# SANGRAMSINH P. GAEKWAD AND ORS v. SHANTADEVI P. GAEKWAD (I) THR. LRS. AND ORS

- **Citation:** [2005] 1 S.C.R. 624
- **Court:** Supreme Court of India
- **Decided:** 2005-01-20
- **Case number:** Civil Appeal No. 6359 of2001
- **Bench:** N. Santosh Hegde, S.B. Sinha
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/sangramsinh-p-gaekwad-and-ors-v-shantadevi-p-gaekwad-i-thr-lrs-and-ors-20465
- **Pages:** 86

## Headnote

Companies Act, 1956-Sections 397 and 398 :
Private Company-Decision to increase shares and issue some of those
C to the members of the Company-Out of the shares to be given to the members,
some were earmarked for the Chairman of the Company-Out of the remaining,
few shares were allotted to two members and to the new Chairman-Out of
the earmarked shares some were allotted to a member and to the family
members of the new Chairman and rest of the issues were closed as the
D earmarked shares were renounced by the former Chairman-New Chairman
transferred the shares owned by him and his family members to another
Company owned by them-Company Petition filed by heir of former Chairman
claiming allotment of the earmarked shares to her being his sole heir and
questioning transfer of the shares of new Chairman and his family to their
Company-Another petition by member before Company law Board alleging
E oppression and mismanagement-Single Judge of High Court held the
allotments and transfer valid while the Division Bench held the same as
invalid-On appeal, held: Heir of the Chairman was not entitled to allotment
of earmarked shares in her favour having admitted the fact of issuance of
additional shares and allotment of shares to the new Chairman-she had not
F proved the act of oppression against the new Chairman-Earmarked shares
being provisionally allotted no legal rights in the shares were created-The
claim of title as heir is not adjudicable under Company petition-Oppression
and fraud not having been pleaded in the petition no relief can be granted on
that count-Allotment of earmarked shares was bad in law-Transfer of the
shares to the Company of the New Chairman was not an act of oppressionG Code of Civil Procedure-Order 6, Rules 4 and 17-Evidence Act, 1872Section IOI-Trusts Act, 1882-Section 88.
Sections 397 and 398-Jurisdiction under-nature and scope of-It is
of wide amplitude and not of ordinary nature-The court while exercising its
discretion not bound by the terms contained in Section 402-But the remedy
H
624
""
'
S.P. GAEKWADv. SHANTADEVI P. GAEKWAD
625
not to be granted for every act of omission or commission-Reliefs to be A
granted on satisfaction of the court that the majority of the members had
oppressed the minority shareholders-Interest of the company vis-a-vis the
shareholders must be uppermost-The acts of oppression must be harsh and
wrongful.
Words and Phrases :
B
'Oppression '-meaning of in the context of Companies Act.
The company in question (GIC) was started by FRG. Its equity capital
consisting of 425 shares were mainly held by family members. Respondent
No.12 was Managing Director of its subsidiary company. Board of Directors C
of GIC decided to broad-base the company by increasing the capital by issuing
25000 equity shares and to issue 15000 equity shares therefrom to the
members of the company. The resolution was confirmed in a meeting chaired
by FRG. No one was interested in purchasing the issues. It was decided to
keep 8000 shares out of the 15000 shares apart for FRG for the time being D
and to keep balance 7000 shares apart for other existing members. Respondent
No.12 and one member subscribed for 500 and 25 shares respectively and
thus remaining 6475 shares out of7000'shares were allotted to appellant No.1
and his family members. 500 shares out of the 8000 shares were allotted to
respondent No.12. As per the appellants, the remaining 7500 shares were
renounced by FRG in favour of appellants. After death of FRG, appellant E
No.1 became Managing Director of the Company. 3000 shares were allotted
to the family members of appellant No.1. The remaining 4500 shares out of
the 8000 shares remained unallotted and the issue was later closed.
Respondent No.12 issued to herself 1500 shares without allegedly issuing
any notice to shareholders. GIC filed a civil Suit No.675/90 against the F
subsidiary company questioning 1500 equity shares. In Written Statement
thereof respondent No.12 took the stand that the 8000 sha

## Text

_Characters 0–39,917 of 197,848. This is a partial read: ask again with offset=39917 for what follows._

A
SANGRAMSINH P. GAEKWAD AND ORS.
v.
SHANTADEVI P. GAEKWAD (I) THR. LRS. AND ORS.
JANUARY 20, 2005
B
(N. SANTOSH HEGDE AND S.B. SINHA, JJ.]
Companies Act, 1956-Sections 397 and 398 :
Private Company-Decision to increase shares and issue some of those
C to the members of the Company-Out of the shares to be given to the members,
some were earmarked for the Chairman of the Company-Out of the remaining,
few shares were allotted to two members and to the new Chairman-Out of
the earmarked shares some were allotted to a member and to the family
members of the new Chairman and rest of the issues were closed as the
D earmarked shares were renounced by the former Chairman-New Chairman
transferred the shares owned by him and his family members to another
Company owned by them-Company Petition filed by heir of former Chairman
claiming allotment of the earmarked shares to her being his sole heir and
questioning transfer of the shares of new Chairman and his family to their
Company-Another petition by member before Company law Board alleging
E oppression and mismanagement-Single Judge of High Court held the
allotments and transfer valid while the Division Bench held the same as
invalid-On appeal, held: Heir of the Chairman was not entitled to allotment
of earmarked shares in her favour having admitted the fact of issuance of
additional shares and allotment of shares to the new Chairman-she had not
F proved the act of oppression against the new Chairman-Earmarked shares
being provisionally allotted no legal rights in the shares were created-The
claim of title as heir is not adjudicable under Company petition-Oppression
and fraud not having been pleaded in the petition no relief can be granted on
that count-Allotment of earmarked shares was bad in law-Transfer of the
shares to the Company of the New Chairman was not an act of oppressionG Code of Civil Procedure-Order 6, Rules 4 and 17-Evidence Act, 1872Section IOI-Trusts Act, 1882-Section 88.
