K. SHIVASHANKAR BHAT, J. ( 1 ) THE respondents in the Company petition are the appellants before us. The respondent herein filed the Company petition under Sections 397 and 398 of the companies Act, 1956 ('the Act' for short; the respondent before us is referred hereinafter as the 'petitioner' for the sake of convenience ). The petitioner alleged, inter alia, that he held 38 equity shares of Rs. 1,000/- each fully paid though he is entitled to hold 50 equity shares. The nominal capital of the Company is Rs. 5,00,000/- divided into 500 shares. The Company was incorporated in the year 1975 when there were only three Directors, out of whom the second respondent N. V. Rao (for short referred as 'n. V. Rao' throughout) was one of the Directors, the other two initial Directors are not in the picture now. ( 2 ) THE petitioner joined the Company by becoming its shareholder in the year 1976. According to him there was an understanding between himself and N. V. Rao that they would jointly set up a small scale industry with equal participation. However, after mutual discussion, another person B. S. N. Rao was also taken as a Director and shareholder on the suggestion of the petitioner. Since petitioner's nominee was B. S. N. Rao, N. V. Rao nominated his father -in-law, B. K. P. Rao, who was also allotted 25 shares. Thus, the petitioner, N. V. Rao, B. S. N. Rao and B. K. P. Rao were allotted 25 shares each. Subsequently, B. S. N. Rao left the Company in the year 1978 and 12 shares belonging to him were transferred to N. V. Rao and the remaining 13 shares were transferred to the petitioner. The shares of B. K. P. Rao actually stood in the name of Mrs. B. K. P. Rao (third appellant ). After the resignation of B. S. N. Rao the Company continued to have only two Directors, viz. , the petitioner and N. V. Rao. The shares of B. K. P. Rao actually stood in the name of Mrs. B. K. P. Rao (third appellant ). After the resignation of B. S. N. Rao the Company continued to have only two Directors, viz. , the petitioner and N. V. Rao. The petitioner further alleged that though there were two outsiders other than the petitioner and N. V. Rao as members of the Company, all the affairs of the company were being managed and looked after only by petitioner and N. V. Rao and they executed all the documents on behalf of the Company; it was only the petitioner and n. V. Rao who gave personal guarantees for the repayments of the monies borrowed by the Company. The business of the Company proposed after the petitioner entered the Company. In the year 1985 the shares held in the name of Mrs. B. K. P. Rao were offered for sale to the petitioner and N. V. Rao. According to the petitioner 12 shares were offered to the petitioner and the other 13,were offered to N. V. Rao, in order to maintain parity in the shareholding between petitioner and N. V. Rao. However, the transaction did not go through because B. K. P. Rao demanded Rs. 7,000/- per share which according to the petitioner was a very high rate. The petitioner states that the withdrawal of the offer by B. K. P. Rao was not in conformity with the provisions of the Company's Articles of Association. There are a few other allegations in the company petition which we need not repeat here because the material facts will be referred in the course of our Judgment once again. Ultimately some dispute arose between the petitioner and N. V. Rao and according to the petitioner N. V. Rao managed to oust the petitioner from the management of the Company; N. V. Rao saw to it that the petitioner was not elected as a Director at the meeting of the general body held on 12th November, 1987. Hitherto the petitioner was also being paid remuneration similar to the remuneration that was being paid to N. V. Rao. This was also stopped. All facilities given to the petitioner were withdrawn. Hitherto the petitioner was also being paid remuneration similar to the remuneration that was being paid to N. V. Rao. This was also stopped. All facilities given to the petitioner were withdrawn. The petitioner, in the circumstances, stated that the intention of N. V. Rao was to bring about a material change in the management and control of the Company by an alteration in its Board of Directors and that it is likely that the affairs of the Company will be conducted in a manner prejudicial to the interest of the Company and its members. The petitioner asserted that himself and N. V. Rao were equal partners in the Company and the attempt made to oust the petitioner from the management was against the interest of the Company and the petitioner. Further, the transfer of shares of Mr. B. K. P. Rao in favour of his wife was illegal and this illegal transfer resulted in N. V. Rao getting majority control; the Company is a small private Company to which the principles of partnership Law will apply and that as a result of lack of mutual confidence the company is liable to be wound up; but a winding up order is likely to prejudice the company and the petitioner, as the Company has built up a good clientele and goodwill. In the circumstances the petitioner sought a declaration that the transfer of 25 equity shares held by B. K. P. Rao in favour of his wife is invalid and illegal; petitioner sought a direction that out of the said 25 shares, 12 shares be transferred to the petitioner. Petitioner also sought the nullification of the proceedings of the extraordinary General Meeting of the members of the Company held on 12-11-1987 with all its consequential results. An amendment of Articles of Association to provide for the petitioner to be a Director of the Company for life was also sought. There are a few more reliefs sought in the Company petition which need not be repeated here for the present. ( 3 ) ALL the respondents filed a common statement of objections. It was specifically asserted that there was at no point of time any understanding that the petitioner would be entitled to hold 50 shares. There are a few more reliefs sought in the Company petition which need not be repeated here for the present. ( 3 ) ALL the respondents filed a common statement of objections. It was specifically asserted that there was at no point of time any understanding that the petitioner would be entitled to hold 50 shares. The respondents pointed out that the Company was promoted by three persons who had no personal relationship at all and the petitioner became a shareholder much later. The petitioner acquiesced in the shareholdings held by Mrs. B. K. P. Rao all these years and there was no understanding of any sort to treat him as an equal partner with N. V. Rao. The infrastructure of the Company had come into existence even before the petitioner joined the company. After the. petitioner was made a Director, the Board resolved, regarding the allocation of responsibilities amongst the three Directors as follows:"sri B. S. N. Rao: estimation, Design, Materials Management, Production and Quality Control. Sri N. V. Rao: marketing, Appointment of Personnel - their promotion, Disciplinary proceedings against them and their removal, Liaison with banks, Sanction of all revenue expenses, Placement of orders of machinery. Sri U. M. Suresh Rao: marketing, Appointment of Personnel - their promotions, disciplinary proceedings against them and their removal. Liaison with banks, placing of orders for machinery. "it was further asserted that B. K. P. Rao was not allotted with any shares and it was his wife who was allotted with 25 shares on 14th August, 1976 and thereafter she continued to hold the same. The various other averments in the Company petition were elaborately traversed. The Company petition was filed shortly after the impugned extraordinary Meeting of the members in November 1987 itself. The learned Company judge formulated the following points for consideration:"1. Whether this is a case to which the principles of partnership are applicable?2. Whether the petitioner proves that the affairs of the 1st respondent Company are being conducted in a manner oppressive to him and prejudicial to the interest of the 1st respondent?3. Whether the petitioner proves that the transfer of 25 equity shares held by Sri b. K. P. Rao (R-4) in favour of his wife Smt. B. K. Anupama Rao (R-3) is invalid?"4. Whether the petitioner proves that the transfer of 25 equity shares held by Sri b. K. P. Rao (R-4) in favour of his wife Smt. B. K. Anupama Rao (R-3) is invalid?"4. WHETHER the proceedings of the Extraordinary General Meeting of the membersof the 1st respondent Company held on 12-11-1987 and the resolutions passed at the said Extraordinary General Meeting of the 1st respondent Company are liable to be declared as illegal and invalid and quashed?5. Whether the petitioner is entitled to continue as a whole time Director of the1st respondent Company with all such powers as ordinarily conferred upon him and is entitled to draw remuneration?6. Whether it is necessary to declare and issue directions that in the managementof the affairs, business and funds of the 1st respondent Company, the petitioner shall have equal participation to the same extent as respondent 2?7. Whether it is necessary to enquiry into and determine the amounts paid by the1st respondent Company to the 4th respondent and his son in the guise of consultancy-fee and direct recovery of the said sum from the 4th respondent with interest at the prevailing bank rate?8. Whether it is necessary to restrain the 2nd respondent by permanent injunctionfrom making any representation or holding out to the public, employees of the company, Banker, etc. , that the petitioner is not entitled to represent the 1st respondent Company?9. Whether the Articles of Association of the 1st respondent Company require tobe amended?10. WHETHER it is just and necessary to direct that out of the 25 shares originallyheld by B. K. P. Rao (R-4) now standing in the name of his wife Smt. B. K. Anupama Rao (R-3), 12 shares be transferred to the petitioner?11. Whether it is a case in which the first respondent Company has to be woundup under Section 433 (f) of the Act12. What order? ( 4 ) POINTS 1, 2, 4, 5, 8, 9 and 10 were answered in the affirmative. Under Point No. 3 it was held that the petitioner was estopped from questioning the transfer of shares in the name of Mrs. B. K. P. Rao. Under Point No. 6 it was held that the petitioner was entitled to have equal participation in the management of the Company. Point No. 7 was answered in the negative. Under Point No. 11 it was held that it was not a case to wind up the Company. B. K. P. Rao. Under Point No. 6 it was held that the petitioner was entitled to have equal participation in the management of the Company. Point No. 7 was answered in the negative. Under Point No. 11 it was held that it was not a case to wind up the Company. Finally the court made the following order:"i) The petitioner and the second respondent shall be the equal partners in the first respondent Company;ii) the shareholdings of the petitioner and the second respondent either individually or along with the members of the group of each of them shall be equal;iii) the proceedings of the extraordinary general meeting of the members of the first respondent Company held on 12-11-1987 and the resolutions passed at that meeting defeating the move to elect and appoint the petitioner as whole time Director and appointing Dr. Ghatge as a Director, are declared as illegal, invalid and the same are quashed. The petitioner shall be deemed to have been continued as a whole time Director of the first respondent Company with such powers as originally conferred upon him and is entitled to draw the remuneration. It is further declared that in the management of the affairs business and funds of the first respondent company, the petitioner shall have equal participation to the same extent as respondent 2. Any other person co-opted as a Director whole time director shall cease to be such and cease to function from today. IV) The Articles of Association of the first respondent Company shall be amended within six months from today in conformity with the directions and declarations contained in this order;v) The prayer of the petitioner to declare the transfer of 25 equity shares of respondent 4 to respondent 3 is invalid, is rejected. The prayer of the petitioner to enquire into and determine the amount paid by the first respondent Company to respondent 4 and his son as consultancy fee and to direct recover of the same, is rejected. VI) The third respondent is directed to transfer 25 shares held by her to the petitioner and second respondent in the proportions of 12 and 13 respectively. The fair value of the shares shall be determined by a person to be appointed by the court. Call this petition on 5-6-1992 at 2. VI) The third respondent is directed to transfer 25 shares held by her to the petitioner and second respondent in the proportions of 12 and 13 respectively. The fair value of the shares shall be determined by a person to be appointed by the court. Call this petition on 5-6-1992 at 2. 