1. The petitioner company, claiming to hold about 19% shares in M/s Prentice Hall of India Pvt. Ltd (the company) has filed this petition in terms of Section 397/398 of the Companies Act, through its power of attorney holder, Shri Ravi Oberoi, alleging that by issue of further shares by the company, the shareholding percentage of the petitioner has been reduced, that the company is not recognizing the petitioner as a shareholder and that the petitioner had been denied its right to nominate directors on the Board and that the funds of the company have been diverted for the personal gain of the second respondent and on these allegations, the petitioner has sought various reliefs.
2. In brief, the case of the petitioner is: The petitioner, formerly known as M/s Prentice Hall Inc, an internationally well known publisher of text books, desired to incorporate a wholly owned subsidiary in India to publish its books in India and accordingly applied to the Government of India for permission for the same. While according its approval, the Government stipulated that the foreign holding in the Indian company should be restricted to 49%. In view of this, the petitioner associated one late B.D Laroia, a renowned academician, as its Indian partner with 51% shares. The company was incorporated in 1963 with the principal object to acquire the rights to print, reprint and publish Test Books of M/s Prentice Hall Inc. It was because of such association and with the view to promote Prentice Hall titles in India, that the petitioner permitted the use of the petitioner's name by the Indian Company. A collaboration agreement for a period of 10 years was entered into between the petitioner and the company under which the company was to print and publish in India such of the petitioner's titles that had been specified in the collaboration agreement or such other titles that may be mutually agreed upon. There was also an understanding that, the petitioner would have complete say in the management of the affairs of the company and to ensure that, in Article 82 of the Articles of Association of the company, it was stipulated that as long as the petitioner held Rs. 20,000 worth equity shares in the company, it will have the right to nominate directors on the Board of the company not exceeding 50% of the total strength of the Board. Of the first five directors of the company, the petitioner had three of its nominees. The company was to be managed, as a quasi partnership between the petitioner and late Dr. V.D. Laroia with the petitioner being the dominant partner. For a long time the managing directors of the company were persons nominated or approved by the petitioner. The company was doing well and royalties were being remitted in accordance with the collaboration agreement to the petitioner. On 1.9.1965 the second respondent joined the company as an employee. In the year 1966 Dr. B.D. Laroia expired and his widow Mrs. Shanti Laroia came to be in charge of day to day affairs of the company. Since Mrs Laroia did not want to manage the affairs of the company, the second respondent was appointed as Deputy Managing Director in 1971. Thereafter, some shares were transferred/allotted in his name and he was ultimately appointed as the Managing Director in September, 1972. In 1982, when Mrs Laroia desired to transfer all the 5100 shares held by her, the petitioner could not acquire the same in view of Government of India Regulations and therefore, permitted the second respondent, who had gained the confidence of the petitioner, to acquire those shares, which he did, at Rs. 1/- per share. Since the second respondent had been in the company for long time and was fully aware that the company was an Indian wing of the petitioner, he was allowed to have the majority shares in the company. When the terms of the original collaboration agreement expired on 5.6.1973, an application was made to the Government, which, while according its approval, also stipulated that the foreign shareholding should be reduced to below 38% within a period of one year. Because of the trust and confidence that the petitioner had in second respondent, the petitioner authorized the second respondent to make the said application to the Government. Therefore, 11% of the shares held by M/s Prentice Hall Inc and its associates were transferred to the senior employees of the company including the second respondent. Even though the company was to be a wholly own subsidiary of the petitioner, yet, in view of Government of India Regulations, it had to reduce its shareholding and all the shareholders were fully aware that the reduction in the shareholding of the petitioner was on account of Government Regulations and that the Regulations permitting, the petitioner could acquire majority shares. However, it was always understood that the petitioner, notwithstanding its reduced shareholding, would have dominant role in the Management of the Company and in fact the petitioner did so and the second respondent was looking after only day to day affairs of the company. In 1984 further shares were issued on proportionate basis to all the shareholders. In the same year, M/s Prentice Hall was taken over by Gulf + Western Inc, which was the parent Corporation of Simon and Schuster and the understanding that the company was to function as an Indian Branch of the petitioner continued. The new management also reposed trust and confidence in the second respondent. In the year 1988, the petitioner and its associates held 32.6% shares in the company as against 67.4% held by the second respondent's Group. In 1990, Viacom Group decided to discontinue its business in educational publishing. Following bids by various International Publishing Houses, the bid made on behalf of the Pearson Group was accepted by Viacom group for transfer of its interest in educational publishing which included the Prentice Hall Inc also. It took considerable time to get all the approvals under the laws of USA for change in the ownership. From 1990, when Viacom Group exhibited its disinterest in educational publishing, the interest of M/s Prentice Hall Inc in its various branches, including in the Indian company suffered. In the year 1996, the company issued bonus shares in the ratio of 2:1 and thereafter the foreign shareholding was 31% as against 69% held by the second respondent group. In November 1998, Pearson Group finally came, to be in control of Prentice Hall Inc and thereby the Indian Company. This change of control of M/s Prentice Hall Inc was communicated to the second respondent. From about 1999, disputes and difference arose between the petitioner and the second respondent who sought to exercise largest say in the management of the affairs of the company. Since there was a hiatus between 1990 and 1998, the second respondent started managing the affairs of the company on his own and when the Pearson Group decided to have some checks and balances in the affairs of the company, the 2^nd respondent resisted the same and had started acting against the interests of the petitioner.
3. In this background, the petitioner, through its power of attorney holder-Shri Ravi Oberoi, has alleged that the second respondent did not issue any notice for Board meetings to the nominees of the petitioner and had also not issued notices for the AGMs and had not been keeping the petitioner informed of the affairs of the company. When the takeover of M/s Prentice Hall Inc by Pearson Group was in process, the 2^nd respondent had appointed his wife-the third respondent as a Director and also his own nominee-the fourth respondent. He also appointed his own daughter-the 5^threspondent as Marketing coordinator of the company. By the time Pearson Group came to control the petitioner, the second respondent had taken complete control of the company. The Second respondent has increased his remuneration substantially from Rs. 3 lacs in 1994 to Rs. 30 lacs in 2003. The second respondent caused the company to file a suit against: the petitioner for seeking enforcement of the 1983 Agreement due to which the petitioner was constrained to file a suit against the company in regard to the rights of the company to publish the titles of the petitioner. In spite of the petitioner demanding various documents/ information in terms of Section 163 (3) and (4) of the Act, the second respondent refused to provide the same. Without the knowledge and consent of the petitioner, the second respondent had shifted all the records of the company from the registered office to a premise which is standing in the name of Mediamatics which is a proprietary concern of the third respondent. When the cases were going on in the High Court, the second respondent increased the share capital of the company by issue of further shares. Just to deny the benefit of further shares to the petitioner, he had sent the offer letter to an incomplete address and the offer was received by the petitioner only after the closure date due to which the petitioner could not subscribe to its entitlement. The motive for issue of the shares was to reduce the petitioner from 32% shares to 18.78%. Further the second respondent has not accounted for various publications printed and sold by the company in the books of the company and has thus has pocketed the sale proceeds. The 2^nd respondent also siphoned of funds of the company through Mediamatics, a proprietorship of the 3^rd respondent- his wife.
4. With these allegations the petitioner has sought for various reliefs inter-alia including a declaration that the petitioner is entitled to majority control of the shareholding of and in the company that the Article of the company be modified so that the petitioner can have majority Directors on the Board, that the allotment of shares made in 2001 be cancelled, and also for a declaration that the second and third respondents hold the business and profits of Mediamatics for the benefit of the company.
5. The respondents have sought for dismissal of the petition on various preliminary objections- that the name of the petitioner is not borne in the register of members and as such is not competent to file this petition: that taking over of M/s Prentice Hall by M/s Pearson amounted to transfer of shares of the company and for such transfer the provisions of the Articles have not been complied with and as such the petitioner cannot be admitted as a member of the company: that on the day of filing this petition, the alleged power of attorney given by the petition in favour of Shri Ravi Oberoi was not filed with the petition and as such the petition has not been properly filed, deserving dismissal of the petition: that the said power of attorney does not authorize Shri Ravi Oberoi to file a petition under Sections 397/398 of the Act: that the affidavit verifying the petition filed by Shri Ravi Oberoi is defective and finally, the petition has been filed for an oblique motive.
6. Since a number of preliminary objections had been raised by the respondents, the learned Senior Counsel for the respondents, Shri Dave, initiated his arguments first. He submitted: The petitioner is not a member of the company since its name does not appear in the register of members. It also does not possess share certificates in its own name.
The name of M/s Prentice Hall Inc still continues to exist in the register of members and even the dividend and royalty till dates are being paid only the name of M/s Prentice Hall Inc. The petitioner has not filed any document to show that it is the shareholder of the company. In Banford Investment Ltd. v. Magtesh Ltd. (93 CC 6) the Company Law Board has laid down that to determine whether a person is a member of the company, it is to examined as to whether a person claiming to be a member possesses relevant share certificate in his name, or whether there are independent records to establish that he is a member of the company or whether the company has treated him as a member. In the present case, the petitioner does not pass any of the tests indicated above. The contention of the petitioner that it was only a change in the name of the petitioner's company and that there was no transfer of shares is a camouflage and the transaction was to circumvent the provision of Articles. Therefore, till such time the petitioner's name is entered in the Register of Members of the company, it has no locus standi to file this petition.
7. Learned Counsel further submitted: According to the petitioner, M/s Prentice Hall Inc. was taken over by Pearson Group following the purchase and transfer of controlling interests and/or the entire shareholding of the petitioner from Viacom Group. It has not been made clear whether the shares of the respondent company were also sold along with other assets of M/s Prentice Hall Inc to Pearson Education or the shares of Prentice Hall Inc alone were sold to Pearson Education. In either case, it amounts to transfer of shares of the respondent company. Article 24(a) of the Articles of Association of the company "specifically prohibits transfer of shares of the company to a non member unless and until the right of preemption in terms of Article 24(b) is given to other existing members. Article 24(b) also stipulates that the member intending to transfer his shares to a non member should give a notice to the Board, which would, in turn be offered by the Board to the other members at a price to be agreed upon by the Board and the vendor failing which at a price to be determined by the auditor of the company. In the present case, M/s Prentice Hall Inc had not complied with these provisions of the Articles and such the transfer is invalid. Since the company is a private company, the Articles have been so framed that no outsider could become a member without the permission of the Board. The petitioner who is carrying on a parallel business has tried to become a member of the company which should not be allowed.
