PUSHPA KATOCH Vs. MANU MAHARANI HOTELS LTD

JUDGEMENT

(1.) THE petitioner hereinabove holding 14.7 per cent shares in Manu Maharani Hotels Ltd. (the company) has filed this petition under section 397/398 combined with sections 111A and 409 of the Companies Act, 1956 ('the Act') challenging the transfer of shares by the promoters to outsiders.

(2.) The facts of the case are that the company was incorporated in 1988 by the family members of the petitioner with an authorised capital of Rs. 5 crores. There were 4 identifiable groups consisting of the petitioner and 3 of her sisters each group holding equal number of shares. In a meeting held on 16-3-1994, it was agreed that these 4 sisters, namely, the petitioner and the respondents 2 to 4 would jointly manage the affairs of the company and that in case any of them desired to sell their shares, the same would be offered to the other three in equal proportion and in case any one is not inclined to take the shares so offered, the same will be offered to the other two in equal proportion (Annexure R-2/2). An MOU was entered into on 4-5-1994 among the shareholders (Annexure R-3/4) wherein more or less the same terms in respect to transfer of shares were incorporated. In the meanwhile, the company had taken certain loans from financial institutions. On 8-5-1994, a management was entered into with one H.I. Hotels India P. Ltd. (Annexure R-2/4) by which later agreed to invest in the equity share capital of the company. In terms of this agreement, while H.I. Hotels India P. Limited were allotted certain shares, certain loans given by the IFCI as well as the promoters were also converted into equity shares. In this agreement, it was provided that the transfer of shares shall be limited to their own groups and in case shares are to be transferred outside the respective groups, the same should be offered to the other group. This agreement was terminated by an agreement dated 19-3-1996 (Annexure R-2/6) and it was agreed that all the shares held by H.I. Hotels India P. Ltd. would be transferred to parties designated by the promoters for a sum of Rs. 1.25 crores. These shares were later transferred to one Royal Garden Hotels and Resorts (P.) Ltd. Thus, the shareholding position was that the 4 sisters held 14.7 per cent each, Royal Garden 24.66 per cent and the financial institutions 16.19 per cent. The company had been incurring losses right from the beginning except that in 1997-98 and 1998-99, it earned profits. The cumulative losses was to the extent of Rs. 2.21 crores and the outstanding loans including interest accounted to over Rs. 6.5 crores. By a letter dated 17-10-1997, the 2nd and 3rd respondents informed the petitioner and the 4th respondent that an offer had been received from third party for purchase of the shares held by the family members at Rs. 14.50 per share and that the consideration for the shares would be paid within 2 months and that if the petitioner and the 4th respondent were interested, they could also avail the offer. It was also mentioned in that letter that in terms of the family agreement, the 2nd and 3rd respondent were willing to sell their shares at this price to the petitioner and the 4th respondent and in case they were inclined to accept this offer, they should convey the same to the 2nd and 3rd respondents within 30 days from the date of the letter. The petitioner and the 4th respondent, by their letter dated 20-10-1997 conveyed their objection to the negotiation with a 3rd party and also indicated that there have been certain irregularities in the management of the affairs of the company and that they required more time to consider the offer after going through the books of account of the company. This letter was replied to on the same day by the 3rd respondent stating that in view of the financial crunch in the company, she has decided to part ways with the company. In this background, the petitioner has filed this petition alleging that in contravention of the family agreement, the 2nd to 4th respondents have sold their shares to a third party and as such the same should be declared as invalid and non est and that these shares should be offered to her. At the time of filing the petition, since she was not aware of the details of the outsiders who had purchased the shares, the company was directed to file full details of the parties to whom the shares were sold and also the consideration paid for the shares. On disclosure that the shares had been purchased by the nominees of one DS group at Rs. 11 per share, all these transferees were later added as respondents.

(3.) REFERRING to CA 64 of 2000, he pointed out that even though the CLB had directed in its order dated 27-3-2000 that the company should convene a Board Meeting and that the petitioner should be appraised of the details relating to the transfer of shares and change in the management, in the meeting held on 3-4-2000, the petitioner was not given any information and instead the presence of the petitioner was completely ignored. Thus, a promoter shareholder director has been completely kept in dark by the directors representing the new shareholders. He also pointed out that with a view to reduce the petitioner's shareholding, the Board has decided to increase the authorized capital from Rs. 5 crores to Rs. 11 crores and has proposed to issue shares to themselves and also to outsiders which would be a grave act of oppression against the petitioner. Therefore, to protect the interest of the petitioner as well as the company, independent directors should be appointed by the Central Government in terms of section 408 of the Act. REFERRING to CA 187 of 2000, he pointed out that in spite of the directions given by this Board that notices for all Board Meetings should be given by registered post to the petitioner, the company held a Meeting of the Board on 4-9-2000 without any intimation to the petitioner. The alleged notice for this meeting was received by the petitioner only on 15-9-2000. In this meeting, the Board had decided, inspite of protests by the petitioner, to allot further shares to the DS group on a preferential basis by which the percentage shareholding of the petitioner has come down. He submitted that the petitioner filed a civil suit before Delhi High Court after filing of the present petition and later on the suit has been withdrawn on the objection raised by the respondents that the petitioner cannot pursue two parallel proceedings. He also pointed out that the daughter of the petitioner being a shareholder in the company has independently filed a suit in Nainital Court regarding the affairs of the company and this suit cannot be attributed to the petitioner. Summing up his arguments, the learned counsel submitted that the various acts complained of by the petitioner clearly exhibit existence of all the ingredients of oppression and mismanagement in the affairs of the company. REFERRING to the decision of the CLB in K.N. Bhargava v. Trackparts of India Ltd. [2000] 2 CLJ 413, wherein the CLB had applied the principles of family companies even in a listed company in view of the facts of the case, he submitted that just because the company in the present case is a public company, the family nature of the company cannot be ignored and it is a fit case to pierce the corporate veil. On the same proposition, he relied on Hind Overseas Ltd. v. Raghunath Prasad Jhunjunwala [1916] 46 Comp. Cas. 91 and on Synchron Machine Tools (P.) Ltd v. U.M. Suresh Rao [1994] 79 Comp. Cas. 868 Kar. He pointed out that in Mohanlal Ganpatram v. Shri Sayaji Jubilee Cotton & Jute Mills Co. Ltd. AIR 1965 Guj. 96 the court has held that a resolution, even though legal and valid, yet could be oppressive and, therefore, the resolutions relating to transfer of shares and allotment of further shares resulting in the company going out of the family, should be declared as oppressive. Accordingly, he prayed that the sale of shares impugned in the petition should be set aside and that independent directors should be appointed on the Board of the company and an investigation be ordered and that all resolutions relating to transfer and allotment of shares be declared as null and void.