Judgment :- 1. Company Appeal No.222/05 is preferred by the appellants challenging the order dated 16th April 2004, passed by the Company Law Board, under Section 397 and 398 read with Section 402 of the Companies Act, for short, hereinafter referred to as the ‘Act’. The parties are referred to as they are referred to in the petition before the company Law Board. FACTURAL MATRIX 2. The Canara Land Investments Limited is a public limited company, for short, hereinafter referred to as the ‘Company’. It was established in the year 1932. Dr. T.M.A. Pai was one of the shareholders. His brother, Tonse Upendra Pai was appointed as Manager of the Company till 1941 and then he became the Managing Director of the Company up to 1945. Though seven persons subscribed to the Memorandum of Company, at its inception Dr. T.M.A. Pai, was not one among them. Obviously, he has acquired shares after the Company was incorporated and he held majority of shares. Dr. T.M.A. Pai had sons by name Mohandas Pai, Ramdas M Pai and Ashok Pai. Mohandas Pai was in control of the Company as General Manager. Tonse Upendra Pai died in the year 1956. Dr. T.M.A. Pai died in the year 1979. After his death T. Ashok Pai, T. Ramesh Pai and T. Satish Pai, sons of T. Upendra Pai managed the Company for about two years, till the death of T. Ashok Pai, in the year 1981. Originally, Ramesh U Pai and his other family members held 19% of the shares in the Company. After the demise of T.A. Pai, Ramesh U Pai who was a Director of the Company, acquired shares of the Company and thus he and his other family members acquired shares to the extent of 41.72%. However, the total shareholding of Ramesh U Pai and his family members and the Companies in which he has substantial interest as on today stands at 44%. 3. The case of the petitioners before the Company Law Board was that the Company had purchased vast extent of land in Manipal apart from the various buildings it had constructed. In all, the Company owned 83 acres of land. Most of the immovable properties have been leased to the group companies in which the respondents in the Company Petition are interested. In all, the Company owned 83 acres of land. Most of the immovable properties have been leased to the group companies in which the respondents in the Company Petition are interested. The Company had leased vacant lands and buildings at a very nominal rent for a period running to 20 to 90 years. The beneficiary of these leases are the lessees in which respondents-2 to 7 are interested since they are in control and management. So far as the Company is concerned, it is getting only nominal rental income and the same has not been revised till date. The total value of the land and building owned by the Company will be about Rs.83 crores. None of the leases are advantageous to the Company. The first petitioner in the Company Petition who was the Director of the Company was not re-elected as Director of the Company for the year ending 31.03.1997. The first petitioner had been writing letters to the Company that he had not been receiving notices for the Board and General Meeting for the period when he was a director of the Company. He had asked for the minutes of the Board for the period when he was a Director and even this was not furnished to him. Apart from that, petitioners have also not been receiving notices for the Annual General Meetings and the balance sheets. Therefore they have written letters complaining about non-receipt of the notices and asking the Company to send the balance sheets. The Company had not complied with the request of the petitioners. The petitioners-1 to 5 have received by special post on 22.05.2003 the old balance sheets of the Company without even a covering letter. 4. The petitioners state that both they and the respondents are called “Pai Group” in Manipal and they have established and have been controlling various industries and managing educational institutions. In or about 1990, differences cropped up between the petitioner’s group (Ramesh Pai Group) and second respondent’s group (Mohandas Pai Group). Both the groups have initiated several cases against each other. Finally, the well wishes and the friends advised them to sort out the differences. Hence Dhirubai Ambani was appointed as the sole arbitrator for settling the differences. He passed an award wherein certain Companies were allotted to the petitioner’s group and other Companies were allotted to Mohan Das Pai’s Group. Both the groups have initiated several cases against each other. Finally, the well wishes and the friends advised them to sort out the differences. Hence Dhirubai Ambani was appointed as the sole arbitrator for settling the differences. He passed an award wherein certain Companies were allotted to the petitioner’s group and other Companies were allotted to Mohan Das Pai’s Group. The Companies were bifurcated between the two groups and cross holding of shares were purchased by one group from the other group. Similarly, the directors have also resigned from the Companies controlled by the other group and the Board was reconstituted. Thus the award passed by Mr. Ambani on 03.11.1993 settled most of the issues between the two groups. So far as the dispute pertaining to the Company is concerned, the same could not be finalized because of time constraints as well as lack of information. It was agreed that the matter will be sorted out in consultation with Sri. M.L. Bhakta (Solicitor) and Sri. T.N. Chaturvedi (Chartered Accountant) shortly, failing which Sri. Dhirubai Ambani will advise, as to whose advise will be final and binding on both the groups. The petitioners submitted that the said Ambani Award was not implemented, since none of the parties agreed to implement the award for lack of particulars and time as set out earlier to resolve the dispute with regard to Canara Land Investment Limited. Thereafter, parties have referred the entire matter once again to Sri. C. Subramaniam, former Finance Minister of India to resolve the disputes. So far as the educational institutions are concerned, C. Subramaniam has given a detailed award on 27.05.1997. Apart from that C. Subramaniam also seemed to have passed another Award with regard to the other disputes relating to Pai’s family. As per this award, the Arbitrator has held that the bifurcation of the Company has now been ironed out with the concurrence of both the groups. It is stated that 7 acres of land has been leased to Mohan Pai’s group and it has been agreed that proportionate extent of land on the basis of the shareholding of each group in the Company should be leased to the petitioner’s group and the corporate office and staff quarters to Mohandas Pai’s group for a period of 99 years. Sri C. Subramaniam’s Award has not been implemented in toto, even though it is mentioned in the Award that proportionate land according to the shareholding be allotted to the petitioner’s group. So far it has not been given effect to. If the award is implemented based upon the shareholding pattern and on the basis of the land already leased to the respondent’s group, namely, 21 acres, then the petitioner’s group should get at least 18.60 acres of land on the same terms and conditions of the lease. Even though Awards have been passed one after the other, the respondents were not keen on implementing the same, since they are in control and management of the entire assets of the Company. After the passing of the awards, negotiations were on to settle the issues amicably. Therefore the petitioners did not take any legal action against the respondents, even though they have not been receiving notices for the general meetings and the balance sheets. In fact, in the proceedings initiated before the Company Law Board for rectification, both the parties were seeking adjournments on the ground that the negotiations for settlement were going on. Otherwise, the petitioners would have immediately challenged the action of the respondents in not re-electing the first petitioner as a Director and other acts of the respondents-2 to 7 which are detrimental to the affairs of the Company. 