Further, the petitioner has not lodged any instrument of transfer for transferring the shares from the name of M/s Prentice Hall Inc to the name of the petitioner. In Mannalal Ketan v. Ketan (AIR 1977 SC 536), the Supreme Court has held that Section 108 of the Act is mandatory and therefore, without lodgment of the instruments of transfer and registration of transfer, the petitioner cannot claim itself to be a member of the company. In LIC v. Escorts Ltd. (AIR 1986 SC 1360), the Supreme Court has held that till the transfer of shares is registered, a transferee cannot exercise any right as a shareholder and that in case of transfer of shares to a non resident, RBI's approval is necessary. In the present case the petitioner has not taken any permission from RBI for transferring the shares held by M/s Prentice Hall INC in the name of petitioner. In John Tinson Company Pvt. Ltd. v.Surjeet Manhal (AIR 1997 SC 1411) Supreme Court has held that the Articles of association of a private company is a contract among the members and, therefore, members are bound by the provisions in the Articles. Since the Article provides for prior approval of the Board for transfer of shares to a non member, the transfer of shares to the petitioner is invalid as M/s Prentice Hall Inc did not apply for and obtained the prior approval of the Board. In Sunil Sidharthbay v. CIT (1985 4 SCC 519), the Supreme Court has held that for the purposes of Income Tax Act, the shares of a private limited company brought in by a partner as his capital contribution to the firm, would amount to transfer. Likewise, in Anarkali Sarabhai v. CIT (1997 3 SCC 238) the Supreme Court has held that redemption of preference shares of a company amounted to a transfer in terms of the Income Tax Act and the benefit received by the assessee was taxable. In General Radio & Appliances Co. Ltd. v. M.A. Khadar (1986 2 SCC 656), the Supreme Court has held that, even in a scheme of amalgamation sanctioned by the Court, if the transferor company had taken lease of a premises, then, it would amount to transfer of the premises to the transferee company and as such in terms of the lease deed, the transferee company is liable to be evicted. There is a similar decision of the Supreme Court in Hindustan Lever Ltd v. Maharastra State to the effect that in a case of amalgamation of two companies, there is a transfer of assets by the transferor company to the transferee company and therefore, stamp duty is payable. All these cases would indicate that that the term "transfer" has a wide meaning covering both direct and indirect transfers and in either case, the provisions of the Articles have to be complied with. In Ramesh Takur v. Sea Side Hotels Ltd (100CC 117), this Board has decided that even in case of transmission, the provisions in the Articles relating to transmission have to be complied with.
Therefore, whether there is direct transfer of shares or indirect transfer of shares by way of taking over the company holding shares, there has been transfer of shares and compliance with the provisions of the Articles is necessary. Therefore, the taking over of Prentice Hall Inc. by Pearson Group amounted to transfer of shares held in the respondent company and as such the provisions of the Articles should have been complied with. Any transfer without compliance with the provisions of the Articles is void and as such the petitioner cannot claim membership of the company.
8. Learned Counsel further submitted: Shri Vivek Oberoi who has affirmed this petition has not been validly authorized by the Board of Directors of M/s Prentice Hall Inc to file this petition. In terms of Regulations 19 read with 2(d) and 18 of Company Law Board Regulation, the authority to file the petition should have been filed along with the petition. Since on the day of filing of the petition, there was no power of authorization on record, the settled law being that any cause instituted without authority is invalid from its inception, the petition is not maintainable. Even though, by filing two powers of attorney dated 7.10.2002 and 29.5.2003 in favour of Mr. Ravi Oberoi, later during the hearing, the petitioner has tried to overcome this deficiency, it is to be noted that they were filed only in November, 2003. The Power of attorney dated 29.5.2003 is a specific power of attorney to prosecute the pending suits in the High Court. There if no reference to the Company Law Board, Further, it is a director of the petitioner company, who has executed this power of attorney. Only the Board of the petitioner company could authorize Mr. Ravi Oberoi and not a Director. There is nothing in the power of attorney to indicate that the Board of the petitioner company had applied its mind as contemplated by the provisions of Section 399 to file this petition. A petition under Sections 397/398 can be filed only by shareholders of a company and this unique right cannot be presumed to have been conferred by a power of attorney. There is not even a whisper in the power of attorney that it confers right on the holder to institute the present proceedings. It obviously confers the power on him to act on behalf of the company only in the pending proceedings before the High Court. The objection of the respondent on the power of attorney is not a technical one but substantive in nature. The defects in the power of attorney cannot be cured by another power of attorney dated 7.10. 2003 wherein the name of the Company Law Board appears.
9. To substantiate this argument in respect of power of attorney, the learned counsel relied on the following cases: In Shri Kiron Luu v.Vikron Fashions Pvt. Ltd. (81 company cases 566), the CLB has held that where there is no specific authority in the deed authorizing the power of attorney holder to file a petition under Sections 397/398, then the petition filed by him was not maintainable. In Nibro Ltd. v. National Insurance company Ltd. (AIR 1991 Delhi 25), the Delhi High Court has held that the question of authorization to institute a suit on behalf of a company is not a technical matter. Even a director of a company cannot file a suit without the specific authorization from the Board.
In the present case there is not even an indication in the power of attorney that the Director who has signed this deed had been authorized by the Board of the petitioner company to do so. Similar decision is found in KN Shankaranarayanan v. Shree Consultation and Services Ltd. (80 company cases 558) and Ferruccio Sias v. JI Mangaram Mukhi (93 company cases 750). In Killick Nixon Ltd. v. Bank of India (57 CC 831), the Bombay High Court has elaborately dealt with the terms of a power of attorney and held that where the authority is given to do a particular act, followed by general words, the general words are restricted to what is necessary for the proper performance of that particular act and that general words do not confer general powers but are limited to the purpose for which the authority is given and/or construed as enlarging the special powers only when necessary for that purpose. In the present case, the power of attorney given was for the purposes of prosecuting the suits pending before the High Court and therefore cannot be enlarged to conferring powers on Shri Oberoi to file the present petition before this Board.
10. Learned counsel further submitted; The supporting affidavit verifying the petition filed by Mr. Ravi Oberoi docs not company with the provisions of Company Law Board Regulation, Regulation 14(8) stipulates that if reliance is made of information received in respect of statements made in the petition, affidavit should also include the name and complete residential address of the person from whom the information has been received by the deponent and whether he believes the same to be true. The affidavit filed by Sh. Ravi Oberoi does not conform to this regulation and therefore, the petition should be rejected. In Rajkumar Dhar v. Colonel Stuart Lewis (AIR 1958 Calcutta 104) the Court has held that if a plaint contains serious allegations of frauds, culpable negligence etc. against the defendants and the same is made under power of attorney, by merely putting on record the power of attorney, is wholly insufficient for the purpose as the plaintiff agent simplicitor holding an authority to sign the verification under the power of attorney would be incompetent to verify the plaint.
Likewise in Bangal Lakshmi Cotton Mill Ltd (35 company cases 219) the Calcutta High Court has held that if the petitioner has no personal knowledge of the charges made, he should rely upon supporting affidavits from persons having personal knowledge of the allegations of oppression, mismanagement and misconduct. In this case, there are no supporting affidavits and Shri Oberoi has no personal knowledge of any of the allegations made in the petition. Therefore the affidavit verifying the petition filed by Shri Oberoi, being not in accordance with law, should be rejected.
11. The learned counsel further submitted that this petition has been filed for a collateral purpose. The petitioner has already instituted proceedings in Delhi High Court seeking to restrain the company from publishing certain titles which was one of the objects for which the company was incorporated. This petition has not been filed to agitate the rights of the petitioner as a shareholder but has been filed with the oblique motive to achieve a collateral purpose of pressurizing the respondents to close the company or to stop publishing the titles of the petitioner so that the parallel business started by the petitioners four years back could be benefited. It has been held in Newcomb v.Newcomb (1985 1 AER 65) that when the action of the plaintiff is tainted, it is a bar to grant any equitable relief. CLB itself has held that no petition under Sections 397/398 can be filed for any oblique purposes in amesh Bhajanlal Thakur v. Sea Side Hotels (100 CC 117) Board itself has held in The reliefs sought for by the petitioner in the Delhi High Court are very comprehensive and therefore this petition should either be dismissed or the disposal of the petition should be deferred till the proceedings in the High "Court are concluded.
12. Summing up on the preliminary objections, Shri Dave submitted that this petition should be dismissed in limini as the petitioner is not a member of the company, that the purported transfer of shares by M/s Prentice Hall Inc to the petitioner being in violation of the provisions of the Articles/Act cannot entitled the petitioner to claim membership of the company, that even otherwise there is no valid authorization of the Board of the petitioner company in favour of Mr.
Ravi Oberoi to file this petition and even the affidavit verifying the petition is not in conformity with the CLB Regulations.
13. Shri Sarkar, Senior Advocate for the petitioner, dealing with the preliminary objections, submitted: None of the preliminary objections has any merit. The stand of the Respondents that the petitioner is not a member of the company is fallacious. There had been no transfer of shares from M/s Prentice Hall Inc to the petitioner to attract the provisions of the Articles. M/s Prentice Hall Inc had always been a member of the Respondent Company. M/s Prentice Hall was taken over by Gulf+Western sometime in 1984 after which also M/s Prentice Hall continued to be a member of the company and this has been acknowledged so by the company itself. Thereafter M/s Prentice Hall Inc was taken over by Pearson Group sometime in 1998 and this fact was intimated to the company by a letter dated 21.12.1998. Mere change of ownership of a company holding shares in another company does not result in transfer of shares as contended by the Respondent. The term "transfer" in the Act has a special connotation. Provisions of Section 108, which are mandatory, have to be complied with in a transfer of shares. Even Article 22 of the Articles of Association of the company provides that the transfer should be in writing and should be in the format as per Article 23. Therefore, the provisions of Article 24 relating to pre-emption would apply only in case of a direct sale of shares by a member. In Indian Chemical Products Ltd. v. State of Orissa (AIR 1967 SC 253), in pursuance of an agreement consequent on merger of State of Mayurbangh into dominion of India, the State of Orissa, succeeded to the properties purchased by Maharaja of Mayurbangh in the capacity of as the ruler. It applied to the company for rectification of the Register of Members of the company to substitute its name in the place of the Ruler, which the company refused. The Supreme Court held that the title to the shares so purchased by the Maharaja would vest in Orissa State and that the Board of Directors had no power to refuse rectification of the members Register. In Askok Kumar Oswal v. S.P.Oswal (110 CC 747), the Company Law Board has held that change of ownership of a company holding shares in another company does not amount to transfer of shares to attract the provisions of Take Over Code. In Shaw Wallace case (1985 3 CLJ 411), the CLB has held that taking over of a foreign company having shares in an Indian company would not amount to transfer of shares of the Indian company to attract the provisions of Sections 250 or 409 of the Act. Thus, the contention of the respondents, that in taking over M/s Prentice Hall Inc, there had been transfer of shares and that the petitioner has not complied with the provisions of the Articles, has no basis.