30 p. m. to hear the parties for appointment of a person to determine the fair value of the shares;vii) As it is held that the petitioner and the second respondent would be equal partners in the first respondent Company, it is just and appropriate to direct each parties to bear his or her or its costs. " ( 5 ) HAVING regard to the rival contentions we have to consider the following broad question: whether the features of the Company and the circumstances of the case justify the order made by the learned Company Judge; if not what order should be made? ( 6 ) IT is advantageous to state the relevant events chronologically. The Company was incorporated on 17th March, 1975. There were only three shareholders: 1) khanapure, 2) Adam Hajce Ebrahim and 3) N. V. Rao. Each shareholder subscribed to one share. On 11th January, 1976 an account was opened in Canara Bank in the. name of the Company. Thereafter on 27th January, 1976 Khanapure resigned from directorship. Similarly Hajee Ebrahim also resigned from Directorship and their shares were transferred, one to N. V. Rao and another to the petitioner. Thus N. V. Rao came to hold two shares in the Company while the petitioner held only one share. These shares were transferred at the Board Meeting held on 30th January, 1976. On 1st February, 1976 petitioner was appointed as a whole time Director. Canara Bank sanctioned some loan to the Company on 20th February, 1976. In April 1976 a shed was taken on rent to house the factory and it is stated that the factory commenced production in September 1976. In the meanwhile on 10th July, 1976 one B. S. N. Rao was inducted as a Director of the Company as could be seen from ex. P. 34 (Annual return of the Company upto 15-9-1976 ). The said document also discloses that N. V. Rao, petitioner, B. S. N. Rao and B. K. P. Rao held 25 shares each. In the meanwhile on 10th July, 1976 one B. S. N. Rao was inducted as a Director of the Company as could be seen from ex. P. 34 (Annual return of the Company upto 15-9-1976 ). The said document also discloses that N. V. Rao, petitioner, B. S. N. Rao and B. K. P. Rao held 25 shares each. It also discloses that Khanapure ceased to be the Director on 27-1-1976 and Hajee ebrahim ceased to be Director on 30-1-1976. N. V. Rao is shown to be Director since 17-3-1976 while the petitioner is shown as a Director appointed on 27-1-1976 while b. S. N. Rao was appointed as Director on 10-7-1976. ( 7 ) HOWEVER, in all further documents it is shown that 25 shares were allotted and held by Mrs. B. K. P. Rao. The material on record also discloses that though N. V. Rao was an ordinary Director as on 1-2-1976, he became a whole time Director on 1-8-1976; Petitioner and N. V. Rao filed an affidavit dated 11-2-1976 before the government Ex. P. 2) stating that they are the shareholders and Directors of the company and they are educated and remained unemployed and that they have started this new venture for seeking self-employment. This affidavit was filed to obtain loan from the Government under a scheme framed by the State Government to facilitate the unemployed engineers to start their own ventures. Exhibit P. 46 is a notice of the First Annual General Meeting of the shareholders to be held on 15th september, 1976 to re-appoint N. V. Rao, petitioner and B. S. N. Rao as Directors. The business included, to sanction a sum of Rs. 2,000/- per month with effect from 1-2-1976 to the petitioner as a whole time Director, by way of remuneration. A similar remuneration was also to be sanctioned to N. V. Rao with effect from 15-8-1976 and to B. S. N. Rao from 1-8-1976. There is no dispute that the meeting was held and resolution was passed as stated in Ex. P. 46. The annual return dated 15-9-1976 also shows that 25 shares were held by Mrs. B. K. P. Rao and this report was also signed by the petitioner. ( 8 ) ON 24th May, 1978 B. S. N. Rao resigned. His 12 shares were transferred to n. V. Rao and 13 shares were transferred to the petitioner. P. 46. The annual return dated 15-9-1976 also shows that 25 shares were held by Mrs. B. K. P. Rao and this report was also signed by the petitioner. ( 8 ) ON 24th May, 1978 B. S. N. Rao resigned. His 12 shares were transferred to n. V. Rao and 13 shares were transferred to the petitioner. Thus, as on the said date, the shareholding in the Company was 1) N. V. Rao - 37, (2) Petitioner - 38 and (3) mrs. B. K. P. Rao - 25. This shareholding pattern continued without any change thereafter. The balance sheet as on 31-3-1983 (Ex. P. 5) shows that the Company owed Rs. 3 lakhs to Canara Bank and Rs. 75,000/- to Karnataka State Industrial development Corporation. The Company also expected a sales tax refund of Rs. 65,000/ -. In January 1985, B. K. P. Rao offered to sell the shares held by his wife. The offer was to sell 13 shares to N. V. Rao and 12 to the petitioner at the rate of Rs. 7,000/- per share. The offer was made to the Auditors of the Company but the transaction was not completed because the petitioner did not agree to the value of the shares. On 12th November, 1987 an Extraordinary General Meeting of the Company was held. The notice of the meeting stated that the Directors had not been re-elected for a long time and therefore it was necessary to elect the Directors. The proposal was to elect the petitioner and N. V. Rao as the Directors. However, at the meeting, though N. V. Rao proposed the name of the petitioner to be elected as a Director, he voted him out by joining hands with Mrs. B. K. P. Rao. Thus it was held that the petitioner ceased to be the Director. On 16th November, 1987 the present Company petition was filed. ( 9 ) THE shares in the Company were held by the various shareholders at different times in the following manner: 1) On 17-3-1975 - N. V. Rao - 1 share, Khanapure - 1 share, Ebrahim - 1 share. 2) On 30-1-1976 - N. V. Rao - 2 shares, petitioner -1 share. 3) On 14-8-1976 - N. V. Rao - 25 shares, petitioner - 25 shares, B-S. ^n. Rao - 25 shares and Mrs. B. K. P. Rao - 25 shares. 2) On 30-1-1976 - N. V. Rao - 2 shares, petitioner -1 share. 3) On 14-8-1976 - N. V. Rao - 25 shares, petitioner - 25 shares, B-S. ^n. Rao - 25 shares and Mrs. B. K. P. Rao - 25 shares. 4) 24-5-1978 onwards - N. V. Rao 37 shares, petitioner - 38 shares and Mrs. B. K. P. Rao - 25 shares. ( 10 ) THE specific case of the petitioner has been that the Company was in reality a quasi-partnership with petitioner and N. V. Rao having equal rights. The learned company Judge has accepted this and therefore to bring out the real understanding of the parties into a reality, the order directs the equalisation of the shares between the two by the sale of the shares held by Mrs. B. K. P. Rao to the petitioner proportionately. ( 11 ) ADMITTEDLY the Company was incorporated in March 1975 at a time when the petitioner was not at all in the picture. The Company was formed by 3 persons amongst whom there was not personal relationship; probably they were friends at the most. Thereafter when the petitioner joined the Company the shareholding was only three out of which the petitioner had only one share while N. V. Rao held two shares. Subsequently two more shareholders joined and there was a fresh allotment of shares resulting in each shareholder holding 25 shares (out of total 100 shares issued by the Company ). After the resignation of B. S. N. Rao the shareholding again changed with N. V. Rao having 37, petitioner 38 and Mrs. B. K. P. Rao 25 shares. Therefore on the face of it, it cannot be said that at any point of time the petitioner and N. V. Rao held shares in equal proportion without any other shareholder possessing some shares in the Company. It is stated that N. V. Rao and petitioner are relatives and they knew each other since their childhood and it is this relationship that persuaded the petitioner to agree to become a shareholder in the Company and that the understanding was that N. V. Rao and petitioner only should manage and run the Company with equal rights and responsibilities. It is stated that N. V. Rao and petitioner are relatives and they knew each other since their childhood and it is this relationship that persuaded the petitioner to agree to become a shareholder in the Company and that the understanding was that N. V. Rao and petitioner only should manage and run the Company with equal rights and responsibilities. ( 12 ) THE learned Company Judge was persuaded to accept this case of the petitioner mainly because in the year 1985 B. K. P. Rao offered to sell the shares of his wife to the petitioner and N. V. Rao in such a manner that the total shareholdings will be equally held by these two persons. Further Ex. P. 2, the affidavit, filed before the Government to obtain the loan was relied upon to infer that even in the year 1976 the understanding was to run the Company together by the two persons in the manner of a partnership between the two. ( 13 ) WE have already referred to the history of this Company, since the questionis whether the petitioner has made out a case of a specific understanding between himself and N. V. Rao that the Company should be run by them as a quasi-parlncrship. Petitioner examined himself as P. W. 1. He states that N. V. Rao is his first cousin being the son of his mother's brother. In other words N. V. Rao is the son of the maternal uncle of the petitioner. The manufacturing operation of the company commenced in March 1976 after P. W. 1 joined the Company. N. V. Rao invited him to join the Company. The understanding was that it should be on the basis of 50 : 50 partnership. Petitioner was the first whole time Director of the company. N. V. Rao joined as a whole time Director subsequently. B. S. N! Rao also joined as a whole time Technical Director later. In view of the deposit belonging to the petitioner in the Bank, the Bank sanctioned loan to the Company. The affidavit filed before the Government was on the basis that two of them (N. V. Rao and petitioner) were to be equal partners. B. K. P. Rao is the father-in-law of N. V. Rao. In view of the deposit belonging to the petitioner in the Bank, the Bank sanctioned loan to the Company. The affidavit filed before the Government was on the basis that two of them (N. V. Rao and petitioner) were to be equal partners. B. K. P. Rao is the father-in-law of N. V. Rao. B. K. P. Rao was the Director in Binny and Company Ltd. Since he cannot be the director of this Company his shares were transferred to his wife. Actually, interest was being paid to B. K. P. Rao in consideration of his investment in the shares. In the year 1978 B. S. N. Rao resigned and his shares were transferred to the petitioner and n. V. Rao. P. W. ] said: "at the time Mrs. B. K. P. Rao was also required to make similar transfer in favour of myself and the 2nd respondent in order to maintain parity of share holding between me and the 2nd respondent. This understanding was reached in the presence of our Company's Auditors. Company's Auditors are M/s. K. P. Rao and Co. One Mr. Sadashiva Rao of M/s. K. P. Rao and Co. , was attending to respondent Company's matters. " Therefore it is clear that according to the petitioner the understanding to maintain parity of shareholding between the petitioner and N. V. Rao was reached in the presence of the Auditors for which purpose Mrs. B. K. P. Rao's shares were to be transferred to these two persons. Petitioner has examined the Auditor Sadashivarao as P. W. 2. He, nowhere corroborates this statement of the petitioner. On the other hand P. W. 2 stated thus:". . . . . . IN the year 1985 we tried to bring about harmony between the petitioner and the second respondent. To my knowledge there was no agreement or understanding arrived at between the petitioner and the 2nd respondent regarding equalisation of shares. I say this because there were only discussions and negotiations. As there was only negotiations regarding transfer of shares held by the wife of Sri B. K. P. Rao, no value regarding transfer of the shares was determined. I do not know what was the reason for Sri B. K. P Rao to withdraw the offer made by him for transfer of the shares held by his wife. As there was only negotiations regarding transfer of shares held by the wife of Sri B. K. P. Rao, no value regarding transfer of the shares was determined. I do not know what was the reason for Sri B. K. P Rao to withdraw the offer made by him for transfer of the shares held by his wife. " ( 14 ) P. W. 2 is the witness came to be examined on behalf of the petitioner. As willbe presently seen the offer of B. K. P. Rao to sell the shares held by his wife was made through the same Auditor. P. W. 1 also points out that the alleged understanding was arrived at in the presence of Sadashivarao. There is absolutely nothing suggested against the deposition of P. W. 2. There can be no doubt that P. W. 2 is an independent witness in whom both parties had confidence. In these circumstances, when P. W. 2 does not support the case of the petitioner on this basic point which is the real contentious issue, the only course left is to reject the statement of P. W. I. It will be purely speculative for the court to accept the case of the plaintiff that there was an understanding reached in the presence of the Company's Auditors, as stated by P. W. 1. This is one of the important factors which cannot be ignored by us while appreciating the case putforth by the petitioner. The finding of the learned Company judge on this aspect is based on mere suspicion. Because there has been some negotiation regarding the sale of the shares held by Mrs. B. K. P. Rao, the learned company Judge infers that there must have been some understanding as stated by p. W. 1. A contested issue cannot be, just, decided only on the basis of the fact that there was some negotiation which ultimately did not fructify. This basic question is seriously contested by the respondents in the Company petition. The history of the shareholding of the Company read with the statement of the Auditor-P. W. 2, in our opinion negatives the case putforth by the petitioner in this regard. We may refer to the offer made by B. K. P. Rao at this stage. Ex. P. 5 is the letter dated 11-1-1985 written by B. K. P. Rao. The history of the shareholding of the Company read with the statement of the Auditor-P. W. 2, in our opinion negatives the case putforth by the petitioner in this regard. We may refer to the offer made by B. K. P. Rao at this stage. Ex. P. 5 is the letter dated 11-1-1985 written by B. K. P. Rao. There is no dispute that this was addressed to the Auditors m/s. K. P. Rao and Co. This states that his wife was prepared to sell 12 shares of the company to the petitioner at the price of Rs. 7,000/- per share and that the price was calculated on the basis of the balance sheet, etc. There is also a reference to the shares earlier held by B. S. N. Rao and the failure to offer a proportionate shares of b. S. N. Rao to Mrs. B. K. P. Rao. This offer was not made to the Company nor to any of the shareholders directly. This letter was obviously handed over to the petitioner by the Auditor, who responded to the Auditor by writing Ex. P. 6. The petitioner sought clarification as to how the value of the share was arrived at. He termed the price of Rs. 7,000/- per share, as astronomical. In this letter petitioner further states that when B. S. N. Rao retired in the year 1977, instead of transferring his entire 25 shares to the petitioner for maintaining the necessary balance, only 15 shares were allotted to him by mistake. Therefore he requested the Auditor to go into the matter to ensure that no injustice is done to him. It is also stated here that that the Company had been paying 16% interest for all loans from shareholders and others equally and that the shares held by Mrs. B. K. P. Rao has been treated as a loan for the purpose of paying the interest. The petitioner values the share and states that the value of each share will be Rs. 896. 88 ps. (though the face value of the share is Rs. 1,000/- ). Ex. P. 7 is a letter written by B. K. P. Rao to the Auditor explaining as to how he arrived at the value at Rs. 7,000/- per share. The petitioner values the share and states that the value of each share will be Rs. 896. 