before the company law board - Company Law Board Mumbai Bench

BEFORE THE COMPANY LAW BOARD,
MUMABI BENCH, AT MUMBAI
PRESENT: SHRI KANTHI NARAHARI, MEMBER (JUDICIAL)
COMPANY PETITION NO. 17 of 2008
IN THE MATTER OF THE COMPANIES ACT, 1956,
Sections 397, 398, 402 & 403
AND
IN THE MATTER OF M/S. ARSH FASHIONS PRIVATE
LIMITED & OTHERS
BETWEEN:
1. Smt. Nirulata Sadh,
2. Shri Yashdev Gyandev Sadh
3. Shri Rishidev Sadh
all residing at 64 Tahini Heights,
Napean Sea Road,
Mumbai – 400 006.
…Petitioners
CP 17/2008
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AND
1. M/s. Arsh Fashions Pvt. Ltd.,
having its registered office at
Plot No.52, MIDC,
Andheri East,
Mumbai – 400 093.
2. Smt.Neelam Devi Sadh,
3. Shri Uttam Dev Sadh
4. Shri Anand Dev Sadh,
5. Shri Varun Dev Sahd

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6. Shri Bazzar Dev Sadh,
7. Ms.Jessica Uttam Dev Sadh
8. Ms.Shilpi Anand Dev Sadh
all residing at 101 Satyam
Apartments, Rungta Lane,
Napean Sea Road,
Mumbai- 400 006
9. Ms. Priyanka Rishidev Sadh
10. Shri Gyan Dev Sadh,
both 9 and 10 residing at 64, Tahini Heights,
Nepeansea Road, Mumbai – 400 006.
….Respondents
PRESENT FOR PARTIES:
Mr. Sanjay Maria, Advocate
Mr.D.D.Madon, Senior Counsel,
Mr.J.P.Sen, Advocate
Mr.Ali Abbas Delhiwala, Advocate
Ms.Janki Thakkar, Advocate
Mr.Shaun Fanthome, Advocate
… For Petitioners
…For Respondents
O R D E R
The present petition is filed by invoking various
provisions of the Companies Act, 1956 (‘the Act’) alleging certain
acts of oppression and mismanagement in the affairs of the
Company and sought declarations that: i) & ii) All the Board and
Shareholders Resolutions passed by the respondents 2 to 8 from
March, 2000 onwards are illegal, null and void. iii) Appointment
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of Respondent Nos. 3, 6 and 7 as purported directors of R1 is
illegal, null and void. iv) R1 Company is a quasi partnership
between Petitioner No.1 family and the Respondent No.2 family
with 50:50 and the same should be maintained. v) The equity
share capital of the R1 Company will not be further increased
without express consent of the petitioners. vi) Any agreement to
sell, transfer, alienate in respect of fixed assets situated at Vapi
Industrial Estate, Vapi, Valsad without consent of the petitioners is
set aside. vii)
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Non sending of notices for the Board meetings,
general meetings and non sending of Annual Accounts and reports
of the R1 to the petitioners are illegal.
2. Shri Sanjay Maria, Learned Counsel for the
petitioners narrated the brief facts. He submitted that R1 Company
was incorporated as a private limited company on 13 th
March,
2000 and was registered with the Registrar of Companies,
Maharashtra by taking over the business of the partnership firm –
PNN International along with its assets and liabilities. The partners
of the said partnership firm were the Petitioner No.1, 2 and 3 and
R2, 3, 4 and 5. Petitioner No.1, 2 and 3 hold 250 Equity Shares of
Rs.100/- each, out of total of 500 equity shares of Rs.100/- each
representing 50% of the issued, subscribed and paid up share
capital of R1 Company as on 16 th June, 2000. Respondent No.2, 3,
4 and 5 hold 250 equity shares of Rs.100/- each out of total of 500