14. He further submitted: The contention of the respondents is that since the name of the petitioner is not on the Register of Members, it has no locus standi to file this petition. The name of M/s Prentice Hall Inc itself has been changed into M/s Pearson Education Inc effective from 1^st January 2001 as is evident from the certificate issued by the Secretary of State, Delaware. The petitioner has already sought for change in the register of members of the respondent company to reflect the present name but the company has declined. Mere change in the name of a company holding shares in another company does not mean that there is any transfer of shares. Section 23 of the Indian Companies Act permits a company to change its name. There is a catena of judgments to the effect, that a mere change in the name of a company does not affect the character of the company. In Sulphur Dyes Ltd. v.Hickson and Dadajee Ltd. (83 CC 533) it has been held that the certificate issued by the Registrar of UK regarding the change of the name of a company in UK holding shares in an Indian company is conclusive evidence of change of name of the shareholder company and rectification has to be made in the register of the members of the Indian company incorporating the new name in the place of the old name.
In Pioneer Protective Glass Fibre Pvt. Ltd v. Fibre Glass Pilkington Ltd (60 CC 707), the Calcutta High Court has held that Section 23 of the Act is a ministerial Section and fresh certificate of incorporation is only for recording the alteration in the name and that if a suit is commenced or instituted in the old name of the company, it is entitled to seek amendment to the cause title. This decision would also indicate that mere change of name of a company does not in any way affect the company's rights and liabilities. In Stadmed Private Ltd v. Kshetra Mohan Saha (AIR 1968 Cal. 572), it has been held that once an order of rectification is passed by a civil court, even if the company does not rectify the register to put the name of the petitioner in the register, he can file a petition under Sections 397/398 of the Act. In the present case, in law, the company is bound to rectify the register of members of the company to substitute the name of the petitioner in place of M/S Prentice Hall Inc., as soon as intimation was given on the change of name to the company. The failure of the company to do so cannot disentitle the petitioner to file this petition. Further, in Worldwide Agencies Pvt Ltd. v. Mrs. Margaret T. Desor (AIR 1990 SC 737), the court has held that in case of death of a member, his/her legal representative are entitled to file a petition under Sections 397/398 even if their names are not entered in the register of members.
All these cases bring out clearly the proposition of law that to institute a proceeding under Sections 397/398 of the Act, it is not always necessary that the petitioner's name should be in the register of members, provided he is entitled to have his name registered in the register of members. In the present case, the petitioner is entitled to have its name registered in the register of members in place of M/S Prentice Hall Inc. and therefore the petitioner is competent to file this petition.
15. In regard to the power of attorney, the learned counsel submitted: At the time when the petition was filed, a copy of the power of attorney dated 29^th May, 2003 was produced before the Bench Officer.
However, since, it did not contain the stamp of authentication of the Indian Embassy in Washington, while accepting the petition, the petitioner was permitted to produced the authenticated power, of attorney at the time of hearing. Accordingly, the power of attorney with the authentication by the Indian Embassy was produced at the time of hearing on 25.11.2003. A perusal of the said power of attorney would indicate that on the same day of execution on 29^th May, 2003, it was certified by a Notary Public of the State of New Jersy. This authentication by the Notary Public was certified by the Clerk of the country Bunjun by a certificate on 4.2.2003 and this certificate in turn . was authenticated by the State Treasurer on 17^th June, 2003.
The entire set of documents was further certified and authenticated by the Secretary of State, USA on 20^th June, 2003 where after verified and authenticated by the Indian Embassy. Thus, the fact of existence of the power of attorney on the day of filing of the petition on 14.7.2003 cannot be doubted. Therefore, the contention of the respondents that since the power of attorney was not filed with the petition, the petition has to be dismissed has no basis.
16. As far as the authority of Shri Ravi Oberoi to file this petition is concerned, the contention of the respondents is that the power of attorney empowers Shri Oberoi to prosecute only the civil suits, is not correct. While specific authority regarding the civil suits has been conferred on Shri Oberoi, the same power of attorney at a number of places has authorized him to institute, file all necessary suits, proceedings and/or applications before appropriate courts against Prentice Hall India Private Limited and do all such acts in connection with the same. In view of this general power of attorney, the petitioner has filed this petition to protect the interest of the petitioner company. It has been held in Killick Nikson Limited v. Bank of India (57 CC 831) that a power of attorney holder can file a petition under Sections 397/398 of the Act. Even though the respondents have relied on the decision of this Bench in Vikron Fashions Private Ltd. case to the proposition that a power of attorney should be specifically authorized to file a petition under Sections 397/398 of the Act, that decision no longer holds good since the Madras High Court has set aside the order of this Board on appeal.
17. As far as the validity of the affidavit filed by Shri Oberoi verifying the petition is concerned, the same is in conformity with the Company Law Board Regulations. It has been specifically mentioned in the affidavit that the Statement of Facts made in the petition were true and correct to the best of his knowledge upon information received from the records of the case maintained by the petitioner and believed by him to be true while the Statements of Law were based upon legal advise received and believed by him to be true. No where, he has mentioned in the affidavit that he had received the information from some third parties to allege that full particulars of such persons have not been given in the affidavit in terms of the Regulations. Therefore, the affidavit verifying the petition and signed by Shri Ravi Oberoi is legally valid.
18. In regard to the contention of the respondents that this petition has been filed for an oblique motive, the learned counsel submitted that this allegation has been made on the ground that the petitioner has already filed a civil suit specifically seeking for a declaration that the purported agreement dated 7^th Sept. 1983 was null and void and through this petition, the petitioner is attempting to obtain more or less the same relief. The premises on which this allegation has been made is unfounded. In the present petition, the complaints of the petitioner relate to dilution in its shareholding, its exclusion from the management and mismanagement by the 2^nd respondent and consequential reliefs. There is no ulterior motive in filing this petition.
19. On merits, Sh. Sarkar, submitted: From the main object in the Memorandum, it is evident that the company was incorporated solely for the purpose of publishing educational books of the petitioner in India.
Even the second respondent, in paragraph 4 of his reply to the petition, has averred "simultaneously with the filing of the present petition, the petitioner has instituted proceedings with the Delhi High Court wherein it is seeking to restrain its own joint venture company from publishing certain titles which was the sole object for which the respondent No. 1 company was created. This is evident from object No. 1 of the Memorandum of objects of the company." In other words, but for the Association of the petitioner with the company, the main object of the company could/can not be achieved. Even the company could not have chosen its name "Prentice Hall India Pvt. Ltd." but for the main object being publication of the titles of the petitioner. As may be seen from Annexure P-2, it was the petitioner who sought for incorporation of a subsidiary in India and the approval to do so was given by Government of India to the petitioner vide its approval dated 7^th January 1963.
Since the Government stipulated that the Foreign shareholding should be on a minority basis i.e. not exceeding 49%, the petitioner had to associate an Indian partner. Accordingly, it chose an eminent academician Dr. B.D. Laroia. This company was incorporated on 6^th June 1963 with the petitioner being allotted 49% shares and Dr. B.D. Larioa and his wife with 51% shares. As per the collaboration agreement at Annexure P-3, it was the petitioner and its associates who were to grant exclusive right of publication to the company of the petitioner's titles. The collaboration agreement also provided that the agreement could be terminated in the event of the petitioner's shareholding coming to below 20% and on termination the company would omit the words "Prentice" and "Hall" from its name. In view of this agreement, the company cannot publish any of the titles of the petitioner without its permission. When the term of this agreement expired in 1973, the 2^nd respondent, in his capacity as the Managing Director, sought for approval of the Government of India for renewal of this agreement. In his proposal to the Government, he had submitted that it was a National advantage to have the benefit of books on various subjects made available to the Universities as well as to the reading public in India. The same proposal stated that M/s Prentice Hall Inc, being an International Organization had a wide network of offices and marketing system and that it had established reputation in publishing educational books throughout the world. He had also stated in the application "by identifying ourselves with or foreign collaborator, by using the name "Prentice Hall" we can, therefore, immediately exploit all the advantages which an Internationally recognized publisher enjoys in every spare of its operation." Further, he had also mentioned that Prentice Hall Inc would continue to assist the company in executive, administrative and managerial functions of the company. All these submissions made by him to the Government would indicate that he recognized that active support of the petitioner was essential for the success of the company. However, after gaining absolute majority in the company both in terms of shareholding and directorship, the second respondent now denies the petitioner the right to from exercise any of the rights of even as a shareholder, leave alone participation in the management.
20. The Learned Counsel further submitted: When Pearson Group acquired control over the petitioner in 1998, the same was communicated to the second respondent by a letter dated 21^st December 1998 (Annexure P-12) and so the second respondent was aware that Pearson Group had come to control the petitioner. As a matter of fact, as is evident from the letter of the 2^nd respondent dated 17^th April 2000(Annexure P-14), the second respondent had been meeting the President of Pearson Group from 1999, complaining that there was lack of cooperation from the previous management. In the meanwhile, he had also caused the company to file a suit against the petitioner. When the petitioner sought for certain documents and information from the company vide its letter dated 23^rd March 2000 (Annexure P-13) the same were not supplied.
21. The Learned Counsel further submitted: With a view to reduce the petitioner's shareholding from 31% shares to an absolute minority, the 2^nd respondent caused the company to allot further shares. Even though the issue was purportedly on a right basis, the offer made to the petitioner on 25.2.2001 (Annexure -P-20) was sent to an incomplete address which was received by the petitioner after the closure date i.e. 18.3.2001. It is not there that the second respondent or the company was not aware of the correct address of the petitioner. In the letter dated 21.12.1998, (Annexure-P-12) communicating the information that Pearson Group had taken over the petitioner, the address of the petitioner was given. The second respondent had written two letters dated 17.2.2000, to the address given in Annexure-P-12. By sending the offer to an incomplete address, the second respondent had ensured that the petitioner could not apply for the right shares. Late receipt of the offer was communicated to the second respondent by a letter dated 4^th May 2001 (Annexure P-21). In the same letter, the petitioner had also sought for changing its name from Prentice Hall Inc to Pearson Education in the records of the company. Further there was no financial need for increasing the share capital. The company was financially sound when the issue was made. As on 31^st March 2000, the company had earned a profit of Rs. 1.31 crores and had a general Reserve of 4.34 crores with a bank balance of Rs. 1.56 crores. On that day an amount of over Rs. 27 lacs was due from Mediamatics. The amount raised by the right issue was a nominal sum of only Rs. 18 lacs. Even during the year 2000-2001, the profit was 2.32 crores. By disabling the petitioner from subscribing to the right shares by sending the offer to an incomplete address, the second respondent had achieved his object of reducing the petitioner's holding to below 25% i.e. to 18%. After the right issue, the remuneration of the second respondent was increased from Rs. 11 lacs to Rs. 30 lacs per annum. The respondents have contended that on the earlier occasion also when the capital was raised, the company was financially sound and no complaint was made. It is on record that at that time, the capital was raised with the approval of the petitioner for raising the debt-equity ratio and the petitioner also subscribed to the shares. It is a settled principle of law that issue of further shares with an oblique motive is a grave act of oppression. In Clemens v. Clemens Bro. (1976 2 AER 268), it has been held that if a shareholder with dominant power in a company issues further shares with the view to reduce the shareholding of another member below 25 %, then it is an act of oppression. Once the petitioner's holding is reduced to below 25%, the 2^nd respondent would be able to amend the Article of Association of the company as simultaneously his shareholding has gone up over 80%. In B.M. Jain & Sons v. Bombay Cable Care Private Ltd. (108 CC 91), the CLB has held that if the purpose of allotment of fresh shares is with a view to upset the existing shareholding, then, such allotment is oppressive to the complaining shareholder. Likewise, in Howard Smith Ltd. v. Ampol Petroleum (1974 1 AER 1126), it has been held that in issue of further shares the directors are in a fiduciary position and as such the motive of issue has to be examined. In the present case, even though the allotment was purported to be on a right basis, the 2^nd respondent has benefited by denying the opportunity to the petitioner to subscribe to its entitlement by purposely sending the offer letter to a wrong address, so that he can always claim that offer was made but was not accepted. Thus, the motive of the 2^nd respondents was to gain 3/4^th majority in the company by this impugned allotment, even though there was no other justification for making this allotment.