Sections 397 and 398-Jurisdiction under-nature and scope of-It is
of wide amplitude and not of ordinary nature-The court while exercising its
discretion not bound by the terms contained in Section 402-But the remedy
H
624
""
'
S.P. GAEKWADv. SHANTADEVI P. GAEKWAD
625
not to be granted for every act of omission or commission-Reliefs to be A
granted on satisfaction of the court that the majority of the members had
oppressed the minority shareholders-Interest of the company vis-a-vis the
shareholders must be uppermost-The acts of oppression must be harsh and
wrongful.
Words and Phrases :
B
'Oppression '-meaning of in the context of Companies Act.
The company in question (GIC) was started by FRG. Its equity capital
consisting of 425 shares were mainly held by family members. Respondent
No.12 was Managing Director of its subsidiary company. Board of Directors C
of GIC decided to broad-base the company by increasing the capital by issuing
25000 equity shares and to issue 15000 equity shares therefrom to the
members of the company. The resolution was confirmed in a meeting chaired
by FRG. No one was interested in purchasing the issues. It was decided to
keep 8000 shares out of the 15000 shares apart for FRG for the time being D
and to keep balance 7000 shares apart for other existing members. Respondent
No.12 and one member subscribed for 500 and 25 shares respectively and
thus remaining 6475 shares out of7000'shares were allotted to appellant No.1
and his family members. 500 shares out of the 8000 shares were allotted to
respondent No.12. As per the appellants, the remaining 7500 shares were
renounced by FRG in favour of appellants. After death of FRG, appellant E
No.1 became Managing Director of the Company. 3000 shares were allotted
to the family members of appellant No.1. The remaining 4500 shares out of
the 8000 shares remained unallotted and the issue was later closed.
Respondent No.12 issued to herself 1500 shares without allegedly issuing
any notice to shareholders. GIC filed a civil Suit No.675/90 against the F
subsidiary company questioning 1500 equity shares. In Written Statement
thereof respondent No.12 took the stand that the 8000 shares kept for FRG
devolved on respondent No.1 (mother of FRG) as class I heir.
Appellants transferred 9415 shares in favour of a Company which was G
wholly owned by them. Questioning the said transfer three suits were filed
by different shareholders which are pending.
Respondent No. 1 filed company petition u/ss. 397 and 398 of Companies
Act before High Court for declaration that she being sole heir of FRG was
allottee of 8000 shares of GIC and that allotment of 3000 shares in excess of H
626
SUPREME COURT REPORTS
(2005] I S.C.R.
A 6475 shares to appellant No.I or his nominees was null and void ab-initio. Later
she amended the petition to the effect seeking declaration that all allotments
of shares of GIC made beyond the original paid up capital consisting of 425
equity shares were null and void. Respondent No.12 filed petition :.iefore
Company Law Board on the ground of mismanagement of the Company and
oppression and the same was disposed of by Company Judge. Single Judge
B of the High Court dismissing the petition held that allotment of 6475 shares
having been admitted, no dispute could be raised as regard thereto; that
allotment of 3000 shares out of 8000 shares was in terms of the decision of
Board meeting and was after 8000 shares were renounced by FRG and hence
was valid; that transfer of 9415 shares to the company of the appellants did
C not affect GIC; that since the appellants continued to form majority, any
transfer in favour of their company did not amount to oppression; that
respondent No.I did not have right to 8000 shares by inheritence as an adhoc
allotment of shares was merely an invitation which did not culminate in a
right; that in this case there was no mismanagement but only an apprehension
that the change in control might amount to mismanagement.
D
Division Bench of High Court allowing the appeal, held that allotment
of 6475 and 3000 shares was invalid; that transfer of 9415 shares to the
company of appellants was also invalid as no transfer notice was given to the
company as required in terms of Article 8 of the Article of Association; that
E there was breach of fiduciary duty on the part of appellant No.I. Hence the
present appeals.
Partly allowing the appeals, the Court
HELD: 1.1. The Appellant No. 1 had no fiduciary duty to inform the
F Respondent Nos. 1, 12 and 13 as regard the benefit or otherwise of opting
for allotment of shares. The Appellants herein in no way can be held to have
any fiduciary liability towards other shareholders in respect of issuance of
6475 shares in their favour. [707-B; 667-C]
1.2. Issuance of equity based capital shares under the Companies Act
G in relation to a private company would be governed by its Memorandum of
Association and Articles of Association. It has not been pointed out that in
terms of Memorandum of Association the Board of Directors acted ultra vires
in adopting a resolution as regard issuance of 25000 capital shares; out of
which 15000 shares were to be issued at the first instance. Section 81 of the
Companies Act indisputably has no application in relation to a private
H
"
S.P. GAEKWADv. SHANTADEVI P. GAEKWAD
627
,. ....