88 ps. (though the face value of the share is Rs. 1,000/- ). Ex. P. 7 is a letter written by B. K. P. Rao to the Auditor explaining as to how he arrived at the value at Rs. 7,000/- per share. The learned Company Judge has observed that b. K. P Rao could not have withdrawn the offer and should have pursued the matter of selling the shares and the offer once made cannot be withdrawn at all as per the articles of Association of the Company. Before going to this aspect, we have to express our opinion as to the effect of this offer of B. K. P. Rao. P. W. 2 who represents the Auditors has specifically stated that there was no understand ing at all to sell the shares of Mrs. B. K. P. Rao to the petitioner and N. V. Rao to maintain any parity between them. These letters, in fact in no way convey such an idea. The offer was made in the year 1985 even though B. S. N. Rao had already resigned and sold his shares in the year 1978. If there was an understanding to maintain parity of shareholding between the two, the petitioner would have insisted upon the sale of said B. S. N. Rao's share to him in such a manner that his shareholding would b'e equal to the shareholdings of N. V. Rao and Mrs. B. K. P. Rao. For over 61/2 years petitioner never raised this question of parity of shareholdings. For whatever reason, b. K. P. Rao thought of selling his wife's share in the year 1985 provided an appropriate value would be paid for it. Obviously the Company had prospered by that time and N. V. Rao and petitioner were anxious to gain control of the Company or at least possess larger shareholding. The learned Company Judge also is not right in holding that B. K. P. Rao could not have withdrawn the offer of sale. ( 15 ) EXHIBIT P. 1 is the Memorandum of Association and the Articles of Association of the Company. Articles 19,20,21,22 and 23 of the articles provide for the transfer of shares by sale. They read thus:"19. The learned Company Judge also is not right in holding that B. K. P. Rao could not have withdrawn the offer of sale. ( 15 ) EXHIBIT P. 1 is the Memorandum of Association and the Articles of Association of the Company. Articles 19,20,21,22 and 23 of the articles provide for the transfer of shares by sale. They read thus:"19. In order to ascertain whether any member is willing to purchase a share at the fair value, the person whether a member of the Company or not proposing to transfer the same (bereinafter called "selling member") shall give notice in writing (hereinafter described as a "sale notice") to the company of his intention to sell the whole or part of his holding of shares in the Company and in the latter case he shall specify the numbers of shares he intends to sell. Every part notice shall specify denoting numbers of shares which the selling member desires to sell, and shall constitute the company as the agent of the selling member for the sale of such shares to any member of the Company at the fair value without assuming any liability therefor. No sale notice shall be withdrawn except with the sanction of the Board of Directors. 20. If the Company shall within four calendar months after service of a sale notice find a member willing to purchase any share comprised therein (hereinafter described as 'purchasing member' and give notice thereof to the selling member, the selling member shall be bound upon payment of the fair price to transfer that share to such purchasing member, who shall be bound to complete the purchase within seven days from the service of such last mentioned notice. The Board of Directors shall with a view to find a purchasing member, offer any shares comprised in a sale notice to the. existing members of the Company (other than the selling members) as nearly as may be. in proportion of their holding of shares in the Company, and shall limit the lime within which such offer if notice accepted will be deemed to have been declined; and the Board of Directors shall make such other arrangements as regards the finding of a purchasing member for any shares not accepted by a member to whom they shall have been offered as aforesaid within such time as they may think just and reasonable. 21. 21. The fair value of the share shall be such a sum of money, as the Auditor for the time being of the Company shall certify in writing which value in his opinion is the fair value thereof, and so that in so certifying, the said auditor shall be deemed to be acting as an expert and not as an arbitrator. 22. In the event of selling member failing lo carry out the sale of any shares which he shall have become bound to transfer as aforesaid, the Board of directors may execute a transfer on his behalf and may give a good receipt for the purchase of such shares and may register the purchasing member as the holder thereof and issue him a certificate for the same and thereupon the purchasing member shall become indefcasibly entitled thereof. The selling member shall in such case be bound to execute the necessary transfer deed and deliver it together with the relative certificates for the said shares, and on due compliance thereof, the selling member shall be entitled to receive the said purchase price without any interest, and if such certificate shall comprise any shares which he has become bound to transfer as aforesaid, the Company shall split the certificates so as to make out two certificates in the name of the purchasing member for the number of shares he has purchased and the other in favour of the selling member for the balance number of shares he would still hold. 23. If the Board of Directors do not within the period of four calendar months after service of a sale notice, find a purchasing member of all or any of the shares comprised therein and give notice in the manner aforesaid, or if, through no fault of the selling member, the purchase of any shares in respect of which such last mentioned notice shall be given shall not be completed within twenty-one days from the service of such notice, the selling member shall at any time within six calendar months thereafter, be at liberty to sell and transfer the shares in his sale notice (or such of them as shall not have been sold to the purchasing members to any person at any price. " ( 16 ) THE intending seller has to issue notice to the Company in writing; the contents of the notice arc specified in the article; further, the Company shall have to be constituted as the agent of the seller for the purpose of the sale of the shares at a fair value; it is such a notice that shall not be withdrawn except with the sanction of the Board. It is not possible to equate the letter written to the Company's Auditor by b. K. P. Rao, as a notice in writing issued to the Company; further, B. K. P. Rao did not constitute the Company as his wife's agent to sell her shares. The learned Company judge has overlooked the requirements of the articles, when he held that, B. K. P. Rao could not have withdrawn his offer to sell his wife's shares. Article 19 is in the nature of a condition imposing a prc-exemption clause, and therefore, it has to be strictly construed. A meticulous compliance with it is necessary to bind the intending seller. Because negotiations took place regarding the shares held by Mrs. Rao, the learned company Judge found it as probablising the petitioner's case that there was an understanding to put petitioner on par with N. V. Rao. But nowhere N. V. Rao in his deposition stated that negotiations pertained to the maintenance of parity. Discussion held because of notice received from the Central Excise Department in march 1985. Letters of B. K. P. Rao and petitioner's letters to the Auditor K. P. Rao, show that B. K. P. Rao offered to sell shares at the rate of Rs. 7. 000/- per share, while petitioner valued the shares below par. The discussion as to equalisation of shares in the year 1984 was in connection with the problem that had arisen regarding payment of excise duty by the sister concerns of the petitioner and N. V. Rao, according to p. W. 2. This statement cannot be a basis to hold that there was any discussion to confine the shares of the Company only between the two in equal proportion. In fact, the further deposition of P. W. 2 shows that, petitioner proposed to induct one more director at that time. A continuous dialogue, need not necessarily due to a prior understanding to equalise the shares between the two after confining the shareholdings to them. In fact, the further deposition of P. W. 2 shows that, petitioner proposed to induct one more director at that time. A continuous dialogue, need not necessarily due to a prior understanding to equalise the shares between the two after confining the shareholdings to them. The affidavit, Ex. P. 2, nowhere refers to equality of shareholding. The statement in Ex. P. 2 nowhere leads to the inference or probablises the fact that intention was to have the Company as a quasi-partncrship. Ex. P. 2 reads thus:"affidavit we, (i) N. V. Rao, son of Sri P. V. Rao, aged about 31 years, residing at 861, hal II Stage, Indiranagar, Bangalore and (ii) U. M. Suresh Rao, sou of Sri A. B. Mudannaiah, aged about 33 years, residing at 49, Aryanagar, Vysya Bank Staff colony, VIII Block, Jayanagar, Bangalore-41, do hereby solemnly affirm and state as follows: (i) Sri N. V. Rao, No. 1 amongst us, passed B. Sc. (Mechanical Engineering) in the year 1966 and had been employed for the period upto 31-1-1976 and is unemployed from 1-2-1976 till date. (ii) Sri U. M. Suresh Rao, No. 2 amongst us, passed B. E. (Mechanical engineering) in the year 1965 and had been employed for the period upto 15-10-1975 and is unemployed from 15-10-1975 till date. We both the shareholders and Directors of M/s. Sinchron Machine Tools Pvt. Ltd. , a private limited Company, educated and remaining unemployed. We have started this new venture for seeking self-employment. Place: Bangalore date: 11-2-1976 (1) Sd/- N. V. Rao (2) Sd/- U. M. Suresh Rao. " ( 17 ) THE purpose of Ex. P. 2 was to take advantage of the Government scheme. Resolution passed at the meeting held on 15-9-1976 resolved to provide for remuneration for all the three Directors at Rs. 2,000/- per month and petitioner's remuneration was payable from 1-2-1976 itself. (Vide Ex. P. 46 ). R. W. 1 also stated that all the three whole-time Directors were paid uniformly. The remuneration was modified by enhancing it with effect from 1-4-1977, to petitioner and N. V. Rao, as could be seen from Ex. P. 3; this resolution was passed on 30-9-1978, after B. S. N. Rao had ceased to be a full time Director and there were only two full time Directors. Therefore it cannot be said that petitioner rendered free service at the initial stage. P. 3; this resolution was passed on 30-9-1978, after B. S. N. Rao had ceased to be a full time Director and there were only two full time Directors. Therefore it cannot be said that petitioner rendered free service at the initial stage. Fact that B. S. N. Rao was also getting remuneration similar to other two Directors, demolishes the petitioners case that he and N. V. Rao are to own the Company in equal shares. Though P. W. I asserted that his contribution financially was more, there is nothing to substantiate it. Petitioner stated that instead of transferring the entire 25 shares of B. S. N. Rao to him, only 13 shares were transferred to him, by mistake. But there is nothing on record to substantiate this theory of mistake. Shares of B. S. N. Rao were transferred to petitioner and N. V. Rao in May 1978; nowhere, thereafter petitioner took any action to have this mistake rectified. B. K. P. Rao offered to sell the shares only in 1985. At least for 6 years petitioner was satisfied with his minority status, in the matter of shareholding. For the first time, in Ex. P. 6, in the year 1985, petitioner putsforth the theory of parity in shareholding. The fact that petitioner and N. V. Rao started two more firms in partnership, indicates the cordiality in their relationship during those days. But that fact, by itself cannot be a basis to conclude that even the Company was to be held by them as partners. Obviously to take advantage of the Company's business, subsidiary/ancillary business thereto were being carried on as partners. If actually, there was an understanding to have parity in shareholdings, there was no reason for N. V. Rao to refuse to allot 12 shares to the mother-in-law of the petitioner. The finding recorded by the learned Company Judge is based on mere suspicion and the circumstances referred to cannot lead to the only inference that the petitioner and N. V. Rao are to be equal partners. ( 18 ) THE total effect of the evidence in the background of the proved circumstances cannot justify the conclusion arrived at by the learned Judge; on Ae other hand, the conduct of the petitioner since February 1976 till the beginning of 1985 (date when petitioner wrote Ex. ( 18 ) THE total effect of the evidence in the background of the proved circumstances cannot justify the conclusion arrived at by the learned Judge; on Ae other hand, the conduct of the petitioner since February 1976 till the beginning of 1985 (date when petitioner wrote Ex. P. 6) being satisfied with a less percentage of shares leads to a different conclusion. ( 19 ) DISPUTE between petitioner and N. V. Rao arose, not because of the alleged breach of the understanding as to shareholdings. P. W. 1 stated that in the year 1984, he proposed reorganisation of the Company by selling uneconomical machines and inducting new machines and N. V. Rao agreed to it; 11 workers were retrenched who were working on such machines. But N. V. Rao then, did not agree to sell those machines but started using them, by appointing new workmen resulting in the retrenched workmen approaching the Labour Court. At para 8 of his deposition P. W. 1 said: "due to failure of talks regarding transfer of shares in my name, the relationship between me and the 2nd respondent further deteriorated and we were not on talking terms since the middle of 1985. Till the time the 2nd respondent refused to agree to sell uneconomical machines, the relationship between me and the 2nd respondent was cordial. " further, he said that in the latter half of 1984 only, N. V. Rao started entertaining the idea that he was holding larger shares and "started conducting in a different manner". At para 25 he once again said that, "from 1984 onwards differences developed between us. " According to P. W. 1: "the talks regarding sale of uneconomical machines took place between me. and the 2nd respondent in the year 1984. Therefore I say that my relationship with 2nd respondent was cordial till the 2nd respondent refused to sell the uneconomical machines, in spite of the non-transfer of shares. " quite strangely, petitioner did not mention anything about the alleged misunderstanding in his letter Ex. D. 23, dated 4-11-1987 written to N. V. Rao. The understanding as to the shareholdings was quite relevant to the subject-matter of coopting two more Directors referred in this letter. " quite strangely, petitioner did not mention anything about the alleged misunderstanding in his letter Ex. D. 23, dated 4-11-1987 written to N. V. Rao. The understanding as to the shareholdings was quite relevant to the subject-matter of coopting two more Directors referred in this letter. However, it is clear that by that time dispute between them had come to the open, with N. V. Rao accusing the petitioner about non-signing the cheques and not attending to the Company's affairs etc. The allocation of work amongst the Directors has been referred already. P. W. 1 also admitted that "b. S. N. Rao was entitled to perform the, functions relating to estimation, design, materials management, production, quality control as recorded at item (a) on page 27 of Ex. P. 1. " According to N. V. Rao, it was he who suggested the inclusion of B. S. N. Rao who was qualified and had wide experience on the shop-floor, though petitioner, in the petition averred that at the suggestion of the petitioner, after mutual discussion B. S. N. Rao was inducted. However, fact remains that there is nothing on record to show that B. S. N. Rao was related to or a close friend of the petitioner, and his induction as a Director was to maintain any balance of power between the petitioner and N. V. Rao. ( 20 ) AS to the functioning of the Company, again, evidence discloses that,in frastructure was already there, by the time petitioner joined the Company. Ex. P. 5, dated 20-2-1976 is the letter written to the Bank, by the Company, which refers to the sanction letter of the Bank dated 7-1-1976 sanctioning the loan and seeks permission to withdraw the funds. Ex. P. 6, dated 2-3-1976 is another letter addressed to the Bank stating that Khanapure and Hajee Ebrahim have withdrawn from the Company and that petitioner was appointed a Director and in the circumstances requests the Bank to take personal guarantee from the existing directors to operate the accounts; the Company had to take delivery of one HMT lathe by 1. 