5. Sixth and Seventh petitioners had purchased 2653 shares of the Company and lodged with the Company for transfer. The Company at its meeting of the Board held on 29.11.1993, rejected the said share transfers. Then they filed Company Petition before the Company Law Board, Southern Region Bench, Madras, under Section 22A(4)(C) of the Securities Contract Regulation Act. The said petition was dismissed and a direction was issued to the Company to transfer the shares. The appeal preferred against the said order before this Court was also dismissed on 23.11.1999. Even after the order of this Court, the Company had not effected transfers. 6th and 7th petitioners again purchased 496 and 60 shares respectively and lodged with the Company for transfer in 1995. Transfer was not effected. A complaint is lodged with SEBI in this regard. After correspondence, the Company has agreed to transfer the shares. Even though all the formalities are complied with, the shares are not transferred. 6. 6th and 7th petitioners again purchased 496 and 60 shares respectively and lodged with the Company for transfer in 1995. Transfer was not effected. A complaint is lodged with SEBI in this regard. After correspondence, the Company has agreed to transfer the shares. Even though all the formalities are complied with, the shares are not transferred. 6. The Company shares were listed earlier in Stock Exchanges and the same were delisted according to the Company as per the balance sheet for the year ending 31.03.2002. The Company has not complied with the rules and regulations made by SEBI for delisting the shares. Hence steps taken by the Company for delisting are not valid. In view of the delisting, the petitioners if they wanted to sell the shares, none would come forward to buy the same since the shares were not traded in the market. Majority of the shares were held by the second respondent and his associates. The only object of delisting the shares was that the petitioners should suffer by retaining the shares. The respondents were keen that the petitioners should not have any representation on the Board and they should not have any voice in the management and control of the affairs of the Company. The Company at the Extra-Ordinary General Meeting held on 05.12.2002, amended Article 3 of the Articles of Association by passing necessary resolution under Section 81(1)(A) of the Companies Act empowering the Board to allot shares to other than the existing members. The petitioners filed Form 23 filed by the Company, with the Registrar of Companies. Petitioners did not receive any notice for the Extra-Ordinary General Meeting held on 05.12.2002. Subsequently in the meeting held on 11.12.2002, 2000, 8% Cumulative Redeemable Preference Shares were allotted to 8th and 9th respondents. According to the Company, the said allotment had been made in order to comply with the statutory requirement of the Companies Amendment Act, 2000 since the paid up capital of a public limited Company should not be less than Rs.5 Lakh. Therefore it had increased the paid-up capital to Rs.5 lakhs by issuing 2000, 8% Cumulative Redeemable Preference Shares to respondents-8 and 9. The second respondent was a trustee in respondents 8 and 9-Trust and that by virtue of the allotment, the respondents would continue to be in the management of the company by strengthening their holding. Therefore it had increased the paid-up capital to Rs.5 lakhs by issuing 2000, 8% Cumulative Redeemable Preference Shares to respondents-8 and 9. The second respondent was a trustee in respondents 8 and 9-Trust and that by virtue of the allotment, the respondents would continue to be in the management of the company by strengthening their holding. The entire proceedings have been done in a clandestine manner, behind the petitioners. As per the provisions of the Act, no allotments should be made to the Trust and the name of the Trust should not be entered in the Register of Members of the Company. Therefore allotment made is ex-facie illegal, improper and liable to be struck down. 7. The Company as on date is carrying on the business of collecting rents and it is managed under the name and style of Hotel Green Park at Manipal. It has no manufacturing activity. All the buildings and land owned by the Company are situate in Manipal. The Company is not carrying on any business outside Manipal. Hotel Green Park has only about 30 to 40 rooms. No boarding facility is available. The Hotel employs few servants. The main income is the rental income. Therefore there is no necessity for the Company to have a Managing Director at a salary of Rs.5 lakh per year. General Manager looks after Green Park Hotel. As per the balance sheet, the salary of the Managing Director is Rs.4,81,169-00, Rs.5,23,640-00 and Rs.5,63,347-00 for the year 2000, 2001 and 2002 respectively. The personal expenses incurred by the Managing Director with regard to postage, telex and telephone are debited to the Company’s account and particulars are furnished. Similarly, the traveling expenses of the Managing Director which was purely personal to him are also set out. The amount spent towards repair and maintenance of the properties are also set out and according to the petitioners it was not necessary. The administrative expenses incurred by the Company is exorbitant and as against the gross receipt. From the above facts it is asserted that the Company’s income is being diverted by way of expenditure and the persons who are benefited by debiting their personal expenses to the Company are the respondents-2 to 7. There is no necessity for the Company to incur such vast expenditure when it is not carrying on any manufacturing activity. Most of the income of the Company is rental income. There is no necessity for the Company to incur such vast expenditure when it is not carrying on any manufacturing activity. Most of the income of the Company is rental income. 8. The petitioners are not aware about the functioning of the Company even though they hold more than 40% share in the capital of the Company. Though the petitioners hold 44% share they have no representation on the Board. It is only the respondents who are benefited. The petitioners have been completely excluded from the management of the Company. The petitioners have lost trust and confidence in the respondents and the conduct of respondents-2 to 7 is harsh, burdensome and wrongful. The high handed action of the respondents is prejudicial to the interests of the petitioners and the Company, since the respondents are benefiting themselves by taking the properties of the Company on lease at less than the market value. The respondents-2 to 7 have to be surcharged to the extent they have deprived the Company by taking its property on lease at rentals less than the market value by the companies in which respondents-2 to 7 are interested. It is just and equitable to wind up the Company and such a course of action will be detrimental to the interests of the petitioners and the Company. Therefore it is just and necessary that the Hon’ble Bench in exercise of its powers under Section 397 and 398 read with Section 402 of the Act puts an end to the various acts complained above and issue appropriate direction for the future working of the Company and surcharge the respondents for their acts of misfeasance and malfeasance. Therefore, they sought for several reliefs as set out in the petition. 