as ''Appellants'' in this judgment. First respondent in that appeal is the company itself and second respondent is the Managing Director of the company. He is referred to as the Managing Director throughout this judgment. C.P. No. 13 of 1999 was filed u/s 111 by the Company for rectification of the register of members of the Company in respect of 500 equity shares mentioned in the petition deleting the name of the appellants herein. C.P. No. 65 of 1999 was filed under Sections 397 and 398 by the appellants alleging that the affairs of the company are being conducted in a manner prejudicial to their interests and for declaring that issue of shares to any member of the Company apart from the initial issues is null and void and to rectify the registers of the company, accordingly, and remove the second respondent from the office of the Managing Director of the company and to supersede the Board of Directors of the Company. Oppression and mismanagement, illegal allotment of 17,865 equity shares, manipulation of records and documents, etc., were alleged.

2. The petition filed by the Company for rectification of shares was dismissed. With regard to the petition filed by the appellants in M.F.A. No. 284 of 2001, it was held as follows :

"However, we do feel that when in 1987, a substantial amount of Rs. 5 lakhs was invested by the petitioners as share capital which was utilised in purchase of the hotel which is the only main business of the Company, equity demanded that the petitioners should have been offered further shares as and when the Company decided to mobilse funds. Therefore, we are of the view that by not even making an offer to the petitioners, the respondents had acted in an oppressive manner towards the petitioners. In the normal course, allotment of shares which resulted in an act of oppression would have been set aside, but we do not propose to do so inasmuch as the Company has got the benefit of the investments made by the respondents."

After holding that the Managing Director acted in an oppressive manner and noticing that the appellants had got another hotel, with a view to protect the interest of the company from further litigation and also to ensure that the position of the petitioner being in minority is not further jeopardized, option was given to sell the shares to the respondent at par value with 12 per cent simple interest per year right from the date of investment. It was also mentioned that as and when consideration was paid, the petitioners should execute blank transfer forms and hand them over to the respondents. Against this common order, petitioners in C.P. No. 65 of 1999 filed appeal M.F.A. No. 284 of 2001. The company filed appeal M.F.A. No. 551 of 2001 as its petition C.P. No. 13 of 1999 filed for rectification of shares was rejected. The Company as well as the Managing Director filed M.F.A. No. 586 of 2001 against the findings of oppression made in the impugned order in C.P. No. 65 of 1999.

3. Now, we may consider the facts of the case. The appellants were Non-Resident Indians. First appellant made some discussions with the second respondent about purchase of Hotel Sidhartha as he wanted to provide his family members. It was situated in 45 cents of land and a building consisting of 10 rooms with Bar attached licensed restaurant. Second respondent also informed the first appellant that partners of the hotel were looking for the same and the hotel with the liabilities could be purchased for Rs. 6 lakhs. On 3-3-1997, the appellant arranged to remit Rs. 5 lakhs and also requested to contact certain others to get the balance amount and brother of the appellant paid Rs. 50,000. 11th respondent in the company petition, one Marykutty also paid Rs. 50,000 and one Devaky paid Rs. 60,000. Agreement dated 6-3-1997 was executed with partners of Hotel Sidhartha under which the company became the owner of Hotel Sidhartha. On 4-11-1986, the company was registered and second respondent (M.D.) and his wife were the original subscribers. On 30-3-1989, 5,000 shares were allotted to the mother of the first appellant as can be seen from Ext. A4 marked in C.P. No. 13 of 1999. On 24-11-1989, 5,000 shares (2,500 to first appellant and 2,500 in favour of second appellant who is the wife of first appellant) were allotted in favour of the appellants out of the total issued capital of 7,100 shares. It is the case of the appellants that on 21-11-1991, first appellant transferred US Dollars 6,300 to the second respondent Managing Director for buying a Maruti Car for his use. First appellant by letter dated 15-8-1992 informed that he invested the money mainly to give employment to his brother Murali and later his own son who was studying. In February, 1994, another Rs. 1 lakh was remitted by the first appellant to the second respondent by Cheque No. 423154 drawn on State Bank of India, Thrissur. Muraleedharan, brother of the first appellant, who was also a working Director in the company was removed from the directorship of the company at the 79th Board meeting held on 4-10-1994 as per the minutes book (page 37) produced before the CLB. 6,865 shares were issued in favour of the second respondent, Managing Director, at the 82nd Board meeting (See page 39). According to the appellants, they were not aware of the issue of shares. No notice was issued to them. No notice of general body meeting increasing the share capital of the company was issued to them. Even this was done under their back. Board meeting held on 24-10-1994 was attended by the Managing Director and his sister''s son. Following is the resolution :