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equity shares of Rs.100/- each representing 50% of the issued,
subscribed and paid up share capital of R1 as on 16 th June, 2000. It
is further submitted that R1 is a quasi partnership between the
petitioner No.1 family and the R2 family on 50:50 basis and the
same ratio will always be maintained in future as well.
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Petitioner
No.1 and the R2 had signed the Annual Accounts for the year
ended 31 st March, 2004 and after that the R2 has not sent any
annual accounts for the year ended 31.3.2005, 2006, 2007 and
2008 respectively. Petitioner No.1 requested R2 to 5 to clarify how
the Authorized Share Capital of the R1 has been increased from
Rs.50,000 to Rs.1,00,000/- without her knowledge and the
Petitioner No.1 and 2 have serious objection to the same but the R2
to 5 neither gave any details nor gave any clarification for the
same. Petitioner No.2 had given unsecured loan of Rs.4,57,481/-
to the R1 which is still outstanding and the same has not been
returned by the R2 to 5 till date. Petitioners requested the R2 to 5
to provide the progress report of business of the R1 and the use of
the property at Vapi, Gujarat owned by R1, but the R2 to 5 always
postponed the matter on one pretext or the other and never
provided the report of the same. Petitioners requested the R2 to 5
to provide the copy of the financial statements including Annual
Accounts of R1 from the year 2001 to 2008 but the R2 to 5 never
provided any statement while understanding well that the

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petitioners are 50% partner in the quasi partnership. Petitioners
also requested the R2 to 5 to provide the notice of Board Meetings
and General Meetings and minutes of the same but the R2 to 5
never provided any statement while understanding well that the
petitioners are 50% partner in the quasi partnership.
2. It is further submitted that the petitioners decided to
inspect the record of the R1 with the ROC and inspected the
records of the R1 on 14 th January, 2008 on MCA website and were
shocked to know that the R2 has appointed her two sons, namely
Shri Uttam Dev Sadh (R3) and Shri Varun Dev Sadh (R5) and her
husband Shri Bazzar Dev Sadh (R6) as directors of R1 unlawfully
and un-authorizedly w.e.f. 12 th December, 2004 without
knowledge and consent of Petitioners. R2 to 5 by this unlawful
and unauthorized act, had increased their strength on the Board of
Directors from one member on 1 st April, 2000 to four members in
the year 2004 and on the other hand the strength of the petitioners
on the Board of Directors remained the same from one member in
the year 2000 to one member in the year 2004. As a result the R2
to 5 have breached the understanding of the quasi partnership
agreed between the petitioner No.1 family and the R2 family. The
petitioners have also come to know that R2 to 5 have made further
allotment of 500 equity shares of Rs.100/- each without knowledge
and consent of the petitioners. The list of shareholders as stated in
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the Search Report is totally different than it was in the year 2000.
The name of the petitioner No.1 has been removed from the
shareholders and in her place the name of her husband, the R10 has
been substituted. Similarly, the name of R2 has been removed and
the name of her husband, the R6 has been substituted while in fact
the petitioners and the R10 had neither applied for the same nor
made payment for the same. Petitioners have also come to know
that R2 to 8 are using the property of R1 situated at Vapi, Gujart
for their own personal use and not for the purpose of the business
of R1 and R2 to 5 are not generating any revenue for the R1 which
is unambiguous case of diversion and siphoning off the funds of
R1 Company. R2 to 8 are invading and/or threatening to invade the
petitioners’ rights in the R1. There exists no standard for
ascertaining the damage caused or likely to be caused by such
invasion. Compensation in money alone would not afford adequate
relief. It is necessary to compel the R2 to 8 to act in a manner in
consonance with the understanding relating to the management and
control of the Company. There is no alternative remedy available
to the petitioners to redress their grievances as shareholders of the
R1. All efforts of the petitioners to reach a fair and reasonable and
acceptable via media to run the R1 in fair manner have met with no
positive response from R2 to 8 and have been turned down by R2
to 8 repeatedly, whose intentions are malafide and unreliable. R2
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to 8 are not interested in the welfare and well being of the R1 but
are actively engaged in illegalities and misconduct and
misappropriating assets to their personal accounts under their
control, which is prejudicial to the R1 and the petitioners as the
50% shareholders. The Learned Counsel relied upon various
decisions during the course of arguments on various points and
requested the Bench to pass appropriate orders as prayed for.
Since I discussed elaborately in CP 15 of 2008 filed by Mr.Gyan
Dev Sadh and his group against Mr. Bazzar Dev Sadh and his
group except the points addressed hereunder, therefore, I do not
consider it to repeat the same.
3. Respondents 1 to 8 have filed detailed reply to the
petition and denied the allegations, averments made in the petition.
Shri Madon, Learned Senior Counsel narrated the brief facts. He
submitted that the petitioners have suppressed from this Bench that
in fact and on the contrary, by and under a family arrangement
dated 30 th August, 2004 and 11 th Sept., 2004 arrived at inter alia
between the petitioners and the respondents, according to that the
shares held in the name of the petitioners belong to Mr.Bazzar Dev
Sadh and the concerned petitioners shall resign as directors of R1
Company. The petitioners have no right, title or interest of any
nature whatsoever in the shares held by them in the Gyandev Sadh
Company or in the properties held in the name of the Gyandev
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Sadh Company and that the petitioners are no longer concerned
with the management and affairs of R1 or the income thereof. The
heads or main features of such family arrangement/settlement have
been recorded in writing by Memorandum dated 30 th August, 2004
and 11 th
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Sept., 2004, the last having being duly signed by
Mr.Gyandev Sadh representing the petitioners.
4. Now coming to the averments/allegations in respect of
R1 Company, he submitted that M/s.Arsh Fashions Pvt.Ltd. was
formerly a partnership firm called M/s. PNN International (PNN)
which was subsequently converted into a Private Limited
Company under part IX of the Companies Act with the name M/s.
PNN Apparels Pvt. Ltd. and after the family
arrangement/settlement arrived at between the parties, as set out in
detail therein, and in implementation thereof, the name of such
Company was changed by the Bazzardev Sadh Group, as desired
by them to M/s.Arsh Fashions Private Limited. One of the
properties allotted to the Bazzardev Sadh Group under the family
arrangement/settlement is the only property held by the said
Company. The issued, subscribed and paid up share capital of the
said Company is 1000 shares of Rs.100/- each. The Bazzardev
Sadh Group held 500 shares and Gyandev Sadh group held 500
shares. As per the family arrangement/settlement the shares held
by the Gyandev Sadh Group in the said company shall belong to

