K. J. SHETTY, J. ( 1 ) THIS Company application is filed by the respondents seeking an order as follows: this Hon'ble Court may be pleased to permit the respondents to give effect to the resolution dated 3-8-1989 passed by the extraordinary General Meeting held on 3-8-1989 minutes whereof has been filed along with the statement of objections as Annexure r-23 to the Company petition. In the application the respondents have averred that the petitioner in the Company petition filed an application No. 868 of 1989 praying for grant of temporary injunction to restrain from holding of extraordinary General Meeting on 3-8-1989. This Court passed an order dated 1-8-1989, which reads as follows: "the respondents may hoid the General Meeting, any resolution passed thereof shall not be given effect to or acted upon until this Court otherwise directs. It is also clarified, by the holding of the General Meeting and the passing of the resolution no equity will be built up in favour of respondents 2 to 6. Any claim by respondents 2 to 6, any commitment that may result by virtue of the passing of the resolution, financial or otherwise shall be at the risk of respondents 2 to 6. The petitioner is free to attend the General Meeting or absent himself if he so chooses or so advised. " Accordingly the said petition of the petitionerapplicant was disposed of. ( 2 ) PURSUANT to that a meeting was held on 3-8-1989. All the share holders of the Company were present. The petitioner was absent. It is averred that the Company at its General Meeting held on 3-8-1989, unanimously gave consent to the proposal to transfer 2719 equity shares of Rs. 100/- each, in favour of Mr. R. N. Shetty for a consideration of Rs. 7,031/- per share. The extract of the minutes of the extraordinary general Meeting held on 3-8-1989 has been annexed to the application. It is further averred that the action taken by the respondents is absolutely legal and proper and the petitioner has no right to withhold the transfer of shares by the respondents in favour of Mr. R. N. Shetty. It is further averred that the transfer of shares in favour of mr. R. N. Shelly is not only beneficial to the respondents but also to the Company and the workers. R. N. Shetty. It is further averred that the transfer of shares in favour of mr. R. N. Shelly is not only beneficial to the respondents but also to the Company and the workers. The proposed transferee has agreed to immediately bring funds for the purpose of meeting the immediate financial requirement of the Company. In fact, for want of which, the workers are put to great hardship. Steps taken by the respondents seeking to transfer 2719 equity shares of Rs. 100/- each, of the Company in favour of Mr. R. N. Shetty, is in accordance with law and the provisions of Article 37 of the Articles of Association. The petitioner, though has absolutely no right to claim a right of pre-emptive purchase of shares belonging to the respondents, he has been offered to purchase the same. It is clear that from the Article 37 (1) of Articles of Association no right of pre-emptive purchase is available to the petitioner. At apart it permits transfer of shares to a person, who is not a member of the Company provided with the consent of the General Meeting is obtained. It is further averred that the consent of the General Meeting has been taken on 3-8-1989. There is absolute compliance with Article 37 (1) General Meeting has been convened and held in accordance with law. It is therefore, prayed by the respondents be given permission to give effect of resolution passed by the General Meeting on 3-8-1989 as per Ex. R-23. It is averred that inspite of the transfer of shares in favour of Mr. R. N. Shetty no right to the petitioner is being jeopardised. The petitioner will continue to hold 15% of the shares of the Company as he now does. Even the petitioner's position as Joint managing Director of the Company will not be disturbed. It has been offered by Mr. R. N. Shetty at the same rate. Inspite of the said offer the petitioner did not want to accept the offer and the petitioner cannot on that pretext obstruct the transfer of shares by the respondents. Even the petitioner's position as Joint managing Director of the Company will not be disturbed. It has been offered by Mr. R. N. Shetty at the same rate. Inspite of the said offer the petitioner did not want to accept the offer and the petitioner cannot on that pretext obstruct the transfer of shares by the respondents. It is further averred that all through and it is within the knowledge of the petitioner, he has been actively participating in each of the negotiations inspite of transfer of shares earlier in this case, he has taken very exact attitude for the reasons best known to him put to obstruct for the transfer of shares of the respondents in favour of Mr. R. N. Shetty, who is offered the highest price of the share value. The petition is motivated by mala fide conduct. If resolution is not permitted to give effect to, the respondents are likely to suffer from irreparable loss and injury, which cannot be adequately compensated in tenns of money. The Company is facing grave financial crises and with the passage of every day the liability of the company is increasing enormously in addition to the defaults being committed in fulfilling the statutory liabilities owing to want of finances. ( 3 ) THIS application was resisted by the petitioner by filing his objections statement, wherein, he has contended inter alia, that the respondents holds 85% of the equity shares of the respondent No. 1-Company have indulged in several acts of oppression and mis-management detrimental to the petitioner and also the interests of the respondent No. 1-Company including using physical violence against the petitioner's son. The respondents have also indulged in several acts of malverisation besides misappropriating more than Rs. 16 lakhs from the funds of the respondent no. 1-Company. ( 4 ) IT is further averred that the respondents have agreed to the sale of their 2719 equity shares of the respondent No. 1-Company to a third party without offering the same, in the first instance, to the petitioner in violation of the Articles of Association of the respondent No. 1-Company, specifically Article 37 which has made the petitioner to file the Company petition. ( 5 ) IT is further stated that at the EGM of the respondent No. 1-Company held on3-8-1989, the respondents passed an ordinary resolution authorising the sale of their 2719 equity shares in the respondent No. 1-Company to a third party. The effect of the said resolution will be to transfer the ownership of about 85% of the equity shares of the respondent No. 1-Company to an outsider. ( 6 ) THE effect of such a transfer of shares will amount to handing over the ownership and control of the respondent No. 1-Company to a third party-outsider, which this Court has also observed that it would be desirable to explore means of keeping the control of the respondent-Company, after examining the merits of the pleadings and holding an enquiry, if necessary. ( 7 ) IT is further averred that if the respondents are permitted to give effect to there solution passed at the EGM held on 3-8-1989 as sought in the Company application the very petition itself will become infructuous as the respondents will then cease to have any connection with the respondent No. 1-Company and will consequently escape their liability for the reliefs sought in the main petition. In the petition, it has been alleged that the respondents have misappropriated more than Rs. 16 lakhs from the funds of the respondent No. 1-Company. If the respondents are permitted to give effect to the said resolution they will escape their liability on this account, causing a huge loss to the respondent No. 1-Company. ( 8 ) IT is further stated that Article 37 (v) of the Articles of Association of the respondent No. 1-Company prohibit the transfer of shares available for transfer unless they are offered in the first instance to the other members of the Company prorata of their respective shareholding. It further provides that if such a member refuses to take the shares so offered the shares must be offered to any other member and only on his refusal, to a third party. ( 9 ) IT is further reiterated that a plain reading of Exhibit N' filed along with the main petition reveals that the respondents in total violation of Article 37 (v), have first offered the shares available for transfer to a third party and then turned around and made a show of offering the same to the petitioner. ( 9 ) IT is further reiterated that a plain reading of Exhibit N' filed along with the main petition reveals that the respondents in total violation of Article 37 (v), have first offered the shares available for transfer to a third party and then turned around and made a show of offering the same to the petitioner. ( 10 ) THE petitioner further submits that the respondents, without making a proper valuation of the said shares, have sought to coerce the petitioner into paying an ex-horbitant amount for the said shares by holding out that the third party has offered such an amount Further, the respondents have called upon the petitioner to pay the entire consideration for the 2719 shares, amounting to Rs. 1. 91 crores within ten days of the offer being made, whereas the third parly Mr. R. N. Shetty has been permitted to pay for the purchase of the said shares in instalments over a period of time. ( 11 ) IT is further stated that these acts of the respondents as described above, apart from being oppressive of the petitioner, are also unjust and inequitable, and the petitioner has sought in the main petition that this Court direct the respondents to offer the shares available at a price to be fixed by this Court. It is further stated that if the above Company application is allowed, the very petition will become infructuous. ( 12 ) IN traverse the other allegations contained in the Company application by the respondents, the petitioner states that the undertaking filed by the respondent was merely a ruse to prejudice the mind of this Court as is evident from the fact that the application has now been filed seeking to give effect to the resolution passed at the egm held on 3-8-1989 thereby nullifying the very undertaking, given by them to the court. ( 13 ) THE petitioner further denied that the transfer of shares to Mr. R. N. Shetty is beneficial to the respondents and the Company and its workmen. It is not correct that the workman of the Company will benefit because the said Mr. R. N. Shetty has agreed to immediately bring the funds for the immediate financial requirements of the Company. Even to the knowledge of the respondents, as the said funds are proposed to be brought into pay off and discharge the workmen of the Company. It is not correct that the workman of the Company will benefit because the said Mr. R. N. Shetty has agreed to immediately bring the funds for the immediate financial requirements of the Company. Even to the knowledge of the respondents, as the said funds are proposed to be brought into pay off and discharge the workmen of the Company. The petitioner has contended that the respondents in seeking to transfer the 2719 equity shares to a third party is lawful and proper and that the petitioner has no preemptive right to purchase the same are false and the same has been denied. ( 14 ) THE petitioner did not admit the allegations made in para 8 of the respondents' application. It is specifically denied that the Company petition is motivated by mala fides. It is denied that the respondents are likely to suffer from irreparable loss and injury which cannot be compensated in terms of