Further, by allotting the shares to himself and his group at par, when the book value of the shares was substantial, the 2^nd respondent has enriched himself at the cost of the company. Therefore, this allotment is not only a grave act of oppression against the petitioner, but also against the interests of the company.
22. The learned counsel further submitted: The second respondent has been guilty of various acts of mismanagement. First, he inducted his wife as a Director when there was no active participation of the petitioner in 1990. His daughter has also been appointed as an Executive with substantial remuneration. Mediamatics is a proprietorship concern of his wife. Not only the company is a tenant in the premise of Mediamatics paying substantial rent, it has also been engaged as a distributor of the publications of the company with preferential credit terms even though it has no previous experience in the business of distribution of books. Substantial funds of the company has been diverted to Mediamatics. The second respondent and his wife do not have any known source of income other than that derived in course of the association with the company. Only because the petitioner was not involved in the affairs of the company, the second respondent could increase his remuneration substantially from Rs. 3 lacs in 1994 to Rs. 30 lacs in 2001. Even though the second respondent has asserted that his remuneration had been approved in the General Meeting, the resolution proposed for consideration of the General body was shown as an ordinary business. In terms of Section 173, the same should have been done by a special resolution in which case the petitioner could have objected to the same if it had received the notices for these meetings. In the General Meeting held on 29^th September 2000, his remuneration was increased from 7.6 lacs to 11.11 lacs and in the General Meeting held on 28.9.2001, it was further increased to Rs. 19.43 lacs and in 2003 it was increased to Rs. 30 lacs. Since the increases in remunerations have been approved by Ordinary Resolutions without any explanatory note as required by special resolutions, the increased remuneration received by him is illegal and has to be recovered from him in terms of Section 309(5A). The second respondent has also been guilty of siphoning of the funds of the company. The company has published 54 titles as indicted at page-93 of the petition but the sale proceeds of these titles have not been brought into the books of the company and this fact has been admitted by the second respondent in his reply by stating that this issue was a subject matter of the suit pending before Delhi High Court and as such cannot be adjudicated by this Board. Even otherwise, if it is the admission of the second respondent that the company was publishing the titles of others, then the same would be ultravires the Memorandum, as publication of titles of the petitioner alone is permissible.
23. Summing up his arguments, Shri Sarkar submitted that the petitioner originally desired to incorporate a wholly owned subsidiary, which could not be done only because of the then existing Regulations of the Government of India. . It had to further reduce its shareholding subsequently due to the changes in the Regulations. Now that the Government of India Regulations permit 100% subsidiary of a foreign company and since the petitioner has worldwide presence and since the 2^nd respondent does not want to associate the petitioner with the management of the company, in equity, considering the main object of the company that it is to publish the titles of the petitioner, the company should be handed over to the petitioner. "Prentice Hall" is a registered trade mark of the petitioner and therefore, cannot be used without its permission. If the said name is used without permission or without associating the petitioner with the management of the company, it would be misleading the public and as such is not permissible in law. Now, the 2^nd respondent is not interested to associate the petitioner with the management of the company, but wants to use its name, its books and its goodwill. It is highly inequitable. Only because the petitioner had to comply with the Regulations of the Government of India, it could not acquire the majority shares, initially at the time of incorporation, and when Mrs Laroia decided to sell her shares. As a matter of fact, the petitioner had to further reduce its holding in 1973 due to GOI regulations. Therefore, the company, using the name of the petitioner without its participation, is a grave act of oppression against the petitioner. After all the 2^nd respondent joined the company as an employee and acquired the Indian Promoters' shares at Rs. 1/- per share when the book value was substantial, and had enjoyed the benefit of office as Managing Director for a long time with substantial remuneration and also dividend for his investments. The present relationship between the petitioner and the 2^nd respondent has become so sour that they cannot continue together.
Therefore, the petitioner is prepared to buy out the 2^nd respondent and his group at a fair value to be determined by an independent valuer after canceling the shares issued in 2001. In the alternative, if the 2^nd respondent desires to have complete control over the company, the petitioner is prepared to sell its shares in the same manner provided the company changes its name omitting the word "Prentice Hall". This prayer for seeking deletion of the words "Prentice Hall" is not only justified on equitable grounds but also on legal grounds. It is an admitted fact that the company is publishing the books of the petitioner which is a world renowned publishing house. The terms "Prentice Hall" is a registered trade Mark of the petitioner.
Therefore, the use of Prentice Hall in the name of the company is highly prejudicial to the interest of the petitioner. In Mahendra & Mahendra Paper Mills Ltd. v. Mahendra & Mahendra Limited (2002 2 SCC 147), Lakshmi Kant B. Patel v. Chetan Bhai Shah (2002 3 SCC 65) and Poddar Tyres Ltd. v. Bedrock Sales Corporation Ltd. (AIR 1993 Bom.237) it has been held that if one uses the Registered Trade Mark of another, which has gained reputation of certain standard of good services, and if by such usage, if there is a possibility an impression being created that the user is associated with the owner of the trade Mark, then such usage would be prejudicial to the interest of the owner and as such the user can be restrained from the Trade Mark. In the present case, "Prentice Hall" is a registered trade mark of the petitioner and this name is always associated with publication of reputed and standard books. By using the name in the name of the company, the respondents would be creating an impression in the minds of the public that the company is associated with the petitioner, when it is not actually so, as the 2^nd respondent is not willing to associate the petitioner with the management of the company.
24. Shri Dave, dealing with the merits of the case submitted: The complaint of the petitioner that further shares were issued in 2001 with the view to reduce the petitioner's holding is not correct. It was a right issue and in case of right issue the question of reduction in one's shareholding does not arise. An offer was sent to the petitioner on 26.2.2001 with the closure date as 18^th March, 2001. The offer was addressed to the address as noted in a number of the books published by the petitioner. Therefore, it is wrong to contend that the offer was sent either to a wrong address or to an incomplete address. Further, even though the petitioner alleges that the offer letter was received after the closure date, yet, it has not indicated the date of receipt of the offer letter. The petitioner was not interested in the affairs of the company as is evident from its letter dated 4^th May, 2001 (Annexure P-21) wherein it has stated that the offer letter was received after the closure date but had not asked for being given an option to subscribe to its entitled shares, other than stating that all future communications should be sent to the address given in that letter. Further, till the petition was filed, the petitioner had never complained of non allotment of right shares, perhaps because the petitioner had started its own parallel business in India. Even in the suit filed by the petitioner, it has not complained of non allotment.
It is wrong to say that since the company was making profits, there was no need to increase the share capital. On an earlier occasion, when the right issue was made, the company was earning profits and at that time the petitioner availed of the right issue. In 2001, right issue was made only because the cash flow was slow as the company had to give credit of approximately 180 days to its buyers. Further, this single act, even assuming has affected the petitioner, cannot be considered to be an act of oppression as held in Palghat Exports v. T.V. Chandran (79 CC 214). In Bengal Luxmi Cotton Mills (1965 35 219), it has been held that if there is delay in making a complaint is such that it is evidence of acquiescence or condonation of wrong acts, then the discretionary relief under Section 397 or 398 cannot be granted. In the present case, even though the further issue was made in 2001, the petitioner has sought to make it an issue only in 2003, that too, only after the company had filed a suit against the petitioner. In Needle Industries case (AIR 1981 SC 1298), it has held that it is not the law that power to issue shares can be used only if there is need to raise additional shares. Therefore, this allegation that further issue of shares was made with the view to reduce the petitioner's holding cannot be sustained.
25. With regard to the remuneration paid to the 2^nd respondent, the learned counsel submitted that the 2^nd respondent had been managing the affairs of the company right from 1972 and because of his efforts, the turnover of the company has gone up from Rs. 5.9 crores in 1995 to Rs. 24.5 crores in 2003. The profit has also gone up from Rs. 66 lacs to Rs. 116 lacs. There is nothing wrong in payment of increased remuneration to the 2^nd respondent who is the Managing Director of the company, taking into account the profit earned by the company.
Producing a chart giving the details of remuneration, he pointed out that the remuneration which was about 11.49% of the profits for the year ended 31^st March, 1994, has actually come down to 5.02% of the profits in the year ended 31^st March, 2001, even though, the actual amount of remuneration paid appears to be high. According to the learned counsel, the remuneration paid to the 2^nd respondent had not only the approval of the shareholders but also the Central Government.
In terms of Section 309 of the Act, remuneration of the director shall be determined either by Articles of the company or by a resolution or the Articles so require by a special resolution in a general meeting.
However, Sub-section (9) of Section 309 of the Act provides that the provisions of this Section are not applicable to a private company unless it is a subsidiary of a public company. Articles 83 and 94 of the Company provide for payment of remuneration to the directors.
Therefore, the question of determining the salary of a director is within the power of the Board and there is no need for taking permission from the shareholders. Therefore, there is nothing illegal in fixing the remuneration of the 2^nd respondent.
26. As far as the appointment of the 5^th respondent as Marketing Manager is concerned, the learned counsel pointed out that she was so appointed by a special resolution at the AGM held on 26^th March, 2001 and thereafter the company had taken the approval of the Central Government in terms of Section 314 (1B) of the Act. Further, she has already filed an application for deletion of her name from the array of parties since she is not a director of the company. When her appointment is in compliance with the provisions of the Act, the question of challenging her appointment does not arise.
27. In regard to dealing with Mediamatics , the learned counsel submitted that the allegations of the petitioner that the funds of the company are being siphoned of through Mediamatics is baseless.
Mediamatics is one of the dealers of the company and the net sales to Mediamatics is between 1.5% to 2% of the total sales of the company. No special benefit is provided to Mediamatics and all the dealings are at arms length. The petitioner has not produced even an iota of evidence to establish that any undue benefit had been given to Mediamatics. It is also wrong to say that favorable credit terms have been given to Mediamatics and that substantial amount is due from Mediamatics. The actual position is that the dues from Mediamatics ranges from 2.5% to 3.3% of the total debtors.