"The Chairman informed that an amount of Rs. 6,86,500 was standing to the credit of his account in the books. He requested the Board to consider the proposal to allot shares equivalent to the above amount. The Board considered the matter and decided to allot 6,865 equity shares of Rs. 100 each to Mr. P.K. Ramanujani. The Board passed the following resolution:

Resolved that 6,865 equity shares of Rs. 100 each be and is hereby allotted to Sri P.K. Ramanujam, ''Sudhara'', P.O. Chittisseri, Thrissur District PIN 680301 as fully paid-up shares with immediate effect against amount already paid by him."

Despite specific allegation in the petition, no evidence was produced to the effect that notice regarding issue of shares or notice of general body meeting was served on the appellants. Grant of shares was not in the agenda of the board meeting. General body meeting with notice was not held before the board allowing to increase the share capital.

4. On 24-11-1995, it was decided to co-opt Managing Director''s wife as an additional director. Minutes book would show that all subsequent board meetings were attended by the Managing Director and his wife only. Unaware of all these, first appellant on 1-1-1996 provided a deposit of Rs. 1 lakh with State Bank of India, Thrissur for providing bank guarantee in favour of sales-tax for the first respondent-company. Thereafter, in January, 1996 itself Rs. 9 lakhs were remitted by the first appellant to the second respondent Managing Director. According to the appellant, it is sent for use in the business. According to the Managing Director, it was a personal transaction though payment was admitted. On 30-9-1996, P.T. Suresh Babu ceased to be a director. Minutes No. 102 (Page 48) would show that on 2-9-1996 it was resolved to call the general body meeting to increase the share capital of the company. It is the case of the appellants that no notice of general body meeting was also sent to them or received by them. On 26-3-1997, 11,000 additional shares were issued in the respondent-company of which 9,800 to the second respondent Managing Director himself making him the majority shareholder and balance to his sister''s son Suresh Babu (250), his brother (250), his sister-in-law (300), and brother-in-law (400) who are 4th, 5th, 6th and 8th respondents. Thus, the appellant who invested money for the purchase of hotel and who was the majority shareholder was reduced to minority shareholder without notice.

5. According to the return filed on 30-9-1997, first appellant was made a director and on 18-9-1998 second appellant was made a director. But, it is the contention of the appellants that they were not informed that they were appointed as directors. No notice was issued to them. No evidence was produced to show that notice was issued to them. They did not attend any board meetings as can be seen from the minutes book. First appellant ceased to be a Director with effect from 20-11-1999 and second appellant ceased to be a Director with effect from 30-9-2000. According to the Managing, Director, they did not seek re-election. But, according to the appellants, since they were not informed that they were made directors and their term will cease on a particular date, there is no question of getting them re-elected or offering themselves for election after the censure of the term. The Managing Director has a case that on 11-2-1998, the appellant as well as Suresh and Muraleedharan acquired Hotel Luciya, main competitor of the company. Management of Hotel Luciya filed a Public Interest Litigation seeking cancellation of bar licence of Hotel Sidhartha which was finally dismissed. Purchase of the hotel and litigations were much after the transfer of majority shares to the Managing Director himself. Appellants filed C.P. No. 65 of 1999 under Sections 397 and 398 on 30-7-1999 before the CLB, New Delhi, which was later transferred to Chennai Bench. Company filed C.P. No. 19 of 1999 u/s 311 on 17-9-1999 before the Chennai Bench. Both cases were heard and disposed of by common order.