money, if they are not permitted to give effect to the said resolution, ( 15 ) IT is further staled that it is true that the Company is facing grave financialcrisis and that the liability of the Company is increasing. It is also admitted that the company is defaulting in the matter of statutory liabilities and duties. But the petitioner is stated that this situation has been brought about solely due to the acts of malverisation and misappropriation indulged in by the respondents, and that it is the acts of mismanagement of the respondents that have led to the property of the company being damaged and led to waste. Even if the alleged resolution passed in the invalid EGM would not solve the problems faced by the respondent-Company on the contrary, it would only create more problems. As such, the petitioner prays to dismiss the Company application of the respondents. ( 16 ) THE petitioner has filed the Company petition under Sections 397 and 398 of the Companies Act and sought for removing the oppression and to pass such an alternative affairs of the Company. The main ground urged by the petitioner is that the mutual trust and confidence has been lost between the parties and there has been a dead lock. All the respondents have got together and arc refusing lo see reason and are refusing to permit the applicant to rectify the affairs of the Company. The main ground urged by the petitioner is that the mutual trust and confidence has been lost between the parties and there has been a dead lock. All the respondents have got together and arc refusing lo see reason and are refusing to permit the applicant to rectify the affairs of the Company. There has been lotal lack of probity in the conduct of the affairs of the Company by the respondents 3 and 4, who are managing the affairs of the Company. The Company is therefore liable to be wound up on just and equitable grounds. In the alternative it is stated that the affairs of the Company are being conducted in a manner prejudicial to the public interest and also in a manner oppressing lo the petitioner. It is averred in the petition by the petitioner that the Company was mainly incorporated for purposes of acquiring the factory land and premises at Yeshwanthapur, belonging to m/s, Standard Tile and Clay Works Ltd. , which was running faclory, incorporated with the main objecl of manufacture of tiles, fire bricks, refractories, mosaic tiles etc. This factory was originally founded by the petitioner's father and the respondents 2 to 5. The respondent No. 6 was the wife of late V. L. Dharam. The petitioner was looking after as Director of the Company on 8-5-1959 and subscquenlly, he was elected as a Director on 25-6-1960. He became the Joint Managing Direclor of the company on 31-12-1969 and he continues lo hold the post of Joint Managing direclor even now. From 1969, the petitioner was solely in-charge of running of the faclory of the Company situated at Yeshwanlhapur. The respondents were not taking any interest in the running of the factory. It is mainly because of the petitioner's hardwork put in by him, the Company was making profits and the respondents were enjoying the fruits of the hard work thae was put in by the petitioner. During the period of 1983-84 and 1984-85 due to failure of monsoon and competition from other tiles manufacturers oulsidc the State of Karnataka and also due to recession, the sales of the Company starlcd declining. In the year 1985-86 due to illegal slrikc resorted to by the employees of the Company, the Company had lo perforce close its faclory. During the period of 1983-84 and 1984-85 due to failure of monsoon and competition from other tiles manufacturers oulsidc the State of Karnataka and also due to recession, the sales of the Company starlcd declining. In the year 1985-86 due to illegal slrikc resorted to by the employees of the Company, the Company had lo perforce close its faclory. ( 17 ) IT is further averred when once the Company sustained losses due to recession and illegal strike resorted lo by the employees of the Company, the petitioner sent circulars to the respondents informing them about the financial crisis faced by the Company and exhorting them to cut down the expenses which were being reimbursed by the Company. It is further staled that the respondents were upset by their inability to gel remuneration without work during early 1987, that the third respondent, who was the Joint Managing Director of the Company along with the petitioner from 1969 took over the reins of administration of the,company with the active support of the oilier respondents and ousted the petitioner from the management of the Company though the petitioner continues to hold the designation of the Joint Managing Director of the Company. There was an incident on 29-10-1988, when the son of the petitioner was sent to collect the personal correspondence of the petitioner lying in the factory of the Company, was abused ind assaulted by the respondents 3 and 4. After such an administration was taken over by the 3rd respondent the financial position of the Company was deteriorated. The respondents started under invoicing the products of the Company and started making money on the side, and the total amount thus siphoned off by the respondents 3 and 4 run into over Rs. 10 lakhs, and they are liable to be reimbursed. The respondents 3 and 4 sold lot of raw materials and some sales have not even been accounted for and the amount of loss sustained by the Company as a result of the amount thus siphoned off by the third respondent in this manner is over Rs. 5 lakhs which they are liable to be make good to the Company. It is also alleged in the petition that the respondents 3 and 4 have also sold some of the machineries of the company, which have not properly accounted for in the books of accounts of the company. 5 lakhs which they are liable to be make good to the Company. It is also alleged in the petition that the respondents 3 and 4 have also sold some of the machineries of the company, which have not properly accounted for in the books of accounts of the company. The losses sustained by the Company as a result of the sale of machinery is over Rs. 2-3 lakhs and they are liable to make good the same to the Company. In fact, the 4th respondent had written a letter on 8-2-1988 falsely claiming to be the joint Managing Director of the Company offering to sell the refractory and ceramic unit of the Company. ( 18 ) IT is further averred that after the third respondent has taken over the management of the Company has failed and neglected to convene the Annual general Meeting to prepare the balance sheet and profit and loss accounts and to file the returns with the Registrar of Companies. As a result the Registrar of Companies has issued notices calling upon the Company to show cause why action should not be taken for prosecution under the relevant provisions of the Companies Act. It is further stated that the respondents have been wholly mismanaging the affairs of the company and they have been trying to ulilise the employees gratuity fund for purpose of paying the income tax and other taxes of the Company. It is further, stated that the respondents, who constitute majority of the shareholders of the Company have been oppressing the petitioner in various ways. They have totally precluded the petitioner from attending the factory and from exercising his rights as a member of the Company and has been presented from inspecting the records of Company. They also stopped paying the P. F. contributions on behalf of the petitioner. It is further alleged that the respondents not being satisfied with the misappropriation and malversation of funds of the Company have now thought of selling the land of the company which is situated on the main Bangalore-Tumkur Road and which is very valuable. In this regard they have contacted several brokers. It is further alleged that the respondents not being satisfied with the misappropriation and malversation of funds of the Company have now thought of selling the land of the company which is situated on the main Bangalore-Tumkur Road and which is very valuable. In this regard they have contacted several brokers. The Auditor of the company has been totally misusing his position as an Auditor of the Company and has been conniving with the respondents in siphoning off the funds of the Company and mis-representing the true facts of the accounts and protecting the false figures. The respondents have now found a buyer for purchase of the land and factory as a going concern Mr. R. N, Shelly, and have convened a meeting on 3-7-1989 to consider proposals for disposal of shares in favour of third parties based on alleged offers received by them from third parlies. The petitioner attended the meeting and in the meeting the respondents informed the petitioner that one Mr. R. N. Shetty has offered to purchase the entire shareholdings of the respondents at a rate of Rs. 7,031/- per share and that they are inclined to sell the same in favour of Mr. R. N. Shelly. The pelitioner informed the respondents thai since the Company is a Privale ltd,, Company and since the Articles of Association of the Company forbid sales of shares in favour of third parties, without offering the same to the existing shareholders th'e respondents cannot sell the shares in favour of Mr. R. N. Shetty. Further the petitioner has also requested the respondents to show him the offer made by Mr. R. N. Shetty. The respondents however, refused to show the offer made by mr. R. N. Shetty. However, the respondents informed the petitioner that if he wishes to know the contents of the offer made by Mr. R. N. Shetty. The respondents further informed the petitioner that they are however willing to sell the shares in favour of the petitioner provided he pays the value of the shares of the respondent at the rate of rs. 7,031/- per share within a period of ten days. It is stated that on 6-7-1989 the petitioner received a sale notice under the signature of third respondent dated 3-7-1989 wherein the petitioner was again informed of the offer made by Mr. 7,031/- per share within a period of ten days. It is stated that on 6-7-1989 the petitioner received a sale notice under the signature of third respondent dated 3-7-1989 wherein the petitioner was again informed of the offer made by Mr. R. N. Shetty to purchase the entire shareholding of the respondent at the negotiated price of Rs. 7,031/- per share. The said letter specifically indicated that the Board has received written sale notice jointly from 8 shareholders who are none other than the respondents conveying their intention to transfer their entire shareholding of the company to Mr. R. N. Shelly or his nominees at the negotiated price of Rs. 7,031/- as per the said letter the petitioner was called upon to pay the value of the entire shareholding of the respondents at the rate of Rs. 7,031/- per share which aggregates to nearly Rs. 1. 