9. After service of notice, respondents have entered appearance and filed a detailed counter traversing all the allegations made in the petition. Though the respondents have denied all the allegations substantially, but they have admitted the holding of shares, properties belonging to the Company and regarding the persons who are in management of the Company affairs. It is their specific case that lease of lands were given when the first petitioner was the Director of the company. These leases are for long periods varying between 20 and 99 years. Therefore the allegation that respondents-2 to 7 are directly or indirectly the beneficiaries of the lease transaction is false. It is their specific case that lease of lands were given when the first petitioner was the Director of the company. These leases are for long periods varying between 20 and 99 years. Therefore the allegation that respondents-2 to 7 are directly or indirectly the beneficiaries of the lease transaction is false. The only income of the Company is from the hotel and leased rental. The same is used for the expenses related to the hotel and the property maintenance. There is no scope for diversion of funds from the said income. The first petitioner was managing the Company until T. Mohandas Pai, the second respondent took over as the Managing Director of the Company. Lands of the Company were given by the petitioner on lease to various bodies during the period he was in the management of the affairs of the Company. While such is the case, he cannot complain about the old lease of lands now with the respondents. The rental income for the leased lands and buildings were periodically revised and rental income received by the first respondent during the last 15 years are set out in the statement of objections. The said particulars show that the rental income has been periodically revised and gone up steadily from year to year. Estimated value of the lands was Rs.83 crore, which is highly imaginary and baseless. At the 64th Annual General Meeting held on 29th September, 1997 it was unanimously decided not to reappoint the first petitioner as Director and not to fill that vacancy. It is for the shareholders to elect/re-elect the Director. They have denied the allegations that they have not sent the notices and minutes of the meetings to the first petitioner. When the respondent discovered that that the first petitioner was quietly trying to corner the shares and institutions for himself and his son by furnishing/providing wrong and false information for the personal gain to the detriment of the institutions built with utmost sacrifice by the founders, respondents-2 to 7 had no alternative but to oppose the activities of the petitioner in trying to take advantage of his position for personal gain at the cost of the institutions. The Company is consistently sending notices, balance-sheets, etc., by hand delivery as petitioners and respondents are all staying in Manipal which is relatively a small town. The Company is consistently sending notices, balance-sheets, etc., by hand delivery as petitioners and respondents are all staying in Manipal which is relatively a small town. There is no practice of sending notices by registered post or certificate of posting for several decades. It is strange that the petitioner has only complained about the non-receipt of notices and balance sheets but never about the dividend warrants. He has received all the dividend warrants and encashed the same. Therefore the repeated averments that notices, balance sheets, etc., were not served upon him is completely false. They admit the role played by Late Sri Dhirubhai Ambani and Late Sri. C. Subramaniam in resolving the dispute between the parties and the award passed by them. They objected to the reference of the award in the petition as it is not relevant for the purpose of deciding the dispute between the parties in this proceedings. 10. As per the Ambani award, the first petitioner has been granted office in Syndicate House for his life time. He is now occupying an area of 1000 sq.ft. on the first floor of the Syndicate House for a nominal rent of Re.1/-per annum. Similarly, the Maharashtra Apex Corporation Limited of which the first petitioner is the Chairman has been given the ground floor and third floor of Syndicate House on a very low rent. In any event, the first respondent submits that the petitioner cannot make any grievance about the awards passed in 1995 after a lapse of eight years. Even in 1995, the parties concerned were clear, that it will be impossible to bifurcate the Company and allot lands to the petitioner group. A large part of the property is occupied by the educational institutions and plenty of land is required by those institutions for expansion and therefore it is not possible to divide the same. The lands consist of playgrounds, recreational facilities, hostels, canteens, etc., for the students. The first petitioner was aware that it would not be possible to divide the company and therefore did not approach the court for making the award into a decree. The situation has continued peacefully for almost 10 years and now the first petitioner seeks to unnecessarily raise disputes with regard to these awards. 11. There is no delay in transferring the shares. As soon as the legal formalities are complied with it will implement the transfer. The situation has continued peacefully for almost 10 years and now the first petitioner seeks to unnecessarily raise disputes with regard to these awards. 11. There is no delay in transferring the shares. As soon as the legal formalities are complied with it will implement the transfer. The first respondent explained to the Bangalore Stock Exchange the number of shares held by the persons other than the petitioners and respondents herein and the small paid up capital of Rs.3 lakhs and there had been no trading in Company’s shares through the Exchange for years. There had been no SEBI Regulations governing delisting of shares in force at the time. The Bangalore Stock Exchange considered the first respondent’s request and agreed for delisting its shares. It is false to state that delisting was done so that the petitioner would suffer. Hundreds of companies having small capital have delisted themselves. But there is virtually no trading in the shares of the first respondent company and no purpose is served by keeping the shares in the market. They denied the allegation that the second respondent and his associates have fabricated the proceedings of Extra Ordinary General Meeting in which its Articles of Association were altered and 2000 Nos. 8% Preference shares of Rs.100/-each were issued to 8th and 9th respondents. The allotment was made only to comply with the requirement of Section 3(5) of the Act. This required public companies to have a minimum paid up capital of Rs.5 lakhs. Shares were allotted to the 8th and 9th respondents so that there will be no alteration of the voting power among shareholders. Secondly, the educational institutions would get tax free income from dividends. It may be seen that the dividend is now tax free and higher than the bank rate. Therefore the entire transaction is bonafide. It will achieve the dual purpose of meeting the legal requirement and also benefiting the educational