0th. of March. This letter also shows that construction of factory had already been started and was likely to be completed by the end of April 1976 and that sanction from KEB for electrical supply was expected. 0th. of March. This letter also shows that construction of factory had already been started and was likely to be completed by the end of April 1976 and that sanction from KEB for electrical supply was expected. Title deeds of the Company's property was scrutinised and was sent to the Bank along with the letter Ex. P. 7, dated 9-3-1976; Company, admittedly, owned a land, as stated in this letter; cost of this land was stated to be Rs. 60,000/- as per Ex. R. 7 (a ). A machine worth Rs. 50,450/- had already been purchased. Ex. R. 8, dated 26-3-1976 also refers to the loan sanction letter dated 7-1-1976 and that the Company owned a land, but, its conversion for industrial purpose was being delayed by B. D. A. ( 21 ) P. W. I at para 20, stated that even before he became a Director of the Company, the term loan had been sanctioned to the Company by Canara Bank and the. loan was to the tune of Rs. 6 lakhs. We may note, here, that affidavit Ex. P. 2 filed before the State Government was actually for 'seed money'. Earlier at para 18, petitioner, as P. W. 1 stated: "i was invited to join the Company with a view to activisc the Company as otherwise the advance paid by them for machinery and the amount invested for the land was about to be forfeited. " ( 22 ) THE Company's business was to manufacture jigs and fixtures. Admittedly petitioner had no experience in the manufacture of these articles. Between 1970-73 p. W. 1 was in the service of M/s. Brandy and Co. , Bombay, which was not manufacturing jigs and fixtures. Between 1973-75, he was working with Industrial accessories Corporation, which was also not manufacturing jigs and fixtures; he retired from this firm in the middle of 1975, because he had misunderstanding with other partners. P. W. 2 also states that, the dispute between the petitioner and his earlier partners were settled by the Auditors M/s. K. P. Rao and Co. ( 23 ) REGARDING the allotment of shares to B. K. P. Rao, we find, that, petitioner tried to be evasive as to his knowledge, though, from the beginning, petitioner was a party to the allotment of the shares, which, actually, stands in the name of Mrs. Rao. In Ex. ( 23 ) REGARDING the allotment of shares to B. K. P. Rao, we find, that, petitioner tried to be evasive as to his knowledge, though, from the beginning, petitioner was a party to the allotment of the shares, which, actually, stands in the name of Mrs. Rao. In Ex. P. 16, dated 11-8-1987, addressed to N. V. Rao by the petitioner, petitioner, wrote: "subsequently, when Mr. B. K. P. Rao offered to sell his 'share' to me at an exorbitant price of Rs. 7,000/-I was shocked to learn and was wonderstruck as to when Mr. B. K. P. Rao had become a shareholder of the Company. As I know there is no resolution, allotting him any shares. " this is a clear admission that shares were, in fact, allotted to Mrs. Rao. But, petitioner tried to putforward a new theory, before the court that, without his knowledge, shares allotted to B. K. P. Rao were transferred to Mrs. Rao. In para 12 of the Company petition, petitioner asserted that B. K. P. Rao transferred his shares to his wife, without following the procedure prescribed for the transfer of shares. In the evidence, he relies, for this, on Ex. P. 34, which P. W. 2, states, was prepared on the basis of the information supplied by one of the Directors. P. W. 1 admits that he was a party to the allotment of shares after he became a Director. No resolution allotting shares to B. K. P. Rao is forthcoming. In this regard, it was elicited from P. W. 1: "subsequently, when Mr. B. K. P. Rao offered to sell his 'shares' to me, at an exorbitant price of Rs. 7,000/- I was shocked to learn and was wonderstruck to when Mr. B. K. P. Rao had become a shareholder of the Company. As I know there is no resolution allotting him any shares: [this portion in Ex. P. 16 is marked as P. 16 (a)]. Q: I put it to you that Sri B. K. P. Rao was not allotted any share at any time. A: I deny and state that B. K. P. Rao was a shareholder. Q: If that be so, which statement is correct, whether the one contained in Ex. P. 16 (a) or the one now stated before court. A: Ex. P. 16 (a) has to be read along with the contents of the letter. A: I deny and state that B. K. P. Rao was a shareholder. Q: If that be so, which statement is correct, whether the one contained in Ex. P. 16 (a) or the one now stated before court. A: Ex. P. 16 (a) has to be read along with the contents of the letter. (On going through the letter the witness states that what - I have stated before the court is correct ). He admitted that he signed all the Annual Returns, which show that Mrs. Rao was the shareholder. However, he stated:"on going through Ex. P. 1, I state that it does not contain any statement regarding the shares held by respondent 4. I did not protest when respondent 4 allegedly transferred shares to respondent 3. I had not given any complaint to Registrar of companies in this regard. I was aware of the contents of Article 20 of Articles of association of the Company. "in the circumstances, it has to be concluded that the case pleaded by the petitioner, on this aspect is merely fanciful and lacks in candour. ( 24 ) WE may also note, here, that, when petitioner was ousted from the Company, he seems to have taken away with him some of the documents belonging to the company, which he had no right to possess. In his cross-examination made on 23-11-1988, P. W. 1 admits thus:"i have secured Exs. P. 38, P. 38-A, P. 39, P. 40, P. 41, P. 42, P. 43, P. 44, P. 45 and P. 49 from the files of the first respondent-Company. I do not know whether these documents formed part of one bigger file. I came into possession of these documents after the notice for E. G. M. was served in October 1987,1 took out these documents from the files of the Company and kept them with me. I did not inform the second respondent that I had removed the aforesaid documents from the files of the first respondent Company. I did not think it necessary to do so. " ( 25 ) IN the lightof these facts and circumstances, we are constrained to differ from the finding given by the learned Company Judge, and we hold that there was no specific undertaking that petitioner was to have equal control or rights in the company, with N. V. Rao. I did not think it necessary to do so. " ( 25 ) IN the lightof these facts and circumstances, we are constrained to differ from the finding given by the learned Company Judge, and we hold that there was no specific undertaking that petitioner was to have equal control or rights in the company, with N. V. Rao. ( 26 ) ONE of the incidental argument was that B. K. P. Rao should have been examined by N. V. Rao, as he belonged to his group and adverse inference has to be drawn against the contesting respondents. B. K. P. Rao or Mrs. Rao, could have spoken to only one aspect of the case, pertaining to the allotment of shares to Mrs. Rao and the offer of sale made by B. K. P. Rao. This aspect as pleaded by the petitioner is quite vague and P. W. 1 contradicted himself in this regard, as already noted by us. Main issue pertain to the alleged understanding between the petitioner and N. V. Rao regarding the shareholding at the time when petitioner joined the company; B. K. P. Rao could not have spoken to this understanding. In other respects, this aspect of the case rests mainly on the proved circumstances, and the documents on record. In spite of our great respect to our learned brother, we are not able to agree with him. The alleged understanding as to the shareholding and control of the Company, though, is a specific fact, a finding on this fact necessarily involves appreciation of the proved circumstances, also. This apart, inherent contradiction, in the deposition of P. W. 1 and his case as pleaded, substantially affects his case. The learned Company Judge, nowhere has given a definite finding, solely on the basis of the credit worthiness of a particular witness. In Smt. Rajbir Kaur and Another v M/s. S. Chokosiri and Co. , AIR 1988 SC 1845 , the Supreme Court said, at page 1855: "but in cases where there is no question of credibility or reliability of any witness or the question is one of a proper inference to be drawn from proved facts, the appellate court is - and should be - generally in as good a position to evaluate the evidence as the trial Judge is. " the Supreme Court pointed out that there is a distinction between what is 'perception' and what is 'evaluation'. At p. 1856, again, Venkatachalaiah, J. , observed:"the area in which the question lies in the present case is the area of the perceptive functions of the trial Judge where the possibility of errors of inference does not play a significant role. The question whether the statement of the witnesses in regard to what was arnenable to perception by sensual experience as to what they saw and heard is acceptable or not is the area in which the well-known limitation on the powers of the appellate court to reappreciate the evidence falls. The appellate court if it seeks to reverse those findings of fact, must give cogent reasons to demonstrate how the trial court fell into an obvious error". ( 27 ) A few more facts also may be referred here: In Ex. P. 6, petitioner said,non-transfer of the shares of BSNR to him was "by mistake", while, as P. W. 1, he said:"at the time when the shares of B. S. N. Rao were transferred to me and the 2nd respondent in the proportion of 13:12 respectively, I did not ask for transfer of all the shares to me because it was also agreed that the shares held by the 3rd respondent should also be transferred to me and the 2nd respondent in the proportion of 12:13 respectively to maintain the parity of shares. It was because of this the shares of B. S. N. Rao were not offered to all the shareholders of the Company as required by the Articles of Association of the Company. The 4th respondent was dodging the matter of transfer of shares held in the name of his wife - third respondent. "this again shows that petitioner changed his case, by the time he entered the witness box, on this aspect of the dispute. He also, stated, "i, as a Director of the Company, had been a party to the decision as to allotment of shares. There are documents in this regard, such as Annual Returns filed with the Registrar of Companies. " as to his relationship with N. V. Rao, prior to his joining the Company and his financial contribution, P. W. 1 said:"before I became a Director of the Company it had no landed property of its own. The. There are documents in this regard, such as Annual Returns filed with the Registrar of Companies. " as to his relationship with N. V. Rao, prior to his joining the Company and his financial contribution, P. W. 1 said:"before I became a Director of the Company it had no landed property of its own. The. witness volunteers that though officially I became a Director of the company on 27-1-1976, but before that I was working in the Company and looking after the project and was responsible for securing the sale deed pursuant to the agreement of the sale and probably I had also contributed financially towards the sale consideration, I don't have any record to shows that I had finalised the sale and contributed the amount towards the sale consideration. " "the first reallocation of shares of the first respondent-Company after I became a Director, took place probably in the month of February 1976. The second reallocation in 1977 and the third one in the year 1978. The third reallocation of shares took place consequent to resignation of Sri B. S. N. Rao from the Directorship of the first respondent-Company. " on the question of parity, R. W. 1 said: "the petitioner did not make any demand before 1985 that the shares held by me and the petitioner shall be equal. "further, he again said, "there was no understanding between me and the petitioner for holding equal number of shares in the Company. " ( 28 ) THE present case involves inferences to be drawn from the proved circumstances and the materials on record. The conduct of the parties at a time there was no dispute at all amongst the parties has a strong bearing while appreciating the respective cases. Petitioner has been able to show, at the most, that on or about the year 1985, there were talks to bring about parity of shareholding between himself and N. V. Rao; this may be due to the desire of petitioner to gain more shares in the company, also. ( 29 ) IT is unnecessary to refer to the several other business concerns started separately by N. V. Rao or the petitioner. In this regard, both have been successful; admittedly, N. V. Rao has his own business concern and so is the case with the petitioner. ( 29 ) IT is unnecessary to refer to the several other business concerns started separately by N. V. Rao or the petitioner. In this regard, both have been successful; admittedly, N. V. Rao has his own business concern and so is the case with the petitioner. ( 30 ) UNDER Point No. 3, the learned Company Judge has found that, petitioner is estopped from challenging the transfer of 25 shares by B. K. P. Rao in favour of his wife Mrs. Rao. We agree with this finding, in case, originally, shares were allotted in the name of B. K. P. Rao. For over 10 years, petitioner did not question the alleged transfer. But this finding is contradicted by the finding under Point No. 10 and thereafter the learned Judge proceeded to direct transfer of those 25 shares, by transfer of 12 shares to the petitioner and 13 shares to N. V. Rao. We have already held that there was no binding offer, earlier under Ex. P. 5, etc. , to sell these shares, as provided for, under the Articles of Association. If so, said offer made in the year 1985 cannot now be enforced. ( 31 ) HOWEVER these findings, are not sufficient to non-suit the petitioner. The petitioner became a shareholder in