SHAH, J. ( 1 ) ). Company Petition No. 22 of 1991 is filed under Secs. 397 and 398 of the Companies Act, 1956, hereinafter referred to as the Companies act. It is the case of the petitioners that Cement Corporation of Gujarat ltd. (hereinafter referred to as the company was incorporated on 29/03/1973. The nominal capital of the Company is Rs. 40 crores divided into 4 crores equity shares of Rs. 10. 00 each. The issued capital of the company is Rs. 30,25,00,000 divided into 3,02,50,000 equity shares of rs. 10/- each. It was floated originally by respondent No. 2-Gujarat Industrial investment Corporation Ltd. (hereinafter referred to as the giic ). Till 1981 the proposed project for setting up a modern cement plant in Gujarat had not made any worthwhile progress. At that stage Shri Mahendra N. Mehta, the Chairman of the Mehta Group of Companies, had come to India on a brief visit in the year 1980. The then Chief Minister of Gujarat and the Finance Minister invited him to meet them and asked him to participate in the efforts to attract capital nri investment in the State of Gujarat. After assurance from the concerned persons Shri Mehta acceded to the request and agreed to participate and becomes a co-promoter with GIIC for implementing the project of respondent No. 1- company. It is the say of the petitioners that Mehta Group is having vast and varied operations in various parts of the World in different industries ranging from Agro-industries, chemicals, engineering, cables, sugar, cement, plastics etc. with operations in Kenya, Uganda, Canada, U. S. A. , Cameroon, England and Sri lanka. ( 2 ) ). Mehta Group and GIIC arrived at an agreement and the Memorandum, or understanding and thereafter a Shareholders agreement dated 9/04/1981 was executed between the Mehta Group and GIIC which contemplated participation in equity of respondent No. 1-Company by respondent No. 2 of 26% and by the Mehta Group and their Associates to the extent of 25%. ( 2 ) ). Mehta Group and GIIC arrived at an agreement and the Memorandum, or understanding and thereafter a Shareholders agreement dated 9/04/1981 was executed between the Mehta Group and GIIC which contemplated participation in equity of respondent No. 1-Company by respondent No. 2 of 26% and by the Mehta Group and their Associates to the extent of 25%. Along with other terms it inter alia provides as under :" (2) (ii) Mehtas shall also have the right to take up either by itself or along with its subsidiary companies or nominees and subscribe for at par 25% of the equity share capital of the Company, provided that the shareholding of the Corporation shall not be less than that of the Mehtas and the Corporation shall have at least one share more than the shares subscribed by Mehtas. (v) On every issue of further capital by the Company, the Corporation and Mehtas shall respectively subscribe for equity shares in the ratio mentioned above. (8) Notwithstanding the provisions of clause 2 (ii) hereinabove, with regard to the corporation holding one share more than that of Mehtas, on and after the date of commercial production the Corporation shall have the right to reduce its equity shareholding from 26% to 10% on the following terms : (i) The right to reduce equity shareholding shall be subject to and in accordance with the guidelines lor joint sector projects which may be laid down by the government of India from time to time. (ii) The Corporal ion may sell or transfer its shareholding to tile Government of Gujarat or any institutions, Companies or Corporations of the Government of gujarat without any restrictions, provided such transferees agree to ratify and abide by this agreement. (iii) If, however, the Corporation intends to sell its equity to public the Corporation shall in the first instance offer such shares to Mehtas and the provisions of Clauses (22) and (23) shall apply. Board of Directors and Management : (10) The number of Directors of the Company shall be not more than eleven. The Corporal ion will be represented by four Directors, including Chairman to be nominated by the Corporation whether rotating or non-rotating (These directors are hereinafter referred to as the "corporation Directors"), Mehtas will be represented on the Board by three Directors (These Directors are hereinafter referred to as the "mehta Directors" ). The Corporal ion will be represented by four Directors, including Chairman to be nominated by the Corporation whether rotating or non-rotating (These directors are hereinafter referred to as the "corporation Directors"), Mehtas will be represented on the Board by three Directors (These Directors are hereinafter referred to as the "mehta Directors" ). The Managing Director of the Company shall be appointed by the Board of the Company as jointly recommended by the Corporation and Mehtas. Business Committee : (15) So long as the Corporation and Mehtas hold equity shares in the ratio of 26% and 25% respectively and if the Board of Directors of the Company finds it necessary to constitute any committee for formulating policy matters, such committee shall consist of Directors represented equally by the Corporation and Mehtas. The chairman of the committee shall be from among the Corporation Directors and the chairman shall have casting vote at the committee meeting. "the aforesaid terms and conditions of the Shareholders agreement are also reflected in Memorandum and Articles of Association of the Cement Corporation of Gujarat Limited. The relevant Arts. 10 (a), (c) and (d) and 11 are as under"10 (a) Unless otherwise determined in a General Meeting and subject to the provisions of Sec. 252 of the Act. the number of Directors of the Company shall not be less than three or more than fifteen excluding debenture, special and Corporation directors, if any. One-third of the total Directors shall be non-rotational Directors. The Chairman and Managing Director of the Company shall not be liable to retire by rotation. GIIC and TMIL shall be entitled to nominate non-rotational Dircclors in proportion to their respective equity shareholding. (c) So long as GIIC shall continue to hold not less than 26% in the equity share capital of the Company, GIIC shall be entitled to nominate upto four Directors including Chairman (these Directors are hereinafter referred to as giic Directors ). So long as TMIL shall continue to hold not less than 25% in the equity share capital of the Company, TMIL shall be entitled to nominate upto. three Directors (these directors are hereinafter referred to as "tmil Directors" ). In addition, the Managing