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the Bazzardev Sadh being the head of the Bazzardev Sadh group
and the Gyandev Sadh Group shall formally transfer their
shareholding in favour of the Bazzardev Sadh or his nominee/s
and that the concerned directors shall cease to be the directors of
the Company and they shall formally retire and/or resign as
directors of the Company.
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The Bazzardev Sadh Group shall be
free and entitle to appoint any member of their group as director/s
of the said company and they shall be in complete management
and control of the assets and affairs of the Company and shall be
responsible for the liability and shall be entitled to the income and
profits of the Company to the total execution of the Gyandev Sadh
Group.
6. It is submitted that this Bench has no jurisdiction to
entertain the petition in view of the family arrangement which is
also subject matter of the suit filed by these respondents before the
Hon’ble High Court of Bombay.
In view of the family
arrangement the petitioners are nothing to do with the R1
Company or its shareholders or in the management and its affairs
or property assets income thereof.
The appointment of
Respondents 3, 5 & 6 was done after due compliance of the
provisions of the Companies Act. It is to say that the petitioners
never bothered with the management and its affairs after the said
family arrangement, since they have already transferred and

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released their right in respect of the shares held in their names,
although the formal transfer and execution of the necessary
documents in that behalf is yet to be carried out by the petitioners.
The increase of share capital was made in compliance of the
relevant provisions of the Act and with the knowledge and consent
of the petitioners and the respondents as the same was done prior
to the family arrangement. Moreover, the balance sheet showing
the share capital as Rs.1 lac has been duly signed by Mr.Gyan Dev
Sadh of the petitioners’ group and Mr.Bazzar Dev Sadh of the
respondents’.
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In view of the reasons stated above the petitioners
have not made out any case and the petition is liable to be
dismissed. The Learned Senior Counsel relied upon various
decisions in support of his case. The relevant decisions have been
discussed in CP 15 of 2008 filed by Mr.Gyan Dev Sadh and his
group/family against Mr. Bazzar Dev Sadh and his group/family,
therefore, I do not consider it to repeat the same.
7. Heard the Learned Counsel appearing for the parties,
perused the pleadings, documents filed in their support. After
analyzing the pleadings, the following issues are felt for
consideration and the same are need to be addressed.
1) Whether the R1 Company is run on the basis of
principles of quasi partnership
2) Whether this Bench has any power to direct the