February 1976; he was also appointed a whole-time Director. The Company did not declare any dividend. The return for the investment, as far as B. K. P. Rao and his wife are concerned, was, either by way of alleged interest paid or consultation fee paid to B. K. P. Rao or his son. Other shareholders were appointed Directors and were being paid monthly remunerations; in addition, substantial perquisites were being provided to them. There can be no doubt that petitioner has contributed his services for the prosperity of this Company. Even though it is not possible to hold that there was an understanding between N. V. Rao and the petitioner to run the Company as quasi-partners with equal shares, circumstances justify the inference that petitioner was to be a full time Director throughout with appropriate remuneration and perquisites. In this regard, it seems to us, that, he is to have parity of status with N. V. Rao. On this aspect an elaborate discussion is not necessary, because, the proved circumstances, cannot lead to any other inference. In this regard, it seems to us, that, he is to have parity of status with N. V. Rao. On this aspect an elaborate discussion is not necessary, because, the proved circumstances, cannot lead to any other inference. ( 32 ) IF the petitioner is entitled to an equal status, with proper remunerations and perquisites, in view of the understanding, further question arises, as to what order should be made in this petition filed by the petitioner. ( 33 ) N. V. Rao called the extraordinary General Body Meeting which was held on 12-11-1987. He contrived the Agenda, in the Notice, proposing to elect the Directors afresh. At the meeting, he proposed the petitioner's name for election as a Director. However, at the poll, he joined hands with Mrs. Rao to defeat the proposal and then set up the case that petitioner ceased to be a Director. Petitioner, being in minority had to face the defeat. The dispute and mutual recriminations are such that, petitioner has no chance of becoming a Director again. The conduct of N. V. Rao, in ousting the petitioner certainly lacked in probity. A material change has taken place iu the management of the Company, as well as in the control of the Company, not only by ousting the petitioner from the Board, but also, by induction of a stranger (one Kothari) to the Company, as a Director, as a Director. We are of the opinion, that these state of affairs are sufficient to hold that the Company's affairs are being conducted in a manner oppressive to the petitioner. He is deprived of a proper return for his investment; he is ousted from participating in the management and the opportunity to continue to be employed usefully, in a Company for whose prosperity he contributed his services, is denied to him. This is a small private Company with only three shareholders. However, there is no dispute that winding up of the company would prejudice the petitioner, as he, himself stated in the Company petition. ( 34 ) IN these circumstances, no doubt, court could make an order which it thinks fit; but at the same time such an order will have to be just and equitable; the order should enable the smooth functioning of the Company. ( 35 ) 1. ( 34 ) IN these circumstances, no doubt, court could make an order which it thinks fit; but at the same time such an order will have to be just and equitable; the order should enable the smooth functioning of the Company. ( 35 ) 1. Before considering the nature of the order to be made, we have to considera few precedents for our guidance. 35. 2. Hind Overseas Private Limited v Raghunath Prasad Jhunjhunwalla and another, AIR 1976 SC 565 was concerned with a winding up petition filed by one of the shareholders under Section 433 (f) of the Act. The main question was whether principles applicable in the case of dissolution of partnership could be invoked in the case of that Company. Petitioners held 1875 shares, while contesting respondents held 3125 shares. The business was started in the name of the Company formed for the said purpose; initial idea of constituting a partnership was abandoned, while forming the Company, an erstwhile employee was also taken as a subscriber and a director, who subsequently resigned. Dispute arose between the petitioners group (of RPJ) and another group (of VDJ ). VDJ was alleged to have tried to oust RPJ from the management. In the circumstances, alleging complete lack of confidence and mutual trust and the resultant deadlock in the management of the Company, group of rpj filed the petition for winding up. Petitioners asserted that Company was in substance a partnership and circumstances justifying the dissolution of the firm existed. The point involved, was stated by the Supreme Court, at page 569:"the only point which appears to have been canvassed before the learned company Judge and later before the appellate court was that the Company was formed as a result of mutual trust and confidence and the Company was in substance a partnership and, therefore, the principles of partnership would be attracted. The arguments are pressed into service by the respondents before us. If it were a partnership, says Mr. Sen on behalf of the respondents, on the facts and circumstances disclosed in the petition, dissolution would have been ordered by the court under Section 44 (g) of the Partnership Act. A case for winding up has been, therefore, prima facie, made out by the respondents on these allegations. "the Supreme Court referred to Yenidje Tobacco Co. Ltd. 's case, (1916)2 Ch. A case for winding up has been, therefore, prima facie, made out by the respondents on these allegations. "the Supreme Court referred to Yenidje Tobacco Co. Ltd. 's case, (1916)2 Ch. 426 and Ebrahim's case, 1973 AC 360 and thereafter referred to features found in those cases, to point out that in these circumstances winding up orders were made. The supreme Court also held that the principles enunciated in those two cases are sound principles "depending upon the nature, composition and character of the Company. The principles, good as they are, their application in a given case or in all cases, generally creates problems and difficulties". Since it was a case of deadlock in the affairs of the Company, winding up was ordered in Yenidje's case, though, that was, not stated to be the sole basis for the conclusion to wind up the Company (vide paras 23 to 25 ). Further, it was pointed out by the Supreme Court that, the House of Lords did not approve of the undue emphasis put on the contractual rights arising from the articles over the equitable principles, derived from partnership law, in another decision (Cuthbert Cooper and Sons Ltd. 's case ). Supreme Court pointed out that the indian law was developing on its own lines and lie language used by the Indian statue should be examined in each case to arrive at the true meaning of the law. In this regard, Supreme Court observed, at page 574:"we will have to adjust adapt, limit or extend the principles derived from English decisions, entitled as they are to great respect, suiting the conditions of our society and the country in general, always however, with one primary consideration in view that the general interests of the shareholders may not be readily sacrificed at the altar of squabbles of Directors of powerful groups for power to manage the Company. ""when more than one family or several friends and relations together form a company and there is no right as such agreed upon for active'participation of members who are sought to be excluded from management, the principles of dissolution of partnership cannot be liberally invoked. ""when more than one family or several friends and relations together form a company and there is no right as such agreed upon for active'participation of members who are sought to be excluded from management, the principles of dissolution of partnership cannot be liberally invoked. Besides, it is only when shareholding is more or less equal and there is a case of complete deadlock in the company on account of lack or probity in the management of the Company and there is no hope or possibility of smooth and efficient continuance of the company as a commercial concern, there may arise a case of winding up on the just and equitable ground. In a given case the principles of dissolution of partnership may apply squarely if the apparent structure of the Company is not the real structure and on piercing the veil it is found that in reality it is a partnership. On the allegations and submissions in the present case, we are not prepared to extend these principles to the present Company. ""the principle of 'just and equitable' clause baffles a precise definition. It must rest with the judicial discretion of the court depending upon the facts and circumstances of each case. These are necessarily equitable considerations and may, in a given case, be superimposed on law. Whether it would be so done in a particular case cannot be put in the strait-jacket of an inflexible formula. "though the Supreme Court proceeded to consider whether the winding up petition should have been admitted or not, in the context of Section 433 (f) of the Act, under 'just and equitable' clause and held at page 575:"section 433 (f) under which this application has been made has to be read with Section 443 (2) of the Act. Under the later provision where the petition is presented on the ground that it is just and equitable that the Company should be wound up, the court may refuse to make an order of winding up if it is of opinion that some other remedy is available to the petitioners and that they are acting unreasonably in seeking to have the Company wound up instead of pursuing that other remedy. ""again under Sections 397 and 398 of the Act there are preventive provisions in the Act as a safeguard against oppression in management. ""again under Sections 397 and 398 of the Act there are preventive provisions in the Act as a safeguard against oppression in management. These provisions also indicate that relief under Section 433 (f) based on the just and equitable clause is in the nature of a last resort when other remedies are not efficacious enough to protect the general interests of the Company. " the features of the Company were examined to conclude that the Company was not in substance, a partnership and that "it is not a proper principle to encourage hasty petitions of this nature without first attempting to sort out the dispute and controversy between the members in the domestic forum in conformity with the articles of association". The Company therein was different and was not a small company. At para 43, Supreme Court held: "the cases of small companies stand on a different footing from a Company like the present with nineteen shareholders, although apparently arrayed in two groups, it is not, prima facie, established on the allegations that the Company cannot run smoothly in the best interest of the general shareholders, including that RPJ group, after exit of the quondam Directors. " (emphasis supplied) it was found that at no point of time parties contemplated a partnership in substance and there was only a mere discussion about the advantage and disadvantages of partnership vis-a-vis a private limited Company, but ultimately Company was formed. In these circumstances Supreme Court held that winding up order was not a proper remedy. The Supreme Court was not dealing with the case under Section 397, at all. In fact, discussion shows that resort to Section 397 was held to be proper and appropriate than to Section 433 (f) in a case of dispute amongst two groups of shareholders, if the Company was not a partnership in substance. The further observations at para 43 (of the AIR report), indicate that the court may contemplate the exit of a group of shareholders in the interest of the Company, in case, such a course would enable the Company to run smoothly. 35. 3. The further observations at para 43 (of the AIR report), indicate that the court may contemplate the exit of a group of shareholders in the interest of the Company, in case, such a course would enable the Company to run smoothly. 35. 3. This decision, by necessary implication supports the principle that in the case of a petition under Section 397, court may make an appropriate order providing for the exit of one of the groups to enable the (small) Company to run smoothly, if such an order is just and equitable in the circumstances of the case. ( 36 ) NEEDLE Industries (India) Ltd. and Others v Needle Industries Newey (India)Holdings Ltd. and Others, AIR 1981 SC 1298 involved several facts. One of the observations of the Supreme Court is regarding the court's powers under Section 397. The charge of the oppressor was not made out. But court said, at page 1360: "such technicalities cannot be permitted to defeat the exercise of the equitable jurisdiction conferred by Section 397 of the Companies Act. " further, it was observed: "even though the Company petition fails and the appeals succeed on the finding that the Holding Company has failed to make out a case of oppression, the court is not powerless to do substantial justice between the parties and place them, as nearly as it may, in the same position in which they would have been, if the meeting of 2nd May were held in accordance with law. " ( 37 ) IN Shanti Prasadjain (in all the appeals) v Kalinga Tubes Ltd. , etc. (in all the appeals), AIR 1965 SC 1535 , it was held at page 1543: "in Hamer's case, 1958 (3) All ER 689, it was held that "the word 'oppressive' meant burdensome, harsh and wrongful". It was also held that 'the section does not purport to apply to every case in which the facts would justify the making of a winding up order under the 'just and equitable' rule, but only to those cases of that character which have in them the requisite element of oppression'. It was also held that "the result of applications under Section 210 in different cases must depend on the particular facts of each case, the circumstances in which oppression may arise being so infinitely various that it is impossible to define them with precision". It was also held that "the result of applications under Section 210 in different cases must depend on the particular facts of each case, the circumstances in which oppression may arise being so infinitely various that it is impossible to define them with precision". The circumstances must be such as to warrant the inference that "there had been at least, an unfair abuse of powers and an impairment of confidence in the probity with which the Company's affairs are being conducted, as distinguished from mere resentment on the part of a minority at being outvoted on some issue of domestic policy. The phrase 'oppressive to some part of the members' suggests that the conduct complained of 'should at the lowest involve a visible departure from the standards of fair dealing, and a violation of the conditions of fair play on which every shareholder who entrusts his money to a Company is entitled to rely. . . . . But, apart from this, the question