institutions. The necessary formalities in connection with these allotments have been complied with. It is unfortunate that the first petitioner should seek to challenge the preference shares given to educational institutions. The first respondent has complied with all the requirements of Companies Act relating to issue of shares. Relevant notices were sent to all the shareholders. Preference shares were issued with good intention for the good of the company and not with ulterior motive as alleged by the petitioners. The first respondent has complied with all the requirements of Companies Act relating to issue of shares. Relevant notices were sent to all the shareholders. Preference shares were issued with good intention for the good of the company and not with ulterior motive as alleged by the petitioners. Issue of preference shares has not in any way altered the existing position of equity share holding of the Company. The salary and perks allowed to the Managing Director who is looking after the day to day affairs of the Company are reasonable in view of the present income and volume of work involved, which is within the prescribed limit. He is appointed in accordance with the provisions of the Act. There is no mismanagement as alleged. The expenses such as postage, telex and telephone, traveling expenses, vehicle maintenance expenses are all actuals. They have declared dividend of 50% from 1995 to 2002, which shows that the first respondent has been making satisfactory progress during the time 2nd and 4th respondents were in management of the affairs and managed the affairs of the company and not mismanaged as alleged. They denied that the administrative expenses incurred is exorbitant, and denied that the income of the Company is being diverted and has been benefiting the respondents. They have also set out the sitting fee paid to respondents. 12. There has been substantial change in the composition of the Board by induction of new Directors. Out of six directors, two are the husbands of younger sisters of the first petitioner and third is the own younger brother. It shows that though the petitioner and his close relatives have about 40% equity shares, but they have nearly 50% representation on the Board. This shows that the first petitioner’s allegation that he does not have adequate representation on the board is false. He is trying to mislead the Company Law Board by invoking Section 397 and 398. The Company’s articles do not have any provisions for proportional representation. They have not infringed any of the rights of the petitioners nor have oppressed them. They have not mismanaged the affairs of the Company. Therefore the petitioners have not made out a case of oppression or mismanagement. The first respondent is a profit making company declaring dividend. The accounts have been audited and there are no adverse comments on the annual accounts. They have not mismanaged the affairs of the Company. Therefore the petitioners have not made out a case of oppression or mismanagement. The first respondent is a profit making company declaring dividend. The accounts have been audited and there are no adverse comments on the annual accounts. Therefore no case for invoking Section 397 and 398 is made out and therefore they sought for dismissal of the Company Petition. FINDINGS OF THE COMPANY LAW BOARD 13. Both the parties in support of their respective contentions have produced several documents before the Company Law Board. No oral evidence was adduced. The Tribunal on appreciation of the pleadings and the documents produced in the case came to the conclusion that the interested allotment of preference shares in exclusion of the petitioner, non-representation of the petitioners’ group on the Board and leasing of properties of the Company and the other allegations made constitute a case of oppression and mismanagement. It held that admittedly the relationship between the two groups has not been cordial for a very long time. With the intervening of two eminent personalities the parties have resolved number of issued resulting in parting of ways in other Companies. Therefore it was of the view that the disputes in respect of the present Company also should be resolved by one of the groups going out of the Company. Since the respondents held 52% shares in the Company it would be appropriate to direct the petitioners to go out of the Company on receipt of proper consideration. The Company is not having any business except running a hotel, but is in possession of vast real estate. Therefore they were of the view that inspite of cash consideration to be paid to the petitioners for their shares, the assets and the properties of the Company could be divided and properties to the extent of 44% by value could be given to the petitioners. The determination of the value of the Company as a whole and the value of 44% shares held by the petitioner could be done by an independent valuer. On the basis of the valuation report the respondents could prepare two or three alternate packages of assets and properties to be given to the petitioners to the extent of 44% of the value of the Company and the petitioners could have a opportunity to choose one of the packages. On the basis of the valuation report the respondents could prepare two or three alternate packages of assets and properties to be given to the petitioners to the extent of 44% of the value of the Company and the petitioners could have a opportunity to choose one of the packages. Once the petitioners choose one of the packages, they will no longer be the shareholders of the Company and the Company could reduce its share capital to the extent of 44% of the shares at the face value. This would complete the parting of ways between the two groups as far as this Company is concerned. Accordingly, the Board directed the parties to appear before them on 20-5-2004 at 2.30 p.m. to suggest a mutually acceptable valuer to determine the value of the Company at which time further directions regarding valuation will be given. Aggrieved by the said order dated 16th April 2004 the respondents have preferred this appeal. 14. One of the shareholders who did not belong to either of these groups has also preferred the connected appeal challenging the aforesaid directions issued by the Company Law Board. That is how both the Company Petitions are taken up together for consideration. RIVAL CONTENTIONS 15. Sri Udaya Holla, learned senior counsel appearing for the respondents/appellants in this appeal contended as under:- a) The condition precedent for the Company Law Board to exercise its powers under Section 397(2) is the existence of a ground for winding up of the Company on just and equitable grounds. The petitioners have not made out a case for winding up on just and equitable grounds. Therefore on the ground of oppression and mismanagement the Company Law Board is not justified in issuing the directions in substitution of such winding up order and therefore he submits that the impugned order is ex-facie illegal and liable to be set aside. b) Secondly, he contended that one of the grounds held against the respondents is that they allotted the preferential shares to the extent of value of Rs.2,00,000/-to respondents 8 & 9 the Trust in which the contesting respondents have substantial interest. That is seriously affecting the rights of the petitioners. He submits that by issuing such preferential shares, the share holding of the petitioners is in no way affected. That is seriously affecting the rights of the petitioners. He submits that by issuing such preferential shares, the