6. In C.P. No. 19 of 1999, it was alleged by the company as well as the Managing Director that appellants did not get permission from the Reserve Bank of India to invest in shares in India and, therefore, allotment of shares to them was invalid and it should be cancelled. It is also contended that the Managing Director had invested money for the business and shares were allotted to him as nobody had given offer for shares. Company petition was filed mala fide by the appellants as they acquired Luciya Hotel and to ward of the competition only. It is specifically contended by the appellants that no notice of meetings were sent to the appellants and allotment of shares were done in collusive manner behind their back so as to deny shares and by which second respondent became the majority shareholder and oppression and mismanagement are clear from the facts of the case. According to the appellants, after getting majority shares, the company applied for rectification of the register of members by deleting the names of the appellants for ousting the appellants from the company as a deceitfully plan made by the Managing Director to get ownership of the hotel, without any investment. Considering the contentions and evidence, the CLB rejected the above petition. As we have already seen from the facts of the case, the initial investment for purchasing the hotel was done by the appellants even though they were non-residents. First appellant''s brother was removed from the Board. Thereafter, share capital was increased without notice. Even the annual return made up to 27-9-1990 and 30-9-1991 would reveal share holding pattern as under :

The Managing Director was allotted 6,865 shares in October, 1994 after increasing the share capital from Rs. 15 lakhs to Rs. 25 lakhs as can be seen from Form No. 2 marked as Ext. P18. The annual return as on 23-12-1995 but filed on 13-2-1996 (Ext. P19) shows the change in shareholder pattern. In September, 1996, he was allotted 9,800 shares in April, 1997 and another 1,200 shares to close relatives. This was done without notice to the majority share holders, appellants, on whose investment the hotel business was started by the Company. The annual return submitted as on 30-9-1997 shows the share holding pattern as follows :

After becoming the majority shareholder, this petition for rectification was filed allegedly to oust the appellants from the business on whose funds the business was started by the Company. The facts clearly reveal that Hotel Sidhartha was acquired in March, 1987 and hotel business was carried on from that date. The appellants had invested Rs. 5 lakhs in March, 1987 and at the request of the mother of the first appellant 5,000 shares were allotted. Again, at the request of the mother, 5,000 shares were transferred in favour of the appellants subject to the approval of the Reserve Bank.

7. Contention of the company was that u/s 29(1)(6) of the Foreign Exchange Regulation Act, previous permission has to be obtained and, therefore, transfer made in the name of appellants is illegal. The appellants had 70 per cent shares at the beginning. But, by 1997, the Managing Director obtained 70 per cent shareholding and appellants were reduced by a mere minority having less than 30 per cent shares and allotments were made by the Managing Director without even informing the appellants. The company petition for rectification of shares was filed after ten years of the allotment of shares. The Managing Director as well as the company was aware that they are non-residents at the time of allotment of shares itself and for ten years, no action was taken. Action was taken at the initiative of the Managing Director after he obtained majority shareholder. On the following grounds, the CLB considered the matter and found as follows :

"While the legal position relating to obtaining the RBI permission is not disputed, yet in the present case, the same has been questioned nearly 10 years after the allotment/transfer was made. Even this allotment/transfer was made only at the initiative of the second respondent as is evident from Annexure P-42 dated 25-2-1987 which reads as follows :

''To realise the cheque in the name of the company, we require the permission of Reserve Bank of India. They are delaying the things unnecessarily by asking several things. I went to Reserve Bank along with our auditor Mr. Krishnamoorthy and tried our level best to speed up the process. They have no interest. We cannot do our things before getting their clearance.

Hence you do one thing. Send a cheque for Rs. 5 lakhs either in the name of mother or Murali. That cheque should not cross or don''t write account payee, etc., then the mother can endorse that cheque in company''s name. The only problem is that the share holding will be in mother''s name. In this regard this is the only way left out. Write a letter to the Bank Manager also regarding this.''