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parties to enforce the family arrangement/ settlement
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3) Whether the respondents denied the inspection of
records and registers to the petitioners
4) To what relief
The Issues 1 & 2 have been decided in detail in CP 15 of 2008
filed by Mr.Gyan Dev Sadh against M/s.Parmeshwar Exports
Private Limited and Others, as issues 1 & 3 therein, therefore, no
need to repeat in this petition.
Now I deal with the issue No. 3:
The petitioners contended that the respondents have not
provided the inspection of the records and registers to them. It is
their case that though they have signed the Annual Accounts for
the year ended 31.3.2004 and after that the Respondent No.2 has
not sent any Annual Accounts for the year ended 31 st March, 2005
to 31 st March, 2008 respectively. Except the averments made in
the petition, there is no other documentary proof to show that the
petitioners requested the respondents to provide inspection of the
records and documents of the Company. It is on the record that
Mr.Gyan Dev Sadh and his group being petitioners in CP 15 of
2008 have sought inspection of the documents of that Company
and the respondents have enclosed a copy of that letter dated 23 rd
June, 2008 addressed by the petitioners therein. Though the
petitioners are 50% shareholders in this Company also, however,

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R1 being a separate entity must have requested to the Company
seeking inspection of records and documents independently. Even
otherwise the petitioners being 50% shareholders and directors are
entitled to inspect the records and registers of the Company with
prior intimation and can obtain the copies thereof as per law.
Accordingly, the issue is answered.
Now I deal with the issue No.4
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The other contentions of the petitioners are that the
respondents increased the Share capital from Rs.50,000/- to Rs.1
lakh without the knowledge of the petitioners. The respondents
have contended that the increase in the share capital was made
after due compliance of the provisions of the Companies Act. As
per the provisions of the Act, a Private Limited Company now
must have minimum paid up share capital of Rs.1 lakh.
Accordingly, the Company increased the share capital prior to
family arrangement. To establish the same, the petitioners have
enclosed balance sheet as on 31 st
March, 2004 wherein the
Authorised Share Capital of the Company is shown as Rs.1 lakh
for the current year and also previous year and also one of the
petitioner and one of the respondents have signed the balance
sheet. There is no dispute with regard to this balance sheet and the
petitioners have admitted that they signed the balance sheet apart
from the auditor of the Company at para 6.5 of the petition. The

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search report dated 28 th
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January, 2008 filed by the petitioners,
wherefrom it is also evident that the share capital and the paid up
capital is shown as Rs.1 lakh. Thus, it is clear that the petitioners
are aware of the increase of the Authorised Capital and it was
required to raise the capital from Rs.50,000/- to Rs.1 lakh, since it
was mandatory in accordance with law. Therefore, there is no
merit in the allegation. It is only an attempt to denigrate the image
of the respondents. The other contention of the petitioners is that
the petitioner No.2 had given unsecured loan of Rs.4,57,481/- to
the Company and the respondents have not returned the same till
date. The respondents contended that no amount is payable by the
respondents as agreed under the family agreement. Since I hold
that the Private Agreements between the parties will not be
considered by the CLB, at issue No.3 in CP 15 of 2008, therefore,
the Company is bound to repay the unsecured loan to the 2 nd
petitioner as per their understanding. The other contention of the
petitioners is that the respondents are using the property of the
Company for their personal benefit. The respondents denied the
said allegation and stated that the property is being used for the
purpose of the Company as reflected in the books of accounts of
the Company. Except the averment the petitioners have not shown
any documentary proof that the property was used by the
respondents for their personal benefit.
In absence of the same, I