share holding of the petitioners is in no way affected. He submits that the said amount was raised to increase the share capital of the Company from Rs.3,00,000/- to Rs.5,00,000/-. Notices were sent to the petitioners. They have received the same. There was no procedure of taking any acknowledgement having regard to the relationship between the parties and now taking advantage of the same it is contended that they were not duly served. When for the last 10 years the Company has declared dividends and has handed over the dividend warrants without any acknowledgement, their case that the notice of the General Body Meeting or notice of the meeting held for raising the share capital by issue of preferential shares is not served on them is totally untenable. Further he submitted that the Company even now is willing to offer an equal amount of preferential shares to the respondents, if they opt for the same and therefore that is no ground for passing the impugned order. c) Thirdly he contended that the first petitioner who is a shareholder who was a Director of the Company has not been elected as a Director of the Company at the 64th Annual General Body Meeting, as he could not secure the requisite votes from the share holders. That cannot be a ground for passing the impugned order, as the grievance of the Directors cannot be the subject matter of a proceedings under Section 397 of the Act. Therefore he submits that the Company Law Board committed a serious error in not noticing this difference. d) Lastly he contended that the Company Law Board without proper appreciation of the material on record and by misreading the lease deeds as well as the minutes of the meeting under which the leases were granted has come to the conclusion that the Company has executed a registered lease deed for the period from 20 years to 99 years. That there is no provision for revision of the lease amount during the currency of the lease deeds and therefore there is abuse of powers by the respondents in leasing the land belonging to the Company to the detriment to the interest of the Company stands substantiated. That there is no provision for revision of the lease amount during the currency of the lease deeds and therefore there is abuse of powers by the respondents in leasing the land belonging to the Company to the detriment to the interest of the Company stands substantiated. The said finding is contrary to the material on record, as in all those meetings the second petitioner was present and he is a party to the same. In fact he did not participate in the resolutions leasing the property to Companies where he had substantial interest and those deeds are in their favour which fact has been completely missed by the Company Law Board. Therefore he submits that seen from any angle there is absolutely no material on record to support the impugned order. He also submitted that, from inception, because all of them were living in Manipal, a small town, all of them were duly intimated about the meeting of the Board as well as the General Body Meeting. There was no practice of taking acknowledgement. Now that the relationship is strained and it is contended that the affairs of the Company is conducted without sending notices, hereinafter all such notices would be sent to the petitioners by registered post acknowledgement due at the cost of the Company. He also submitted that for the last 8 years the Company has declared 50% divided and the petitioners have been paid the dividend punctually and therefore he submits that seen from any angle, no case for interference with the affairs of the Company is made out and the impugned order passed is illegal, contrary to law and requires to be set aside. 16. Per contra, Sri Krishnamurthy, learned counsel appearing for the petitioners submitted that the parties to the Petition are all closely related. All of them belong to the same family. Though the Company in question is a Public Limited Company, it is a family business. Therefore it is a well settled law that the Court has to either lift the veil or pierce the veil to find out the truth. Once that is done, it is clear that one section of the family members who are in management of the Company, are appropriating all the benefits to them from the Company. He also submitted that between the parties there were several disputes. Once that is done, it is clear that one section of the family members who are in management of the Company, are appropriating all the benefits to them from the Company. He also submitted that between the parties there were several disputes. The dispute was referred to arbitration of Sri Dheerubai Ambani who has passed an award. Subsequently the remaining issues were referred to the arbitration of Sri. C. Subramaniam, Ex-Governor of Maharashtra, who has also passed an award, not one, but two awards. Substantial portions of the award has been implemented. It is only in respect of the few things including the present one relating to the Company the award could not be implemented. Therefore the Company Petition came to be filed. Viewed from this angle the petitioners have made out a case for winding up of the Company on the ground of just and sufficient cause. The case of oppression and mismanagement is also made out. He supported the order passed by the Tribunal and contended that the said order is based on the undisputed material on record and therefore no case for interference is made out. Therefore he submits that the appeals are liable to be dismissed. LEGAL POSITION 17. Before we go into the merits of the claim it is necessary to look into the legal position. Sri. Udaya Holla, learned senior counsel contended, the condition precedent for passing an order under Section 397(2) is, the facts of the case should justify winding up of the company. If the case made out does not justify such winding up of the company, the question of passing an order under Section 397(2) would not arise. In support of his contention, he relied on the judgment of the Apex Court in the case of Rajahmundry Electric Supply Corporation Ltd vs. A. Nageshwara Rao & Ors. Reported in AIR 1956 SC 213 . At para 6, it has been held as under: “6. It was next contended that the allegations in the applications were not sufficient to support a winding up order under Section 162, and that, therefore, no action could be taken under Section 153-C. We agree with the appellant that before taking action under Section 153-C, the Court must be satisfied that circumstances exist on which an order for winding up could be made under Section 162. The true scope of Section 153-C is that, whereas prior to its enactment the Court had no option but to pass an order for winding up when the conditions mentioned in Section 162 were satisfied, it could now in exercise of the powers conferred by that section make an order for its management by the Court with a view to its being ultimately salvaged. Where, therefore, the facts proved do not make out a case for winding up under Section 162, no order could be passed under Section 153-C. The question, therefore, to be determined is whether the facts found make out a case for passing a winding up order under Section 162. In his application the first respondent relied on Section 162, clauses (v) and (vi) for an order for winding up. Under Section 162(v), such an order could be made if the company is unable to pay its debts. It was alleged in the application that the arrears due to the Government on 25.6.1955 by way of charges for energy supplied by them amounted to 3,10,10,175-3-6. But there was no evidence that the Company was unable to pay