It is, therefore, clear that the second respondent was persuading the first petitioner to remit the amount of Rs. 5 lakhs in the name of the first petitioner''s mother to ensure the allotment of shares without permission of the RBI. It is found that 5,000 shares were allotted for the aforesaid remittance made by the petitioner.

According to the petitioners, the Company had allotted 2,500 shares each in the name of petitioners 1 and 2 separately covered by share certificate Nos. 12 and 13 with distinctive Nos. 2051 to 4550 and 4551 to 7050 respectively as evidenced by the share certificates (Annexure P 32)............"

"In this connection, beneficial reference is made to LIC of India v. Escorts Ltd. [1986] 59 Comp. Cas. 548, where it has been held that the RBI has the authority to give ex post facto permission u/s 29(1)(b) of the Foreign Exchange Regulation Act for purchase of shares in India by a Company not incorporated in India and such permission does not necessarily have to be a ''previous'' permission. Thus, the petitioners/ Company are at liberty to apply to the RBI for regularising the allotment/ transfer of shares to the petitioners who are NRIs, if so advised. Accordingly, we reject the prayer of the petitioner in C.P. No. 13/99 regarding rectification of register of members in respect of the 5,000 shares allotted/transferred to the petitioners."

We are in perfect agreement with the above finding.

8. In Life Insurance Corporation of India Vs. Escorts Ltd. and Others, , the Supreme Court has clearly held that ex post facto permission can be given. We see no ground to interfere with the finding of the CLB. In fact, the appellants entrusted to the Managing Director and he deceitfully cheated them. Letters which are marked as exhibits show that full reliance was placed on him by the appellants. But, thereafter, the brother of the first appellant was also expelled from the Board and Managing Director''s wife was also taken into the Board. His share holdings were increased. He became majority share holder and then wanted to oust the appellants completely and filed the petition. There are no bona fides in the petition filed after ten years of acquisition of shares with full knowledge of the Managing Director himself. In any event, the Managing Director himself engineered everything knowing fully that appellants were non-resident Indians. The Supreme Court after considering the Life Insurance Corpn. of India''s case (supra) considered at paragraph 26 the Exchange Control Manual published by the Reserve Bank of India and para 24.1(ii) of the policy was quoted. It says as follows :

"... But, once, foreign investment is permitted by Government under its foreign investment and industrial policy, requisite permissions under the relative sections of Foreign Exchange Regulation Act, 1973, are more or less automatically issued."

9. We also note that at present, the policy is further relaxed. (See also Foreign Exchange Management [Permissible Capital Account Transactions) Regulations, 2000]. Strict provisions are there only against repatriation of amount outside India from the business in India. The Supreme Court in paragraph 63 of the judgment held as follows :

".. . Traditional norms of statutory interpretation must yield to broader notions of the national interest. If the legislation is viewed and construed from that perspective, as indeed it is imperative that we do, we find no difficulty in interpreting ''permission'' to mean ''permission'', previous or subsequent, and we find no justification whatsoever for limiting the expression ''permission'' to ''previous permission'' only. In our view, what is necessary is that the permission of the Reserve Bank of India should be obtained at some stage for the purchase of shares by non-resident companies." (p. 1403)

A reading of the above decision and the principles laid down would show that merely because prior permission was not granted, transfer of shares will not become invalid and for ten years they were holding the shares and, in any event, the Managing Director the present majority shareholder of the company or the company cannot contest the same as they have induced the appellants to take shares knowing that they are non-resident Indians and the Managing Director manipulated the entire show. On the facts of the case, there is no ground at all to interfere with the order as far as dismissing C.P. No. 13 of 1999 filed by the company. Therefore, M.F.A. No. 551 of 2001 is dismissed.