director shall be appointed on the recommendation as stated in Art. 15 hereinafter. (d) In the event of appointment of additional Directors in the Company, the number of additional Dircctois of GIIC and TMIL shall always be equal. three Directors (these directors are hereinafter referred to as "tmil Directors" ). In addition, the Managing director shall be appointed on the recommendation as stated in Art. 15 hereinafter. (d) In the event of appointment of additional Directors in the Company, the number of additional Dircctois of GIIC and TMIL shall always be equal. Business Committee: 11. If the Board of Directors of the Company find it necessary to constitute any committee, such committee shall include such member of Directors from GIIC, Private promoters and outside Directors as may be decided by the Board and also nominees of financial institutions. The Chairman of the Committee shall be from among GIICs directors and the Chairman shall have a casting vote at Committee meetings. The committee shall be delegated with such powers and functions as are decided by the board from time to time. " ( 3 ) ). It is the say of the petitioners that they are the subsidiary companies of The Mehta International Ltd. and as a result of the Shareholders Agreement between TMIL and GIIC the petitioners have also subscribed to the share capital of respondent No. 1-Company as part of the Mehta Group. ( 4 ) ). Various facts are mentioned in the petition why the Company failed to start functioning. For our purposes it is not necessary to narrate them as at present I am not required to deal with in detail with Company petition No. 22 of 1991 which is admitted. But some facts are necessary to be gone into as Company Application No. 77 of 1991 is filed for interim directions. ( 5 ) ). It is the say of the petitioners that as a consequence of delay, the entire project was reviewed by IDBI in September, 1988 and the project cost was revised from rs. 121. 00 crores to Rs. 167. 50 crores. It was proposed to provide for Rs. 46. 50 as under : (Rs. in Crores.) "addl. Equity 7. 56 Interest free deposit from promoters. 0. 69 addl. Loan from Institutions 26. 66 Ad hoc loans for funding interest from Institutions. 9. 59 infra-structural loan 2. 00 total 46. 50 the Equity of Rs. 7. 56 crores was to be raised as under: (Rs. in Crores.) respondent No. 2 2. 86 mehta Group 2. 70 idbi and Institutions 2. 00 total 7. 56 copy of IDBIs letter dtd. Loan from Institutions 26. 66 Ad hoc loans for funding interest from Institutions. 9. 59 infra-structural loan 2. 00 total 46. 50 the Equity of Rs. 7. 56 crores was to be raised as under: (Rs. in Crores.) respondent No. 2 2. 86 mehta Group 2. 70 idbi and Institutions 2. 00 total 7. 56 copy of IDBIs letter dtd. 30-9-1988 advising the above financing pattern is annexed as Annexure 15 to the petition. ( 6 ) ). In this view of the matter, Mehta Group was required to subscribe for equity shares of Rs. 2. 70 crores and respondent No. 2-GIIC was required to subscribe for Rs. 2. 86 crores. However, GIIC was not prepared to subscribe shares for the aforesaid amount. On 30/09/1988 the Managing Director of GIIC wrote a letter (Annexure "18") to Mr. M. N. Mehta stating that the corporation would contribute to the additional equity towards over-run, subject to the condition that the Mehta Group shall buy-back this additional equity over a period of one year. Along with the said letter he sent a blank copy of the agreement entered with M/s. Golden Tobacco for that purpose. In response to that letter Mr. M. N. Mehta replied by the letter dated 5/10/1988 (Annexure "19") wherein it has been inter alia pointed out that full support from the GIIC was needed to meet the challenging task and requested him to reconsider and to agree to take full share of the additional equity. Finally as giic was not willing to deal in additional equity, the Rights Issue was not opened. Mehta Group arranged for Canbank Mutual Fund to subscribe Rs. 2. 70 crores and persuaded Indian Bank to provide temporary loan for the said amount by an agreement that the Company would repay the principal amount of the loan taken from the Indian Bank as soon as equity shares were applied by Canbank. The Board of Directors passed a resolution in the meeting held on 27/03/1989 (Annexure "26" ). As GIIC was not agreeing to purchase its equity shares, the loan of Rs. 26 crores (as per Annexure "15") was not given by idbi and other institution. The petitioner agreed to make alternative arrangements for raising equity towards GIlcs share by their letter dated 5/12/1989 (Annexure "24 ). As GIIC was not agreeing to purchase its equity shares, the loan of Rs. 26 crores (as per Annexure "15") was not given by idbi and other institution. The petitioner agreed to make alternative arrangements for raising equity towards GIlcs share by their letter dated 5/12/1989 (Annexure "24 ). That letter was written to the Managing director of GIIC wherein it is specifically mentioned that TMIL and its associates have decided to take the share of Rs. 2. 86 crores which was required to be taken by GIIC and the necessary arrangement was made with the approval of IDBI. It also requested that the Company would open the Rights Issue as soon as all the formalities were completed and requested the GIIC to renounce its Rights Shares in favour of TMILs nominee. ( 7 ) ). Rights Issue was opened on 2/01/1990. IDBI declined to contribute to the Rights Issue by their letter dated 29/01/1990 (Annexure "28) by stating that IDBI "are deeply concerned with the affairs and potential viability of the unit and we are reviewing the options available for reviving the unit. Pending a review, we would not be able to subscribe to the rights issue". ( 8 ) ). Thereafter GITC expressed reservation about the management of Mr. Balsari as Managing Director. Without cntcrins into any controversy Mr. Mehta agreed to call back Mr. Balsari and Mr. T. V. Balan was appointed as Managing director by letter dated 4/08/1989 (Annexure "27" ). The petitioners have produced on record the Board resolution that for few days or months staying in Hotel President in Bombay the Company was required to spend more than Rs. 13 lacs for Mr. T. V. Balan and Mr. A. K. Joshi. Thereafter idbi called for review and suggested that over and above Rs. 6. 