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do not find any merit in the allegations against the respondents and
also I do not find any diversion of funds by the respondents as
contended. The petitioners contended that the name of the
petitioner No.1 has been removed and in her place the name of her
husband i.e. R10 has been substituted. Similarly the name of
respondent No.2 has been removed and name of her husband i.e.
R6 has been substituted. In fact, the petitioner and the respondent
No.10 had neither applied for the same nor made payment for the
same. On the other hand the respondents contended that in view of
the family settlement they have already transferred/released their
rights in respect of the shares held by the petitioners, though the
formal transfer and execution of necessary documents in that
behalf is yet to be carried out by the petitioners. Though the
petitioners have not filed any shareholding pattern prior to the
family arrangement/settlement to prove their shareholding in the
Company, however, on perusal of search report filed by the
petitioners dated 28 th January, 2008, the names of the petitioner
No.1 & 3 and respondents 2,3,4,5 & 6 have been shown in the
directors column. However, the 1 st petitioner’s name and the 2 nd
Respondent’s name do not appear in the column meant for
shareholders’ details. It is now not known whether the petitioner
No.1 and respondent No.2 hold any shares in the Company and to
that effect they have not produced any documentary evidence to
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establish the same. Whilst the respondents have not denied the
shareholding pattern. Whatever may be the reason, since I already
hold that the private agreements between the parties will not be
considered by the CLB at issue No.3 in CP 15 of 2008, the
shareholding pattern prior to the family settlement should be
maintained or else if the petitioners’ group and the respondents’
group feel that irrespective of changes in names of shareholders, if
the ratio is maintained 50:50, they can continue the same. So far
as the main reliefs of the petition are concerned, the petitioners
sought declaration of all the Board and Shareholders resolutions
passed by the respondents after March, 2000 to be declared as
illegal. The petitioners have not enclosed any resolutions either
Board or Shareholders, wherefrom it could be said that they
prejudiced with the said decisions. Whence-so-ever the petitioners
have not made out any case in respect of those allegations and they
are not entitled to any relief as claimed. So far as appointment of
respondents 3,5 & 6 is concerned, from the search report dated 28 th
January, 2008 filed by the petitioners, among other details, the
directors’ details are also given wherefrom it is apparent that the
petitioner No.1 and Respondent No.2 & 4 were appointed as
directors w.e.f. 14.3.2000 and Petitioner No.3 was appointed as
director on 1.4.2000 and Respondents 3,5 & 6 were appointed as
directors on 12 th
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December, 2004, presumably after the family

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arrangement/settlement. There is no documentary proof to show
that the petitioners have ever objected to the appointment of
Respondents 3,5 & 6 until filing of this petition i.e. May, 2008
almost all more than three & half years for the reasons best known
to them. Whatever may be the position, since I already hold that
the family arrangements will not be considered by the CLB,
therefore the position prior to the family arrangement i.e. 30 th
August, 2004 and 11 th Sept., 2004 to be maintained in respect of
Board of Directors and Shareholding pattern. As I already hold
that the R1 Company is a family business and quasi partnership,
the ratio of 50:50 should be maintained as it was prior to family
arrangements /settlement if it is not implemented with free will and
conscience of the parties. It is also worthwhile to mention that the
50% ratio also to be maintained in respect of Board of Directors to
avoid disparity in the Board wherever the petitioners’ and
respondents’ group maintain 50% each in their companies. The
petitioners are entitled to the notices to the Board and General
Meetings in the capacity as shareholders and directors, in
accordance with law. The Learned Senior Counsel for the
petitioners during the course of arguments orally submitted that the
petitioners are willing to exit the Company on receipt of fair value
determined by the independent valuer, whereas the petitioners at
para 8.4 in the petition prayed that the ratio of 50:50 between the
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petitioner No.1 family and Respondent No.2 family should be
maintained in future in all respects. I am of the view that the
interest of the Company is paramount. Irrespective of above, if the
parties act in good faith to resolve their differences and disputes
permanently, it would not be an impediment to any of the
observations/views in this order to part ways by amicable means of
settlement if necessary by appointing an independent valuer to
value the assets of the Company. With the above, the CP is
disposed off. No orders as to cost. All applications stand disposed
off and all interim orders stand vacated.
(KANTHI NARAHARI)
MEMBER
Dated this the 14 th day of October, 2011
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Arsh