10. With regard to C.P. No. 65 of 1999, the CLB found clearly that there is oppression and the Managing Director of the Company acted in an oppressive manner towards the petitioners. The CLB found that, in the normal course, allotment of shares which is resulting in an act of oppression would have been set aside. The finding that there was oppression is a finding of fact and no question of law arises so as to file an appeal. In fact, the facts of the case fully justify the above finding. It is not disputed that when the company started operation first appellant''s mother was allotted 5,000 shares. Thereafter, 2,500 shares each were transferred to the appellants and they were holding 70 per cent of the shares. The fact that without even issuing notice or without being informed the first appellant''s, further shares were allotted to the Managing Director. It is true that strict rules or restrictions regarding the transfer of shares as applicable to public limited companies are not applicable to private limited companies. But, at the same time, when shares were issued, at least, the appellants should have been informed as they were holding 70 per cent of the shares. After expelling the brother of the first appellant from the Board, new shares were issued in favour of the Managing Director and finally he became 70 per cent of the shareholders. As noticed by the CLB, no dividend was declared. The appellants did not get any return for the investment they made. The Managing Director was getting salary for the work he was doing as he was getting remuneration which was increased from time to time in the Board meetings which were attended by himself and his wife or close relatives only. He has increased the shares by dubious methods and, finally, the Managing Director wanted to expel the appellants completely and filed the application for rectification of share register. The annual return made up to 30-9-1996 and filed on 3-12-1996 shows that authorised capital was increased from Rs. 15 lakhs to Rs. 25 lakhs in September, 1996. Even in the minutes of the proceedings of the annual general body meeting held on 30-9-1996, there is no mention of increasing the share capital and from the copy of the proceedings it is seen that only five subjects were dealt with and increase of authorised capital of the company was not discussed. However, it is pointed out that a special resolution was passed increasing the authorised capital from Rs. 15 lakhs to Rs. 25 lakhs as can be seen from Exts. P22, 23 and 24. Thereafter, as per Ext. P4, additional shares were allotted to the second respondent Managing Director, 9,800, shares were allotted to the second respondent on 26-3-1997. Evidence would also show that there were remittances by the appellants for further improvement of the company and to bail out the company from recovery against sales-tax, etc. But, for those remittance, shares were not issued. For the alleged advance by the Managing Director to the Company, the shares were subsequently issued without even giving an offer to the first appellant or with even giving an information. By this act, majority shareholder was reduced to a negligible minority and those who invested for starting the business are tried to be ousted. The finding of the CLB that there is oppression is a finding of fact supported by evidence and, in the normal course, issuance or transfer of shares should have been set aside.

11. It is true that for finding of oppression, lack of confidence by minority shareholders is not enough. The oppression must involve at least an element of lack of probity or fair dealing with a member in the matter of his proprietary rights as a shareholder. As held in Shanti Prasad Jain v. Kalinga Tubes Ltd. [1965] 35 Comp. Cas. 351 (SC), the Supreme Court relied on the observations in a Scottish case Elder v. Elder & Watson Ltd. [1952] Scottish Cases 49 by Lord Cooper which is as follows :

"The essence of the matter seems to be that the conduct complained of should at the lowest involve a visible departure from the standards of fair dealing, and a violation of the conditions of fair play on which every shareholder who entrusts his money to the company is entitled to rely."

In this case, the appellants who made the initial investment on acquisition of the only asset of the company and who were the shareholder of more than 70 per cent shares were reduced to a minority shareholder by dubious and fraudulent methods which lack bona fides. A planned action was done by the Managing Director to get majority and he became 70 per cent shareholder and thereafter he planned to oust the appellants from the Company itself. It was held in Piercy v. S. Mills & Co. Ltd. [1920] 1 Ch. 77 as follows :

"If shares were issued to the public with the immediate object of controlling the greater number of shares in the company and of obtaining the necessary statutory majority for passing a special resolution, then it will not be a valid bona fide exercise of the powers."

It was held that the powers to issue further shares should be exercised bona fide in the interest of the company and not for the benefit of any. No shares were offered to anybody else by the Managing Director. Majority shareholders (appellants) were kept in darkness of allotment of shares by which the control was taken away. Here, the sequence will show that shares were issued only to benefit the Managing Director.