the amount and was commercially insolvent, and the learned trial Judge rightly held that Section 162(v) was inapplicable. But, he was of the opinion that on the facts established it was just and equitable to make an order for winding up under Section 162(vi), and that view has been affirmed by the learned Judges on appeal.” Further, at para 8, explaining the words “just and equitable”, the Apex Court has held as under: “8. The authorities relied on by the appellant reflect the view which was at one time held in England as to the true meaning and scope of the words “just and equitable” in the provisions corresponding to Section 162(vi) of the Indian Act. In Ex parte Spackman, (1849) 1 Mac & G 170: 41 ER 1228 at p.1230 (C) Lord Cottenham, L.C. construed them as ‘ejusdem generis’ with the matters mentioned in the other clauses to the section, and that construction was followed in a number of cases. Vide ‘Re Suburban Hotel Co., (1867) 2 Ch App 737(d), ‘In (1866) 2 Eq.1 (A), ‘Re European Life Assurance Society’, (1869) 9 Eq 122 (E) and (1879) 13 Ch D 400(B). Vide ‘Re Suburban Hotel Co., (1867) 2 Ch App 737(d), ‘In (1866) 2 Eq.1 (A), ‘Re European Life Assurance Society’, (1869) 9 Eq 122 (E) and (1879) 13 Ch D 400(B). But a different view came to be adopted in later decisions (vide ‘In re: Amalgamated Syndicate’, (1897) 2 Ch 600 (F), and the question must now be taken to be settled by the pronouncement of the Judicial Committee in Loch v. John Blackwood Ltd. (1924) Assistant Commissioner 783 at p.790 (G), where after an elaborate review of the authorities, Lord Shaw observed that. “… It is in accordance with the laws of England of Scotland and of Ireland that the ‘ejusdem generis’ doctrine (as supposed to be been laid by Lord Cottenham) does not operate so as to confine the cases of winding up to those strictly analogous to the instances of the first five sub-sections of Section 129 of the British Act.” The law is thus stated in Halsbury’s Laws of England, Third Edition, Volume 6, page 534, para 1035: “The words “just and equitable” in the enactment specifying the grounds for winding up by the Court are not to be read as being ‘ejusdem generis’ with the preceding words of the enactment”. When once it is held that the words “just & equitable” are not to be construed ‘ejusdem generis’, then whether mismanagement of directors is a ground for a winding up order under Section 162(vi) becomes a question to be decided on the facts of each case. Where nothing more is established than that of the directors having misappropriated the funds of the Company, an order for winding up would not be just or equitable, because if it is a sound concern, such an order must operate harshly on the rights of the shareholders. But if, in addition to such misconduct, circumstances exist which render it desirable in the interests of the shareholders that the Company should be wound up, there is nothing in Section 162(vi) which bars the jurisdiction of the Court to make such an order. But if, in addition to such misconduct, circumstances exist which render it desirable in the interests of the shareholders that the Company should be wound up, there is nothing in Section 162(vi) which bars the jurisdiction of the Court to make such an order. (1924) Assistant Commissioner 783 (G) was itself a case in which the order for winding up was asked for on the ground of mismanagement by the directors, and the law was thus stated at page 788: “It is undoubtedly true that at the foundation of applications for winding up, on the ’just and equitable’ rule, there must lie a justifiable lack of confidence in the conduct and management of the Company’s affairs. But this lack of confidence must be grounded on conduct of the directors, not in regard to their private life or affairs, but in regard to the company’s business. Furthermore the lack of confidence must spring not from dissatisfaction at being outvoted on the business affairs or on what is called the domestic policy of the company. On the other hand, wherever the lack of confidence is rested on a lack of probity in the conduct of the company’s affairs, then the former is justified by the latter, and it is under the statute just and equitable that the company by wound up”. Again, the Apex Court in the case of Hanuman Prasad Bagri & Ors. Vs. Bagress Cereals Pvt. Ltd. & Ors. Reported in (2001) 4 SCC 420 has held that, the petitioner must make out a case for winding up of the company on just and equitable grounds. Otherwise, no relief can be granted. It held as under: “3. Section 397(2) of the Act provides that an order could be made on an application made under sub-section (1) if the court is of the opinion-(1) that the Company’s affairs are being conducted in a manner prejudicial to public interest or in a manner oppressive of any member or members; (2) that the facts would justify the making of a winding up order on the ground that it was just and equitable that the Company should be would up; and (3) that the winding up order would unfairly prejudice the applicants. No case appears to have been made out that the Company’s affairs are being conducted in a manner prejudicial to public interest or in a manner oppressive of any member or members. No case appears to have been made out that the Company’s affairs are being conducted in a manner prejudicial to public interest or in a manner oppressive of any member or members. Therefore, we have to pay our attention only to the aspect that the winding up of the Company would unfairly prejudice the members of the Company who have a grievance and are the applicants before the court and that otherwise the facts would justify the making of a winding up order on the ground that it was just and equitable that the company should be wound up. In order to be successful on this ground, the petitioners have to make out a case for winding up of the Company on just and equitable grounds no relief can be granted to the petitioners. On the other hand the party resisting the winding up can demonstrate that there are neither just nor equitable grounds for winding up and an order for winding up would be unjust and unfair to them.” The Supreme Court in the case of Shanti Prasad Jain vs. Kalinga Tubes Ltd. reported in AIR 1965 SCC 1535, interpreting Section 397 has held as under: “It gives a right to members of a company who comply with the conditions of Section 399 to apply to the Court for relief under Section 402 of the Act or such other relief as may be suitable in the circumstances of the case, if the affairs of a company are being conducted in a manner oppressive to any member or members including any one or more of those applying. The Court then has power to make such orders under Section 397 read with Section 402 as it thinks fit, if it comes to the conclusion that the affairs of the company are being conducted in a manner oppressive to any member or members and that to wind up the company would unfairly prejudice such member or members, but that otherwise the facts might justify the making of a winding up order on the ground that it was just and equitable that the company should be wound up. The law, however, has not defined what is oppression for purposes of this section, and it is left to Courts to decide on the facts of each case whether there is such oppression as calls for action under this section.” Further, at para 19, it was observed as under: “19. 