7 crorcs further equity of Rs. 11 crores would be required as promoters contribution. IDBI suggested that further private promoter should be inducted in the management of respondent No. 1-Compar. y. Probably from that period the dispute had arisen between the Mehta Group and GIIC. It seems that Mehta Group had suggested various other Companies including Birla Jute and Industries Ltd. and other private companies while GIIC seems to be interested in Gujarat Ambuja Cements ltd. ( 9 ) ). y. Probably from that period the dispute had arisen between the Mehta Group and GIIC. It seems that Mehta Group had suggested various other Companies including Birla Jute and Industries Ltd. and other private companies while GIIC seems to be interested in Gujarat Ambuja Cements ltd. ( 9 ) ). Because of this dispute and various acts committed by respondent No. 1-Company it is contended by the petitioners that the petitioners who are minority shareholders are oppressed by the respondents with the aid of the state Government as GIIC and the Stats Government want to hand over the respondent No. 1-Company to Gujarat Ambuja Cements Ltd. It has been pointed out that :- (1) the petitioners right as shareholders to appoint three Directors as per articles of Association is being jeopardised by all sorts of dubious methods; (2) the injunction issued by the City Civil Court is violated with a mala fide intention of not re-appointing Mr. M. N. Mehta as a Director of the Company and of not putting the name of Mr. Sanat Mehta as a director of the Company as nominee of Mehta Group; (3) for the benefit of the Company Mehta Group has brought a bridge loan of Rs. 2. 86 crorcs from Indian Bank by giving guarantee. The Company has utilised the said amount and yet the question of Rights Issue is prolonged for various reasons (4) funds of the Company arc being squandered, due to wrong personnel policies, there is a vacuum at the factory site and wrong decisions regarding purchases and production with long range and long term implicitions arc being taken, attempts made to cover up irregularities and project itself as a competent management at the cost of the Company. The whole approach is based on the desire to oust Mehta Group and induct Gujarat ambuja Cements Ltd. ( 10 ) ). Therefore, in Company Petition No. 22 of 1991 the petitioners have prayed as under :" (A) To pass suitable orders for regulating the management and conduct of the affairs of the respondent No. 1-Company; (b) to restrain the respondents from preventing Mr. M. N. Mehta and Mr. Therefore, in Company Petition No. 22 of 1991 the petitioners have prayed as under :" (A) To pass suitable orders for regulating the management and conduct of the affairs of the respondent No. 1-Company; (b) to restrain the respondents from preventing Mr. M. N. Mehta and Mr. Sanat Mehta, from functioning as Directors of the respondent No. 1-Company; (c) That agenda notes, minutes and other documents to which access as is sought for by the aforesaid two Directors of the petitioners group be given by the respondent No. 1-Company, and nominees of the petitiones group be allowed full access to the records of the respondent No. 1-Company, plant and office; (d) To declare that the proceedings of the meetings of the Board of Directors of respondent No. 1-Company on the 29/12/1990 and 22/03/1991 as also the Annual General Meeting dated 29/12/1990 are null and void ab initio and of no effect whatsoever; (e) That steps be taken for nominating a. new independent Chairman and managing Director of the rcspondeni No. 1-Company as also a Committee of Management to supervise the performance and operation of the respondent no. 1-Company; (f) An independent Chartered Accountant be appointed to inquire into the conduct and affairs of the Company and to report to this Honble Court the financial irregularities which have been committed by the present management of the respondent No. 1-Company; (g) That the respondents be restrained from inducting any new management from transferring shares or issuing shares without the prior consent of the petitioners; (h) that the respondents be restrained by an order of injunction from this honble Court for directly or indirectly permitting any additions or alterations to the Board of Directors or the Management of the respondent No. 1- company without the prior permission of This Honble Court; (i) that the respondents be directed to close the Right Issue, and allot shares for the amount which was received from the respective applicants and further to utilise the amount so received towards satisfying the Bridge loan received from the Indian bank of Rs. 2. 70 crores with all incidental charges etc. immediately. :"pending hearing and disposal of this petition, by taking out Judges Summons the petitioners have prayed for various interim reliefs. One of the main prayers is that respondents be directed to consider Mr. M. N. Mehta as continuing as Director of the respondent No. 1-Company. 2. 70 crores with all incidental charges etc. immediately. :"pending hearing and disposal of this petition, by taking out Judges Summons the petitioners have prayed for various interim reliefs. One of the main prayers is that respondents be directed to consider Mr. M. N. Mehta as continuing as Director of the respondent No. 1-Company. It has also been prayed that the Company be directed to consider Mr. Sanat Mehta as Director of respondent no. 1-Company as a second nominee of Mehta Group. With regard to this prayer, learned Advocates for the respondents vehemently submitted that (a) mr. Mehta has resigned as a Director, (b) after the Annual General Meeting which it was held on 29/12/1990 he was not continuing as a Director, and (c) against him enquiry for the various charges is pending. Therefore, no direction as prayed for should be given. Mr. Sanat Mehta is not appointed as a Director at any time by the Company. Therefore, at this stage no direction should be given that Mr. Sanat Mehta should be inducted as a Director of the Company. ( 11 ) ). As quoted above, Articles of Association specifically provide that so long as TMIL (The Mehta International Ltd.) or Mehta Group hold 25% equity share capital, TMIL is entitled to nominate upto three Directors. It is an admitted fact that TMIL is at-present holding 26% of the equity shares and GIIC is holding approximately 27% of the equity shares. Yet, prime facie it seems giic is interested in seeing that TMIL does not get its representation on the board of Directors. ( 12 ) ). An attempt was made to disqualify Mr. M. N. Mehta from continuing as a Director of the respondent No. 1-Company in September 1990. The matter was referred for opinion to former Chief Justice of Madras High Court Shri chandurkar. Tins, according to the petitioners, was done with a view to oppress the petitioners group and to bring about change in the management which was contrary to the interest of respondent No. 1-Company and the petitioners group. The opinion of Justice Chandurkar was sought on the following points:1. 