company, the pre-requisite thereof is, thus, not attracted in the instant case. A
Appellant No. 1, therefore, apart from Section 88 of the Indian Trusts Act in
the event of its applicability did not have any statutory obligation to discharge
as a trustee in this behalf. [656-G-H; 657-A-B]
1.3. The standard of conduct expected of a director in relation to
transaction with the shareholders will differ and would necessarily depend B
upon the circumstances and the nature of the responsibility. It is, thus, not
>.
possible to lay down a law which will have universal application. In an
appropriate case, a fiduciary relationship may come into being having regard
,..
to the responsibility undertaken by the directors towards the shareholders
·by way of a special contract (667-D-FJ
c
1.4. The directors do not have any fiduciary duty to advise shareholders
.
as to when and in what manner they should enter with the transactions with
the company including acceptance of offer of additional shares. Such a
fiduciary duty would arise inter alia in exceptional situations when the
directors take upon themselves the task of advising the shareholders who may D
~
be his family members or when a transaction of purchase or sale is entered
into by and between the director and the shareholders wherein the former
t
taking undue benefit or having ill or improper or ulterior motive or malafide
act solely to make pecuniary benefit and gain for himself and to the detriment
of such shareholders. If a general fiduciary duty of a director vis-a-vis
shareholders is laid down the same would lead the directors to the risk of E
multiple legal actions by dissenting minority shareholders. Fiduciary duty of
the Directors to the Company should not be equated with the duty of the
shareholders. (667-G-H; 668-A; 661-H]
Nana/al Zaver and Anr. v. Bombay Life Assurance Co. Ltd and Ors., (1950] F
~
SCR 391 and Needle Industries (India) Ltd and Ors. v. Needle Industries Newey
..j.
(India) Holding Ltd and Ors., [1981] 3 SCC 333, relied on •
Mis. Dale and Carrington Invt. P. Ltd and Anr. v. P.K. Prathapan and
Ors., (2004) 7 SCALE 586; Bajaj Auto Ltd. v. N.K. Firodia and Anr. etc., [1970]
2 SCC 550 and Mis. Harinagar Sugar Mills Ltd v. Shyam Sunder Jhunjhunwala
and Ors., [1962) 2 SCR 339, distinguished.
G
")L
Barclays Bank v. Quistc/ose Investments, (1970) AC 567; Percival v.
Wright, (1902) 2 Ch. 421; Ge/ting v. Kilner, (1972) 1 All ER ll66; Glavanics v.
Brunninghausen, (1996) 19 ACSR 204; Puntv. Symons, (1903) 2 CH 506; Peskin
and Anr. v. Anderson and Ors., (2001) l BCLC 372; Coleman and Ors. v. Myers H
6,28
SUPREME COURT REPORTS
(2005) I S.C.R.
A
.. ...
and Ors., (1972) 2 NZLR 225 and Brunninnghausen v. G/avanies (1999) 46
NSWLR 538, referred to.
Dawson International pie v. Coats Patons pie, (1988) SLT 854, referred
to.
B
Palmer's Company Law, 23rd edition, page 848 and Pennington's
Company Law 6th Edn. at page 608-09, referred to.
2. In view of the findings that having regard to the nature of transactions
..
as the Appellant No. I did not have any fiduciary duty towards the contesting
~
c
Respondents, the question of invoking the provisions of Section l I l of the
Evidence Act does not arise in the instant case. (668-F-G[
Krishna Mohan Ku/ Alias Nani Clfaran Ku/ and Anr. v. Pratima Maity and
Ors., [200419 SCC 468 and Regal (Hastings) Ltd v. Gulliver and Ors., (1967)
2 AC 134, distinguished.
D
Needle Industries (India) Ltd and Ors. v. Needle Industries Newey (India)
Holding Ltd and Ors., (198113 SCC 333, referred to.
,
3.1. Respondent No. I in her company petition having admitted the
~
factum of broad-basing of the company by issuance of 15000 additional equity
E
shares and allotment of 6475 shares in favour of the Appellants herein cannot
now be permitted to turn around and raise the correctness or validity thereof.
(707-Cj
3.2. It cannot be believed that the contesting respondents were not aware
of the decision of the Board of Directors to broad-base the company and
F allotment of 8000 shares in favour of FRG out of the same. A transaction by
a lady who is illiterate or a purdah-nashin and a transaction by a lady who
~
looks after the family business/family property would be differently viewed.
_}.
She, being the Managing Director of the subsidiary company, would be
presumed to know the affairs of the Company as the subsidiary company on
her own showing would be vitally affected by the rights issue. (674-B; 677-Cj
G
3.3. In relation to allotment of 7500 shares, respondent No. I and 12
are estopped and precluded from questioning the allotment having received
the benefit thereof and having full knowledge thereabout all along. [682-DI
3.4. The matter relating to the claim of respondent No-I to succeed FRG
H as his Class I heir is pending adjudication in Civil Suit. She claimed title in
S.P. GAEKWADv. SHANTADEVl P. GAEKWAD
629
respect of 8000 shares by inheritance in terms of Hindu Succession Act. A
Indisputably, in terms of Section 15 of the said Act she is a Class I heir but
the Appellants herein contend that the said provision has no application having
regard to Section 5(2) thereof as inheritance in the family is governed by the
rule of primogeniture. A pure question of title is alien to an application under
Section 397 of the Companies Act wherefor the lack of probity is the only B
test. Furthermore, it is now well-settled that the jurisdiction of the Civil Court
is not completely ousted by the provisions of the Companies Act, 1956.