28. The learned counsel further submitted: The petitioner's complaint is that the company is not permitting the petitioner to appoint its nominees on the Board of the company. That the petitioner was never interested in the affairs of the company as is evident from the fact that it had not attended any annual general meeting of the company right from 1987 and its last nominee on the Board left the Board in 1995. Thereafter, the petitioner never sought for appointment of its nominees on the Board. Further, since the petitioner has been in litigation with the company for over 3 years, it has never sought for appointment of its nominee on the Board even in the recent past. Even otherwise, the petitioner has lost its right of appointing its nominee as it has started its own parallel business in competition with the company and as such if its nominee are appointed, they would use the company information for the benefit of their own business which would not be in the interest of the company. It has been held in British Murac Syndicate v. Alperton Rubber Company Ltd (1914 -15 AER 346) that the Court would not force a company to accept persons who are unfit or unacceptable as members of the Board. In Bharat Bhushan v. H.B.Portfolio, Leasing Limited (74 CC 20), the Court declined to grant any injunction in favour of the plaintiff seeking for appointment to the Board in terms of the Articles of Association, on the ground that he was carrying on a competing business with the company and that he had exhibited lack of interest in the affairs of the company on account of its own business. Therefore, when the petitioner is carrying on a competing business and has not taken any interest in the affairs of the company for a long period, it is not entitled to have its nominee on the Board even if so entitled in terms of the Articles. The allegation that notices for Board Meetings or AGMs have not been given to the petitioner is not correct as notices were always sent to the petitioner but it never chose to attend any meeting. The shifting of the records of the company from the registered office was approved by a special resolution on 29^th September, 2000 in the general meeting as the space available in the registered office was not adequate. In so far as the allegation that sale proceeds of certain publications have not been accounted for in the books of accounts is concerned, this allegation has been made only because, the company had not included these titles in the royalty statement furnished to the petitioner as these titles do not belong to the petitioner. Otherwise, all sale proceeds are accounted for in the books of the company.
29. Summing up his arguments, Shri Dave submitted: The petitioner has contended that there was an understanding that the petitioner would control the company and whenever there were changes in law, it would acquire majority shares in the company. There was no such understanding either in writing or otherwise. Even if there were such an understanding, it is not binding on the company without such provision in the Articles. The Supreme Court has categorically held in V.B.Rangaraj v. V.B. Gopalakrishna (AIR 1992 SC 453) that a restriction on transfer of shares, which is not specified in the Articles, is not being either on the shareholder or on the company. Similarly, in Shanti Prasad Jain v. Kalinga Tube Ltd (AIR 1965 SC 1535), it was contended that there was an agreement that two groups of shareholders would have equal percentage of shares and as such issue of further shares without allotting any share to one group was in breach of that agreement. The Court held that an agreement, the terms of which are not incorporated in the Articles, is not binding on the company. Even the claim of the petitioner that the company was a quasi partnership between the petitioner and the Indian shareholder cannot be sustained as in Kilpest Pvt. Ltd. v. Shekhar Mehra (1996 10 SCC 696), the Supreme Court has held that once the company is incorporated, the promoters bind themselves by the provisions of the Companies Act and the claim for treating the company as a quasi partnership should not be easily accepted. Further, as already pointed out this petition has been filed for collateral purposes and as such deserves to be dismissed.
30. I have considered the pleadings, arguments and the written submissions. The respondents have alleged that this petition has been filed with an oblique motive, I do not find any justification for this allegation. This petition has been filed alleging oppression and mismanagement and the reliefs sought also relate to redressal of the same. None of the cases cited by the learned counsel in this regard is applicable to the present case. The matter covered in the civil suit relates to the contract between the company and the petitioner, while in this case, the petitioner is alleging oppression and mismanagement and the reliefs that could be granted in this petition would be different from those in the civil suits.
31. The main preliminary objections of the respondents are two fold- that the petitioner has no locus standi to file this petition and secondly the power of attorney given by the petitioner does not authorize Shri Ravi Oberoi to file this petition. As far as the locus standi is concerned, again the objection is two fold. One is that the petitioner's name is not in the Register of Members. I do not find any merit in this contention. The petitioner has produced the documents relating to change of the name of M/S Prentice Hall Inc. to that of M/S Pearson Education Inc. A certificate issued by Secretary of State of the State of Delaware dated 12^th January, 2001 has been produced, from which, I find that the change of name was to take effect from 1^st January, 2001. As rightly pointed out by Shri Sarkar, Section 23 of the Act clearly stipulates that the change of the name of a company shall not affect any rights or obligations of the company. The certificate relating to change of name of a foreign company issued by an authorized person in that country is conclusive evidence of the change of name as held by Bombay High Court in Sulphur Dye Limited v. Hikson and Dadajee Limited (83 CC 533). In that case, a company incorporated in UK, holding shares in an Indian company, changed its name. Accordingly, it applied to the Indian company to rectify its Register of Members to substitute the new name of the petitioner for its old name. The company resisted the same on the ground that the foreign company was trying to maneuver the transfer of shares to a third patty without following the provisions of the Articles of the company. The Court held that the case was a plain and a simple case of a mere change of name of an existing shareholder duly supported by a fresh certificate of incorporation and did not amount to transfer of shares. Therefore, the Court directed the company to rectify its Register of Members to substitute the new name of the company in the register of members. The respondents have relied on the decision of this Bench in Banford Investment Limited to state that the tests laid down in that case are not satisfied in the present case in regard to the membership of the petitioner. That case has no relevance in the present case in as much as that case was not relating to change of name of a shareholding company. In the present case, the judgment in Sulphur Dye Limited is squarely applicable. As a matter of fact, in the present case, the respondent company itself had recognized the change in the name of the petitioner company as is evident from the suit filed by it in the High Court. In paragraph 19 of the suit filed by the company against Prentice Hall Inc., the company has sought for reliefs against Pearson Education and a copy of the petition was also sent to Pearson Education even though the suit was against Prentice Hall Inc. Further, in the contempt application filed by the company against Pearson Education Inc., it is stated "formerly known as Prentice Hall Inc". Shri Sarkar relevantly pointed out to Article 153 which specifies that when a member changes his name, the same should be intimated to the company. Thus, even the Articles recognize that a member could change his name. Therefore, when the petitioner intimated its change of name, the company was obligated to insert the new name of the petitioner in the Register of Members. In view of this, even if the name of Pearson Education Inc. has not been incorporated in the Register of Members in place of Prentice Hall Inc., and it does not possess share certificates in its own name, Pearson Education Inc. can exercise all rights that are available to Prentice Hall Inc. as a shareholder of the company and therefore the contention of the petitioner that since the petitioner's name is not in the Register of Members, it cannot file this petition has no merit.
32. The other limb of the objection of the respondents relating to locus standi of the petitioner is that the taking over of M/S Prentice Hall Inc. by Pearson Education Inc. amounted to transfer of shares of the company and as such the relevant provisions of the Articles giving pre-emptive rights to other members of the company should have been complied with and since there is no such compliance, Pearson Education Inc. cannot be entered as a member in the Register of Members as the transfer would be invalid ab-initio. It is true that Article 24 gives pre-emptive rights to existing members in case of transfer of shares by a member and also prohibits transfer of shares to a non member without the permission of the Board of Directors. The only issue is whether taking over of M/S Prentice Hall Inc. by Pearson Group is a transfer to be regulated by the Articles. The learned counsel for the respondents has relied on a number of cases to support his proposition that such a change in ownership of the shareholding company amounts to transfer of shares. Manalal Ketan case deals with provisions of Section 108 of the Act and the Court held that the provisions of this Section are mandatory. This Section would come into play when there is a physical or direct transfer of shares, the registration of which would have to be done by the company. In the present case, there has been no physical/direct transfer of shares when M/S Prentice Hall Inc. was taken over by Pearson Group. The two cases cited by the learned counsel for the respondents viz. Sunil Sidharathbay and Anarkali Sarabhai relate to the provisions of Income Tax Act, wherein the Court interpreted the term "transfer" in accordance with the provisions of that Act and as such have no application in the present case. Escorts case also involved physical transfer of shares wherein transfer to a non resident required approval under Foreign Exchange Regulation by RBI. In case of General Radio & Appliances case, it was a merger and related to leased premises. The Supreme Court held that on merger, the transferor company ceased to exist for all practical purposes in the eye of law and since all interests of the transferor company including possession in respect of the tenanted premises has been transferred to the transferee company in contravention of the provisions of Andhra Pradesh Buildings (Lease, Rent and Eviction) Control Act of 1960 and also the terms of the Rent Agreement, the transferee was liable to be evicted. In the present case, even after the taking over of Prentice Hall Inc. by Pearson Group, M/S Prentice Hall Inc. continue to exist and as such the ratio of the Supreme in General Radio case cannot be applied. The case of John Tinson was cited to the proposition that Articles of Association of a private company is a contract between the parties and that if the Articles so provide, there should be a written resolution of the Board accepting the transfer from shareholders in favour of transferee and such previous sanction should be precedent by handing over the shares and in the absence of such an action, the transfer would not be valid in law. A reading of this judgment would also indicate that this is applicable in case of physical transfer of shares. The respondents have relied on all these cases to contend that the term "transfer" used in Article 85 has a wide meaning and as such should not be restricted to direct transfer of shares but should be applied even to an indirect transfer- that is when the control over the shares is passed on by transferring the shareholding company itself.
While interpreting the provisions of the Articles, especially in the case of a private limited company, one has to ascertain as to how the parties have understood the provisions of the Articles. If they have understood the provisions of an Article in a particular manner for a long time, then, they cannot seek to interpret the Articles in a different manner when it is convenient to do so. In the present case, the admitted fact is that M/S Prentice Hall Inc. was taken over by M/S Gulf + Western Inc. in the year 1984 and it continued to be so till 1998 when Pearson Group acquired the control of M/S Prentice Hall Inc.
During the long period of 14 years when Prentice Hall Inc. was under the control of Gulf + Western Inc., neither the company nor the 2^nd respondent invoked the provisions of Article 24 to state that there was a transfer of shares in favour of M/S Gulf + Western Inc. in violation of these Article. In other words, for nearly 14 years, the respondents did not construe the provisions of Article 24 that change of control of M/S Prentice Hall Inc. amounted to transfer of shares. If so, they cannot now claim otherwise when M/S Prentice Hall Inc. was taken over by Pearson Group. In this connection, I may also point out that if the intention of the parties that even if there is a change in the control of a shareholding company, the approval of the other shareholders or the Board of the company is required, then, suitable provision could have been made in the Articles to that effect. I have come across a few instances, wherein the Articles have so provided. In the present case, there is no such provisions in the Articles and therefore, taking over the control of M/S Prentice Hall Inc. by Pearson Group cannot be considered to be against the provisions of Article 24.