91 crores within a period of ten days from the date of receipt of the letter. It was made clear to the petitioner that if the offer is not accepted, the same would be sold in favour of Mr. R. N. Shetty, or his nominees. It is further stated that even before the petitioner responded to the sale notice, the third respondent senta notice dated 8-7-1989 convening the EGM of the shareholders of the Company on 3-8-1989 to pass an ordinary resolution, resolving that the consent of the members be accorded for the proposed transfer of 2718 shares of the Company by the respondents in favour of Mr. R. N. Shetty at the rate of Rs. 7,031/- per share. The petitioner further submits that he wrote a letter to the third respondent requesting him to furnish certain clarifications and also the letter of offer made by Mr. R. N. Shetty in order to facilitate the petitioner to make his offer to purchase the shares belonging to the respondents. The respondents were also in the said letter, requested to furnish a copy of the minutes of the Board Meeting dated 3-7-1989. In reply thereto, the third respondenl wrole a letter dated 19-7-1989 furnishing only a few of the clarifications sought for and clearly stating that they have already shown the letter of offer made by Mr. R. N. Shetty to the petitioner. On 24-7-1989 the petitioner sent a letter calling upon the respondents again, to furnish the letter of offer made by mr. R. N. Shetty to the petitioner. On 24-7-1989 the petitioner sent a letter calling upon the respondents again, to furnish the letter of offer made by mr. R. N. Shetty and the payment details and modalities of transfer of assets of the company and other particulars. In the said letter, the petitioner has stated that the value of the shares is not Rs. 7,031/- per share. The petitioner has submitted that the respondents are bent upon selling their shares to Mr. R. N. Shetty even though the same is contrary to the Companies Act, and Articles of Association of the Company. ( 19 ) THE respondents 3 and 4 filed their counter staling and controverling all theallegations of the petitioner. In the counter it has been stated that the facts alleged by the petitioner do not entitle to the petitioner to ask for an order of winding up of the first respondent-Company under Section 433 (f) of the Act and consequently, the petitioner is not entitled to any relief under the Provisions of Sections 397 and 398 of the Act. The allegation that after 1969 the petitioner was solely in-charge of running the factory of the Company situated at Yeshwanthapur is absolutely false, and incorrect. All the Directors of the Company arc whole time Directors except the sixth respondent namely wife of late V. L. Dhanram Mudaliar and mother of the petitioner and respondents 2 to 5. The respondents 2 to 5 have been taking active interest not merely in the management of the Company as Directors of the Board but also in the day to day running of the factory. The Directors were attending to the specific responsibility assigned to them from time to time by the Board. At the Board meeting held on 7-2-1970, the following assignment of work was agreed to between the Directors namely, respondent No. 3, Staff, Labour and Mosaic Department, petitioner-Sales Promotion, respondent No. 4-Accounts and Purchase, respondent no. 2-General Administration and respondent No. 5-Mines. The claim made by the petitioner apart from being vain, is false to his own knowledge. It is admitted by the respondents that there was difficulties facing by the Company during the years 1983-84 and onwards. Eversince that day, the Company never recovered out of crisis that befell the Company during these years. 2-General Administration and respondent No. 5-Mines. The claim made by the petitioner apart from being vain, is false to his own knowledge. It is admitted by the respondents that there was difficulties facing by the Company during the years 1983-84 and onwards. Eversince that day, the Company never recovered out of crisis that befell the Company during these years. The position became worse with the fixation of minimum wages to workers employed in the Tiles Industry which burden was almost impossible for the Company to bear. This position was not peculiar to the Company but was general trend in the Tiles Industry itself. The statement that the respondents used to take profits of the Company periodically even though they were not taking any interest in the work as well as the business of the company is a false one, and malacious allegation made by the petitioner to suit his own selfish interest. In fact, the Company declared dividends at the rate of 5% last during the financial year ending 30-6-1984. The only drawings which the Directors of the Company including the petitioner have been making is towards salary and reimbursement of expenses as decided by the Board from time to time. So far as the remuneration payable to the Directors of the Company namely, respondents 3 to 5 the same has been drawn only up to August 1988 and subsequent to that date, none of the respondents 3 to 5 have drawn any amount from the Company towards salary. In fact, the petitioner has also drawn his salary last on 2-8-1988 of a sum of Rs. 1,840/- being the salary for the month of July 1988. The grievance made therefore that the respondents periodically have taken share of profits from the Company without taking any interest in the work, is absolutely false and the same is denied. It is stated by the respondents that the petitioner has been throughout guilty of unauthorised and wasteful spending of the Company's funds which also contributed to the financial crisis faced by the Company. In so far as the expenses are concerned, it is necessary to state that the petitioner has drawn petrol expenses on Company's upto January 1989. The only expenses borne by the Company so far as respondents 2 to 5 are concerned is towards petrol and no other expenses is being reimbursed. In so far as the expenses are concerned, it is necessary to state that the petitioner has drawn petrol expenses on Company's upto January 1989. The only expenses borne by the Company so far as respondents 2 to 5 are concerned is towards petrol and no other expenses is being reimbursed. It is stated that the averments made in para 9 of the petition are baseless and untenable. Since the Company was not in a position to meet various statutory obligations viz. , payment towards taxes, payment to workers, payment towards e. S. I. Gratuity Provident Fund etc. , and put all of them great hardship and it also exposed the respondents and the petitioner to criminal prosecution under various laws. In fact, on account of the crisis faced by the Company, it became inevitable for the Company to dispense with the services of 47 workers thereby compelled to incur large additional financial burden by way of terminal benefits. It is in the context of deteriorating situation that the respondents set about to find ways and. means not merely to relieve themselves the burden but also to reduce the hardships that workers and others who had dealings with the Company were compelled to face on account of the financial crises. While the respondents were making a constructive approach towards finding a solution to the vexed financial crisis the Company was going through, the petitioners revelled in being non-co-operative and has always adopted obstructive altitude without any constructive or positive suggestions to enable the company and the Directors to tide over the crises. The contention of the petitioner that the respondents are responsible from preventing the petitioner to take part in the management of the Company is absolutely false and misleading. Further the averment of the petition that the respondents took over the reins of the administration of the Company with the active support of the other respondents and ousted the petitioner from the management of the Company at a time when admittedly the Company was in a crisis discloses utter ignorance of the petitioner to natural human conduct. It is needless to state that the human conduct shies away from crisis. The respondents 2 to 5 were throughout in the active management and administration of the Company and the question therefore of the respondents taking over the administration of the Company does not arise. It is needless to state that the human conduct shies away from crisis. The respondents 2 to 5 were throughout in the active management and administration of the Company and the question therefore of the respondents taking over the administration of the Company does not arise. It is also not correct to say that the petitioner was in the exclusive management and control of the Company with respondents 2 to 5 being mere inactive Directors, The various correspondence between the Company and the statutory authorities and business transactions disclose the active participation of respondents 2 to 5' in the matter of the management business and administration of the Company. On the contrary, it is the petitioner who has avoided shouldering responsibility required of a joint Managing director of the Company and it is he who has remained away from the Company being unable to face a crisis situation. It was the petitioner, who actively encouraged internecine squabbles within the Company creating discord between the labour and management. The petitioner has caused serious interference in the administration of the Company by illegally withholding the documents pertaining to the Company including the statutory books namely minutes books regarding the proceedings of the meetings held by the Board of Directors of the Company. In fact, even today, the petitioner is in possession of the said minute book. On account of want of minutes book it became necessary for the Directors to open a new minutes book for the purpose of recording the minutes of the meeting of the Board of Directors on and with effect from 3-7-1989. The allegation that the son of the petitioner was sent to collect the personal correspondence of the petitioner lying in the factory of the company and that he was assaulted by respondents 3 and 4 and by the son of the 4th respondent which resulted in filing a police complaint by the petitioner is absolutely false. It was the petitioner's son at the instigation of the petitioner sought to create law and order situation in the factory by instigating the workers to rebel against the management. In order to avoid any unto wards instant within the factory the respondent protested against such unwarranted interference by the son of the petitioner. It was the petitioner's son at the instigation of the petitioner sought to create law and order situation in the factory by instigating the workers to rebel against the management. In order to avoid any unto wards instant within the factory the respondent protested against such unwarranted interference by the son of the petitioner. Taking advantage of this protest made by the respondents 2 to 5, against the unwarranted and unlawful interference and the exercise of extra legal powers by the son of the petitioner, the petitioner filed a false police complaint. ( 20 ) THE allegation that the 4th respondent started taking part in business of the Company along with the third respondent, is wholly uncalled for and all through respondents 2 to 5 have been in the management and administration of the company, ( 21 ) IT is further averred that the other allegation regarding under invoicing of the products and regarding making money on the side is wholly uncalled for. At no point of time prior to the present petition did the petitioner make any grievance at any meeting of the Company or elsewhere regarding alleged acts of misappropriation of company's funds as alleged. Significantly, the petitioner has failed to give any details in this regard as the petitioner is well aware that the allegations arc without any substance. ( 22 ) IT is further contended by the respondents that further allegation made in the petition that the third and fourth respondents have siphoned of amounts to the extent of Rs. 10 lakhs and that the same is liable to be reimbursed to the Company is false apart from being baseless and defamatory. The other allegation that the raw materials have been sold by the respondents 3 and 4 and that in the books of account only nominal amounts have been shown and some sales have not even been accounted for is absolutely false and incorrect Whatever sales were made of raw materials which was unnecessary to retain in the Company on account of closure of mosaic tiles section in 1986 have been accounted for in the books of accounts fully and properly and at any time this has been questioned or any objection raised by the petitioner and it is specifically denied that the third and 4th respondents are liable to make good a sum of Rs. 5 lakhs or any other amount. 