[684-G-H; 685-A-BJ
Dwarka Prasad Agarwal v. Ramesh Chander Agarwal, [2003] 6 SCC 220,
referred to.
c
3.5. A dispute as regard right of inheritance between the parties is
eminently a civil dispute and cannot be said to be a dispute as regards
oppression of minority shareholders by the majority shareholders and/ or
mismanagement. Furthermore, in the said suit when an application for interim
injunction was filed only, a prima facie observation was made to the effect D
that the succession was not to be governed by Hindu Succession Act. Such
observations do not constitute a binding decision as no finality is attached
thereto. [ 685-B-q
3.6. The claim of Respondent No. 1 as regards declaration of her title
and/ or allotment of 8000 shares is not tenable in law. The alleged right of E
Respondent No. 1 to claim title over the said shares as a class 1 heir of FRG
cannot be determined in an application filed under Sections 397 and 398 of
the Companies Act and in particular having regard to the fact that the said
question is pending adjudication in a duly instituted civil suit. (707-E-FJ
3.7. Moreover, the allotment in favour of the members of the Company F
was provisional in nature which would amount to invitation to offer and not
an offer. A right to a share would fructify only when an offer made by the
company is accepted. Only upon acceptance of such offer, a binding contract
comes into being. When a share is allotted in favour of a person as a member
of the company, it becomes his personal right. Such a personal right is not G
heritable. By reason of a mere provisional allotment without making any
payment therefor no legal right in the shares was created. It would also be of
some interest to note that even initial allotment of shares cannot be
transferred. (685-H; 686-8)
Canbank Financial Services Ltd v. The Custodian and Ors., JT (2004) 7 H
~·
630
SUPREME COURT REPORTS
(2005] I S.C.R.
A SC 266; Madura Mills Co. Ltd, (1937) Comp. Cas 71 and Needle Industries
* ..
(India) Ltd and Ors. v. Needle Industries Newey (India) Holding Ltd and Ors.,
(19811 3 sec 333, relied on.
3.8. The transactions relating to issue of 3000 additional shares in the
B
names of Appellant Nos. 3 to 5 and 500 shares to Respondent No. 12 out of
the 8000 shares originally allotted to FRG are bad in law. The Appellants
have utterly failed to prove that there has been any renunciation of 8000
shares by FRG or any resolution was taken in this behalf by the Board. Even
allotment of 500 shares in favour of Respondent No. 12 out of said 8000 shares
At
is invalid. In that view of the matter, children of appellant No.1 applied for
+
c further 3000 shares through him and in view of the availability of shares, the
Board of the Company decided to issue and allotted the said 3000 shares to
them cannot be accepted. It also does not appear that the Board of Directors
or the Management Committee took any resolution to allot shares to the other
members out of the said 8000 shares. (688-E; 688-A-C]
D
3.9 The provisions of the CPC do not envisage that pleadings in any
other case should be the basis for grant of relief, particularly, when the plea
taken in both the petitions are contradictory and inconsistent with each other.
,
Before this Court affidavits from different proceedings made by the same
"
person or by the other supporting or opposing the application have been
E
placed. They have not been cross-examined. Their attention had not been
drawn to their earlier statements which could be done only in terms of Section
145 of the Evidence Act. With the view to elicit the truth the court must have
before it a clear picture. In this case, the parties have not made any efforts to
examine themselves in court so as to enable the other side to cross-examine
them. Had the parties to the proceedings been examined and cross-examined,
F they could. have been. confronted with the earlier statements made by them
in another affidavit. (683-D-F]
>-
Needle Industries (India) Ltd. and Ors. v. Needle Industries Newey (India)
>
Holding Ltd. and Ors .. (1981) 3 SCC 333, referred to.
G
4.1. Division Bench of the High Court committed a serious error in
holding that the transfer by the Appellants in favour of the company of the
appellants being bad in law, the members of the company were entitled to
allotment thereof on pro-rata basis. (691-B]
-¥
4.2. Transfer of 9415 shares by the Appellants in favour of the company
H of the appellants by itself was not an act of oppression keeping in view the
S.P. GAEKWAD v. SHANTADEVI P. GAEKWAD
631
~ -'
fact that the entire shares of the said company were held by the Appellants A
alone and in any event the notice of transfer having been rescinded, the
Appellants continue to be the owner in respect thereof. (707-F-G)
4.3. When a notice to the company by a member is vitiated, the same
can be withdrawn in law. Furthermore, a transfer in violation of Articles of
Association is void. (689-G)
B
Palmer's Company Law, 23rd Edition 2214, referred to.
)>.
4.4. The existing shareholders are not entitled to be given further pre-
...
emptive rights in respect of those unaccepted shares. Even such a right can
be waived or modified. [690-D)
c
4.5. A pre-emptive right is granted in favour of a member of a private
company so that his right of control is not taken away. Exercise of such preemptive rights is particularly needed in relation to those private companies
which are essentially incorporated partnerships. [690-G)
D
"
'Principles of Modern Company Law' by Gower and Davies Seventh
Edition Page 635, referred to.
"/-
4.6. The expression 'oppressive', would mean burdensome, harsh and
wrongful. 'Oppression' thus, must relate to the manner in which the affairs E
of the company are being conducted and the conduct complained of must be
such as to oppress the minority members. By reason of such acts of oppression,
it must be shown that the majority members obtained a predominant voting
power in the conduct of the company's affairs. [692-G-H)
4.7. The jurisdiction of the Court to grant appropriate relief under F
~
Section 397 of the Companies Act is of wide amplitude. The court while
~
exercising its discretion is also not bound by the terms contained in Section
402 of the Companies Act if in a particular fact situation a further relief or
reliefs, as the court may deem fit and proper, is warranted. [693-A-B)
Bennet Coleman and Co. v. Union of India and Ors., (1977) 47 Comp. G
Cases 92; Syed Mahomed Ali v. R. Sundara"!urthy and Ors., AIR (1958) Madras
587 and Shanti Prasad Jain v. Union of India, 75 Born LR 778, referred to,
«y
referred to.