1 Whether borrowing of Rs. Tins, according to the petitioners, was done with a view to oppress the petitioners group and to bring about change in the management which was contrary to the interest of respondent No. 1-Company and the petitioners group. The opinion of Justice Chandurkar was sought on the following points:1. 1 Whether borrowing of Rs. 270 lacs by the Querist Company will attract provisions of Sec. 77 (2) of the Companies Act, 1956 which prohibits the Querist company providing any direct or indirect financial assistance for the purpose of or subscription made or to be made for any shares of the Querist Company ?1. 2 Since interest on the said Bridge Loan had to be reimbursed by SHPL (Sumaraj holdings Pvt. Ltd.), whether non-reimbursement thereof by SHPL will also fall within the purview of Sec. 77 (2) of the Companies Act, 1956 ? 2. 1 The Querist Company has already received the amount of Rs 270 lacs from Indian Bank which has been reported to have been arranged by SHPL, as associate Company of TMIL. Shri M. N. Mehta is a Director of TMIL as well as SHPL and is also a Director on the board of CCGL (the Querists ). In view of this whether the amount borrowed by the Querist Company from Indian Bank which is said to have been arranged by SHPL towards their advance contribution for the Right Shares of the Querist Company, will amount to indirect loan given by the Querist Company to SHPL within the meaning of Sec. 295 of the Companies Act, 1956 ?2. 2 Whether the non-reimbursement of interest amounting at present to approximately rs. 70 lacs by SHPL will fall within the purview of the provisions of Sec. 295 of the Companies Act, 1956 ?2. 3 Whether the adjustment of Rs. 8. 39 lacs whereby the Companys funds have been appropriated by Indian Bank will be treated as indirect loan given by the Querist Company to SHPL ? And if so, whether provisions of Sec. 295 of the Companies Act, 1956 will be attracted ?" after considering all the aspects in detail opinion was given that Mr. Mehta was not disqualified to be a Director of the Company and all other issues were opined in the negatived. That opinion is dated 13/11/1990 is at Annexure "36". ( 13 ) ). It seems that as Mr. Mehta was insisting that Gujarat Ambuja Cement ltd. Mehta was not disqualified to be a Director of the Company and all other issues were opined in the negatived. That opinion is dated 13/11/1990 is at Annexure "36". ( 13 ) ). It seems that as Mr. Mehta was insisting that Gujarat Ambuja Cement ltd. should not be given shares, the Chairman of the respondent No. 1-Company who is also a Chairman of GIIC wrote a letter dated December, 1990 (Annexure "39" to the effect that Mr. Mehta should be replaced and the important question which required consideration was that only financial commitments in the revival of this Company should not be the sole criteria because the financial commitments will depend upon various factors including the sacrifices required by various parties. According to his opinion, the important issue was compatibility of the joint sector partner and his understanding of the culture and the ethos of the joint sector partnership in the State of Gujarat. This letter was written by the Chairman of the GIIC and respondent No. 1 to the Chief Secretary, Govt. of Gujarat. Thereafter in December, 1990 the Mehta international Limited filed Civil Suit No. 6093 of 1990 before the City Civil court, Ahmedabad, wherein the plaintiff sought enforcement of Shareholders agreement dated 19-4-1981 executed between the plaintiff and the defendant no. 1-GIIC. It was prayed that the defendants arc bound to ensure that the plaintiffs participation in the management of the defendant No. 2-Company is not in any way altered or obstructed and that defendant No. 2 should be directed to act in accordance with the agreement at the Annual General Meeting to be held on 29/12/1990 with regard to the re-election of the plaintiffs nominees. It was also prayed that defendants Nos. 1 and 2 should ensure that the nominee of the plaintiff Shri H. N. Mehta is re-elected as a Director of the defendant No. 1-Company and is not removed during the tendency of the Shareholders Agreement. In that suit the Court has granted ad interim relief in the following terms :"you the defendant No. 2 your servants, agents, nominees are hereby restrained by an order of Ad-interim Injunction from acting in contravention of letter and spirit of the Shareholders Agreement dated 9/04/1981 at the Meeting of Board of directors or Annual General Meeting or at any other Meeting of the defendant No. 1-Company or elsewhere. If the defendants desire to postpone the A. G. M. it will be open to them to do so and the plaintiff shall agree to any such postponement of desired by the defendants. " ( 14 ) ). It should be noted at this stage that neither of the respondents has moved for vacation of the said injunction order till today. ( 15 ) ). Inspite of this injunction order, it is the contention of the respondents that in the meeting which was held on 29/12/1990 the petitioner has resigned as a Director or, in the alternative, as he is not re-elected, he ceases to be a Director of the Company. The respondents have not produced any written resignation given by Mr. M. N. Mehta. Even in the minutes of the meeting of the Board of Directors which was held on 29/12/1990 it is nowhere mentioned that Mr. M. N. Mehta has tendered his resignation as a Director of the Company. It is the contention of the petitioners that in the meeting of the Board of Directors held on 29/12/1990 Mr. M. N. Mehta was shown certain allegations made against him or Jai Mehta or the previous Managing Director. That item was taken on Agenda as an additional item with the permission of the Chair. That was placed by Shri A. K. Joshi, Executive Director (Finance) narrating the alleged irregularities committed by Shri Jai Mehta, Executive director, Shri B. M. Balsari, Ex-Managing Director and Shri M. N. Mehta, director of the Company. The Board, therefore, decided to have a special audit of the Company conducted by the Chartered Accountants Firm named m/s. S. D. Bilimoria and Co. at Bombay. In the minutes of the said meeting it has been inter alia mentioned that the Board was of the opinion that in view of the irregularities involving Shri Mehta, Shri Mehta should step down from the Board as a Director of the Company