5 lakhs or any other amount. ( 23 ) IT is further contended that the allegation in the petition that the respondents 3 and 4 have sold the machineries belonging to the Company which have not properly been accounted for in the books of accounts of the Company is absolutely false and incorrect No machinery of the Company has been sold. The letter dated 8-2-1988 has been signed by the 4th respondent inviting for a discussion with the directors of the Company. If the intention of the 4th respondent was to act in any manner opposed to the interest of the Company or clandestinely the 4th respondent would not have invited for discussions with the Directors of the Company. ( 24 ) IT is further contended that the allegation that after the reins of management were taken over by the third respondent from the petitioner in the year 1987, the annual General Meeting of the Company was not convened is not correct. The company has held an Annual General Meeting in December 1987. However, the accounts of the Company could not be considered as the Trading and Profit and Loss account and the balance could not be completed on account of the hostile attitude of the petitioner towards the Chartered Accountant of the Company resulting in the chartered Accountant refusing to associate himselfwith the Company. Thereafter it became necessary for the respondents to persuade the Chartered Accountant to continue and now accounts are under finalisation. The letter of Registrar of companies referred to in the petition, has been suilably replied by the petitioner himself by his letter dated 3-10-1988. The grievance of the petitioner regarding the non-completion of the accounts is wholly uncalled for, and the petitioner himself is to be blamed for the defaults enforced on the respondents. The allegation that there has been any financial impropriety committed by utilisation of employees Gratuity fund for the purpose of the Company is a total misleading and false statement. The fact of the matter is that the gratuity is payable to employee at the time of cessation of their employment. The Company has a gratuity scheme operating through Life insurance Corporation of India and premiums arc paid regularly by the Company. The fact of the matter is that the gratuity is payable to employee at the time of cessation of their employment. The Company has a gratuity scheme operating through Life insurance Corporation of India and premiums arc paid regularly by the Company. Upon an employee ceasing his employment with the Company gratuity become payable immediately, but however, the settlement of the claim by the Life Insurance corporation of India takes a couple of months. These facts are well within the knowledge of the petitioner and in fact, the petitioner himself has drawn such cheques for transfer of funds from the gratuity fund to the Company. The attempt now to misuse and mis-interpret the documents filed as Exhibits J and K is therefore mala fide. The cheque dated 5-2-198s was send to the petitioner for his signature as one of the trustees of the employees' gratuity fund. The petitioner at no point of time prior to filing of the petition, raised any objection for the drawal of cheque. In fact, two payments of Rs. 10,000/- and Rs. 20,000/- each have been transferred from the gratuity fund to the Company by means of a cheque bearing No. 112405, dated 19-5-1981 both drawn on Vijaya Bank, Bangalore where the trust funds operate its accounts. These cheques have been signed by the petitioner himself. These transfers have also been made in the circumstances as staled above. The documents filed as exhibits J and K do not reveal any financial impropriety as sought to be made out. The allegation that they have totally precluded the petitioner from attending the factory and from exercising his rights as a member of the Company is absolutely false and incorrect. In fact, the petitioner has been participating in the affairs of the company as Joint Managing Director of the Company and no right of the petitioner as a member of the Company has been in any manner affected by any conduct of the respondents. In fact, on 3-8-1988 the petitioner himself, has issued notice calling for the meeting of the Board of Directors on 6-8-1988. The statement that the respondents have refused to pay the remuneration to the petitioner is also not true. In fact, on 3-8-1988 the petitioner himself, has issued notice calling for the meeting of the Board of Directors on 6-8-1988. The statement that the respondents have refused to pay the remuneration to the petitioner is also not true. The fact of the matter is that there are no funds available with the Company for the payment of the petitioners' remuneration and no Director of the Company except that the second respondent has drawn any money from the Company towards remuneration. The allegation that the respondents have been refusing to convene the meetings both General Meetings as well as the Board meetings of the Company despite repeated requests and demands in this regard by the petitioner is absolutely false and incorrect On the contrary, the petitioner not merely has been coming to the factory; his activities in the factory, have not stopped mere inspection of the records but has extended further, in that the petitioner has wrongfully taken away several books of the Company including the minutes book of the Board of Directors meeting. He has also retained in his hands several account books, vouchers etc. , and he has failed to return the same inspite of the request in that regard. The letter dated 22-9-1988 clearly discloses the conduct of the petitioner in this regard. In fact, the petitioner is liable to be proceeded against under Section 630 of the Companies Act and appropriate action is being taken in this regard. ( 25 ) THE allegation that there has been any oppression of rights of the petitioner as member of the Company is absolutely false and incorrect. On the other hand, it is the petitioner who has been instigating the workers of the Company to revolt against the respondents. ( 26 ) THE allegation of the petition that there has been misappropriation or malversation of funds of the Company by the respondents is absolutely false. It is not true to say that there has been any thought of selling the land of the Company with regard to Exhibit L. It does not disclose in any manner or contemplate transfer of the property belonging to the Company, The petitioner is misleading this Court by referring to Exhibit L'. As is clear from Exhibit L, itself, what is envisaged is transfer of shares belonging to the shareholders which has nothing lo do with the property of the Company as such. As is clear from Exhibit L, itself, what is envisaged is transfer of shares belonging to the shareholders which has nothing lo do with the property of the Company as such. It is needless to stale that the shares of the shareholders in the company are private property of the shareholders and they arc entitled to deal with the same in any manner they like within the provisions of law. The percentage of the shareholding of the petitioner nor the petitioner's right as a member of the Company will be affected in any manner by the respondents dealing with their shares in such manner as they deem fit. The only consequence would be that the petitioner will find himself in a different Company of shareholders. That is an inevitable consequence in respect of which the petitioner can make no grievance. It is not open for the petitioner to make false and baseless allegations against the auditor of the Company without making him a parly to the petition. Those allegations are liable to be struck off from the proceedings. It was the petitioner who brought in the firm of M/s. T. Sriram lo act as Auditor of the Company. At no point of time prior to these proceedings has the petitioner raised any objection against M/s. T. Sriram and company working as Auditors of the Company. ( 27 ) IT is stated that the Company has been facing severe financial crisis on account of various factors and also faced wilh demands from several statutory authorities namely the Income Tax Authorities, Sales Tax Authorities, Entry Tax authorities, Provident Fund Authorities, E. S. I. Authorities etc. , for payment of dues failing which the Company and the Directors were threatened wilh prosecution. Immediate statutory payment required to be made and not paid, aggregate to Rs. 5,18,008-91 ps. The liabilities are increasing day by day. In addition to this statutory payment, there are also dues payable to the workers. In fact, the terminal benefits have not been paid to several workers, whose services have been terminated. On the one hand, the Company is not generating enough funds to sustain itself, on account of various factors, outside the control of the Company and on the other, the liabilities have mounted up enormously and continue to mount up every day. In fact, the terminal benefits have not been paid to several workers, whose services have been terminated. On the one hand, the Company is not generating enough funds to sustain itself, on account of various factors, outside the control of the Company and on the other, the liabilities have mounted up enormously and continue to mount up every day. ( 28 ) IT is averred over the last few years efforts have been under way for transferring the shares held by the members of the Company and several offers were received from NRI Group, USA. , to take over the Company and its assets. The petitioner himself has actively participated in the matter of negotiations with this group. NRI Group was represented by Mr. B. V. Satyanarayana. The Board of directors approved a dra ft of the letter to be sent by the Auditor of the Company viz. , m/s. T. Sriram and Co. , on 20-4-1987. The petitioner also has approved this action by a letter, approved by the Board of Directors to be sent by the Chartered Accountants to Mr. B,v. Satyanarayana, is filed as Annexure R-9. ( 29 ) THOUGH the petitioner at the meeting of the Board of Directors on 20-4-1987 agreed for continuation of negotiations with Mr. B. V. Satyanarayana and also subscribed his consent to a resolution of the same date, that if a firm offer is not secured by Mr. Devaraj from others better than the offer from Mr. B. V. Satyanarayana within a period of one month from 20-4-1987, the Board was authorised to accept the offer of Mr. B. V. Satyanarayana. Later the petitioner sent a letter on 28-4-1987 to the Auditor of the Company taking objection to bis having written to the said B. V. Satyanarayana on specious and false pleas totally contrary to what he bad agreed to on 20-4-1987. ( 30 ) PETITIONER again, wrote to the said Mr. B. V. Satyanarayana on 3-6-1987 that neither the Auditor of the Company nor oilier Directors of the Company had any authority to bind him. It is obvious from tbis letter of 5-6-1987 that the petitioner only expressed his intention not to sell his shares in respect of which he has stated that others had no authority to bind him. B. V. Satyanarayana on 3-6-1987 that neither the Auditor of the Company nor oilier Directors of the Company had any authority to bind him. It is obvious from tbis letter of 5-6-1987 that the petitioner only expressed his intention not to sell his shares in respect of which he has stated that others had no authority to bind