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 England Act, and the question in each case is whether the conduct of the affairs of a company by the majority share-holders was oppressive to the minority share-holders 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 share-holders was oppressive to be minority as members and this requires that events have to be considered not in isolation but as a part of a consecutive story. There must be continuous acts on the part of the majority share-holders, 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 share-holders and the minority share holders 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 proprietary rights as a share-holder. It is in the light of these principles that we have to consider the facts in this case with reference to Section 397.” 18. The learned counsel appearing for the respondent relies on the Judgment of the Apex Court in the case of COSMOSTEELS PRIVATE LIMITED AND OTHERS v. JAIRAM DAS GUPTA AND OTHERS reported in AIR 1978 SC 375 wherein the Supreme Court while considering the power of the Company Court under Section 397, 398, 402, 406, 77, 101 to 104 held as under:- “8. Section 397 and 398 enable the minority shareholders to move the Court for relief against oppression by majority shareholders. In a petition under Sss.397 and 398, Section 402 confers power upon the Court to grant relief against oppression, inter alia, by providing for the purchase of shares of any of the members of the Company by other members thereof or by the Company and in the case of purchase of its shares by the Company, the consequent reduction of the share capital of the Company, Rule 90 of the Companies (Court) Rules, 1959, provides that where an order under Ss.397 and 398 involves reduction of capital, the provisions of the Act and the Rules relating to such matter shall apply asw the Court may direct. 9. The question is: whether when on a direction given by the Court, while granting relief against oppression to the minority shareholders of the Company, to the Company to purchase the shares of some of its members which would ipso facto bring about reduction of the share capital because a Company cannot be its own member, is it obligatory to serve a notice upon all the creditors of the Company? It was conceded that the procedure prescribed in Sections 100 to 104 is not required to be followed where reduction of share capital is necessitated by the direction given by the Court in a petition under Ss.397 and 398. Section 77 leaves no room for doubt that reduction of a share capital may have to be brought about in two different situations by two different modes. Undoubtedly, where the Company has passed a resolution for reduction of its share capital and has submitted it to the Court for confirmation of the procedure prescribed by Sss.100 to 104 will have to be followed, if they are attracted. On the other hand, where the Court, while disposing of a petition under Ss.397 and 398, gives a direction to the Company to purchase shares of its own members a consequent reduction of the share capital is bound to ensue, but before granting such a direction it is not necessary to give notice of the consequent reduction of the share capital to the creditors of the company. No such requirement is laid down by the Act. No such requirement is laid down by the Act. Two procedures ultimately bringing about reduction of the share capital are distinct and separate and stand apart from each other and one or the other may be resorted to according to the situation. That is the clearest effect of the disjunctive ‘or’ in Section 77. 10. The scheme of Sections 397 and 406 appears to constitute a code by itself for granting relief to oppressed minority shareholders and for granting appropriate relief, a power of widest amplitude, inter alia, lifting the ban on company purchasing its shares under Court’s direction, is conferred on the Court. When the Court exercises this power by directing a purchase of its shares by the company, it would necessarily involve reduction of the capital of the Company. Is such power of the Court subject to a resolution to be adopted by the members of Company which, when passed with statutory majority, has to be submitted to Court for confirmation? No canon of construction would permit such an interpretation in which the statutory power of the Court for its exercise depends upon the vote of the members of the Company. This would inevitably be the situation if reduction of share capital can only be brought about by restoring to the procedure prescribed in Ss.100 to 104. Additionally, it would cause inordinate delay and the very purpose of granting relief against oppression would stand self defeated. Viewed from a slightly different angle, it would be impossible to carry out the directions given under S.402 for reduction of share capital if the procedure under Ss.100 to 104 is required to be followed. Under Ss.100 to 104 the Company has to first adopt a special resolution for reduction of share capital if its articles so permit. After such a resolution is adopted which, of necessity must be passed by majority, and it being a special resolution, by a statutory majority, it will have to be submitted for confirmation to the Court. Under Ss.100 to 104 the Company has to first adopt a special resolution for reduction of share capital if its articles so permit. After such a resolution is adopted which, of necessity must be passed by majority, and it being a special resolution, by a statutory majority, it will have to be submitted for confirmation to the Court. Now, when minority shareholders complain of oppression by majority and seek relief against oppression from the Court under Ss.397 and 398 and the Court in a petition of this nature considers it fair and just to direct the Company to purchase the shares of the minority shareholders to relief oppression, if the procedure prescribed by Ss.100 to 104 is required to be followed, the resolution will have to be first adopted by the members of the Company but that would be well nigh impossible because the very majority against whom relief is sought would be able to veto it at the threshold and the power conferred on the Court would be frustrated. That could never have been the intention of the Legislature. Therefore, it is not conceivable that when a direction for purchase of shares is given by the Court under S.402 and consequent reduction in share capital is to be effected, the procedure prescribed for reduction of share capital in Sss.100 to 104 should be required to be followed in order to make the direction effective.” 19. Again the Supreme Court in the case of MANISH MOHAN SHARMA & OTHERS v. RAM BAHADUR THAKUR & OTHERS reported in AIR 2006 SC 1690 dealing with the powers conferred under Section 402 of the Companies Act held as under:- “20. The powers under Section 402 are residuary in nature and in addition to the powers available to the Company Law Board under Sections 397(2) and Section 398(2) which permit the Company Law Board to make such order as it thinks fit with a view to bringing to an end the matters complained of under Section 397(1) and with a view to bringing to an end or preventing the matters complained or apprehended under Section 398(1).” Section 397 of the Act reads as under:- Application to (Tribunal) for relief in cases of oppression. 397.