33. The respondents have sought for dismissal of the petition on the ground that at the time of filing of the petition, the power of attorney given in favour of Shri Oberoi had not been filed. According to the petitioner, a copy of the power of attorney was filed along with the petition but since the Bench Officer wanted a copy authenticated by the Indian Embassy, an undertaking was given the power of attorney with the authentication of the Indian Embassy would be filed during the hearing. When this issue was raised, I had specifically asked Mrs.
Kukreja, Bench Officer, who was present in the Court, whether it was a fact. She confirmed the same. I also find an endorsement made by the counsel for the petitioner on the office file to this effect. The factum of existence of the power of attorney in favour of Shri Ravi Oberoi on the day of filing of the petition has been established by producing various documents as indicated as a part of the arguments of Shri Sarkar. In view of this I do not propose to deal with this matter any further as also with certain cases cited by the learned counsel for the respondents.
34. The next objection of the respondents relates to the validity of the power of attorney and the authority of Shri Oberoi to file this petition. According to the learned counsel for the respondents, the power of attorney dated 29^th May, 2003 given in favour of Shri Ravi Oberoi was limited to the proceedings before Delhi High Court and did not authorize Shri Oberoi to file this petition. He also submitted that the power of attorney signed by a director of the petitioner is not valid as only the Board of a company has powers to appoint the power of attorney. I do no know whether the second limb of the argument was advanced in the High Court in the civil suits as the same power of attorney authorized Shri Oberoi to prosecute the civil suits on behalf of the petitioner. If it was not done so in the High Court, the respondents cannot raise the issue before this Bench. Even otherwise, I find from the power of attorney, that the petitioner company, in its Board Meeting held on 9^th March, 2000 had resolved to appoint Shri Ravi Oberoi for a period of one year and that when the same came to an end after one year, by another power of attorney dated 30^th May, 2001, he was again appointed for a further period of two years and that the present power of attorney was being given until expressly revoked by the petitioner. Since the Board of the company had itself resolved to appoint Shri Ravi Oberoi as the power of attorney, the document having been signed by the Sr. Vice President cannot be construed that he had not been appointed by the Board. In other words, he had been properly appointed by the Board and as such the cases cited by the learned counsel for the respondents viz. Nibro Limited, Sri Consultants & Services Ltd. and Ferruceio Sial cases which lay down that for instituting any proceedings in the name of a company, there should be a proper authority by a resolution of the Board has been complied with in this case.
35. The only question that remains is whether this power of attorney dated 29.5.2003 empowers Shri Ravi Oberoi to file the present petition before this Board. The respondents have relied on the decision of this Board in Kiron M. Lullla case, wherein this Board has held that unless there is a specific authority in the power of attorney for seeking to enforce the rights of the petitioners as members of the company, he cannot file a petition under Sections 397/398 of the Act. In that case Shri Kiron M. Lulla and his wife who were holding shares in M/S Vikron Fashions and Vikron Resorts were living abroad. Therefore, they appointed one Manoj Kr. Lulla as their attorney by a power of attorney.
In Clause 19 of the deed of power of attorney, it was stated "Generally to act as the attorney in relation to my business, firm and companies mentioned above in which I am a partner and the companies in which I am Managing Director, Director and shareholder and in any matter in which I may be interested or concerned and on behalf of the business to execute all deeds, acts and things as fully and effectually in all respect I would do if personally present". On the basis of this authority, the power of attorney holder had filed two petitions in respect of these two companies under Sections 397/398 of the Act. This Board held that there was no specific authority that could be found from the powers of attorney that the holder was authorized to file any petition seeking to enforce the right of the petitioners as members by way of filing of these petitions and as such both the petitions were dismissed. This matter went on an appeal to Madras High Court, which, while setting aside the said order, and remanding the cases back to this Bench for deciding on merits observed "Clause 19 of the power of attorney deed empowers the poser of attorney holder to act as the attorney in relation to the business, firms and companies mentioned in the deed wherever the principal is a partner, is a managing director, director or a shareholder. The clause although do not impose any limitation with regard to the matter in which the power agent can act, which merely states that in any matter in which the principal is interested or concerned or on behalf of the business to execute and to do all deeds, acts or things as fully and effectually in all respect as if he could do if personally present. So, the power of attorney holder has been given the full power to deal in respect of the business on behalf of the principal. When once the power agent has given such unlimited power, normally, it would include dealing of the shares also.
Though specifically, there is no mention with regard to the dealing of the shares the matter in which the words have been couched the Clause 19, it can be construed that it also includes the power of attorney, the power to deal with the shares. Hence, the power of attorney can sign on behalf of the principal in the petition under Sections 397/398 of the Companies Act". In the same judgment, the High Court has also referred to the decision of, the Supreme Court in P. Punnaiah v.Jaypore Sugar Co. Ltd. (AIR 1994 SC 2258) wherein the Supreme Court has held that the consent given by a general power of attorney holder under Section 399(3) of the Companies Act could be construed as the consent of the principal, (this judgment of the High Court is not reported but a copy of the same is on the file of this Board). A reading of the power of attorney in the instant case would show that, while this authority mainly deals with suit No. 200 of 2000 filed by Prentice Hall of India Pvt. Ltd. against the petitioner and suit No. 716 of 2000 filed by the petitioner against Prentice Hall of India Pvt. Ltd. and the connected appeal and cross objections in those proceedings, it also states "And/or in connection with any other suit and/or proceedings that may be filed by Prentice Hall of India Pvt. Ltd. against us and to institute, file all the necessary suits, proceedings and/or applications, petitions, complaints before the appropriate or s against Prentice Hall of India Pvt. Ltd. and to do all such acts, deeds, matters and/or things in connection with the same". It also empowers Shri Oberoi to verify, sign, see, swear, affirm, declare, deliver, execute, make, enter into, acknowledge, complete record and perfect all deeds, instruments, proceedings .....in connection with the above suits and appeal and cause of acts and/or any other proceedings and/or suits filed by Prentice Hall of India Pvt. Ltd. against us and/or any other suit and/or any other proceedings that may be filed by us against Prentice Hall of India Pvt. Ltd. From the above, it is. clear that this power of attorney not only deals with pending suits but also authorizes the attorney holder to institute any other proceeding. The present petition before this Bench is a "proceeding instituted against the company" and non mentioning of Company Law Board specifically in the deed does not vitiate the present proceedings. Both the sides relied on the decision of Bombay High Court in Killick Nixon's case. While the petitioner has relied on this case for the proposition that a power of attorney holder can file a petition under Sections 397/398, the respondents have relied on this case to the proposition that the power of attorney should be strictly construed and if the authority is given for doing a particular act, any general words following the same should be restricted to what is necessary for performance of that particular act. In that case, one of the issues examined was, whether, when the right to apply under Sections 397/398 of the Act is a personal right of a member, he could delegate his rights to anybody else. In that case, two shareholder banks as well as consenting members had delegated their rights to the 4^th and 5^th petitioners to file a petition under Sections 397/398. It was contended that the petition having been filed on such delegation of authority, the petition was bad in law and not maintainable. This contention was rejected by the Court. The Court, after examining the matter in detail, came to the conclusion that there was nothing in the Companies Act to suggest that it prohibited the application of the normal law of agency to the acts and obligations required to be performed under the Act. It also examined as to whether the consent required to be given by members in terms of Section 399 for the purpose of filing a petition under Sections 397/398 must be given by the members themselves. The Court held that the power to give consent can also be delegated and as long as the agent applies his mind and gives his consent to file a petition, then, the petition would be in order. The Court also examined the case of Bengal Laxmi Cotton Mills Ltd., a case cited by the respondents, in this regard. In that case, the power of attorney given by the shareholder was restricted to the exercise of rights arising out of the shares held by the shareholders who had given the power of attorney. But in the present case, the power of attorney given by the petitioner company to Shri Ravi Oberoi was not restricted to exercise of rights arising out of the shares held by the petitioner company in the respondent company, but to institute and defend any proceeding for and against the petitioner company viz-a-viz the respondent company. If so, the power of attorney given in favour of Shri Ravi Oberoi has to be construed, if not as a general power of attorney, but as a hybrid attorney, containing both general as well as a specific attorney. Such being the case, each word in the authority has to be given its own meaning. If this power of attorney is construed in this manner, then, Shri Oberoi had the power to file this petition on behalf of the petitioner company which is a shareholder of the respondent company.
36. Yet, another objection of the respondents is that the affidavit verifying the petition signed by Shri Ravi Oberoi is not in accordance with the CLB Regulations. The affidavit verifying the petition signed by Shri Ravi Oberoi reads "I say that I am the constituted attorney of the petitioner above named and as such am competent and authorised to swear and affirm the present affidavit. I say that I have read and understood the contents of the accompanying petition under Sections 397, 398, 402, 406 and 408 of the said Act read with Schedule XI thereof and state that Statement of Facts therein are true and correct to the best of my knowledge upon information received from the records of the case maintained by the petitioner and believed by me to be true while the Statements of Law are based upon legal advise received and believed by me to be true": In terms of Regulation 14 (7) of CLB Regulations, the affidavit verifying the petition has to clearly and separately indicate the statements which are true to the knowledge of the deponent, information received by the deponent, belief of the deponent and the information based on the legal advice. Regulation 14(8) of CLB Regulations further stipulates that where the statement referred to in separate Regulation (7) is stated to be true to the information received by the deponent, the affidavit shall also include the name and complete residential address of the person from whom the information has been received by the deponent and whether the deponent believes that the information to be true. In the present case, according to Shri Oberoi that the statements contained in the petition were based upon the information from the records maintained by the petitioner and no where he has stated that he received any information from a third party. Thus, I find that the affidavit is in compliance with the CLB Regulations. The respondents have relied on proposition that verification of pleadings is a important matter having very serious consequences as in case of falsification, a person verifying may be liable to criminal prosecution and where a plaint contains serious allegations of fraud etc., mere putting on record the verification by a power of attorney holder would not suffice. In Rajkumar Dhar case, relied on by the respondents, the Court found that the plaint contained serious allegations of fraud, falsification of accounts' etc. against the defendants and therefore held that the plaint should be verified by the plaintiff himself or he is to place proper material before the Court for satisfying itself that the power of attorney holder who had signed the verification was acquainted with the facts of that case. Examining both the alternatives, the Court directed the plaintiff to personally verify the plaint in the presence of the Subordinate Judge. In the present case, the petitioner is a company and not an (sic) and therefore the ratio of the above case is not applicable. The petitioner being a company has to necessarily act through an agent authorized by the Board of the petitioner company and Shri Ravi Oberoi has been authorized by the Board and as such he is competent to sign the verification and he will have to necessarily take all the responsibility of all the statements made in the petition.
Thus, on an overall appreciation of the affidavit filed by Shri Ravi Oberoi, I do not find any infirmity.