12. In Gluco Series (P.) Ltd, In re [1987] 61 Comp. Cas. 227 (Cal.), it was held as follows :

"Law appears to be settled that it is not open to the directors of a company to issue and allot shares in a manner by which an existing majority of shareholders are reduced to a minority. The Court will scrutinise with particular circumspection any such issue or allotment and unless it is satisfied beyond reasonable doubt that such issue was unavoidable and was resorted to as an extreme and emergency measure with an object of fundamental importance, e.g., saving the existence of the company, will not allow the existing balance of power in the company to be disturbed. It is also settled law that the majority shareholders cannot ultimately be kept out of control of the company as was held in Albert David Ltd., In re [1964] 68 CWN 163 and Sindhri Iron Foundry (P.) Ltd., In re [1964] 34 Comp. Cas. 510 ; 68 CWN 118"

The facts in this case show that majority shareholders were cheated and the appellants who made the initial investment to start the Company and purchased assets were deceitfully turned to minority shareholder by the Managing Director and no circumstances are shown that issuance of shares was done in an emergency to save the company. It is true that it is not a public limited company. But, there is total lack of fairness. Notices of general body meetings were not given to the appellants who were the majority shareholders. They were not offered when new shares were issued and they were kept in dark. Suppression of notice of meetings to some of the members, especially majority members at that time is an oppression. There was systematic elimination of notice by the appellants which is a serious depreciation of the most important right. See : Shantidevi Pratapsingh Gaekwad v. Sangramsingh P. Gaekwad [1996] I Comp. LJ 72. New shares were issued for manipulative purposes. The facts of this case show that there was continuing act of oppression.

13. Instead of giving relief as per law, the CLB has taken a view that though in the normal course of allotment of shares which resulted in an act of oppression should have been set aside, in this case, normal relief need not be granted because the Company has got the benefit of investments made by the respondents. The CLB''s reasoning is as follows :

"... In the normal course, allotment of shares which resulted in an act of oppression would have been set aside, but we do not propose to do so inasmuch as the company has got the benefit of the investments made by the respondents. As we have already indicated that the petitioner has no basis to claim the majority, we cannot direct the Company also to issue proportionate shares on the basis of the shareholding when the total number of shares in the Company was 7,100. Therefore, considering the fact that the respondents have been managing this Company right from 1989 in exclusion of the petitioners and that the petitioners have already acquired another hotel, we consider it appropriate not to give any direction in regard to the further issue of shares, even though we have held that exclusion of the petitioners from allotment of shares was an act of oppression. However, with a view to protect the interest of the Company from further litigation and also to ensure that the position of the petitioner being in minority is not further jeopardized, we give the option to the petitioners to sell their shares to the respondents. Since the Company has not declared any dividend so far, we consider that the petitioners should get a return of at least 12 per cent of their investment. Therefore, the petitioners are at liberty to sell their shares to the respondents at par value with 12 per cent simple interest per year right from the date of their investment. Once, the petitioners exercise this option, the same will be binding on the respondents. In case, the petitioners choose this option, they should exercise their option in writing within a month from the date of this order by sending a notice to the Company and the second respondent and the Company/the second respondent should arrange to purchase these shares within three months thereafter. As and when the consideration is paid, the petitioners should execute blank transfer forms and hand them over to the respondents. In case, the Company desires to purchase the shares, it is at liberty to reduce the share capital to that extent by the authority of this order."