pending the enquiry and the examination in the said irregularities by the Board of Directors. It is further mentioned that M. N. Mehta agreed that these were serious issues deserving enquiry and agreed to step down if the Board felt so. The Board appreciated his gesture. This also nowhere shows that Mr. Mehta has stepped down as a Director or has resigned as a Director. It is further mentioned that M. N. Mehta agreed that these were serious issues deserving enquiry and agreed to step down if the Board felt so. The Board appreciated his gesture. This also nowhere shows that Mr. Mehta has stepped down as a Director or has resigned as a Director. But from this in no set of circumstances it can be said that Mr. Mehta has resigned as a Director of the Company. ( 16 ) ). The next question is with regard to re-election of Mr. Mehta as director. As stated above, it is an admitted fact that Mehta International Ltd. has filed Civil Suit No. 6093 of 1990 before the City Civil Court at Ahmedabad. The Court has granted ad interim relief restraining the defendant No. 2, i. e. , giic from acting in contravention of the letter and spirit of the Shareholders agreement dated 9/04/1991 at the meeting of the Board of Directors or Annual General Meeting or at any other Meeting of the Company or elsewhere. It should be noted that the Shareholders Agreement between the giic and the Mehta International Ltd. inter alia provides that Mehtas shall have a right to take up 25% of the equity shares of the Company; if GIIC intends to sell its equity to the public, the Corporation shall in the first instance offer such shares to Mehtas; the Corporation will be represented by four Directors; Mehtas would be represented on the Board by three Directors and that GIIC shall exercise voting rights in respect of shareholding of the company and in support of the appointment and/or election of Directors nominated by Mehtas. The said agreement further provides that to ensure the proper maintenance, implementation and observation of the terms and provisions contained and the spirit of this agreement, both the parties to the agreement would exercise voting rights in accordance with the agreement and that the parties are entitled to specific performance of the terms of the agreement including obligations contained in clauses as to the exercise of voting rights. Keeping in view the aforesaid agreement the trial Court has granted the interim injunction. ( 17 ) ). On 29/12/1990 at 3-30 p. m. Annual General Meeting of the Shareholders of the Company was held as per the agenda (Annexure "55" ). The following business was to be transacted : "ordinary Business : 1. Keeping in view the aforesaid agreement the trial Court has granted the interim injunction. ( 17 ) ). On 29/12/1990 at 3-30 p. m. Annual General Meeting of the Shareholders of the Company was held as per the agenda (Annexure "55" ). The following business was to be transacted : "ordinary Business : 1. To receive and adopt the Directors Report and Audited Profit and loss Accounts for the year dated 31-3-1990 and Balance Sheet as at that date (Please see Directors statement attached herewith ). 2. To appoint a Director in place of Shri P. G. Ramrakhiani, IAS, who retires by rotation, and being eligible offers himself for re-appointment. 3. To appoint a Director in place of Shri K. Lalit, who retires by rotation, and being eligible offers himself for re-appointment. 4. To appoint a Director in place of Shri M. N. Mehta, who retires by rotation, and being eligible offers himself for re-appointment. 5. To appoint a Director in place of Shri V. P. Kamdar, who retires by rotation, and being eligible offers himself for re-appointment. " it is an admitted fact that Items Nos. 2, 3 and 5 of the agenda have been transacted. Mr. P. G. Ramrakhiani, Mr. K. Lalit and Mr. V. P. Kamdar were re-appointed as Directors of the Company. It is the say of the respondent no. 1-Company that Item No. 4 was postponed or adjourned. ( 18 ) ). With regard to Mr. Mehta it has been stated in the draft Minutes circulated for the meeting which was held on 22/03/1991 (Annexure "56") that the representative of Gujarat Investment Industrial Corporation Ltd. sought adjournment of the Annual General Meeting for consideration of the aforesaid specific item and the meeting was adjourned pending the vacation of the interim order. It further provides that Mr. Mehta was due to retire by rotation. Since the item relating to re-appointment by rotation could not be considered in the said Annual General Meeting, the Company has been advised that Mr. Mehta ceases to be a Director of the Company with effect from 29/12/1990 pending his re-appointment in the adjourned general Meeting. ( 19 ) ). From the aforesaid record it seems that to avoid the direction given by the City Civil Court by taking undue advantage of majority, the Chairman of the respondent No. 1-Compruiy who is also the Chairman of the respondent no. ( 19 ) ). From the aforesaid record it seems that to avoid the direction given by the City Civil Court by taking undue advantage of majority, the Chairman of the respondent No. 1-Compruiy who is also the Chairman of the respondent no. 2 has adjourned the meeting with regard to one agenda item only whereby Mr. M. N. Mehtas name was proposed for re-appointment as a director. The City Civil Court has only stated that if the defendants desire to postpone the Annual General Meeting, it will be upto them to do so and the plaintiffs shall agree to any such postponement. The injunction order passed by the City Civil Court nowhere provides that only one item of the agenda by which Mr. M. N. Mehtas name was proposed for re-appointment as a Director should be adjourned. It is to be noted that with regard to the Chairman and other two Directors the business was transacted in the said meeting and they were re-appointed as Directors. It seems that the item of the agenda with regard to the re-appointment of mr. Mehta is adjourned for an ulterior motive because it seems that in the minutes of 108th Meeting of the Board of Directors of the respondent No. 1-Company held on 29/12/1990 in Item No. 7 it has been specifically stated that the Chairman of S. B. I. was of the view that S. B. I. would not consider re-examination for providing working capital till such time as Mehtas remain shareholders in respondent No. 1-Company. The Minutes further state that it was explained to the Chairman of S. B. I. that the issue of the Mehtas opting out of shareholding will take same time. The entire Minutes with regard to item No. 7 reflect