him. ( 31 ) THE petitioner has not raised any objection in so far as the transfer of shares belonging to the respondents. It is clear from the letter of tbe petitioner dated 28-4-1987 to the Chartered Accountants of the Company that tbe petitioner had no intention whatsoever of buying the shares of the Company himself in exercise of any purported right under tbe Articles of Association of tbe Company which the petitioner is now putting forth as a plea for maintainability of tbe present petition before this Court. In tbe contest of the withdrawal of the petitioner from bis commitment as stated above, the respondents wrote to Mr. B. V. Satyanarayana on 5-6-1987 offering their shareholding to Mr. B. V. Satyanarayana. The petitioner continued to be obstructive without being constructive and therefore, tbe group of b. V. Satyanarayana withdrew from their offer. It is suited by the respondents that all these clearly go to show, the design of the petitioner obviously was to put obstruction to claim for additional payment to which be is legitimately not entitled. It was really a case of minority shareholder oppressing the majority shareholding However, the respondents continued to find a way out of the predicament in which they found themselves which was akin to tethering a white elephant without means to mainta in tbe same. At that point of lime an offer was received by the respondents from a certain Mr. R. N. Shetty an Industrial ist, having several industries in tbe manufacture of tiles and ceramics, including an Industry under tbe name and style of M/s. Murudeshwar Ceramic Ltd. , one of the leading manufacturer of ceramic tiles in tbe country. He offered to purchase the shares at Rs. 7,031/- per share. As per the offer made discloses the following salient features:a) Take over of the shareholding of the respondents viz. , 2392 shares; b) Payment of Rs. He offered to purchase the shares at Rs. 7,031/- per share. As per the offer made discloses the following salient features:a) Take over of the shareholding of the respondents viz. , 2392 shares; b) Payment of Rs. 7,031/- per share; c) Sale of shares with the approval of the general body of the Company as required under Article 37 of the Articles of Association of the Company; d) Sale of shares to be free from charges encumbrances, attachments or Court proceedings; e) Payment of Rs. 50 lakhs as advance and the balance within a period of six months after the management of the Company is placed in the control of mr. R. N. Shetty or his nominee for the balance price, Mr. R. N. Shetty has undertaken to give a Bank guarantee; f) That Mr. R. N. Shetty is willing to meet the requirements of the Company to pay EST. , P. P. Arrears, Sales Tax and settlement of workers dues (Rs. 20-00 lakhs approximately); g) Offer is open till 15-8-1989; h) The said offer is also available to the petitioner. ( 32 ) IT is further stated that the petitioner for no good reason has not co-operatedwith the respondents in the matter of offer received from Mr. R. N. Shetty. The respondents being exasperated with the unreasonable conduct of the petitionersincc 1987, the respondents had no other alternative but to take steps in accordance with law for the exercise of their rights as shareholders of the Company in regard to what is essentially their private property, namely shares of the Company. The record of events from 1987 clearly discloses the mala fide intention of the petitioner in his obstructive conduct. The petitioner has no intention of acquiring any of the shares belonging to the respondents. Significantly, no such offer is made even in the petition. All that the petitioner is interested is, his being paid a large sum of money over and above what is paid to other shareholders and this petition is filed only to extort this amount by putting obstacles in the way of respondents. With regard to transfer of shares reference is invited to the relevant provisions of Articles of association of the Company. Article 37 governs the conditions attaching to the transfer of shares of the Company. With regard to transfer of shares reference is invited to the relevant provisions of Articles of association of the Company. Article 37 governs the conditions attaching to the transfer of shares of the Company. Article 37 (i) envisages transfer to a person other than a member of the Company only upon sanction in that regard being obtained by the Company in its General Meeting. Article 37 (v) provides for a first offer to be made to the other members prorata of their respective holdings and on their refusal to take the same to any other member and on his refusal to a third person. In accordance with the requirement of Article 37 (iv) the respondents 2 to 6 together with other shareholders in the aggregate hold 2719 shares, wrote a letter to the company on 19-6-1989 making an offer as required by Article 37 (iv ). ( 33 ) IT is further stated that pursuant to offer letter dated 19-6-1989 as stated above, the third respondent as Joint Managing Director of the Company convened the meeting of Board of Directors on 26-6-1989. The agenda inter alia included the consideration of proposal fordisposal of shares held by the existing members of the company based on the offers received from the third parties and to decide the future course of action to be followed in accordance with Rules and Regulations of the company. A meeting of the Board of Directors was held on 3-7-1989. The deliberations of the meeting of the Board of Directors held on 3-7-1989 have been recorded in the minutes book opened. After a detailed consideration,it was decided to convene a meeting of the Company on 3-8-1989 thereby providing for a clear 21; days notice as required by law. The contention of the petitioner that shares must be offered to the existing members including himself was noted and as opened by the majority, it was decided to hold a meeting of the Company as indicated by Article 37 (v) as Mr. R. N. Shetty to whom shares were proposed to be transferred in terms of offer dated 19-6-1989, as he was not an existing member of the Company. R. N. Shetty to whom shares were proposed to be transferred in terms of offer dated 19-6-1989, as he was not an existing member of the Company. Pursuant to the resolution passed by the Board of Directors on 3-7-1989, the third respondent as Joint Managing Director of the Company in terms of resolution passed, sent a letter to the petitioner giving a first option to purchase all or any part of the shares offered for sale at a rate not less than Rs. 7,031/- per share, and the petitioner was required to communicate his acceptance within 10 days. ( 34 ) THE minutes of the meeting of the Board of Directors held on 3-7-1989 waswell within the knowledge of the petitioner, who attended the meeting and has signed the draft minutes and the sale notice dated 3-7-1989 and the request of the petitioner to seek for a copy of the minutes of the Board of Directors of the Company held on 3-7-1989 is therefore, a specious one. In fact, the petitioner himself inspected the minutes which was recorded on 3-7-1989 itself and this fact has been stated in the letter dated 19-7-1989. Having done so, the petitioner has subsequently moved this Court with the above Company Petition filed on 27-7-1989. Pursuant to the order passed on 1-8-1989 by this Court the General Meeting held on 3-8-1989 as scheduled and the petitioner was absent. ( 35 ) IT is further submitted that they have fulfilled all the requirements of law for effecting transfer of their share holding of 2719 shares in the first respondent-Company to Mr. R. N. Shetty. The objection now raised by the petitioner for effecting of such transfer is untenable both on facts and in law. The allegation that the offer made by Mr. R. N. Shetty was not disclosed to the petitioner is absolutely false. In fact, it was openly disclosed at the Board of Directors of the meeting held on 3-7-1989. The question of giving a copy of the offer made to the petitioner did not arise since strictly speaking, the offer was made to respondents 2 to 5 in their personal capacity as shareholders of the Company and the petitioner had no right to know the terms and conditions on which the respondents had agreed to transfer their shares to Mr. R. N. Shetty. R. N. Shetty. The question of petitioner trying to make an offer after knowing the terms and conditions of the offer made by Mr. R. N. Shelly does not arise, in law as what is contemplated by Article 37 even if applicable, is that the petitioner could accept the offer of sale made by other members. Significantly, articles of Association of the Company does not provide for valuation of the shares to be made by any other party. The offer contemplated by Article 37, is one which only require acceptance by other members and there is no provision in the articles for the petitioner to make a counter offer. If the petitioner is not willing to accept the offer as made by the other members, then the petitioner is deemed to have refused to accept the offer and other provisions of Article 37 will then apply to the case. As such the grievance that the petitioner is entitled to know the terms and conditions of offer made by Mr. R. N. Shelly with a view to make his own offer, is not borne out by any provisions of the Companies Act, and Articles of Association of the Company or any other source. It is further submitted that there is no attempt on the part of the respondents to pressurise the petitioner to pay Rs. 7,031/- per share. There is no compulsion. It is open to the petitioner either to accept the offer or not to accept. More over, there is no intention on the part of the respondents to oppress the petitioner. The allegation of oppression is imaginary. The conduct of the petitioner is absolutely unfair and not vice versa. There is no case made out by the petitioner for winding up the Company under Section 433{f) of the Companies Act. ( 36 ) THE learned counsel appearing for the respondents (application in CA. No. 994/1989) has submitted that pursuant to the meeting held on 3-8-1989 all the share holders were present, except the petitioner, unanimously gave consent to the proposal of transferor 2719 equity shares of the respondents in favour of Mr. R. N. Shetty. The action taken is legal and in accordance with the Provisions of the Act and articles of Association. The transfer of shares in favour of Mr. R. N. Shetty is not only beneficial to the shareholders but also to the Company and the workers. R. N. Shetty. The action taken is legal and in accordance with the Provisions of the Act and articles of Association. The transfer of shares in favour of Mr. R. N. Shetty is not only beneficial to the shareholders but also to the Company and the workers. The proposed transferee has agreed to immediately to bring funds for the purpose of immediate financial requirements of the Company. The Articles of Association do permit transfer shares of the Company to third party, though the petitioner has no right to claim a right pre-emptive purchase of shares belonging to the respondents, be has been offered to purchase the shares which he did not purchase cither entire or any portion of the shares. There has been complete compliance of Article 37 (v) of the articles of Association in taking steps to transfer of shares of the respondents to a third party. He has further pointed out that the petition of the petitioner is motivated. Inspite of the offer is made to him to purchase the shares, he did not accept it, but he has with ulterior motive put obstruction for the transfer of shares. The petitioner's petition is motivated by mala fide conduct. ( 37 ) THEREFORE, the respondents' counsel submitted that if the resolution dated 