2004 Supreme(SC) 1058

2004(7) Supreme 209
SUPREME COURT OF INDIA
(From Kerala High Court)
Mrs. Ruma Pal & Arun Kumar, JJ.
M/s. Dale & Carrington Invt. (P) Ltd. & Anr. -Appellants
versus
P.K. Prathapan & Ors. -Respondents
Civil Appeal Nos. 5915-5916 of 2002
With
Civil Appeal Nos. 5917 and 5918/2002
All Decided on 13-9-2004
Counsel for the Parties :
For the Appellants : Dushyant A. Dave, Sr. Advocate, Krishnan Venugopal, K.S. Venugopal, E.B. Shaji, Nikhil Goel, Prasad Vijay Kumar, A. Venugopal and A.D. Sikri, Advocates.
For the Respondents : S. Ganesh, Sr. Advocate, Joseph Kodianthapa, Ajay K. Jain, Saji Kurup, Deepak Prakash and M.P. Vinod, Advocates.

IMPORTANT POINT
An individual Director has no power to act on behalf of a company of which he is a Director unless by some resolution of the Board of Directors of the Company specific power is given to him/her.

Headnote:(i) Companies Act-Sections 397 and 398-Proceedings under-Validity of allotment of additional equity shares of company in favour of its Managing Director-No meeting of Board of Directors took place on that date-Neither a copy of notice convening the Board meeting nor the log book meant to record signatures of Directors attending meeting of Board of Directors were produced-Alleged allotment of additional equity shares of company in favour of its Managing Director held wholly unauthorised and invalid.

       Held : Ramanujam who was the Managing Director of the company got allotted 6865 equity shares to himself in a meeting of the Board of Directors of the company alleged to have been held on 24th October, 1994. Again on 26th March, 1997 he managed to get allotted further 9800 equity shares to himself. Prathapan has challenged these allotments of shares in favour of Ramanujam as acts of oppression on the part of Ramanujam, the Chairman and Managing Director of the company for which he filed a petition under Sections 397 and 398 of the Companies Act before the Company Law Board. A doubt has been cast about whether the alleged meetings in which additional equity shares were allotted to Ramanujam were held at all. (Para 11)

       It was incumbent on the part of Ramanujam who was the Chairman and Managing Director of the company and was in possession of all the records of the Company, to place on record a copy of a notice calling a meeting of the Board of Directors in terms of Article 36. No copy of the notice intimating Suresh Babu about the meeting of the Board of Directors and asking him to attend the same, has been placed on record to show that Suresh Babu was informed about holding of the meeting in question. (Para 11)

       The decision is taken by the Board of Directors only in meetings of the Board and not elsewhere. Ramanujam, the Managing Director cannot take a decision on his own to allot shares to himself. If Suresh Babu was present in the meeting, as is the case of Ramanujam, he must have signed a book specially kept for recording presence of the Directors at the Board Meeting in terms of Article 38. Ramanujam should have been the first person to produce such a book to show the presence of Suresh Babu at the alleged Board meeting said to have been held on 24th October, 1994 specially when Suresh Babu was denying his presence at the meeting. Nothing has been produced. Thus neither a copy of a notice convening the Board meeting nor the log book meant to record signatures of Directors attending the meeting of the Board of Directors were produced. In the absence of these documents and any other proof to show that a meeting was held as alleged we are unable to accept that a meeting of the Board of Directors was held on 24th October, 1994. If no meeting of the Board of Directors took place on that date, the question of allotment of shares to Ramanujam does not arise. We are inclined to believe that photocopy of the minutes of the alleged meeting dated 24th October, 1994 produced by appellants, is sham and fabricated. The alleged allotment of additional equity shares of the company in favour of Ramanujam is, therefore, wholly unauthorized and invalid and has to be set aside. (Para 12)

       The facts on record show that the company was being run as one man show and Ramanujam was maintaining the Minutes Book of meetings of Board of Directors only to comply with the statutory requirement in this behalf. The minutes were being recorded by him according to his choice and at his instance. The minutes do not reflect the actual position. Article 38 mandated that a book should be maintained to record presence of Directors at meetings of the Board of Directors. If a book for recording signatures of Directors attending meetings of the Board of Directors was not maintained, it was in clear violation of Article 38 of the Articles of Association of the company. The Company Law Board without going into these relevant aspects, proceeded on an assumption that a meeting of the Board of Directors did take place on 24th October, 1994. This assumption of the Company Law Board is clearly without any basis.