that respondent No. 2 is interested in seeing that Mehta group is ousted. One of the reasons for doing so may be that because of the dispute of bringing in Gujarat Ambuja Cements Ltd. as other private promoter or because of personal opinion as expressed by Mr. P. C. Ramrakhiani in his letter Annexure Ex. "39". It is his view that Mr. M. N. Mehta should be replaced. One of the reasons for doing so may be that because of the dispute of bringing in Gujarat Ambuja Cements Ltd. as other private promoter or because of personal opinion as expressed by Mr. P. C. Ramrakhiani in his letter Annexure Ex. "39". It is his view that Mr. M. N. Mehta should be replaced. He has further opined to the Government of Gujarat that for revival of the Company new joint sector partner should be selected in such a way that he understands the culture and ethos of the joint sector partnership in the State of Gujarat. He has further opined that only financial commitments should not be taken into consideration. ( 20 ) ). Considering the aforesaid facts it is apparent that Mehta Group is having some difference of opinion with the GIIC. The GIIC is, therefore, trying to oust the Mehta Group. . ( 21 ) ). Apart from this aspect, under the provisions of Sec. 256 Mr. M. N. Mehta continues to be Director of the respondent No. 1-Company. In my view, as per sub-sec. (4) of Sec. 256 Mr. M. N. Mehta is deemed to have been re-appointed after he ceased to be Director on 29/12/1990, i. e. . after his period was over. For this purpose it would be necessary to refer to sub-sec. (4) of Sec. 256 which reads as under :"256 (4) (a) If the place of the retiring director is not so filled up and the meeting has not expressly resolved not to fill the vacancy, the meeting shall stand adjourned till the same day in the next week, at the same time and place, or if that day is a public holiday, till the next succeeding day which is not a public holiday, at the same time and place. (b) If at the adjourned meeting also the place of the retiring director is not filled up and that meeting also has not expressly resolved not to fill the vacancy, the retiring director shall be deemed to have been re-appointed at the adjourned meeting unless: (i) at that meeting or at the previous meeting a resolution for the re-appointment of such director has been put to the meeting and lost; (ii) the retiring director has, by a notice in writing addressed to the Company or its Board of Directors, expressed his unwillingness to be so re-appointed; (iii) he is not qualified or is disqualified for appointment; (iv) a resolution, whether special or ordinary, is required for his appointment or re-appointment in virtue of any provisions of this Act; or (v) the proviso to sub-sec. (2) of Sec. 263 is applicable to the case. " ( 22 ) ). It is an admitted fact that Annual General Meeting of the respondent no. 1-Company was held on 29/12/1990. As per the Minutes Annexure 56 the meeting fur considering the agenda item of re-appointing Mr. M. N. Mehta as a Director was adjourned. That adjourned meeting is not held as per the statutory provision. ( 23 ) ). As per clause (a) of sub-sec. (4) of Sec. 256 if the place of retiring director is not filled up and the meeting has not expressly resolved not to fill the vacancy, the meeting shall stand adjourned till the same day in the next week, if it is not a public holiday, at the same time and place. Therefore, as per the statutory provision meeting for re-appointing the Director stands adjourned for a week. ( 24 ) ). The question, therefore, is, if that statutory meeting is not held, what is its effect ? The answer to this question is provided in clause (b) of subsec. (4) of Sec. 256. It provides for a deeming fiction if certain conditions are fulfilled. It provides that the retiring Director shall be deemed to have been re-appointed at the adjourned meeting if certain conditions are fulfilled. It should be noted that - (a) there is no injunction against the respondents from calling the Annual general Meeting for considering agenda item No. 4 for re-appointment of Mr. It provides that the retiring Director shall be deemed to have been re-appointed at the adjourned meeting if certain conditions are fulfilled. It should be noted that - (a) there is no injunction against the respondents from calling the Annual general Meeting for considering agenda item No. 4 for re-appointment of Mr. M. N. Mehta as a Director of the Company; (b) in the Annual General Meeting held on 29/12/1990 no resolution has been passed not to fill up the vacancy of Mr. Mehta; (c) resolution for re-appointment of Mr. Mehta has not been put to the meeting; (d) Mr. Mehta has not given a notice in writing addressed to the Company or its Board of Directors expressing his unwillingness to be reappointed as a Director; and (e) he is not disqualified for re-appointment. The respondents have not held the adjourned meeting as required by clause (a) of sub-sec. (4) of Sec. 256. But by that doubtful device at present the respondents cannot be permitted to act in such an oppressive manner so as to ignore Sec. 256 (4), injunction order by the City Civil Court and the Articles of Association which specifically provide that TMIL shall have a right to nominate three Directors on the Board of Directors of the Company till it holds 25% of equity shares. In any set of circumstances, the respondents cannot be permitted to take advantage of their own default in not calling the adjourned meeting as required under sub-sec. (4 ). ( 25 ) ). The learned Counsel for the petitioners has relied upon the judgment of the Bombay High Court in the case of Lalchand Mengraj v. Shree Ram Mills Ltd. , 38 Company Cases 606, and submitted that it should be deemed that Mr. M. N. Mehta is re-appointed as a Director of the Company. la that case substantive petition under Sees. 397 and 398 of the Companies Act was filed. Thereafter the petitioners made an application for interim relief under Sec. 403 of the Act on 1/06/1967 just a day prior to the Annual General Meeting at which the question of re-appointment of the 3rd petitioner as a Director was to come up at item No. 3 of the agenda of the said meeting. Thereafter the petitioners made an application for interim relief under Sec. 403 of the Act on 1/06/1967 just a day prior to the Annual General Meeting at which the question of re-appointment of the 3rd petitioner as a Director was to come up at item No. 3 of the agenda of the said meeting. The Companies Tribunal made an order on 1/06/1967 by which the respondents were restrained from