of absence of mutual confidence per se between partners, or between two sets of shareholders, however, relevant to a winding up seems to have no direct relevance to the remedy granted by Section 210. It is oppression of some part of the shareholders by the manner in which the affairs of the Company are being conducted that must be averred and proved. Mere loss of confidence or pure deadlock does not come within Section 210. It is not lack of confidence between shareholders per se that brings Section 210 into play, but lack of confidence springing from oppression of a minority by a majority in the management of the company's affairs, and oppression involved at least an element of lack of probity or fair dealing to a member in the matter of his propriety rights as a shareholder. ""these observations from the four cases, referred to above apply to Section 397 also which is almost in the same words as Section 210 of the English Act, and the question in each case is whether the conduct of the affairs of a Company by the majority shareholders was oppressive to the minority shareholders and that depends upon the facts proved in a particular case. As has already been indicated, it is not enough to show that there is just and equitable cause for winding up the Company, though that must be shown as preliminary to the application of Section 397. It must further be shown that the conduct of the majority shareholders was oppressive to the minority as members and this requires that events have to be considered not in isolation but as part of a consecutive story. There must be continuous acts on the part of the majority shareholders, continuing upto the date of petition, showing that the affairs of the company were being conducted in a manner oppressive to some part of the members. The conduct must be burdensome, harsh and wrongful and mere lack of confidence between the majority shareholders and the minority shareholders would not be enough unless the lack of confidence springs from oppression of a minority by a majority in the management of the company's affairs, and such oppression must involve at least an element of lack of probity or fair dealing to a member in the matter of his propriety rights as a shareholder. It is in the light of these principles that we have to consider the facts in this case with reference to section 397. "on facts it was found that allotment of shares to seven persons there, was not an unfair act and there was no reason to suppose that the same rate of profit would not have continued, with the expansions envisaged by the increase in share capital. ( 38 ) WE may note here that, the learned counsel on both sides, did not explain tous the scope and incidence of the proprietary rights of a shareholder. It cannot be limited to a right to participate in the available assets of the Company which would be left over after winding up, as suggested by Mr. Udaya Holla. A shareholder is entitled to participate in the profits of the Company and this should be considered as part of his proprietary right as a shareholder. ( 39 ) IN Mrs. Udaya Holla. A shareholder is entitled to participate in the profits of the Company and this should be considered as part of his proprietary right as a shareholder. ( 39 ) IN Mrs. Bacha F. Guzdar, Bombay v Commissioner of Income Tax, Bombay, AIR 1955 SC 74 , the Supreme Court held, at page 77:"the true position of a shareholder that on buying shares an investor becomes entitled to participate in the profits of the Company in which he holds the shares if and when the Company declares, subject to the Articles of Association, that the profits or any portion thereof should be distributed by way of divideends among the shareholders. He has undoubtedly a further right to participate in 'the assets of the Company which would be left over after winding up' but not in the assets as a whole as Lord Anderson puts it. " ( 40 ) THEREFORE, if there was an understanding that persons, investing in the shares of the Company would be appropriately remunerated by way of salary and perquisites with a right to participate in the management of the Company, in lieu of or in addition to, the dividends, the interest created by such an understanding has to be held as a component of the proprietary right of the said shareholder while applying equitable considerations. ( 41 ) IN Raghunath Swarup Mathur and Others v Har Swarup Mathur and Others, 40c. C. 282, it was held by the Allahabad High Court, that under Sections 397 and 398, interference in internal management of the companies should take place only on good and compelling grounds; powers under Sections 397 and 398 are essentially preventive. At page 292, it was held:"the scope of remedial action under either of the two sections could be said to have become more extended as a result. Nevertheless, the powers vested in the court continue to be discretionary and are designed for removal of an existing and not past oppressive or prejudicial course of conduct of the affairs of the company. They are, in my opinion, primarily intended for preventive purposes. The object of the exercise of these powers is either to prevent a winding up or to remove the continuation of harm or reasonable probability of injury to the interests of the Company or to the wider public interests. They are, in my opinion, primarily intended for preventive purposes. The object of the exercise of these powers is either to prevent a winding up or to remove the continuation of harm or reasonable probability of injury to the interests of the Company or to the wider public interests. Past acts and transactions may either afford evidence of what may be reasonably apprehended in future or may have to be undone only to prevent or remove what had wrongfully originated in the past but continues to exist and provides a sustainable cause of action at the time when the petition is filed. Purely punitive action as distinct from preventive remedial action, does not fall directly within the purview of these provisions although certain forms of punitive action, such as those mentioned in Schedule XI, which is applied by Section 406 of the Act to proceedings under Sections 397 and 398 of the Act, may indirectly result from them. Although the amplitude of the remedial powers of the court, under Sections 397 and 398, should not be curtailed in such way as to hamper the jurisdiction to suppress the mischiefs aimed at, yet, the court has to be careful and statute enough to prevent a misuse of the provisions of Sections 297 and 398 by a party, lest a remedy proposed and adopted to overcome an alleged mischief becomes a source of greater oppression and harm than the one sought to be removed or prevented. " ( 42 ) V. M. Rao v V. L. Dutt and Others, 61 C. C. 20, a decision of the Madras High Court, was relied by the learned counsel for the respondents. It was held there, that even if there was a family arrangement to have the management of one Company with two sons and of another Company with the daughters, said arrangement cannot be enforced. Court found that, actually there was no such family arrangement; however, at page 67, it was held:"since the family arrangement pleaded is not true, and even if true it is not valid, as we have held in this case, there is no restriction on the election of directors. The exercise of the inherent right of the shareholders, in such circumstances, to elect their Directors cannot be contended as constituting oppression. The majority shareholders are not bound to accept the views of the minority shareholders. The exercise of the inherent right of the shareholders, in such circumstances, to elect their Directors cannot be contended as constituting oppression. The majority shareholders are not bound to accept the views of the minority shareholders. If it is a lawful exercise of power by the majority, the minority shareholder is bound by the same. Further, as held by the Supreme court, oppression involves at least an element oflack of probity or fair dealing "to a member in matters of his proprietary right as a shareholder and not any harsh or unfair treatment in any other capacity. " The contention of the petitioner relates to his position only as a Director and not that his proprietary right as a shareholder is in any way affected. Therefore, the petitioner cannot maintain the petition under Section 397 on this ground. " ( 43 ) IN the instant case petitioner is aggrieved by his non-election as a Director and therefore, above principle would apply to non-suit him, was Mr. Holla's contention. We do not think so. The facts of the present case is entirely different. Election as a Director is part of the understanding to enable participation in the management and draw remuneration in lieu of the dividends. There is a further observation in the Madras case that the principle of the special relationship between the parties forming the substratum of the Company could be invoked only in a case where originally the business was a partnership concern which was later on converted into a private limited Company or where, if the veil of corporate character of the Company was lifted, it could be found that, in reality, it was a partnership. With utmost respect to the learned Judges, we are of the view that the principle involved should not be limited to such a narrow set of facts. There may be instances where a small private limited Company may break up in effect by the withdrawal of all shareholders except one (in the sense, all other shareholders may offer to sell the shares to one person) and to continue the Company effectively, the remaining shareholder may enter into a special relationship with another and persuade him to join the Company as a shareholder and a Director; the process is analogous to the winding up of the old Company, assets of which are taken over by a new small private limited Company. In such a situation, there is no reason why the principle of the "special relationship" should not be attracted. The decision of the Supreme Court in Hind Overseas case, AIR 1976 SC 568 distinguishing Ebraliim's case, is not based on this factor alone. ( 44 ) IN Bhaskar Stoneware Pipes Private Ltd. and Others v Rajinder Nath Bhaskar and Another, 63 C. C. 184, a Bench of the Delhi High Court, applied the quasi-partnership theory to a Company formed by four groups of family members. The main question was whether the petition under Sections 397 and 398 could be admitted at all. The court examined the history of the Company to conclude that all along proportionate parity in shareholding was maintained among the group of shareholders and this was sought to be disturbed. The breach of the implied understanding as to this parity with a view to consolidate the power in one group, was held to be indicative of oppression and mismanagement and the attempts for this end revealed a lack of probity and fair dealing, etc. The Bench pointed out, at page 201: "the crux of the question seems to be not whether any group has been expelled or whether this was done lawfully or otherwise but whether there has been breach of a basic mutual understanding. It is difficult, therefore, to say that a prima facie case has not been made out for the applicability of Ebrahimi's case, (1972)2 All ER 492 (HL) principle here. " ( 45 ) IN Suresh Kumar Sanghi v Supreme Motors Ltd. and Others, 54 C. C. 235, a learned Judge of Delhi High Court, having held that a case of oppression was not made out, proceeded to make an order providing for one group of shareholders to purchase the shares of the other because, the two groups of shareholders lacked complete confidence and trust in each other and the two groups cannot run the company together. At page 250, the learned Judge held:"it is evident that the two groups of shareholders lack complete confidence and trust in each other. The two groups cannot run the Company together. In an effort to destroy each other they will not only destroy themselves but also the Company. The only course which is open to me under these circumstances is to direct the sale of the shares by one group to the other. The two groups cannot run the Company together. In an effort to destroy each other they will not only destroy themselves but also the Company. The only course which is open to me under these circumstances is to direct the sale of the shares by one group to the other. " ( 46 ) IN Chander Kirshan Gupta v Pannalal Girdhari Lal Private Ltd. and Others,55 C. C. 702, same learned Judge (B. N. Kirpal, J.) found that the dismissal of the petition under Section 397 would not solve the problem and therefore, as a permanent solution, sale of the shares of one group to the other was held to be most appropriate and ordered accordingly. ( 47 ) RAMASHANKAR Prosad and Others v Sindri Iron Foundry (P) Ltd. and Others, air 1966 Cal. 512 is a decision of a Division Bench of Calcutta High Court, arising out of a petition under Sections 397 and 398 of the Act. The Company was incorporated in the year 1957; petitioners joined the Company in the year 1062; they were also in the Board of Directors; in the year 1963, the petition was filed on the ground of oppression, mismanagement, etc. Oppression found was of a recent origin, but its effect continued and would have persisted but for the intervention of the court; that was held to be sufficient to invoke the court's power under Section 402. It was pointed out (by O. K. Mittcr, J.) that the act or acts complained of as oppressive must atleast be shown to have been designed to injure the petitioners in their rights as shareholders or show that the Company was not being conducted efficiently in the interest of the members as a whole; this is quite different from showing that there was a mere subordination of the wishes of the minority to the powers of a voting majority. The court's approach was indicated at page 531: "it must be admitted that a strong case was not made out in the petition and what view the court would have taken if a point of demurrer had been argued it is difficult to say. But once all the evidence is before the court and the case of oppression clearly emerges from the facts disclosed, it would not be proper to measure the rights of the parties only in terms of the assertion made in the petition. But once all the evidence is before the court and the case of oppression clearly emerges from the facts disclosed, it would not be proper to measure the rights of the parties only in terms of the assertion made in the petition. In Firm Srinivas Ram Kumar v Mahabir Prasad, AIR 1951 SC 177 , the court observed that "there would be nothing improper in giving the plaintiff a decree upon the case which the defendant himself makes. "again in Kedarlal v hari Lal, AIR 1952 SC 47 , it was observed by Bose, J. , (paragraph 51) 'i would be slow to throw out a claim on a mere technicality of pleading when the substance of the thing is there and no prejudice is caused to the other side, however clumsily or inartistically the plaint may be worded. In any event, it is always open to a court to give a plaintiff such general or other relief as it deems just to the same extent as if it has been asked for, provided that occasions no prejudice to the other side, beyond what can be compensated for in costs. ' In this case the respondents ought not to be heard to complain that the case of oppression had not been fully made out in the petition if it transpires as a result of the hearing that the petitioners were oppressed so as to bring the case under section 397 of the Companies Act. The cause of justice will not suffer by the court arriving at a conclusion on a consideration of all the evidence before it even if the original plaint was lacking in particulars. " as to the relief, it was held at page 532:"in my opinion the Company cannot function properly if these two warring groups continue to hold the shares. As a mater of fact, at the early stages of the hearing of the appeal, a suggestion was made that one of the two groups should buy up the other's holding but nothing tangible came out of attempts made by counsel on that behalf. In my opinion, the special Auditor should be directed to find out the fair value of the shares at the date of the petition as was directed by lord Denning in Scottish Co-operative Wholesale Society Ltd. 