4.8. But the same would not mean that Section 397 provides for a
remedy for every act of omission or commission on the part of the Board of H
632
SUPREME COURT REPORTS
[2005] I S.C.R.
A Directors. Reliefs must be granted having regard to the exigencies of the
~~
situation and the court must arrive at a conclusion upon analyzing the
materials brought on records that the affairs of the company were such that
it would be just and equitable to order winding up thereof and that the
majority acting through the Board of Directors ,bY reason of abusing their
B
dominant position had oppressed the minority 'shareholders. The conduct.
thus, complained of must be such so as to oppress a minority of the members
including the petitioners vis-a-vis the shareholders which a fortiorari must be
an act of the majority. Furthermore, the fact situation obtaining in the case
~
must enable the court to invoke just and equitable rules even if a case has
been made out for winding up for passing an order of winding up of the
c company but such winding up order would be unfair to the minority members.
(693-C-E)
4.9. The interest of the company vis-a-vis the shareholders must be
uppermost in the mind of the court while granting a relief under Sections
397 and 398 of the Companies Act. 1956. [693-E)
D
4.10. The remedy under Section 397 of the Companies Act is not an
)'
ordinary one. The acts of oppression must be harsh and wrongful An isolated
incident may not be enough for grant of relief and continuous course of
,,..
oppressive conduct on the part of the majority shareholders is, thus, necessary
E
to be proved. The acts complained of may either be designed to secure
pecuniary advantage to the detriment of the oppressors or wrongful
usurpation of authority. [693-G-H)
Halsbury's Laws of England, 4th Edition, Volume 7, para 1011, referred
to.
F
4.11. When a complaint is made as regard violation of statutory or
contractual right. the shareholder may initiate a proceeding in a civil court
~
but a proceeding under Section 397 of the Act would be maintainable only
>
when an extraordinary situation is brought to the notice of the court keeping
in view the wide and far-reaching power of the court in relation to the affairs
G of the company. [694-D-El
4.12. The Court in an application under Sections 397 and 398 may also
look to the conduct of the parties. The Court may also refuse to grant relief
-'(
where the petitioner does not come to court with clean hands which may lead
to a conclusion that the harm inflicted upon him was not unfair and that the
H relief granted should be restricted. [698-D, E-F)
~
I
..,. .. ...
S.P. GAEKWADv. SHANTADEYI P. GAEKWAD
633
-Re London School of Electronics, (1986) Ch. 211, referred to.
4.13. A case for grant of relief under Sections 397 and 398 of the
Company Act must be made out in the petition itself and the defects contained
therein cannot be cured nor the lacuna filled up by other evidence oral or
documentary. [698-H; 699-A]
Re Bengal Luxmi Cotton Mills Ltd. (1965) 35 CC 187, referred to.
A
B
)I.
4.14. When a decision is taken on a business consideration, it is trite,
-t
the court should not ordinarily interfere. [699-F]
Maharashtra Power Development Corporation Ltd. v. Dabhol Power Co. C
and Ors., (2004) 3 Comp Ll 58 (Born), referred to
4.15. The allegations made in the Company Petition filed by Respondent
No. 12 could not have been the subject matter of adjudication by the High
Court. Respondent Nos. 1 and 12 had initiated different proceedings in D
different forums to suit their own purposes. From the materials brought on
records, it can safely be inferred that proceeding before the Company Law
Board was initiated by Respondent Nos. 12 when it was discovered that
Respondent No. I may not obtain any relief i.._the Company Petition filed by
her before the High Court. [695-A, C-D] · ·
4.16. Respondent No. 1 in her application did not disclose the grounds
for challenging the issue of 6475 shares to the Appellants. In that view of the
matter the relief granted by the High Court to the effect that issue of all shares
beyond 425 shares is bad in law cannot be sustained having regard to the
E
fact that a bald prayer was made in the petition without laying any foundation
therefor in the company petition. Such reliefs evidently had been granted F
keeping in view the allegations made by Respondent No. 12 in her company
petition filed before the Company Law Board, Delhi which is impermissible
in law. [695-E-F]
Needle Industries (India) Ltd. and Ors. v. Needle Industries Newey (India) G
Holding Ltd. and Ors., (1981] 3 SCC 333; Shanti Prasad Jain v. Kalinga Tubes
Ltd. etc., AIR (1965) SC 1535 and Scottish Cooperative Wholesale Society Ltd
v. Meyer and Anr., (1958) 3 WLR 404, referred to.
H.R Harmer Ltd., (1958) 3 All ER 689 (CA) and Re Five Minute Car Wash
Service Ltd., (1966) 1 All ER 242, referred to.
H
634
SUPREME COURT REPORTS
[2005) I S.C.R.
A
4.17. When the petitioners have consented to and even benefited from
~· 'f
the company being run in a way which would normally be regarded as
unfairly prejudicial to their interests, they might have shown no interest in
pursuing their legitimate interest in being involved in the company.
(695-F-G)
B
RA Noble and Sons (Clothing) Ltd (1983) BCLC 273, referred to.