We are of the opinion that the above reasoning of the CLB is totally against law, illegal and perverse. It will only perpetuate fraud. It is true that when there is a finding of oppression and it was found that company''s affairs are conducted in a manner oppressive to the members, the Board has got power to pass such orders with a view to bring in any matter complained of and ''make such orders as it thinks fit''. But, such order should be reasonable rendering justice. It should not be arbitrary and should not help a person who made deceitfully wrongful gain. The CLB has very clearly held that in normal circumstances, issuance of shares which is the act of oppression found to be proved should have been set aside and asked that proportionate shares should be issued to then shareholders, that is, appellants. But, instead of that, appellants'' shares were directed to be sold to the Managing Director or his nominees on prices at par with 12 per cent interest. Considering the value of money, increase in the price of land (hotel was purchased 25 years ago) and considering the fact that no return was given to the appellants even though the Managing Director was getting remuneration and almost entire investment was made by the appellants at the time hotel was purchased, the cure suggested by the CLB is serious than the disease. It is true that the company need not be wound up and such orders can be passed by the CLB so as to save the company. But, at the same time, when shares were issued fraudulently to benefit one person in an act oppressive to the majority shareholders at the time of issuance of new shares, that too, without notice and without information in a deceitful manner, the issue of shares which was done oppressively should have been set aside and no valid circumstances are made to show why a different yardstick should be taken in this case deviating from the normal circumstances. Relief now granted by the Company Law Board will only benefit the person who has issued shares to himself behind the back of the then majority shareholders. A perpetrator of fraud should not be allowed to benefit by his own wrongs.

14. It was found that there was an act of oppression by issue of new shares in this case. By issuance of new shares without informing the appellants who were the majority shareholders and who were having controlling shares were reduced to a minority and the Managing Director who was working on remuneration and who did not make any substantial initial investment got control of the Company by getting 70 per cent of the shares. In the circumstances, the CLB should have set aside the issuance of new shares. It is true that the Managing Director was managing the affairs of the hotel and appellants were residing abroad. But, the Managing Director was getting salary during all these periods and it was increased several times in board meetings attended by him, his wife and close relatives as seen from the minutes of the board meetings. Appellant who had the substantial investment did not get any return. As per the balance sheet, the Company was not making any profit during the time. In fact, it was on heavy loss. So, it shows either the inefficiency of the Managing Director or the fraudulent book entries. If it was continuously making losses, the Managing Director would not have been so keen in purchasing shares, especially when appellants were prepared to make further investments and even purchase all shares. By the efforts of the Managing Director, the company was not able to make any profits or declare any dividend. The appellants purchased another hotel only when they came to India and found out the circumstances like issue of new shares, not taking bar licence in the name of the company, etc., which were done behind their back and there is no evidence that existence of another hotel will affect the company in any way. Perhaps, a chain of hotels may be advantageous. In any event, all that was done after committing fraud, was that appellants were reduced to a minority share holding without their knowledge by fraudulent acts. The observation of the CLB that the appellants can sell their shares at par value to the Managing Director and also get 12 per cent interest on their investment will not be justified but only help the manipulator.

15. Since the parties were close relatives, we suggested for a settlement. Appellants made an offer for a final settlement that they are prepared to purchase the new shares issued at the value of Rs. 100 per share along with 12 per cent simple interest per annum from the respective dates without prejudice to the contentions in the appeal including non-payment of considerations in issuance of new shares. This offer was not accepted by the Managing Director. There was no counter offer. Here, there is clear case of oppression by the Managing Director of the Company and the shares allotted behind the back on the appellants (majority shareholders before issuance of new shares) cannot be allowed to stand.

16. In the above circumstances, since act of oppression was found in the allotment of shares to the Managing Director of the Company, allotment of shares behind the back of the appellants should have been set aside by the CLB. Therefore, we allow M.F.A. No. 284 of 2001 and dismiss M.F.A. No. 586 of 2001. Hence, allotment of shares made in the 82nd Board meeting held on 24-10-1994 and in the meeting held on 26-3-1997 to the Managing Director of the company are set aside. The share register shall be rectified accordingly. If any amount is advanced by the Managing Director for the business, he will be entitled to get the amount back according to law. The future of the company should be decided by calling General Body meeting with the share holding as existed prior to 24-10-1994.

In the result, M.F.A. No. 284 of 2001 is allowed and M.F.A. Nos. 551 and 586 of 2001 are dismissed.