3-8-1989is not given effect to, respondents-applicants would suffer irreparable loss and injury, which cannot be adequately compensated in terms of money. If the shares are transferred to Mr. R. N. Shetty, the Industrialist, who has agreed to bring additional funds immediately to make statutory payments and to the workers dues and that the Company would be rejuvenated. That apart, it would no way affect the share holding of the petitioner in the Company. The learned counsel Mr. Udaya Holla appearing for the petitioner has strenuously argued that the application of respondents deserves to be dismissed in limine for more than one reasons. Firstly, he submitted that the Company petition filed by him is under Sections 397and 398 read with Section 434 (f) of the Companies Act. The allegations contained therein are of serious nature such as oppression of the minority shareholder the petitioner, by the respondents the majority shareholders. There is dead lock in the management of the Company due to the recalcitrant attitude of the respondents and their action preventing the petitioner from participating in the management of the respondent No. 1 Company. The allegations contained therein are of serious nature such as oppression of the minority shareholder the petitioner, by the respondents the majority shareholders. There is dead lock in the management of the Company due to the recalcitrant attitude of the respondents and their action preventing the petitioner from participating in the management of the respondent No. 1 Company. The respondents, who have misappropriated and siphoned the money of the Company for their advantage. The respondents, who are Directors are liable to make good the loss caused to the Company. He has further submitted, that if their shares are transferred to the third party, during the pendency of the petition, it would be difficult to bring them to book to cough up and thus to make good the loss caused to the Company. ( 38 ) HE further submitted that there was no proper compliance of the Provisionsof Articles 37 (v) of the Articles of Association in passing the resolutions in EGM of the Company as the shares of the members of the respondent-Company cannot be transferred to the outsider as the Company is Private Company, a quasi- partnership. The respondents have offered to sell their shares to the third party without offering their shares in the first instance to the petitioner which is in violation of the Articles of Association of the respondent-Company. ( 39 ) THE respondents' counsel Mr. Raghavan has pointed out that the petitioner himself, had prior to the filing of the Company petition under Sections 397 and 398, taken steps to sell the shares of the Company to third party he cannot now contend that the respondents' shares cannot be transferred to third party and it is in violation of Article 37 (v) of the Articles of Association. Let me now consider the respective contentions of the parties. In order to decide the questions involved, it would be necessary to examine whether the petitioner has made out a prima facie case under Sections 397 and 398 read with Section 403 (f) of the Companies Act, ( 40 ) IN the Company petition, petitioner has alleged that the oppression of them inority share holder, the petitioner, by the respondents, the majority shareholders. The commission and omission in the Management of the Company by the respondents have been alleged in the petition have been countered by the respondents by filing detailed objection statement. The commission and omission in the Management of the Company by the respondents have been alleged in the petition have been countered by the respondents by filing detailed objection statement. One of the allegation of the petitioner was that though he was the Joint Managing Director ever since 1969, he was suddenly excluded from participating in the management, and he further alleged that there was scuffle with his son when he went to the factory to collect the private correspondence, and there has been complaint to the police and apart from the solitary instance of the petitioner's son alleged to have been assaulted by some one in the factory, the petitioner has not stated any instances by which he was prevented by the respondents from discharging his duties or functioning as Joint Managing Director. The respondents have unequivocally stated that the conduct of the petitioner is such, that he himself brought upon a situation of not attending any meeting or participate in the management of the affairs of the Company. The other allegations are that the third respondent has taken over the reins of the management of the Company, and caused financial loss. The respondents siphoned off about Rs. 10 lakhs and they are liable to make good. Further it has been alleged that the respondents 3 and 4 have sold the raw materials and the actual amount received has not been shown in the books of accounts and thus caused loss to the company to the extent of Rs. 5 lakhs and further alleged that the respondents have sold machinery belonging to the Company, totally they caused loss of Rs. 2 to 3 lakhs. In support of this allegation the petitioner produced the letter written by the joint Managing Director. The said letter was sent to the prospective buyers to come and discuss the matter with the Directors. The respondents in their objections has categorically stated that no machinery was sold. The letter was sent to the prospective purchasers to come and discuss the matter and the machinery was not sold at all and such question of causing loss of Rs. 2-3 lakhs docs not arise. Except baldly stating that the machineries of the Company were sold which in fact denied, there is no material document produced or specific statements made by the petitioner as and when and to whom the machineries were sold. 2-3 lakhs docs not arise. Except baldly stating that the machineries of the Company were sold which in fact denied, there is no material document produced or specific statements made by the petitioner as and when and to whom the machineries were sold. These bald allegations cannot be countenanced. ( 41 ) IT is the case of the petitioner, that there was no General Body Meeting called after 1987 and the balance sheet and profit and loss accounts; and filed no returns with the Registrar of Companies. This inaction and failure to call the AGM was attributed to the 3rd respondent on the ground that he had taken now the Management of the Company. This is plainly uncharitable for the reason, there is no material placed by the petitioner how and when the third respondent had taken over the management of the Company. The respondents have denied the allegations in entirity and stated that at no lime the third respondent had taken over the Management of the Company. Further in their objection statements they have stated that the AGM was held in December 1987 but the accounts could not be finalised due to the hostile attitude of the Chartered Accountants and later the accounts were finalised. The letter of the Registrar was suitably replied by the petitioner himself by letter dated 3-10-1988 as per Annexure R-2, When the default notice was issued by the Registrar of Companies, the petitioner addressed letter to the respondents disproving all responsibilities notwithstanding the fact that he was the Joint Managing Director in charge and affairs of the Company at all relevant time. ( 42 ) THE narration of events emerged from the statements of the petitioner and respondents go to show that non-filing of returns and emergent issue of notice by the registrar of Companies was due to the circumstances not brought about by the respondents. This isolated act of non-filing of returns of which the respondents are not wholly responsible which is contrary to law may not necessarily and by itself support the inferences that in law was violated with mala fide intention or that such violation was hindrance or harsh and wrongful. ( 43 ) THE petitioner's allegation that the respondents have committed financial impropriety by utilising the employees gratuity fund, has been stoutly denied by the respondents. ( 43 ) THE petitioner's allegation that the respondents have committed financial impropriety by utilising the employees gratuity fund, has been stoutly denied by the respondents. It is stated by the respondents that the petitioner at no point of time raised any objection for the drawal of cheques. The petitioner himself has transferred two payments of Rs. 10,000/- and Rs. 20,000/- from the gratuity fund to the Company by means of cheques dated 19-5-1981 and 8-11-1985 and the cheques have been signed by the petitioner. Thus the documents filed by the petitioners E, J and K do not reveal any financial impropriety by the respondents. When the petitioner him self is a party to such transfers of gratuity fund, he is estopped from contending that the respondents have committed financial irregularities. The transfer of funds and the payments made to the employees cannot be said as violation of any Act or that has been made in violation of law with mala fide intention, ( 44 ) THE petitioner further alleged in paragraph 16 of the petition that the respondents have now thought of selling the land of the Company, and in that regard the respondents have contacted the parties. The petitioner has produced Ex. L, Containing the tenns and conditions pertaining to the sale. The respondents have in their counter specifically denied by saying that there has been any thought of selling the. lands of the Company. Further with reference to Ex. L. , it is stated that what is envisaged in the said document is the transfer of shares belonging to the shareholders which has nothing to do with the property of the Company as such. ( 45 ) ON bear perusal of the said document it is obvious, that it was not for the sale of land of the Company as alleged by the petitioner. It was for the sale of their shares giving particulars of the property owned by the Company giving the graphic pictures as to the value of shares. The petitioner's allegation is very vague. There is no suggestion or any material particulars given by the petitioner to show that there has been sale of the Company land. In view of this fact, I do not think that the petitioner has prima facie established the oppression by the majority shareholders. The petitioner's allegation is very vague. There is no suggestion or any material particulars given by the petitioner to show that there has been sale of the Company land. In view of this fact, I do not think that the petitioner has prima facie established the oppression by the majority shareholders. ( 46 ) THEN coming to paragraphs 17, 18,19,20 and 21 of the petition,the allegations in which appears to be of the principal grievance of the petitioner. It is the case of the petitioner that the respondents have found transferee of their shares to Mr. R. N. Shetty, and the respondents convened the meeting on 3-7-1989 to consider for proposals for disposal of shares in favour of Mr. R. N. Shetty. The petitioner attended the meeting and opposed the sale of shares to the outsider as the Company is Private company and the Articles of Association forbid the sale of shares in favour of third party, without offering the same to the existing shareholders. The petitioner further alleged that the respondents however, informed the petitioner that they are willing to sell heir shares at the rate of Rs. 7,031/- per share that was the price offered by Mr. R. N. Shetty, in paragraphs 18 and 19 of the petition, the petitioner alleged that he was called upon to pay the value of the respondents' share at Rs. 7,031/- per share within ten days from the date of receipt of the letter