4.18. The burden to prove oppression or mismanagement is upon the
petitioner. The Court, however, will have to consider the entire materials on
"
records and may not insist upon the petitioner to prove the acts of oppression.
'
c An action in contravention of law may not per se be oppressive. [699-G)
Needle Industries (India) Ltd. and Ors. v. Needle Industries Newey (India)
Holding Ltd and Ors., (1981) 3 SCC 333, relied on.
Mohan/al Ganpatram and Anr v. Shri Sayaji Jubilee Cotton Jute Mills Co.
D Ltd and Ors., AIR (1965) Guj. 96, referred to.
4.19. The conduct which is technically legal and correct, thus, may justify
,
grant of relief on the application of the just and equitable jurisdiction and
conversely that conduct involving illegality and contravention of the Act may
,,.
not suffice to warrant grant of any remedy. Isolated act of oppression may
E not be sufficient to grant any relief but there should be a continued oppression
therefor. The test of lack of bona fide should be applied in both for the winding
up petition and while determining an application under Section 397 of the
Companies Act. (700-C-D)
F
Re Guidezone Ltd, (2000) 2 BCLC 321, referred to.
5.1. Respondent No. 1 in her application under Section 397 of the
>
Companies Act did not complain of any act of mis-management. Complaints
).
of mis-management were made by the Respondent No. 12 only. For the
purpose of grant of relief, the High Court could only consider the pleadings
G filed in Company Petition filed by respondent No.1. If no relief could be
granted having regard to the pleadings contained therein, it is inconceivable
in law that such relief would be granted on the basis of the pleadings made
in other proceedings and totally ignoring the admissions made by Respondent
¥
,
No. I in tile proceedings initiated by her. (700-D-F)
H
Shoe Specialities Ltd v. Standard Distilleries and Breweries (P) and Ors.,
S.P. GAEKWAD v. SHANTADEVI P. GAEKWAD
635
.,. -'"
(1997) 1 Comp. lJ 243 and Jesner v. Jarrad Properties, (1993) BCLC 1032, A
referred to.
>
5.2. Application filed by Respondent No. 1 before the High Court does
not contain the requisite pleadings, as to whether appellant No.I was guilty
of commission of fraud. Having regard to Rule 6 of the Company Courts
Rules, the provisions of CPC will be applicable in a proceeding under the B
Companies Act. In terms of Order 6, Rule 4 of CPC, the plaintiff is bound to
give particulars of the cases where he relies on misrepresentation, fraud,
breach of trust, etc. Level of proof required for proving fraud is extremely
high. 1700-G-H; 701-AI
Chief Engineer, MS.EB. and Anr. v. Suresh Raghunath Bhokare, (2004) 8 C
Supreme 845 and A.C. Ananthaswamy and Ors. v. Boraiah, (Dead) By LRS.
(2004] 8 sec 588, relied on.
Maharashtra Power Development Corporation ltd v. Dabhol Power Co.
and Ors., (2004) 3 Comp Ll 58 (Born), referred to.
D
"
5.3. Order 6, Rule 17 CPC provides for amendment of the pleading
whereas Order 8, Rule 9 provides for subsequent pleadings by a defendant.
1
The company petitioners did not raise a plea as regard the value of the
company share or commission of fraud by appellant No.I herein and/or his
fiduciary duty towards them either as a director or as a person looking after E
the interest of the family in the discharge of his duty under as a director.
[701-E-F]
5.4. Respondent Nos. 1 and 12 are bound by their own pleadings. CPC
being applicable to a proceeding of this nature, not only the plea of fraud is
required to be specifically pleaded and proved. Even an amendment of F
~
pleadings could not have been permitted if thereby the Company Petitioner
~
made an attempt to get rid of her admission. (701-H; 702-A-B]
5.5. In terms of Sectiom 58 of Evidence Act, things admitted need not
be proved. In view of the admission of Respondent No. 1 alone, the issue as
regards allotment of 6475 shares should have been answered in favour of the G
Appellants. The Company Petitioner at a much later stage could not be
permitted to take a stand which was contrary to or inconsistent with the
original pleadings nor could she be permitted to resile from her admissions
contained therein. Admissions made by Respondent No. 1 was admissible
against her proprio vigore. [702-D-F]
H
636
SUPREME COURT REPORTS
f2005] I S.C.R.
A
Nagindas Ramdas v. Dalpatram Iccharam alias Brijram and Ors., AIR
(1974) SC 471; Biswanath Prasad and Ors. v. Dwarka Prasad and Ors., AIR
(1974) SC 117 and Viswalakshmi Sasidharan (Mrs.) and Ors. v. Branch Manager,
Syndicate Bank, Belgaum, (1997110 SCC 173, relied on.
5.6. Judicial Admissions by themselves can be made the foundations of
B the right of the parties. In the instant case,Respondent No.1 even did not
amend the company petition by withdrawing the admissions or resiling
thereform. 1703-C, Fl
Mis. Modi Spinning and Weaving Mills Co. Ltd and Anr. v. Mis. Ladha
C Ram and Co., AIR (1977) SC 680; Kaveripatnam Subbaraya Setty Annaiah Setty
Charities Trust v. SK. Viswanatha Setty, 120041 8 SCC 717 and Heera Lal v.
Kalyan Mal and Ors., 1199811 SCC 278, relied on.
Mis. ABL Ltd Durgapur, Burdwan v. Radha Gobinda Ghatak and Ors.,
(1999) 1 CHN 645 and Krishna Gupta and Ors. v. Madan Lal and Ors., (2000)
D 96 DLT 829, referred to.