's case, 1959 AC 324. In my opinion, the special Auditor should be directed to find out the fair value of the shares at the date of the petition as was directed by lord Denning in Scottish Co-operative Wholesale Society Ltd. 's case, 1959 AC 324. We also order the oppressor i. e. , the respondents to the petition to buy the shares of the petitioners. In case the respondents are unable or unwilling to buy the shares, the petitioners should have an option to buy the respondent's shares at the same price. The price is to be arrived at on the basis of the break-up value of the shares. " ( 48 ) TWO principles applicable to the appeal before us, are found in this decision. Mr. Udaya Holla contended that, the petitioner came to the court with a definite plea that the Company is a quasi-partnership in which the understanding was to have equality of shareholdings between the petitioner and N. V. Rao; if this plea is not established, court should dismiss the petition. We have found that, the alleged understanding pleaded by the petitioner is not acceptable; however, we have inferred that, in all probability there was an understanding to enable the petitioner to participate in the management, drawing appropriate remuneration with perquisites and that this understanding has been nullified by the unfair conduct of N. V. Rao with the aid of the voting power, he commanded. If so, court can grant an appropriate relief to the petitioner, on the basis of the observations of the Calcutta High Court, quoted by us (observations excerpted from page 531 of the report ). Similarly, while granting the relief, court may direct the sale of shares by one to the other. The several decisions referred by us show that court has a vast discretion in moulding the relief, even in a case, where, technically, the petitioner fails to make out a case of oppression or mismanagement. The power of the court, is essentially an equitable power, to be exercised in the interest of the shareholders and the Company. If the company can continue to function smoothly, only by the exit of one group of shareholders, court may order accordingly. The power of the court, is essentially an equitable power, to be exercised in the interest of the shareholders and the Company. If the company can continue to function smoothly, only by the exit of one group of shareholders, court may order accordingly. The approach is to examine whether there has been a fair dealing amongst the rival groups and whether the conduct of one in out-voting the other is a device to gain control of the Company, for the sake of the power (as against, a simple case of defeating the alleged oppressed group in the ordinary democratic process, in the interest of the Company); in the case of a small private limited Company having a very limited number of shareholders as in the instant case an understanding as to the management of the Company and remuneration payable in lieu of or in addition to the participation in the profits of the company, could be taken note of by the court, in the exercise of its jurisdiction under sections 397,398 and 402 of the Act and grant an appropriate relief. ( 49 ) IN connection with the power of the court to direct winding up of the Company, English law is summarised by Pennington in his Company Law (5th edn.)at p. 861:"it becomes impossible to manage a Company's affairs because the voting power at board and general meetings is divided between two dissenting groups, the court will resolve the deadlock by making a winding up order. The most obvious kind of deadlock is where the Company has two Directors who are its only shareholders and who hold an equal number of voting shares; if they disagree on major questions in respect of the management of the Company, their disagreement cannot be resolved at a board meeting or by a general meeting, and management decisions will cease to be made. In this situation the court will make a winding up order, even though there is a provision in the Company's articles that one Director shall have a casting vote at board meetings, or that disputes shall be settled by arbitration. In this situation the court will make a winding up order, even though there is a provision in the Company's articles that one Director shall have a casting vote at board meetings, or that disputes shall be settled by arbitration. Nevertheless, the petitioner must show that there is no likelihood of the deadlock being resolved in fact, and for this purpose he should set out in his petition or in his supporting affidavit the relevant provisions of the Company's articles (if any) and details of the attempts he has made to resolve the deadlock. There may also be a deadlock even though the voting power is not equally divided between the dissenting groups. Thus, where there were three shareholders with equal shareholdings, and two of them were the company's Directors, one of the Directors-shareholders was held entitled to a winding up order when the other persistently refused to attend board meetings and make up a quorum to transact business; the reason for the other Director's absence was his fear that the petitioner would insist on a general meeting being called at which, by the terms of the articles, the petitioner could requires the other shareholders to purchase his shares, or if they were unwilling to purchase them, to join with the petitioner in passing a resolution to wind up the Company voluntarily; the result of the other Director's absence from board meetings, however, was that the Company's business could not be carried on at all, and for this reason the court made a winding up order. "this would show that the ultimate order made which is under appeal before us, has not solved the problem. The order if given effect to, would result in only two shareholders (petitioner and N. V. Rao) with equal shareholdings; they have developed such an animosity between them, that it will be impractical and impossible for them to carry on any business together. Deadlock in the affairs of the company is inevitable, if only these two are left to manage the affairs of the company, with equal shareholdings. Various affidavits and statements filed by the parties before this court conclusively establish that trust and confidence between them no more exist; a Company which is quite sound economically is bound to be wound up within a short time, if the order under appeal is enforced. Various affidavits and statements filed by the parties before this court conclusively establish that trust and confidence between them no more exist; a Company which is quite sound economically is bound to be wound up within a short time, if the order under appeal is enforced. By treating the petitioner and N. V. Rao as equal partners, the order has given way for an immediate winding up order, under the doctrine of quasi-partnership. In the circumstances, we do not think that we could sustain this order. ( 50 ) A few English decisions cited before us require to be referred. 50. 1. Re Bellador Silk Ltd. , 1965 (1) Com. L. J. 30 is a decision of the Chancery division, where a winding up petition filed by a Director was found to be motivated to pressurise the Company to repay a loan to the group of companies owned by the petitioner's group; hence it was rejected. This was cited to support the contention that if the real motive of the petitioner is to gain some benefit for himself, the discretionary power should not be exercised by the court. This principle has no application to the facts of this case and therefore, we do not propose to refer to other decisions regulating the discretionary jurisdiction and its non-availability to a petitioner whose conduct is blameworthy. 50. 2. Scottish Co-operative Wholesale Society Ltd. v Meyer and Another, (1958)3 All ER 66 (HL) is a leading case, frequently referred. A subsidiary company of the appellant Company was formed to facilitate the appellant's manufacturing business; in this subsidiary Company, appellant had majority shares, as against the shares, held by the respondents. The latter had, in fact, provided the formulae, knowledge and experience of the business. Dispute arose in connection with the desire of the appellant to have more shares by purchasing them from the respondents. The appellants got it recorded that the subsidiary Company had served its purpose and should be liquidated. Respondents approached the court alleging oppression. It was held that affairs of the Company was conducted in a manner oppressive to the respondents. Earlier, the respondents had offered to sell their shares at a negotiated price, while appellants wanted to purchase them at par. Appellant was referred as the Society in the Judgment. As to the meaning of oppression, Viscount Simonds, observed at page 71:". . . . . Earlier, the respondents had offered to sell their shares at a negotiated price, while appellants wanted to purchase them at par. Appellant was referred as the Society in the Judgment. As to the meaning of oppression, Viscount Simonds, observed at page 71:". . . . . IT appears to me incontrovertible that the society has behaved to the minority shareholders of the Company in a manner which can justly be described as oppressive. It had the majority power and it exercised its authority in a manner "burdensome, harsh and wrongful''i take the dictionary meaning of the word. But, it is sa id, let it be assumed that the society acted in an oppressive manner; yet it did not conduct the affairs of the Company in an oppressive manner. My Lords, it may be that the acts of the society of which complaint is made could not be regarded as conduct of the affairs of the company if the society and the Company were bodies wholly independent of each other, competitors in the rayon market, and using against each other such methods of trade warfare as custom permitted. But this is to pursue a false analogy. It is not possible to separate the transactions of the society from those of the Company. Every step taken by the latter was determined by the policy of the former. I will give an example of this. I observed that, in the course of the argument before the House, it was suggested that the company had only itself to blame, if, through its neglect to get a contract with the society, it failed in a crisis to obtain from the Fakkland Mill the supply of cloth that it needed. The short answer is that it was the policy of the society that the affairs of the Company should be so conducted, and the minority shareholders were content that it should be so. They relied - how unwisely the event proved on the good faith of the society, and in any case they were impotent to impose their own views. It is just because the society could not only use the ordinary and legitimate weapons of commercial warfare but could also control from within the operations of the Company that it is illegitimate to regard the conduct of the company's affairs as a matter for which it had no responsibility. It is just because the society could not only use the ordinary and legitimate weapons of commercial warfare but could also control from within the operations of the Company that it is illegitimate to regard the conduct of the company's affairs as a matter for which it had no responsibility. After much consideration of this question, I do not think that my own views could be stated better than in the late Lord President, Lord Cooper's words on the first hearing of this case. He said (1954 SC at p. 391): 'in my view, the section warrants the court in looking at the business realities of a situation and does not confine them to a narrow legalistic view. The truth is that, whenever a subsidiary is formed as in this case with an independent minority of shareholders, the parent Company must, if it is engaged in the same class of business, accept as a result of having formed such a subsidiary an obligation so to conduct what arc in a sense its own affairs as to deal fairly with its subsidiary,' "house of Lords affirmed the order directing the society (appellant) to purchase the shares of the minority. In this regard it was observed at page 72:"some criticism was made of the relief given by the order of the court. It was said that only that relief could be given which had as its object and presumably its effect the 'bringing to an end of the matters complained of and that an order on the society to purchase the respondent's shares in the Company did not satisfy that condition. This argument is without substance. The matter complained of was the oppression of the minority shareholders by the society. They will no longer be oppressed and will cease to complain if the society purchase their shares. "lord Denning pointed out that, in such a situation, most useful order is to order the oppressor to buy the shares of the oppressed at a fa ir price. At page 89, Lord Denning observed:"the object of the remedy is to bring Mo an end the matters complained of that is, the oppression, and this can be done even though the business of the Company has been brought to a standstill. At page 89, Lord Denning observed:"the object of the remedy is to bring Mo an end the matters complained of that is, the oppression, and this can be done even though the business of the Company has been brought to a standstill. If a remedy is available when the oppression is so moderate that it only inflicts wounds on the Company, whilst leaving it active, so, also, it should be available when the oppression is so great as to put the company out of action altogether. Even though the oppressor by his oppression brings down the whole edifice - destroying the value of his own shares with those of every one else - the injured shareholders have, I think, a remedy under Section 210. One of the most useful orders mentioned in section - which will enable the court to do justice to the injured shareholders - is to order the oppressor to buy their shares at a fair price; and a fair price would be, I think, the value which the shares would have had at the date of the petition, if there had been no oppression. Once the oppressor has bought the shares, the Company can survive. It can continue to operate. That is a matter for him. It is, no doubt, true that an order of this kind gives to the oppressed shareholders what is, in effect, money compensation for the injury done to them; but I see no objection to this. The section gives a large discretion to the court, and it is well-exercised in making an oppressor make compensation to those who have suffered at his hands. True it is that in this, as in other respects, your Lordships arc giving a liberal interpretation to Section 210. But it is a new section designed to suppress an acknowledged mischief. "we may remind ourselves, here, that, the elements comprised in Sections 397 and 402 of the Act (Companies Act, 1956), arc found in Section 210 of the English companies Act. 50. 