and subsequently, the third respondent sent a notice dated 8-7-1989 convening the AGM of the shareholders on 3-8-1959 to pass the resolution resolving that the consent of the members he ac- corded for the proposed transfer of 2719 shares by the respondents in favour of Mr. R. N. Sbetty. ( 47 ) THE respondents have countered the allegations of the petitioner by statingthat the Company has been undergoing severe financial crisis on account of various factors including labour trouble, fixation of minimum wages, high cost of inputs like day, coal and recession in the market and a stage was reached when it was almost impossible to run the Company without incurring heavy loss. The Company was faced with demands from several statutory authorities namely the Income Tax authorities, Sales Tax Authorities, Entry Tax Authorities, Provident Fund authorities and E. S. I. Authorities for payment of dues. The Company was not able to generating enough funds to sustain itself. The Company was faced with demands from several statutory authorities namely the Income Tax authorities, Sales Tax Authorities, Entry Tax Authorities, Provident Fund authorities and E. S. I. Authorities for payment of dues. The Company was not able to generating enough funds to sustain itself. The liabilities have mounted up enormously. In that context, the petitioner and respondents deliberated in the matter and realised that the only alternative was to hand over the Company to a third party by setting enbloc all the shares to the third party. Over the last few years efforts were made but could not get any party to purchase the shares of the Company. ( 48 ) THERE was one offer from NRI Group from USA to take over the Company and its assets. The petitioner himself has actively participated in the matter of negotiations with NRI Group, which was represented by B. V. Satyanarayana. The board of Directors approved the draft of the letter to be sent by the Auditor of the company, M/s. T. Sriram and Company on 20-4-1987. The petitioner has approved the said action. In response a letter was received from the said B. V. Satyanarayana on 26-4-1987 making final offer, limited for acceptance within the stipulated period. The copy of the letter is Annexure R-11. The petitioner suddenly wrote a letter on 28-4-1987 to the Auditor of the Company, having written to the said B. V. Satyanarayana on a false plea totally contrary to what he had agreed to on 20-4-1987. The copy of the letter is annexed as Annexure R-12. As the petitioner has withdrawn from his commitment and adopted obstructive method, the groups of b. V. Satyanarayana withdrews from their offer. The respondents have further staled that there was another offer from M/s. Sanmar finance Services Ltd. In the negotiation with that group, the petitioner was represented separately by his Chartered Accountant from the letter dated 18-8-1988 of m/s. Sanmar Finance Services Ltd. , it is clear that the petitioner has claimed special status in the Company. The petitioner has withheld the title document illegally with view of extorting more money for himself. The copy of the letter is produced by the respondents as Annexure R-l 6. The petitioner has withheld the title document illegally with view of extorting more money for himself. The copy of the letter is produced by the respondents as Annexure R-l 6. Thus, the petitioner though agreed to sell the shares of the Company and had in fact, taken steps to find the buyer when the actual purchaser of snares came forward with definite offer, he one or other pretext mainly claiming a special status in the Company obstructed the sale of shares, resulting in withdrawal of offer by the purchaser. ( 49 ) IT is stated by the respondents that they having found in such situationon account of obstructive conduct of the petitioner. However, they were able to find a purchaser of the shares of the Company by a leading Industrialist Mr. R. N. Shetty. The offer of Mr. R. N. Shelly is incorporated in his letter dated 1-6-1989, which discloses the payment of Rs. 7,031/- per share and he would purchase all the shares of respondents. That apart he would bring sufficient founds to meet the requirements of the company to pay E. S. I. , P. F. claims, Sales Tax and settlement of workers dues. ( 50 ) IT is clear that the petitioner himself was taking active steps to sell the shares of the Company to third party. But later on resiled from the agreement to sell the shares to the third party and started obstructing to the sale of shares. It is not alleged by the petitioner that by sale of shares of the respondents in any way affects his shareholding or reduces his share holding. ( 51 ) THE respondents' counsel Mr. Raghavan has submitted that the petitioner's allegation in the petition does not show that the conduct of the respondents-majority shareholders was oppressive to the petitioner, the minority shareholder. In fact, there is no allegation, muchless any material particulars iu the petition to show the conduct of respondents, majority shareholders were burdensums harsh and wrongful. It is well settled law that mere lack of confidence between the majority shareholders and the minority shareholders could not be enough to show that there was oppression of minority shareholder. ( 52 ) I have carefully considered the allegations contained in relevant paragraphs of the petition and the annexures to which my attention was drawn by Mr. Udaya holla the learned counsel for the petitioner. ( 52 ) I have carefully considered the allegations contained in relevant paragraphs of the petition and the annexures to which my attention was drawn by Mr. Udaya holla the learned counsel for the petitioner. The grounds of petition is wide ranging butbroadly alleged that the petitioner was not consulted with the respondents' transaction, that the respondents had assumed control of the Company and had excluded the petitioner from involvement of in the affa irs, and the Company accounts were irrcgulated and defective. By way of defence the respondents have categorically denied each and every allegation and pointed out with materials that the petitioner was not excluded from the involvement in the affairs of the Company and approach were not irregular, they have been running the business and affairs of the Company along with the petitioner. ( 53 ) WHAT the Court is to see whether the respondents intended to harm the petitioner, but whether the 'reasonable by standard' observing the consequences of the conduct complained would regard it as having unfairly prejudiced the petitioner's interest. ( 54 ) I do not think that the allegation or facts stated in the petition and the annexure to it do prima facie establish that the conduct of the respondents the majority shareholders, were prejudicial as well as unfair for the petitioner. The petitioner has not made out a prima facie case to justify in holding that there is a cause of action for maintaining the petition under Section 397 of the Act. ( 55 ) THAT takes me to the application of the respondents seeking an order to permit them to give effect to the resolution dated 3-8-1989. This Court while admitting the company petition passed an order on the Company application filed by the petitioner to hold AGM and pass the resolution but not to give effect to or act upon, until this Court otherwise directs. The AGM were held on 3-8-1989 and the resolution was passed unanimously giving consent to the proposal to transfer of 2719 shares of Rs. 100/- each, in favour of Mr. R. N. Shetty. The respondents have contended that the steps taken by them seeking transfer of shares is in accordance with law and the Provisions of Article 37 of the Articles of Association. ( 56 ) THE petitioner's counsel Mr. 100/- each, in favour of Mr. R. N. Shetty. The respondents have contended that the steps taken by them seeking transfer of shares is in accordance with law and the Provisions of Article 37 of the Articles of Association. ( 56 ) THE petitioner's counsel Mr. Udaya Holla has argued that the petitioner has a right of preemptive purchase and he was deprived of the opportunity of buying the shares, which the respondents have taken steps to transfer it to outsider Mr. R. N. Shetty without offering the same in first instance to the petitioner in violation of the articles of Association of respondent-Company, specifically Article 37, ( 57 ) THE next contention of petitioners counsel was that the effect of violation authorising the sale of 85% of shares of the Company to the outsider which is not permissible for essentially the Company is a family owned Company. ( 58 ) IT was next contended by Mr. Udaya Holla, the petitioner's counsel, that Article37 (v) of Articles of Association of the respondent-Company prohibk the transfer of shares to the outsider for it would have the effect of handing over the ownership and control of the Company to third party. ( 59 ) IN support of his contention of preemptive right, he relied on the passagecontained in Parlmer's Company Law - Twenty-third Edition, p. 282, which reads as follows :"secondly, in private companies the articles often provide a non-statutory pre-emption right in favour of the remaining shareholders if a shareholder is desirous of disposing of and transferring his shares. The object of this non-statutory pre-emption right is to preserve the character of the private company as a 'close corporation' and to prevent an unwelcome outsider from buying himself into the Company and taking it over. " ( 60 ) TO appreciate the argument of Mr. Holla that there is a preemption clause in Articles of Association, it would be better to refer to Article 37 of Articles of Association which read as follows: (I) "no member shall transfer any of his shares to any person except with the sanction of the Company in General Meeting, unless the said person is already a member of the Company and is approved by the Director. Shares may also be transferable to an infant or minor provided either his or her father is alive to represent him or her as guardian, or any person appointed by a competent Court of law to represent him or her as his or her guardian. " (II) Shares may be transferred at any time by a member to his or her father or mother or to any lineal descendant of such father or mother, or to his wife or her husband and any share of a deceased member may be transferred by his executors or adminislrators to the widow or widower or any such relative as aforesaid of such deceased member being a ccstuique trust of special legatee thereof and shares standing in the name of any deceased member may be transferred to or placed in the names or the trustees of his will and upon any change of trustees, may be transferred to the trustees for the time being of such will, subject to the sanction of the Company in general Meeting and approval of the Directors. During the life time of a member, he can nominate who the successor of his shares shall be and such nomination shall be registered on the Books of the Company. These nominations shall be revocable. (III) The Directors in their discretion refuse to sanction or to register the transfer of any share to any person who in their opinion is undesirable in the interest of the Company to be admitted to membership; but such right of refusal shall not be excrcisable in the case of any transfer made pursuant to clauses (i) and (ii) of this article, except for the purpose of ensuring that the number of members docs not exceed the limit prescribed by Article 3. The Directors may refuse to register any transfer of shares on which the company has a lien. (IV) In order to ascertain whether any member is willing to purchase the shares the person whether a member or his legal representatives in case of his death or insolvency proposing in transfer the same shall give notice in writing to the Company that he desires to sell the same. No sale notice shall be withdrawn except with the sanction of the Directors. No sale notice shall be withdrawn except with the sanction of the Directors. (V) Shares which are available for transfer shall, except in the cases noted above, be offered in the first instance to the other members prorata of their respective holdings and on their refusal to take the same to any other member and on his refusal to a third person. ( 61 ) THE Clause 37 of Articles of Associations has several parts. Firstly, that nomember shall transfer any of his shares" to any person except with the sanction of the company in the General Meeting, unless the said person is already a member of the company and is approved by the Director. 