6.1. A company incorporated under Indian Companies Act is a body
corporate. However, in certain situations, its corporate veil can be lifted.
1705-D)
E
Kapila Hingorani v. State of Bihar, 12003) 6 sec 1, referred to.
F
6.2. The Court, however, has made a clear distinction between a family
company, a private company and a public limited company. The true
character of the company, the business realities of the situation should not
be confined to a narrow legalistic view. 1705-D-E)
Needle Industries (India) Ltd and Ors. v. Needle Industries Newey (India)
Holding Ltd and Ors., (19811 3 SCC 333, referred to.
6.3. Principles of quasi-partnership is not foreign to the concept of
Companies Act. For the purpose of grant of relief the principles of partnership
G had been applied even in a public limited company. (705-E-F)
Loch and Anr. v. John Blackwood Ltd (1924) AC 783 and Ebrahimi v.
Westbourne Galleries Ltd and Ors., (1972) 2 All ER 492, referred to.
6.4. When more than one family or several friends and relatives together
H form a company and there is no right as such agreed upon for active
S.P. GAEKWADv. SHANTADEVI P. GAEKWAD [SINHA, J.]
637
participation of members were sought to be excluded from management, the A
principles of dissolution of partnership cannot be liberally invoked.
1705-G-HI
Hind Overseas Private ltd v. Raghunath Prasad Jhunjhunwa/la and Anr.,
AIR (1976) SC 565 and Ebrahimi v. Westbourne Galleries ltd and Ors., (1972)
2 All ER 492, referred to.
6.5. It cannot be said that for no purpose whatsoever the principles of
quasi-partnership can be applied to an incorporated company. The real
character of the company, for the purpose of judging the dealings between
B
the parties and the transactions which are impugned may assume significance C
and in such an event, the principles of quasi-partnership in a given case may
be invoked. The true character of the company and other relevant factors
shall be considered for the purpose of grant of relief having regard to the
concept of quasi partnership. [706-F-H; 707-A)
Ki/pest Pvt. ltd and Ors. v. Shekhar Mehra, [1996) 10 SCC 696, overruled. D
"
Needle1ndustries (India) ltd. and Ors. v. Needle Industries Newey (India)
Holding ltd and Ors., [1981) 3 SCC 333, relied on.
Maharashtra Power Development Corporation ltd v. Dabhol Power Co.
and Ors., (2004) 3 Comp Ll 58 (Born), referred to.
E
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 6359 of2001.
From the Judgment and Order dated 9.8.2000 of the Gujarat High
Court in OJ.A. No. 7195 in Company Petition No. 51 of 1991.
WITH
C.A. Nos. 6360 and 6361 of 200 I.
Harish N. Salve, Kailash Jethmalani, Gopal Jain, Ms. Nandini Gore,
Ms. Saloni Gupta, R.N. Karanjwala, Ms. Pragya Baghel and Mrs. Manik
Karanjawala for the Appellants.
Ashok H. Desai and P.V. Kapoor, Ms. Anu, Vinodh Khanna and Krishna
Kumar for the Respondents.
The Judgment of the Court was delivered by
F
G
S.B. SINHA, J. These appeals are directed against a judgment and H
638
SUPREME COURT REPORTS
(2005] I S.C.R.
A order dated 9.8.2000 passed by a Division Bench of the High Court of Gujarat
~ _,
at Ahmedabad in 0.1. Appeal Nos. 6, 7 and 8of1995 whereby and whereunder
the judgment and order dated 17 .12.1994 passed by a learned Single Judge
of the said Court dismissing Company Petition No. 51 of 1991 filed by the
First Respondent herein, was set aside.
B BACKGROUND FACTS :
Sir Pratapsinghrao Gaekwad was the Ruler of Baroda. Maharani
Shantadevi Gaekwad was his wife. They had eight children. For certain reasons
"
with which we are not concerned, the estate of Gaekwad came into the hands
of their elder son, Fatesinghrao P. Gaekwad (FRG) even during the life time
c of Sir Pratap Singh. FRG floated several companies, three of which are
Baroda Rayon Corporation Ltd. (BRC), Gaekwad Investment Corporation
Company Ltd. (GIC) and Alaukik Trading & Investment Corporation Pvt.
Ltd. (Alaukik). BRC came into existence in 1958. At the outset, it was being
run under Managing Agency System which was abolished in or about 1968
D
and later on the same was being managed by the Board of Directors with the
assistance of professional executives. Appellant No. I herein, the youngest
son of Pratapsinghrao Gaekwad, joined the said company in 1968. He was
•
the Director of Managing Agents till 31.12.1969 whereafter he became the
Additional Director with effect from I st January, 1970. He in the same year
l,.
became Joint Managing Director. Jn April 1976, he became the Managing
E Director of BRC. He was reappointed as Managing Director for two periods
of five years each with effect from 19th February, 1980 arid 19th February,
1985. FRG passed away on !st September, 1988, whereafter he was appointed
as Chairman and Managing Director on 23.9.1988.
GIC was a small investment company. Its equity capital consisted of
F 425 shares of Rs. I 00 each. The said shares were mainly held by the family
members. A large chunk of shares was held by Jaisingh Ghorpade Trust of
'"
which FRG was a trustee. The beneficiaries of this Trust are said to be
>
outsiders. Some shares of GIC were held by outsiders also. The share holding
pattern of the Company was as under :
G
Sr. Name
No. of Shares
No.