allowing the consideration of item No. 3 of the Agenda of the Annual General Meeting of the shareholders of the Company which was to be held on 2/06/1967. At the adjourned Annual General Meeting of the Company on 8/06/1967 item No. 3 of the Agenda which related to the re-appointment of the 3rd petitioner as a Director was not considered in view of the injunction granted by the Companies Tribunal on 1/06/1967. After considering the various contentions the Court held that the meeting of 2/06/1967 stood statutorily adjourned to the 9/06/1967 by virtue of the provisions of sub-sec. (4) (a) of Sec. 256; secondly, that, on the 9/06/1967 the 3rd petitioner retired by rotation by reason of the provisions of sub-sec. (1) of sec. 256, as construed by the High Court in the case of Krishnaprasad v. Colaba Land and Mills Co. Ltd. , (1959) 29 Company Cases 276, under which such compulsory retirement takes place even when an Annual General meeting, is, in fact, not held; and thirdly, that since. at that meeting which should have statutorily adjourned to the 9/06/1967, the 3rd petitioners place as a retiring Director was not filled up, nor was it resolved that his vacancy was not to be filled up, nor was any resolution for his appointment put to the meeting and lost, the 3rd petitioner must be deemed to have been re-appointed as a director for a further term at that adjourned meeting of the 9/06/1967. ( 26 ) ). Considering the aforesaid law and the facts of the present case and the fact that since 1981 Mr. M. N. Mehta continues as a Director, in my view it would be just and proper to give interim direction that Mr. M. N. Mehta continues to be a Director of the Company. ( 27 ) ). In view of the aforesaid direction that Mr. M. N. Mehta continues as a Director, in my view it would be just and proper to give interim direction that Mr. M. N. Mehta continues to be a Director of the Company. ( 27 ) ). In view of the aforesaid direction that Mr. Mehta continues to be a Director of the respondent No. 1-Company, it would not be necessary to pass any order with regard to the prayer that the respondents should be directed to give full access to Mr. Mehta and/or their nominees to the records of the respondent No. 1-Company because Sec. 209 (4) specifically provides that the books of accounts and other books and the papers shall he open to inspection by any Director during business hours. Therefore, the aforesaid direction is not required to be given at this stage. Hence the contention of the learned Counsel for the petitioners that apart from being a Director, as serious baseless allegations are made against the Mr. M. N. Mehta and mr. Jai Mehta as a Shareholder and litigant, he is entitled to inspect the relevant records of the Company, is not required to be dealt with. ( 28 ) ). Further, at this stage in my view it would not be proper to give a direction that Shri Sanat Mehta should be considered to be a Director of respondent No. 1-Company as he was not appointed by the respondent No. 1-Company at any time as a Director as Mehta Groups nominee. As per articles of Association it would be open to the petitioner to nominate him as a Director as Mehta Group is entitled to nominate three persons on the board of Directors of respondent No. 1-Company. At-present it would also not be necessary to give a direction for appointing him as Additional Director under Sec. 260 of the Companies Act. ( 29 ) ). The next question is whether any direction is required to be given with regard to the Rights Issue which is opsned since 2/01/1990. It should be noted that Rights Issue is opened because of the recommendation from the Industrial Development Bank of India as per its letter dated 30th september, 1988 (Annexure "15" ). The said letter inter alia provides that the lead Institution (IDBI) would provide the facilities mentioned therein if equity share capital of Rs. 756 lacs is issued on rights basis. The said letter inter alia provides that the lead Institution (IDBI) would provide the facilities mentioned therein if equity share capital of Rs. 756 lacs is issued on rights basis. It is the contention of the petitioners that GIIC from the very beginning took up the stand that they will subscribe to the Rights Issue only if there is substantial alteration in the Shareholders Agreement and the Mehta Group buys back the additional equity within a period of one year. The letter to the aforesaid offect written by the Managing Director of GIIC to Mr. M. N. Mehta is at Annexure "18". The correspondence followed between the parties. Finally by the letter dated 5/12/1989 (Annexure "24") Mr. M. N. Mehta agreed to take the shares of Rs. 286 lacs of GIIC. By the letter dated 29/01/1990 (Annexure "25") IDBI expressed its unwilliugncss to subscribe to the Rights Issue. Further, it should be noted that in the meeting of the Board of Directors of the Company which was held on 27/03/1989 on behalf of the Mehta International ltd. , M/s. Sumaraj Holdings Pvt. Ltd. had made arrangement to provide a sum of Rs. 270 lacs. The arrangement was made with the Indian Bank to provide Rs. 270 lacs to the Company directly on their behalf as a temporary loan for a period not exceeding six months. It is the contention of the petitioners that M/s. Sumaraj Holdings Pvt. Ltd. was to pay interest over it at the rate of 18% for that period. Further, as stated earlier, from the document which is placed on record it is apparent that GIIC had not agreed to subscibe its share of Rs. 2. 86 crores. Because GITC failed to subscribe for it as per the shareholders Agreement between GIIC and TMIL, Mehta Group agreed to purchase its share through its nominee B. O. I. Finance. Mr. Shah, learned advocate appearing on behalf of GIIC states that B. O. I. Finance is not the nominee of Mehta Group. As against that, it has been submitted by the learned counsel for the petitioners that on behalf of Mehta Group B. O. I. Finance has sent its application for purchase of shares worth Rs. 2. 86 crores. At-present the question whether or not B. O. I. Finance is the nominee of Mehta Group it not required to the decided. As against that, it has been submitted by the learned counsel for the petitioners that on behalf of Mehta Group B. O. I. Finance has sent its application for purchase of shares worth Rs. 2. 