37. Having given my findings on the preliminary objections, I shall now examine the various allegations made in the petition. The allegations of oppression relate to non recognition of the petitioner as a member of the company, issue of further shares and non appointment of the nominees of the petitioner on the Board of the company. As far as the membership of the company is concerned, in view of my finding that neither the take over of Prentice Hall by Pearson Group nor the change of its name is in violation of the provisions of the Articles, I direct the company to substitute the name of the petitioner in place of Prentice Hall in the Register of Members with immediate effect. As and when the petitioner surrenders the share certificates in the name of Prentice Hall, the name of the petitioner will also be substituted in those certificates. The petitioner will be entitled to all the rights available to a shareholder. As far as further issue of shares in 2001 is concerned, both he sides have cited some cases. A perusal of these decisions would indicate that in issuing further shares, the directors of a company are in a fiduciary position; Shares can be issued not only when the company is in need of funds but also for other purposes like compliance with statutory provisions etc; if the issue of shares is in the interest of the company, even if the directors are indirectly benefited, such issue cannot be an act of oppression; if the sole purpose of the issue is for creating a new majority or conversion of an existing majority in to a minority, then it is an act of oppression; in a closely held company, if the issue is made with the purpose of disturbing the existing shareholding percentage, it could be an act of oppression. Keeping these broad principles, the issue made in 2001 has to be examined. In so far as further issue of shares in 2001 is concerned, it was a right issue. Normally in case of a right issue, the question of reduction in the percentage holding of a shareholder does not arise as the allotment would be on a proportionate basis. However, this Board had the occasion to deal with cases, where, even in case of a right issue, this Board came to the conclusion that the issue was not bona fide, but was made with the view to create a new manjority or disturb the existing percentage shareholding. In Deepak C. Shriram v.General Sales Ltd (2001 4 CLJ 450), the petitioners holding 49% shares in the company complained that even though the company was not in need of funds, it had purportedly decided to issue further shares but no offers were made to the petitioners and that the entitlement of the petitioners had been taken by the respondent therein by which he became an absolute majority shareholder. The company contended that, right issue was decided as per the requirements of the bankers of the company and that offers were sent by registered post to the petitioners but none of them applied for the shares and therefore, they had voluntarily reduced their holdings. The petitioners contended that the covers allegedly containing the offers, actually contained some other communication and that the bank had not really asked the company to increase the share capital. They also contended that some civil proceedings were already on regarding the control of the company and that it was inconceivable that the petitioners would have declined the offers if they had received the offer letters. After considering the matter in detail, this Board came to the conclusion that, even though the issue was purportedly a right issue, there was no requirement form the bank and that the intention of the respondent was to increase his shareholding and that the alleged offer made to the petitioners was nothing but a sham and therefore, the petitioners had established an act of oppression against them. Accordingly, this Board directed the 2^nd respondent to divest his shares in favour of the petitioners according to their entitlement. In Standard Industries v. Mafatlal Services Ltd (80 CC 764), there were two groups of shareholders, the petitioners holding 48% shares and the respondents 52% shares. The respondents decided to issue shares on right basis which was opposed by the petitioners on the ground that the issue was being made knowingly well that the petitioners would not subscribe to the right issue and that the motive of the issue was to gain substantial control over the company by the respondents. Even though this Board found that the issue was lawful, yet, it held that it was oppressive to the petitioners, as, the respondents' shareholding would become substantial as they would subscribe to all the right shares in the absence of the petitioners not subscribing to the same. Thus, these case establish that, even in case of a right issue, the need for and the motive for the issue could be examined. In the present case, the allegation is that, even though the issue was on a right basis, by sending the offer letter to a wrong/incomplete address, the petitioner has been denied of its entitlement, by which its shareholding percentage has come clown from 31% to about 19%. In regard to this complaint relating to sending of offer letters, I find substance in the complaint of the petitioner. The petitioner's correct address is "One Lake Street, Upper Saddle River, New Jersey, 07458 USA". To this address, the 2^nd respondent, in his capacity as MD, had sent two letters on 17.4.2000. The letter head of the petitioner company in its letter dated 21 March, 2000 and 1^st August, 2000 carry the same address. However, the offer letter signed by the 2^nd respondent dated 26.2.2001 was addressed to "M/S Prentice Hall Inc, Upper Saddle River, New Jersey, USA.". It is quite obvious that the offer has not been sent to the correct address of the petitioner. In his letter dated 4^th May, 2001, the petitioner had also brought to the notice of the company that the offer letter was received by the petitioner after the closure date and thus the petitioner had been deprived from exercising its right to subscribe to the shares offered. The respondents have justified their sending the offer letter to that particular address on the ground that the books published by the petitioner contained the said address. In law, in terms of Section 53 of the Act, notices to members are to be sent to the addresses which are registered with the company. It is surprising that the company has adopted a novel method, unrecognized by law, to find out the address of the petitioner from the books published by it in sending the offer letter. In Kamal K. Dutta v. Ruby General Hospital (2000 36 CLA 214), notices for Board Meetings were sent to the local address of a shareholder director who normally resided abroad and this fact was known to the company. In view of this, the director who was not aware of the Board Meetings did not attend such meetings in which shares were allotted in exclusion of that shareholder director. When the company advanced the argument that as per law notices were to be sent to the usual address in India of a director, this Board held that the notices should have been sent to the foreign address as the company was aware that the director shareholder who was a promoter of the company and was residing abroad and therefore, they should have sent the notices to his address abroad sufficiently in advance and as such held that the conduct of the Board of Directors in sending the notices to the local address exhibited lack of probity and fair play and thus cancelled the allotment. In the present case, the company/the 2^nd respondent having known the correct address of the petitioner, should have sent the letter of offer to the correct address especially when the petitioner was one of the promoters of the company. Further, the timing of the issue of further shares is also relevant. At that point of time, civil suits filed against each other were pending before the High Court and therefore it was all the more necessary that the offer letters was addressed to the correct address. Thus, I find justification in the claim of the petitioner that the offer was sent to the wrong address deliberately to deny the petitioner of its entitlement, so that its percentage holding would come down.
38. The petitioner has questioned the decision of the Board of the company to issue further shares on the ground that the company was not in need of funds. The learned counsel for the petitioner pointed out the financial soundness of the company by referring to the annual reports of the company. He also cited a number of cases as indicated as a part of his arguments to contend that if an issue of shares is made with the intention to reduce the holding of the petitioner, it is an act of oppression. This issue would not have been relevant, if the offer letter had been addressed to the correct address, as, in case of right issue, as I have already observed, the question of reducing one's shareholding would not normally arise. Since I have held that sending of the offer letter to a wrong address was deliberate, the issue as to whether, the issue of further shares was a business necessity or was done to reduce the petitioner's shareholding. Normally, when further issue of shares is challenged, the company should produce all the documents, more particularly, the resolution of the Board, in which the decision to issue further shares was taken. This resolution would normally spell out the reasons for the need to issue further shares. In the present case, the company has not produced the Board Resolution other than stating that it was done for increasing the working capital.
Even this stand appears to be an after thought. The last date for receipt of subscription was 18^th March 2001 and the increased capital of about Rs. 18 lakhs is reflected in the Balance Sheet on 31^st March 2001. On the total capital, the company declared a dividend of 50% for the year 2000-2001 amounting to about Rs. 13.5 lakhs. In other words, if the share capital had been increased for working capital needs, how the company could pay out nearly 75% of the same as dividend within a short period. Therefore, I have to perforce, taking into account the fact the offer letter was addressed to a wrong address deliberately, that the issue was made during the pendency of civil suits and nearly 75% of the amount raised as share capital had been paid as dividend within a short period, come to the conclusion that, further issue of shares was not made for any bonafide commercial or business reasons but to reduce the petitioner's shareholding and thus is an act of oppression. The respondents have claimed that by keeping quiet for over two years, that too, after coming to know of the issue, the petitioner cannot now complain and they have relied on the case of Bengal Luxmi Cotton Mills. It is true that delay and acquiescence are relevant factors to be considered, but in the present case, the delay of two years cannot be considered to be such that the petitioners cannot make a complaint of oppression. The respondents have also relied on Palghat Exports case, to contend that a single act cannot give rise to a petition under Sections 397/98. This Board has held in a number of cases, that that in the matter of issue of shares, even it is a single act, since its effect is a continuing one, the same could be a subject matter of a petition under Section 397. Further, the petitioners have also made other allegations.
39. The next act of oppression alleged is that the petitioner has been denied of its right to appoint its nominees on the Board of the company even though in terms of Article 82, the petitioner is entitled to appoint its nominees as long as it holds shares worth Rs. 20,000.
However, the cause of making this complaint has not been explained. The petitioner has not produced any evidence to the effect that it had sought for appointment of its nominees and that the company or the 2^nd respondent had refused the said request. However, from the stand of the respondents in the proceedings indicate that they are not willing to associate the petitioner with the management of the company for the reason that the petitioner is having its own business in competition with that of the company and as such the petitioner has lost its right to appoint its and appointing its nominee on the Board would result in conflict of interests. They have cited the cases of British Murac Syndicate and Bharat Bhushan for the proposition that a company cannot be forced to appoint directors who are doing competing business with the company. Normally, in closely held companies, especially when the Articles themselves provide for representation on the Board, the denial of the same is an act of oppression. In the present case, it is an admitted fact that the company was incorporated as a sort of quasi partnership between the company and late Laroia and the petitioner always had its nominees on the Board till 1995. The object with which the company was incorporated would also indicate that the continuous association of the petitioner in the management would be beneficial to the interests of the company. It is a legitimate expectation of the petitioner to continue to have its nominees on the Board even if there is no covenant in the Articles. While, it is a settled law that a director should not compete with the business of the company in which he is a director, without full disclosure to the company as it would be in breach of his fiduciary duties, the same criteria to a shareholder cannot be liberally applied. In the present case, more than carrying on a competing business, what is more important is the pending civil proceedings between the petitioner and the company. The proceedings are in relation to the right of the company to publish the titles of the petitioner and the right of the petitioner to publish the same titles in India. Therefore, to have the nominees of the petitioner on the Board of the company would definitely result in conflict of interests and would not be in the interest of the company. Further, in view of the final directions that I propose to give, the question of appointing the nominees of the petitioner on the Board of the company does not arise.
40. The petitioner has complained that it has not received notices for the general meetings for a long time and that when the petitioner required the company to supply various documents like annual reports etc, they were not supplied. The company asserts that notices for all general meetings had been sent to the petitioner, of course, without any supporting documents evidencing the sending of notices. In view of this contradicting stands, even assuming, as contended by the petitioner that notices were not received by it for a long time, there is nothing on record that it had pointed out the same to the company and inspite of that, the company had not sent notices thereafter. This allegation seems to be a bald allegation. The petitioner, being a promoter shareholder should have been vigilant and should not have waited so long to voice this grievance. No shareholder, who has not expressed any grievance for a long time, can make it an issue in this proceeding. Any way to ensure that such complaints do not occur in future, I direct that all notices to the petitioner should be sent by Registered Post to the address given by it atleast 30 clays in advance.