I.
Shrimant Fatesinghrao Gaekwad
301
"'
2.
H.H. Maharani Shantadevi Gaekwad
7
H
3.
H.H. Maharani Padmavatidevi Gaekwad
20
S.P.GAEKWADv.SHANTADEVIP.GAEKWAD [SINHA, J.)
639
~).
4.
Prince Ranjitsingh P. Gaekwad
10
A
5.
Shrimant Sangramsinh P. Gaekwad
6.
Princess Shubhanginidevi Gaekwad
5
7.
H.H. Mrunalinidevi Puar
10
8.
Shrimant Lalitadevi Kirdatt
5
B
9.
Shrimant Shivrajkurnar
>
IO.
H.H. Padmavatidevi Gaekwar &
4
-.
H.H. Maharani Shantadevi Gaekwar
11.
Shrimant Pramila Raje of Jasdan
4 c
12.
Shrimant Asharaje Gaekwad
5
13.
Shrimant Ajaysinh Murarrao Ghorpade
14.
Shrimant Vasundhara Raje Murarrao Ghorpade
15.
Shrimant Ashokraje Gaekwad
D
16.
Shrimant Vimala Raje Gaekwad
"'
17.
Shrimant Devayanidevi Gaekwad
-+
18.
Shrimant Ajitsinh Gaekwad
19.
Shri Jaysinghrao M. Ghorpade &
5
E
H.H. Maharani Padmavatidevi Gaekwad
20.
Shrimant Dilipsinh G. Desai &
5
Smt. Kusumben D. Desai
21.
Smt. Kusumban D. Desai &
5
Shri Dilipsinh G.Desai
F
...
22.
Capt. V.S. Hazare
10
,;...
. 23.
Smt. Pramilabai Hazare
IO
24.
Shri Malhari N. Khade
25.
Shri Rameshchandra V. Dhaibar
10
G
Total equity shares
425
'"'
Alaukik was a subsidiary of GIC. Respondent No. 12, Mrs. Mrunalini
Devi Puar was its Managing Director.
Allegedly, GIC suffered a loss during the financial years ending 3 I st H
640
SUPREME COURT REPORTS
[2005] I S.C.R.
A March, 1987 and 3 Jst March, 1988 as a result whereof substantial parts of
the equity and reserves were wiped out. It could not c;ven pay off the loans
and credits. It had no funds to subscribe for the rights issue made in 1989 by
BRC. Its share holding in BRC was likely to fall with which its forged
fortunes were closely linked as the dividend from the shares of BRC was the
B major source of income of the company. GIC came into financial trouble
when BRC did not declare dividend in 1986-87. The value of BRC shares
also declined and, thus, it became difficult to avail of an overdraft facility
from the Banks. It was then decided to raise funds from the existing mem hers.
The Board of Directors ofGIC in a meeting held on 10.11.1987, decided to
broad-base the company, whereafter an extraordinary general meeting was
C convened on 17.12.1987. In the said EGM, a decision was taken to increase
the capital by issuing 25000 equity shares of Rs. 100 each. The matter was
again placed in a Board Meeting of GIC on 8th January, 1988. In the said
Board Meeting presided over by Appellant No. I and attended by Mr. P.U.
Rana and Mr. P.H. Chinoy, a resolution was passed that 15000 equity shares
of Rs. 100 each be issued at par to the members of the company. The said
D resolution reads as under :
E
F
"Resolved that out of 25000 equity shares of Rs. I 00 each, 15000
equity shares of Rs. I 00 covering Rs. 15,00,000 be issued at par to
the members of the Company at present and the balance as and when
required.
Further Resolved that the Management Committee of the Company
be and is hereby authorized to issue equity shares to members in such
proportion as it deems fit.
Further Resolved that the Management Committee be and is hereby
authorized to do all such acts, deeds and things necessary for the .-
purpose."
Pursuant to or in furtherance of the said resolution, the Company
Secretary, Mr. M.N. Khade issued a circular letter dated 12.2.1988 to all the
existing shareholders requesting them to subscribe for the equity shares at par
G wherefor a time limit of three weeks was fixed. It was stated that if no reply
is received by I 0th March, 1988 it would be presumed that the concerned
shareholder was not interest'!d in the offer. The said circular letter reads as
under :
H
"12th February, 1988
S.P. GAEKWAD v. SHANTADEVI P. GAEKWAD [SINHA, J.]
641
1·>
Shrimant Fatehsinhrao Gaekwad Hoechest House, Nariman Point A
Bombay 400 021
It has been decided to increase the equity capital of the Company by
the issue of 15000 equity shares of Rs. 100 each at par, to the members
of the Company.
You are hereby requested to convey your acceptance for the number B
of shares for which you would like to subscribe, along with a cheque
,.
covering the full amount at the rate of Rs. I 00 per share, within three
weeks from the date of receipt of this letter. If no reply is received
-
...
by 1 Oth March, 1988 it will be presumed that you are not interested
in the offer and the shares will be offered to the other members.
c
Thanking you,
Yours faithfully,
For Gaekwad Investment Corporation
Pvt. Ltd.
D
"'
(M.N. Khade)
-1
SECRETARY"
On or about 13th February, 1988, another meeting was convened which
was chaired by FRG wherein the resolution passed in the meeting dated 8th E
January, 1988 was confirmed. The Managing Committee, having regard to
the fact that no offer was received from the existing shareholders, in its
meeting dated 2 I st March, 1988 extended the time for the aforesaid offer.