86 crores. At-present the question whether or not B. O. I. Finance is the nominee of Mehta Group it not required to the decided. The question which requires decision is whether the Rights Equity Issue which is opened on 2/01/1990 should be closed or not, The learned Counsel for the petitioners submitted that the respondents be directed to close the said issue on or before 1 5/05/1991 so that the petitioners or Mehta Group nominees can subscribe to the said Right Issue. It is agreed that as per the consent given by the controller of Capital Issues the Rights Issue can be kept open upto 30/06/1991. It is also an admitted fact that TMIL has brought Rs. 2. 70 crores as a Bridge loan from the Indian Bank on 28/04/1989. As the said amount is not paid by the respondent No. 1-Compauy or its guarantor, i. e. , Associates of Mehta Group, Civil Suit is filed for recovery of the said amount. Learned counsel for the petitioners, therefore, submitted that the respondents should be directed to close the Rights Issue on or before 15/05/1991 so that associates of Mehta Group can subscribe to the equity shares to the tune of Rs, 2. 70 crores and the Company should be directed to pay back the loan which was brought by Associates of Mehta Group by giving guarantee to the Indian Bank. Further, it should be noted that Mr. M. N. Mehta has written a letter to the Chairman of the Company on 16/03/1991 (Annexure "53") to the effect that the Rights Issue was opened on 2/01/1990, the only subscription so far received is of B. O. I. Finance Ltd. of Rs. 2. 5 crores and a few other members from the public. Because of tripartite arrangement the Indian Bank has given a Bridge loan to the Company on the strength of buy-back arrangement entered into and the Indian Bank has recalled the loan and notices have been issued. It has been also pointed out that M/s. Sumaraj Holdings Pvt. Ltd. has agreed to bear the interest burden for a period of 3 to 6 months. It has been also pointed out that M/s. Sumaraj Holdings Pvt. Ltd. has agreed to bear the interest burden for a period of 3 to 6 months. In view of the assurance given, the whole Issue will be tied up during that period. The Company has received the amount and has used it and has also executed a promissory note for that purpose. In order to resolve the controversy with the Indian Bank, it was suggested that subscription to the Rights Issue of Rs. 3 crores from friends and associates was tied up and, therefore, the Board of Directors should agree to the following courses of action so that Rs. 3 crores can be made available to the Company" (1) After receipt of this subscription of Rs. 3 crores the Rights Issue to be closed and shares to be allotted within four weeks thereafter. (2) The amount so received to be immediately used for repaying the Bridge loan of 2. 70 crores received by CCGL from the Indian Bank. (3) As and when the IDBI and the Institutions agree to subscribe, a fresh rights Issue can be made and the whole matter can be resolved. You will appreciate that in view of the past controversies, this contribution of Rs. 3 crores can be made only if the issue is immediately closed at the most within a period of one week from the receipt of the money and the amount repaid to the Indian Bank. This would at the least obviate the problems with the Indian Bank. " ( 30 ) ). Considering the aforesaid facts, in my view it would be just and proper to direct the respondent No. 1-Company to accept the amount upto Rs. 3 crores for the Rights Issue from Mehta Group or its nominee, the said Rights Issue shall be closed on 15/05/1991 and the shares should be allotted within four weeks thereafter. Respondent No. 1 shall immediately make arrangements for repaying the Bridge loan of 2. 70 crores received from the Indian Bank as stated earlier from the aforesaid amount. The necessary application forms shall be given to the petitioners or their nominees by the respondent No. 1-Company. ( 31 ) ). With regard to prayer (E), i. e. , for restraining respondent No. 2 from transferring the shares in the respondent No. 1-Company, Mr. 70 crores received from the Indian Bank as stated earlier from the aforesaid amount. The necessary application forms shall be given to the petitioners or their nominees by the respondent No. 1-Company. ( 31 ) ). With regard to prayer (E), i. e. , for restraining respondent No. 2 from transferring the shares in the respondent No. 1-Company, Mr. Shah, learned Advocate appearing on behalf of GIIC, states that the respondent would act as per the Shareholders Agreement without prejudice to GIICs right to challenge the Shareholders Agreement. It is clarified that the offer for sale of shares as contemplated by the Shareholders Agreement by respondent No. 2-Company to Mehta Group, shall be in writing. ( 32 ) ). At present rest of the prayers are not required to be considered at this stage mainly because the proceedings are pending before the Board for Industrial Finance and Reconstruction and it is submitted by. the parties that the Management of respondent No. 1 cannot be changed without its approval. However, considering the apprehension of the petitioners it is directed that with regard to the alleged charges against Mr. M. N. Mehta or Mr. Jai Mehta or Mr. Balsari, respondent No. 1 shall forward the representation made by Mr. Mehta to the concerned Chartered Accountants who are appointed for investigating the matter. ( 33 ) ). In the result, the Judges Summons is partly allowed. ( 34 ) ). Respondent No. 1-Company is directed to consider that Mr. M. N. Mehta continues to be a Director of the respondent No. 1-Company. ( 35 ) ). The Rights Issue which is opened on 2/01/1990 shall be closed on 15/05/1991. Respondent No. 1-Company would give necessary application forms to Mr. M. N. Mehta or his nominee for making application for Rights Issue as stated above to the extent of Rs. 2. 76 crores or more. The shares shall be allotted within four weeks from 15th May, 1991. The amount received from Mehta Group or its Associates shall be utilised by the company for repaying the loan to the Indian Bank. ( 36 ) ). The rest of the prayers are rejected. Still, however, it would be open to the petitioners to move fresh application if necessary as per the circumstances. ( 37 ) ). At the request of the learned Advocates for the respondents the operation of this order is stayed upto 29/04/1991. Mr. ( 36 ) ). The rest of the prayers are rejected. Still, however, it would be open to the petitioners to move fresh application if necessary as per the circumstances. ( 37 ) ). At the request of the learned Advocates for the respondents the operation of this order is stayed upto 29/04/1991. Mr. Thakore, learned advocate appearing on behalf of the respondent No. 1-Company, states that at present meeting of the Board of Directors of the Company is not contemplated. .