37 (ii) speaks of the transfer of shares by the member to his stated relations and to his nominees. Article 37 (iii) speaks of the Authority of the Director to refuse to sanction or register the transfer of any share to any person who in their opinion is undesirable in the interest of the Company to be admitted to membership. This clause, however, enjoins the transfer of shares to the outsider provided in the opinion of the Director, he could be admitted as member of the Company. Clause (iv) envisages issuance of notices to ascertain whether any member is willing to purchase the shares. Clause (v) make it clear that the shares available for transfer except the cases noted above, be offered to the other members prorata of their jespectivc holdings and on their refusal to offer it to any other member and on his refusal to the third party. ( 62 ) THIS article is of Private Company provided that any member interested totransfer his shares should inform the Directors who should take the shares equally between them, the reference to the Directors as a reference to the members, who constitutes as Directors. It is argued by the learned counsel for the petitioner that there was no offer to the petitioner, who constitute a minority shareholder, by the respondents before transferring the shares to third party. ( 63 ) THE learned counsel for the respondents Mr. Raghavan has pointed out that the petitioner himself earlier had taken steps and negotiated for sales of shares of the company to outsiders and later he resiled from it for the obvious reasons. ( 63 ) THE learned counsel for the respondents Mr. Raghavan has pointed out that the petitioner himself earlier had taken steps and negotiated for sales of shares of the company to outsiders and later he resiled from it for the obvious reasons. ( 64 ) IN answer to the contentions of the petitioner that the respondents did not offer the shares to the petitioner before it was sold to the third party, the respondents have stated that in accordance with the requirement of Article 37 (iv) they together other share holders namely, B. Dayakar, B. Prabhakar and Lakshmikrishna Rao, all of whom together aggregate held 2719 shares, wrote a letter to the Company on 19-6-1989 making an offer as required by Article 37 (v)Annexure R-19. Pursuant to the said notice, a Board meeting was convened on 26-6-1989 which decided to convene a further meeting on 3-7-1989 to consider the letter dated 19-6-1989. The petitioner attended the meeting and raised objections that the shares must be offered to the existing member including himself. In the said meeting the offer made by Mr. R. N. Shelly was discussed and pursuant to the resolution passed in the said meeting, the 3rd respondent sent a letter to the petitioner giving him the first offer to purchase all or any part of their shares offered for sale at the rate not less than Rs. 7,031/- per share. It is relevant to note at this stage, that all the 85% of shareholders respondents and offered to sell the shares givingoption to the petitioner holder of remaining 15% shares of the Company to purchase, all the shares or any portion of the shares of the respondents and other shareholders giving him 10 days time for acceptance. ( 65 ) THE petitioner having received the offer dated 3-7-1989, wrote a letter on 6-7-1989 to 3rd respondent after lapse of a week seeking clarification in respect of various points raised by the petitioner. To which a reply was sent by the respondents on 19-7-1989 giving all the required particulars, including further extension of time for acceptance or rejection of the offer made to him till 31-7-1989. The petitioner replied to it on 24-7-1989 stating that "i would like to place on record that I do not believe that the price of Rs. 7. 031/- for equity share, as offered by Mr. The petitioner replied to it on 24-7-1989 stating that "i would like to place on record that I do not believe that the price of Rs. 7. 031/- for equity share, as offered by Mr. R. N. Shetty, reflects the true value of the assets of the Company or the best market value thereof. I had repeatedly insisted at all meetings of the Board attended by me that any proposal to sell shares of the Company should be given the widest possible publicity both here and abroad so as to maximise the gain to the shareholders of the Company". ( 66 ) FURTHER the petitioner has sought the details of payments condition of the value of the shares of Mr. R. N. Shetty. From these correspondence, what emerges is that the petitioner was offered to purchase the shares either all or any portion of the shares of the respondents. But the petitioner did not exercise his right to purchase. On the contrary, he contended that the price offered by Mr. R. N. Shetty to purchase the equity shares is not a real value, it would have fetched more price, if the offer to sell the shares of the Company had been given wide publicity. The contention of the petitioner that this pre-emptive right was defeated in not offering the shares to him to purchase and there has been violation of statutory mandate of Article 37 (v) of Articles of Association is unsustainable. ( 67 ) THE petitioner's counsel had relied upon on the decision of the Supremecourt reported in Bishan Singh and Others v Khazam Singh and Another, AIR 1958 sc 878. In the Supreme Court decision, it is observed that "the right of the pre-emption is not a right to the thing sold, but a right to the offer of a thing about to be sold, (i) This right is called the primary or inherent right. (2) The pre-emptor has a secondary right on a remedial right to follow the thing sold. (3) It is a right of substitution but not of re-purchase i. e. , the pre-emptor takes the entire bargain and steps into the shoes of the original vendee. (4) It is a right to acquire the whole of the property sold and not a share of the property sold. (3) It is a right of substitution but not of re-purchase i. e. , the pre-emptor takes the entire bargain and steps into the shoes of the original vendee. (4) It is a right to acquire the whole of the property sold and not a share of the property sold. (5) Preference being the essence of the right the plaintiff must have a superior right to that of the vendee or the person substituted in his place. (6) The right being a very weak right, it can be defeated by all legitimate methods, such as the vendee allowing the claimant of a superior or equal right being substituted in his place. " ( 68 ) THE principle of law laid down in the above case to which I adhere,has no application by its own terms. In this case, the petitioner has not exercised his right of pre-emption, despite he was offered to purchase the shares which were proposed to be sold to Mr. R. N. Shelly, who offered to purchase the shares of the respondents. That apart, the petitioner is of the view that the price of equity share offered is not the real value, but it would fetch higher price indicating therein, he would also sell his shares if the terms were higher than what was offered by Mr. R. N. Shetty. As noticed earlier the petitioner himself had taken steps to sell the shares of the respondent-Company to NRIS. ( 69 ) MR. Raghavan, the learned counsel appearing for the respondents has submitted that even if the Article 37 of Articles of Association of the Company contains machinery for giving effect to the pre-emption rights or other members it does not required the shares to be offered to the other members at a fair value certified by the auditors or the Directors of the Company, as such the petitioner to whom the offer to purchase was made cannot complain the adequacy or otherwise the fair value at which it would be offered to him, nor the Court can enquire into the correctness of the valuation. In this case, that question does not arise for the petitioner did not accept the offer to purchase the shares and did not exercise his pre-emptive right. ( 70 ) IN my opinion, the contention of the respondents' counsel Mr. Raghavan are well founded. In this case, that question does not arise for the petitioner did not accept the offer to purchase the shares and did not exercise his pre-emptive right. ( 70 ) IN my opinion, the contention of the respondents' counsel Mr. Raghavan are well founded. The petitioner has not, prima facie established the he being the minority shareholder, constrained to submit, which is unfair to him, as a result of some overhearing act or attitude on the part of respondents, majority shareholders. ( 71 ) IT is well settled law that to claim relief under Section 387 a conduct which lacks in probity, conduct which is unfair to and which causes prejudice to the petitioner in exercise of his legal and proprietory right as shareholder must be shown to exist. Refer to the decisions in Needle Industries (India) Ltd. and Others v Needle industries Newey (India) Holding Ltd, and Others, 1981 (3) SCR p. 698 Company cases. The Supreme Court in Jhujunwal case (1976)46 Company Cases 91 (SC) also pointed out that:"there must be a material to show where 'just and equitable' clause is invoked that it is just and equitable not only to the person applying for winding up but also the Company and to all shareholders. The Company Court will have to keep in mind the position of the Company as a whole and the interest of the shareholders and see that they do not suffer in a fight for power that comes between two groups. "in my Judgment, the petitioner has not establisbed prima facie case to a claim for relief under Sections 397, 398 read with Section 402 (f) of the Act. . ( 72 ) WHEN the petitioner has failed to establish the prima facie case to claim relief for which he filed the petition the injunction order obtained by him from this Court in Application No. 868/1989 has to be vacated. It is true, that in this case there is restriction on the transfer of shares to third party, but these restrictions are not absolute bar to the transfer to the third party, for Article 37 of Articles of Association permits the transfer of shares to third party. The petitioner has been given option to purchase all the shares or portion of the shares of the respondents but he did not do. The petitioner has been given option to purchase all the shares or portion of the shares of the respondents but he did not do. ( 73 ) IN my view, the requirements of Article 37 of Articles of Association havebeen fully complied with and the rights of the respondents majority shareholders to transfer the shares to Mr. R. N. Shctty, the outsider cannot be questioned, challenged or denied on the ground that there was no compliance with the Article of Association of the Company. In the result, the respondents' application No. 994 of 1989 is allowed. There will, therefore, be an order in terms of prayer in the Application No. 994 of 1989. Each party other than respondent No. 1 pay his own costs. --- *** --- .