3. Re H. R. Harmer Ltd. , 1958 (3) All ER 689 is a decision of the court of appeal. The father, who had earlier gifted a few shares to his sons, had to face the complaint of oppression under Section 210 of the English Companies Act. 50. 3. Re H. R. Harmer Ltd. , 1958 (3) All ER 689 is a decision of the court of appeal. The father, who had earlier gifted a few shares to his sons, had to face the complaint of oppression under Section 210 of the English Companies Act. Father had the voting control (along with his wife); he assumed powers which he did not possess and exercised them against the wishes of his sons who had major beneficial interest, but a minority of votes. At page 698, nature of the oppression to be established under Section 210 was stated thus: "this indicates that the oppression complained of must be complained of by a member of the Company and must be oppression of some part of the members (including himself) in their or his capacity as members or a member of the company as such. Secondly, it is to be noted that the section does not purport to apply to every case in which the facts would justify the making of a winding up order under the 'just and equitable' rule, but only to those cases of that character which have in them the requisite element of oppression. Thirdly, the phrase 'the affairs of the Company are being conducted' suggests, prima facie, a continuing process and is wide enough to cover oppression by anyone who is taking part in the conduct of the affairs of the Company, whether de facto or de jure. Fourthly, the section gives no guidance as to the meaning of the word 'oppressive', although it does, as already mentioned, indicate that the victim or victims of the oppressive conduct must be a member or members of the Company as such. Prima facie, therefore, the word 'oppressive' must be given its ordinary sense and the question must be whether in that sense the conduct complained of is oppressive to a member or members as such. Inasmuch as in the present case it is not in dispute that the facts would justify a winding up order under the 'just and equitable' rule and it is recognised that such an order would unfairly prejudice the complaining members, this would appear to be, in effect, the only question in issue. Inasmuch as in the present case it is not in dispute that the facts would justify a winding up order under the 'just and equitable' rule and it is recognised that such an order would unfairly prejudice the complaining members, this would appear to be, in effect, the only question in issue. " as to the 'just and equitable' jurisdiction, court quoted Lord Cooper's observations at page 699, part of which reads: "where the 'just and equitable' jurisdiction has been applied in case of this type, the circumstances have always, I think, been such as to warrant the inference that there has been, at least, an unfair abuse of powers and an impairment of confidence in the probity with which the Company's affairs are being conducted, as distinguished from mere resentment on the part of a minority at being outvoted on some issue of domestic policy. The phrase 'oppressive to some part of the members' acquires a certain colour from its collocation in Section 165 with such stronger expressions as 'intent to defraud', 'fraud', 'misfeasance' or 'other misconduct', and the essence of the matter seems to be that the conduct complained of should at the lowest involve a visible departure from the standards of fair dealing, and a violation of the conditions of fair play on which every shareholder who entrusts his money to a Company is entitled to rely. This, broadly speaking, was the class of case which the draftsman of Section 210 evidently had in mind, and the question is whether the petitioners have brought themselves within the scope of the section. " the discussion at page 702, shows that, though majority is entitled to use th. . r voting power in what they believe to be in the interests of the Company, the power should be used "in the only legitimate way". 50. 4. Clemens v Clemens Bros. Ltd. and Another, (1976)2 All ER 268 is a decision of Chancery Division. Plaintiff's aunt had the majority of votes with her, which she used, inter alia, to reduce the plaintiff's shareholding. Section 210 was invoked against the aunt, with success. 50. 4. Clemens v Clemens Bros. Ltd. and Another, (1976)2 All ER 268 is a decision of Chancery Division. Plaintiff's aunt had the majority of votes with her, which she used, inter alia, to reduce the plaintiff's shareholding. Section 210 was invoked against the aunt, with success. After discussing the law on the point, it was held at page 282:"i think that one thing which emerges from the cases to which I have referred is that in such a case as the present Miss Clemens is not entitled to exercise her majority vote in whatever way she pleases. The difficulty is in finding a principle, and obviously expressions such as 'bona fide for the benefit of the company as a whole', 'fraud on a minority' and 'oppressive' do not assist in formulating a principle. ""i have come to the conclusion that it would be unwise to try to produce a principle, since the circumstances of each case are infinitely varied. It would not, i think, assist to say more than that in my Judgment Miss Clemens is not entitled as of right to exercise her votes as an ordinary shareholder in any way she pleases. " consequently, the impugned resolutions of the Board of Directors were set aside. This decision illustrates the principle that, exercise of voting power by the majority is not immune from judicial review, if the resultant action of the Company could be considered oppressive to the minority shareholders, falling under Section 397 or 398 of the Act. 50. 5. Ebrahimi v Westbourne Galleries Ltd. and Others, (1972)2 All ER 492 (HL) is a case of a quasi-partnership and referred to by the Supreme Court in Hind overseas Pvt. Ltd. , AIR 1976 SC 565 . However, we consider it relevant to quote the following passage, from page 499: "the foundation of it all lies on the words 'just and equitable' and, if there is any respect in which some of the cases may be open to criticism, it is that the courts may sometimes have been too timorous in giving them full force. However, we consider it relevant to quote the following passage, from page 499: "the foundation of it all lies on the words 'just and equitable' and, if there is any respect in which some of the cases may be open to criticism, it is that the courts may sometimes have been too timorous in giving them full force. The words are a recognition of the fact that a limited Company is more than a mere judicial entity, with a personality in law of its own; that there is room in Company law for recognition of the fact that behind it, or amongst it, there are individuals, with rights, expectations and obligations inter se which are not necessarily submerged in the Company structure. That structure is defined by the Companies Act, 1948 and by the Articles of Association by which shareholders agree to be bound. In most companies and in most contexts, this degnition is sufficient and exhaustive, equally to whether the Company is large or small. The 'just and equitable' provision does not, as the respondents suggest, entitle one party to disregard the obligation he assumes by entering a Company, nor the court to dispense him from it. It does, as equity always does, enable the court to subject the exercise of legal rights to equitable considerations; considerations, that is, of a personal character arising between one individual and another, which may make it unjust, or inequitable, to insist on legal rights, or to exercise them in a particular way. " 50. 6. Re Bird Precision Bellows Ltd. , 1984 (3) All ER 444 is the decision rendered by Nourse, J. , of the Chancery Division. It was also a case of quasi-partnership. Main question before the trial Judge was the mode of valuing the shares to be sold by the minority shareholders. This decision was affirmed by the court of appeal, and the appellate decision is reported in (1985)3 All ER 523. It was held that the price to be paid by the purchaser for the petitioner's shares was to be fixed on the basis of the market-value of the petitioner's shares prorata according to the value of the Company's shares as a whole, but without any discount to reflect the fact that the petitioner's shares constituted a minority shareholding. It was held that the price to be paid by the purchaser for the petitioner's shares was to be fixed on the basis of the market-value of the petitioner's shares prorata according to the value of the Company's shares as a whole, but without any discount to reflect the fact that the petitioner's shares constituted a minority shareholding. At page 529, while considering the discretion of the court, it was observed: "it seems to me that the whole framework of the section, and of such of the authorities as we have seen, which seem to me to support this, is to confer on the court a very wide discretion to do what is considered fair and equitable in all the circumstances of the case, in order to put right and cure for the future the unfair prejudice which the petitioner has suffered at the hands of the other shareholders of the Company; and I find myself quite unable to accept that that discretion in some way stops short when it comes to the terms of the order for purchase in the manner in which the price is to be assessed. " ( 51 ) ON facts, we find here that the Company was formed by three unrelated persons and two of them left the Company; petitioner and N. V. Rao purchased one share each of the outgoing shareholders resulting in N. V. Rao holding two shares and the petitioner one. Subsequently, another shareholder BNR joined them, who was also made a full-time Director; issued share capital was increased for re-allocation of shares. After BNR left, Mrs. Rao became a shareholder (even assuming that initially it was her husband to whom shares were allotted after BNR left ). N. V. Rao and the petitioners are relatives. Petitioner worked for the Company as a Director for several years. No dividend was declared by the Company; instead, shareholders were remunerated by other means. Company is a small Company with 3 shareholders. Even though Company did not commence as a quasi-partnership, in all probability, petitioner joined the Company with an understanding with N. V. Rao that petitioner will be entitled to participate in the management and would be properly remunerated. Petitioner was outsted from the management by the unfair device manipulated by N. V. Rao. Even though Company did not commence as a quasi-partnership, in all probability, petitioner joined the Company with an understanding with N. V. Rao that petitioner will be entitled to participate in the management and would be properly remunerated. Petitioner was outsted from the management by the unfair device manipulated by N. V. Rao. Both petitioner and N. V. Rao have their own other business and on this count it cannot be said anyone of them ignored the interest of this Company. The dispute and misunderstanding between the petitioner and N. V. Rao has reached the peak from which it is unlikely they would revert back to their original relationship of friendship and trust. If the affairs of the Company are left to be controlled only by these two, deadlock in its affairs is bound to result; the company, is otherwise sound and healthy. The remedy found by the learned company Judge, instead of solving the problem, would further contribute, to the process of destroying this Company. ( 52 ) THEREFORE, we make the following order: (i) The two chartered accountants already appointed by the learned Company judge to value the shares of the Company shall proceed to value the shares of the Company as on 14th November, 1987. (ii) The second appellant N. V. Rao shall purchase the shares of the petitioner suresh Rao as per the above valuation within eight weeks from the date of the finalisation of the market-value of the shares. (iii) In addition to the market-value, N. V. Rao also shall pay an interest at the rate of 12% per annum on the market-value of the shares to the petitioner suresh Rao till the date of payment of the value of his shares. (iv) If the second appellant N. V. Rao is not willing to purchase the shares as above, the petitioner Suresh Rao shall purchase the shares of the second appellant N. V. Rao as well as that of the third appellant Anupama Rao, at the. same rate as above. However, in case the petitioner Suresh Rao is to purchase the shares, the appellants 2 and 3 shall not be entitled to any interest thereon (because appellants 2 and 3 are so far in enjoyment of the company ). For the purpose of this order, reference to the parties would also include their respective nominees. same rate as above. However, in case the petitioner Suresh Rao is to purchase the shares, the appellants 2 and 3 shall not be entitled to any interest thereon (because appellants 2 and 3 are so far in enjoyment of the company ). For the purpose of this order, reference to the parties would also include their respective nominees. (v) In case the petitioner Suresh Rao purchases the shares of appellants 2 and 3, the Company and its affairs shall be handed over to him and liberty is given to Suresh Rao to move the Company court for appropriate orders regarding the binding nature of the liabilities if any created subsequent to 14-11-1987 and the consequences of any alienation of the assets of the company. (vi) While valuing the shares of the Company the Chartered Accountants shall bear in mind the principle of valuation adopted in Re Bird Precision Bellows ltd. , 1984 (3) All ER 444. (vii) N. V. Rao shall furnish all the requisite information for the valuation of the shares, to the two Chartered Accountants by 28-9-1992, with copies to suresh Rao. (viii) If any practical difficulty arises in implementing this order, parties may move the Company court by an appropriate application, for clarification/directions. Appeal is allowed accordingly. --- *** --- .