       (b) When no meeting of the Board of Directors of the company was held on 24th October, 1994, the question of validity of the meeting does not arise. On the relevant date Suresh Babu was the only other Director of the company. He denies having attended any meeting of the Board of Directors of the company. There is nothing to rebut this stand of Suresh Babu. In his absence no valid meeting of the Board of Directors could be held. (Para 14)

       (ii) Companies Act-Sections 397 and 398-Petition under-Legal position of Directors of companies-Appellant 2 and respondents 1 and 2 making claims to right to control and manage appellant company-Appellant company was incorporated for hotel business-Appellant 2 and his wife were shown as promoters of the company-Respondents 1 and 2, NRIs sent all the money-Appellant 2 made no financial contribution-He was to get salary for the services rendered as Managing Director-Respondents 1 and 2 became shareholders of the company to the extent of 2500 equity shares each-Initially, company making losses-Respondent continued to provide finance to the company-Company s authorised capital increased without knowledge of respondent 1, a principal shareholder of the company-A sum of Rs. 6,86,500/- shown to the credit of appellant 2 in books of the company-He made a proposal for allotment of shares in lieu of that amount in his favour-Alleged allotment of 6,865 equity shares of Rs. 100/- each in his favour-No Board meeting-Alleged allotment reducing respondents, majority shareholders in the company, to a minority shareholder in the company-Whether allotment of equity shares in favour of appellant 2 was valid-(No).

       Held : In the present case we are concerned with the propriety of issue of additional share capital by the Managing Director in his own favour. The facts of the case do not pose any difficulty particularly for the reason that the Managing Director has neither placed on record anything to justify issue of further share capital nor it has been shown that proper procedure was followed in allotting the additional share capital. Conclusion is inevitable that neither the allotment of additional shares in favour of Ramanujam was bonafide nor it was in the interest of the company nor a proper and legal procedure was followed to make the allotment. The motive for the allotment was malafide, the only motive being to gain control of the company. Therefore, in our view, the entire allotment of shares to Ramanujam has to be set aside. (Para 31)

       Even the Company Law Board found that the allotment of additional shares by Ramanujam to himself was an act of oppression on his part. The Company Law Board drew this conclusion solely for the reason that no offer had been made to the majority shareholders regarding issue of further share capital. The High Court accepted the finding of oppression. However, it placed it on a much broader base by taking into consideration various other factors. The High Court s finding is based on a much stronger footing. In fact, the High Court has gone on to conclude that Ramanujam has played a fraud on the minority shareholders by manipulating the allotment of shares in his favour. We find no reason to differ with the finding of the High Court. (Para 32)

       (iii) Companies Act-Sections 397 and 398-Foreign Exchange Regulation Act-Section 29-Petition u/s 397 and 398 filed by NRIs-Failure to obtain permission of Reserve Bank of India-Whether petition filed was maintainable-(Yes)-Permission of Reserve Bank of India under FERA can be obtained ex-post facto-The Act does not provide any time limit for obtaining the permission.

       Held : The statute does not provide any time limit for obtaining the permission. We cannot lose sight of the subsequent development in this connection. FERA stands repealed and the statute brought in force by way of replacement of FERA, i.e. the Foreign Exchange Management Act (FEMA), does not contain any such requirement. (Para 33)

       It is to be further noted that the entire scheme regarding purchase of shares in the name of mother of Prathapan was suggested by Ramanujam himself. He saw to it that the shares were transferred by the company in the name of Prathapan and his wife. The company has recorded the transfer and corrected its Register of Members in this behalf which, in fact, led Ramanujam to file a petition for rectification of the Register of Members as a counterblast to the petition filed by Prathapan under Sections 397/398 of the Companies Act. It is not open to Ramanujam now to raise the question of FERA violation, more particularly in view of his having recorded the transfer of shares in the name of Prathapan and his wife Pushpa in the records of the Company. This also answers the objection regarding locus standi of Prathapan and his wife to file the Sections 397/398 petition before the Company Law Board. Since they were registered as shareholders of the company on the date of filing of the petition and they held the requisite number of shares in the company, they could maintain the petition. We, therefore, find no merit in the contention that the petition under Sections 397/398 of the Companies Act, filed by the Prathapan and his wife before the Company Law Board was not maintainable. (Paras 35 and 36)

       (iv) Companies Act-Section 10F-Appeal-Scope-Appeal being filed on question of law-If a finding of fact is perverse and is based on no evidence, it can be set aside in appeal even though appeal is permissible only on question of law-Perversity of finding itself becomes a question of law.

       Held : It is settled law that if a finding of fact is perverse and is based on no evidence, it can be set aside in appeal even though the appeal is permissible only on the question of law. The perversity of the finding itself becomes a question of law. In the present case we have demonstrated that the judgment of the Company Law Board was given in a very cursory and cavalier manner. The Board has not gone into real issues which were germane for the decision of the controversy involved in the case. The High Court has rightly gone into the depth of the matter. As already stated the controversy in the case revolved around alleged allotment of additional shares in favour of Ramanujan and whether the allotment of additional shares was an act of oppression on his part. On the issue of oppression the finding of the Company Law Board was in favour of Prathapan i.e. his impugned act was held to be an act of oppression. The said finding has been maintained by the High Court although it has given stronger reasons for the same. (Para 38)

       In our view the Company Law Board was wrong in allowing purchase of shares of Prathapan and his wife by Ramanujam. Such an order amounts to rewarding the wrong doer and penalizing the oppressed party. In the circumstances of this case asking the oppressed to sell his shares to the oppressor not only fails to redress the wrong done to the oppressed, it also results in heavy monetary loss to him. The relief granted by the High Court was a proper relief in the facts of the case. (Para 40)