As far as the failure of the company to supply the documents sought for by the petitioner, I find that even though there was a delay, the company has supplied all the documents sought for by the company (Annexture P-19) 41. The petitioners have alleged mismanagement in the affairs of the company on the ground that the 2^nd respondent has increased his remuneration and that he has appointed his own wife as a director and also his own daughter as a marketing executive and that the company is having dealings with Mediamatics which is a proprietary concern of the wife of the 2^nd respondent and that the proceeds of publication of certain titles have not been accounted for in the books of the company and have been siphoned of by the 2^nd respondent. According to the petitioner, these acts are in breach of the fiduciary duties of the 2^nd respondent. In regard to increase in the remuneration of the 2^nd respondent, they have also alleged that legal provisions have not been followed. In regard to the appointment of his wife as a director, I find that she was appointed so in 1989 when the nominees of the petitioner were on the Board. One cannot challenge an appointment made more than a decade earlier especially when it was done when the nominees of the petitioner were on the Board. Even though in the petition, the petitioner has averred that its nominees had ceased to be its nominees, there is nothing on record to show that the petitioner had withdrawn these nominees. As far as the remuneration to the 2^nd respondent is concerned, the grievance of the petitioner relates to the quantum of the remuneration as well the mode of approval given by the shareholders. As far as quantum is concerned, no doubt, the increase from Rs. 3.2 lakhs in 1993 to Rs. 30 lakhs in 2003 is substantial, but at the same time the turn over and the profits of the company have also gone up many fold. As pointed out by the learned counsel for the respondents, as a percentage of profits, the remuneration has come down from 11% in 1994 to about 5% in 2003. Therefore, I do not consider that the increase remuneration paid to the 2^nd respondent reflects either mismanagement or breach of his fiduciary duties. Further, this remuneration has been approved by the Central Government also. In so far as the mode of approval is concerned, the contention of the petitioner is that there should have been a special resolution in respect of the business relating to remuneration with explanatory note in terms of Section 173. If special resolution had been proposed and notice for the AGMs had been sent to the petitioner, it would have blocked the resolutions in regard to remuneration as the petitioner held 31% shares in the company. Section 309 of the Act deals with remuneration of directors. As rightly pointed out by Shri Dave, the provisions of Section 309 of the Act are not applicable to a private company unless it is a subsidiary of a public company. Even though it is contended that in terms of Articles 83 and 84 of the Articles of Association, the Board is competent to fix the remuneration of the Managing Director and there is no need for shareholders' approval, yet, in the present case, whenever the remuneration was increased, the approval of the shareholders had been obtained. Section 173 clearly lays down that except for the four businesses mentioned in that Section, all other businesses shall be deemed special. Section 170 of the Act lays down that provisions of Sections 171 to 186 of the Act shall apply to private companies also unless the Articles of such companies provide otherwise. Article 57 of the Articles of Association of the company clearly spells out that except for the four businesses in terms of Section 173, all other businesses shall be deemed to be special. This being the case, all the resolutions relating to remuneration to the 2^nd respondent should have been passed as special resolutions. Even though, the petitioner has sought that remuneration approved without special resolutions should be directed to be recovered from the 2^nd respondent, considering the fact that provisions of Section 309 are not applicable to the company, and the Articles do not specify that shareholder approval is necessary after the Board has approved the remuneration, I do not consider that approval given by ordinary resolution would invalidate the increase in the remuneration.
In so far as dealings with Mediamatics, appointment of the daughter of the 2^nd respondent as Marketing Executive and in relation to the allegation that proceeds of many publications have not been accounted for in the books of accounts, I am convinced with the submissions of the respondents and as such hold that these allegations have no basis.
42. Having given my findings on the various allegations, I shall now deal with the reliefs to be granted to the petitioner. The main object of reliefs in a petition under Sections 397/398 is to put an end to the matters complained of. Since this Board is a court of equity, the reliefs granted should be equitable. Normally, in a closely held company, mere redressal of the grievances would not bring out a permanent solution and therefore, this Board has always directed one of the parties to go out of the company. In the present case, both the petitioner and the 2^nd respondent cannot continue together as is evident from the present proceeding before this Bench and the proceedings before the High Court. Therefore, parting of ways alone would not only put an end to the disputes but also would be in the interest of the company and the shareholders. Even though the petitioner has sought for a number of reliefs in the petition as elaborated in paragraph 4 ante, during the argument, the learned counsel for the petitioner also suggested parting of ways. Shri Sarkar proposed two alternate suggestions- the grant of either of which would result in parting of ways of the petitioner and the 2^nd respondent.
One is that the petitioner could purchase the shares held by the 2^nd respondent and his group and the other is that the 2^nd respondent could purchase the shares of the petitioner provided he omits the words "Prentice Hall" from the name of the company. The first prayer is based on the assertion of the petitioner that in equity it is entitled to have control of the company as its minority status was due to the then existing Government Regulations and that now the present Government Regulations permit 100% holding by a foreign company in an Indian company and that there had always been an understanding that Government Regulations permitting the petitioner could get majority shares in the company. Another argument advanced is that the 2^nd respondent joined as an employee and during his service in the company, he has received more than adequate returns by way of dividends and remuneration. This argument is not based either on equity or on any other sustainable ground. The so called understanding is not found in writing and even if it is so, then, as has been held in a number of cases, some which have been cited by the learned counsel for the respondents, such understanding is legally not binding either on the shareholder or on the company. However, if the petitioner had also, by its continued association with the management of the company without any break, contributed to its growth, perhaps, purely on equitable grounds, I could have considered the justification adduced by the learned counsel for the petitioner, to direct the 2^nd respondent to go out of the company. It is on record that the petitioner has not taken any interest in the company right from 1990, for whatever might be reason, and the 2^nd respondent was managing the company by himself. During this period, the turnover has gone up from Rs. 3 crores in 1993 to over Rs. 24 crores in the year 2002-2003. To direct a person, who has nurtured the company by himself very profitably without the association of the petitioner in the management, to go out of the company would be highly unjust and inequitable. Further, he is the majority shareholder. The increase in the turnover of the company has benefited the petitioner also by way of higher royalty. This Board has not so far directed a majority shareholder who has been independently managing the company very profitably, to fo out of the company. Therefore, this suggestion given by Shri Sarkar cannot be accepted.
43. The second alternative given by Shri Sarkar that petitioner is willing to go out of the company, is perhaps the right suggestion but for the caveat that the 2^nd respondent should omit the words "Prentice Hall" from the name of the company. He has cited the cases of Mahendra & Mahendra Limited, Podar Tyres Limited and Lakshmit B. Patel cases in this regard. All those cases arose out of the provisions of Trade and Mercantile Marks Act and as such are not applicable in the present case, as in all those cases, the use of the trade mark was without the consent of the trade mark holders. In the present case, the petitioner has permitted the company to use the word "Prentice Hall" in its name.
Whether the consent to use the words was because of the petitioner's holding shares in the company and association with the management or because the company is to publish the titles of the petitioner is not clear. When there is a provision in the Articles that as long s the petitioner holds shares worth Rs. 20,000 it would have the right to appoint directors, there is nothing in the Articles to the effect that once the petitioner ceases to be a shareholder, the company would omit the words "Prentice Hall" from its name. If there had been such a provision, then, the company could be directed to omit the words from its name, once the petitioner ceases to be a shareholder. I find that only in the agreement dated 6^th June 1963, there is a provision, that in the event of the agreement being cancelled by the petitioner, the company would omit the words "Prentice Hall" from its name. Contractual rights cannot be enforced though a petition under Sections 397/398.
Therefore, it would not be possible to direct the company to omit the words "Prentice Hall" from its name, even if the petitioners to go out of the company. Further, in a petition under Sections 397/398, the interest of the company is paramount and therefore, this Bench cannot/should not pass any order which would be detrimental to the interest of the company. Any direction to the company to omit the words "Prentice Hall" from its name, would definitely be against the interest of the company and therefore, such a direction cannot be given in a petition under Sections 397/398. However, this observation does not bar the petitioner to seek appropriate relief through a civil court in terms of its agreement with the company.
44. Having held that it would be inequitable to direct the 2^nd respondent to go out of the company and that to direct the company to omit the words "Prentice Hall" from its name on the petitioner going out of the company would be against the interests of the company, the question of granting appropriate relief arises. Earlier, I have observed that in closely held companies, one of the parties is normally directed to go out of the company and such a party would normally be the minority. In the present case, considering the fact that any such direction may have impact on the civil proceedings before the High Court, I do not propose to give any such direction. Instead, I leave it to the option of the petitioner, the choice of either continuing with the company as a shareholder or going out of the company on receipt of fair consideration for its shares. In case, it decides to continue with the company, since I have held that non allotment of shares issued in 2001 is an act of oppression against the petitioner, its shareholding percentage should be brought to the pre existing level, which could be done, either by directing the 2^nd respondent to transfer from his holding 56,660 shares, which were offered to the petitioner by way of right issue or cancel the entire allotment made in 2001. Since the respondents have not established any bonafide reason for increasing the share capital and that asking the petitioner now to subscribe to the shares would be equally inequitable to the petitioner, the company should be directed to cancel the allotments made in 2001 and reduce its paid up capital to that extent. In case, the petitioner chooses to go out of the company, then the fair value of the shares will be determined by an independent valuer, based on the Balance Sheet as on 31^st March, 2003, being the proximate date of the petition, on the basis of the share capital that existed before the issue of shares in 2001. The petitioner should communicate its choice of option to the company and the 2^nd respondent within one month from the date of this order. In case, the petitioner decides to go out of the company, this Bench will appoint an independent valuer to determine the fair value of the shares on an application made by the petitioner. At the option of the 2^nd respondent, either he or the company will purchase the shares of the petitioner. In case, the company purchases the shares, it will be authorized to reduce its share capital. In case, the petitioner decides to continue as a shareholder, the company should cancel all the allotments made in 2001 and reduce its paid up capital, within 10 days of receipt of communication from the petitioner that it wishes to continue as a member, by paying back the consideration received for the shares to the allottees of the shares in 2001. No dividend shall be paid on the shares issued in 2001 for the year 2003-2004. Since I have held that the petitioner cannot have its nominees on the Board, to ensure that its interests as a shareholder are not in any way prejudicially affected, I further direct, that, not withstanding any contrary provision in the Articles or the Act, all decisions having effect on the rights of shareholders, shall be taken only in general meetings of the shareholders by passing special resolutions.
45. The petition is disposed of in the above terms without any order as to cost, reserving the right to appoint a valuer to determine the fair value of the shares and give, consequential directions, on an application to be made by the petitioner in terms of the previous paragraph.