(1) Any members of a company who complain that the affairs of the company (are being conducted in a manner prejudicial to public interest or) in a manner oppressive to any member or members (including any one or more of themselves) may apply to the (Tribunal) for an order under this section, provided such members have a right so to apply in virtue of section 399. (2) If, on any application under sub-section (1), the (Tribunal) is of opinion: (a) that the company’s affairs (are being conducted in a manner prejudicial to public interest or) in a manner oppressive to any member or members; and (b) that to wind up the company would unfairly prejudice such member or members, but that otherwise the facts would justify the making of a winding up order on the ground that it was just and equitable that the company should be wound up: the (Tribunal ) may, with a view to bringing to an end the matters complained of, make such order as it thinks fit. 20. A reading of the aforesaid provision makes it very clear that an application under Section 397 is maintainable only when the affairs of the Company are being conducted in a manner prejudicial to the public interest or in a manner oppressive to any member or members. Once these two conditions exist, requirement prescribed under Section 399 of the Act for an application under Section 397 of the Act is satisfied and the petition is maintainable. Thus, sub-section (1) of Section 397 deals with maintainability of an application for relief in cases of oppression. The maintainability of the application is altogether different from the powers of the Court to pass an order under Section 397(2) of the Act. If an application is made under Section 397(1) of the Act and in such proceedings even if it is established that the Companies affairs are being conducted in a manner prejudicial to public interest or in a manner oppressive to any member or members, that by itself is not sufficient for the Court to pass an order under Section 397(2). It is clear from clause (b) of sub-Section (2) of Section 397 the facts of the case should justify the making of a winding up order on the ground that it is just and equitable. It is clear from clause (b) of sub-Section (2) of Section 397 the facts of the case should justify the making of a winding up order on the ground that it is just and equitable. Then only the power is vested under Section 397(2) to pass an order under the said provision. If a ground exists for winding up and if such an order for winding up is passed, the Court is of the opinion that such an order of winding up would unfairly prejudice such member or members, then the Court gets jurisdiction to exercise its powers under the said provision, to pass such an order as it thinks fit, with a view to bringing to an end, the matters complained of. Therefore a reading of the aforesaid provision makes it very clear before an order is passed under Section 397(2) the following conditions must exist:- 1) The facts of the case should justify making up of winding up order on the ground that it is just and equitable. 2) The Companies affairs are being conducted in a manner prejudicial to the public interest or in a manner oppressive to any member or members. 3) In the event of winding up order is passed for the aforesaid reasons, it would unfairly prejudice such member or such members. Then in substitution of an order of winding up, the Court/Tribunal may pass such order as it thinks fit with a view to bringing to an end, the matters complained of. Therefore unless the members satisfy the requirement of Section 399 to maintain Petition under Section 397 of the Act and makes out a case for winding up of the Company on just and equitable grounds, the question of the Court or the Company Law Board proceeding to pass an order under Section 397(2) would not arise. 21. Therefore in the light of the settled legal position and in facts of the case, it is necessary to find out whether a case for winding up of the Company on just and equitable grounds is made out. In this regard, the learned counsel for the respondents urged that the Court should pierce or lift the veil to find out who are the parties, what is the relationship, how they conducted the affairs of the Company and how the action of one group of the family is oppressive to the interest of the other. In this regard, the learned counsel for the respondents urged that the Court should pierce or lift the veil to find out who are the parties, what is the relationship, how they conducted the affairs of the Company and how the action of one group of the family is oppressive to the interest of the other. PIERCING OR LIFTING THE VEIL 22. The question of piercing or lifting the veil arises in case of family or partnership businesses. When the joint family business is carried on by forming the Company or the members of the family forming partnership firm have converted the partnership business into Private Limited Company and when disputes arise, when one group of members in the family try to exclude the other group, the Courts have lifted the veil to find out the real intentions of the parties. The purpose of lifting the veil is to find out what is the law applicable to parties, i.e., whether the law as contained in the Company Act or the law relating to partnership is to be applied, to resolve the dispute between the parties and to grant relief. This position is clearly explained in the following judgments. The Supreme Court in the case of HIND OVERSEAS P. LTD., vs RAGHUNATH PRASAD JHUNJHUNWALLA AND ANOTHER reported in 1976 Company Cases Vol.46 page 91 held as under:- “11. The promoters of a company, whether or not they were hitherto partners, elect to avail of the advantages of forming a limited company. They voluntarily and knowingly bind themselves by the provisions of the Companies Act. The submission that a limited company should be treated as a quasi-partnership should, therefore, not be easily accepted. Having regard to the wide powers under Section 402, very rarely would it be necessary to wind up any company in a petition filed under Section 397 and 398”. However, the said principle has no application to the case of a Public Limited Company where public also have an interest in the Company as shareholders. It is not in dispute that in the instant case, Company is a Public Limited Company. 23. However, the said principle has no application to the case of a Public Limited Company where public also have an interest in the Company as shareholders. It is not in dispute that in the instant case, Company is a Public Limited Company. 23. Be that as it may, let us see from the material on record whether the business which is carried on by the Company, does it belong to any family or was it a family business at any point of time or it is a case of joint family business being carried on in the nature of Company or any partnership business being converted into business carried on through the Company. In page-5 of the Company Petition the members who incorporated the Company has been set out. It shows that there were several subscribers to the memorandum on the day the Company was constituted. Out of them three were first Directors of the Company as is clear from the Articles of Association. It is not disputed that none of the parties to this Petition nor their parents were the subscribers to the memorandum of association. On the contrary, the names of members furnished therein discloses that 7 persons probably belonging to the same community came forward to form this Company. At the inception it was not family concern or joint family business. It was not partnership business of any joint family. 24. The fact that Dr. T.M.A. Pai and Mr. Thonse Upendra were brothers, is not in dispute. After formation of the Company, Dr. T.M.A. Pai acquired substantial shareholding in the said Company. After acquiring control over the Company, he appointed his younger brother Mr. Thonse Upendra Pai as Manager of the Company. In that capacity Mr. Thonse Upendra Pai was carrying on the affairs of the Company till 1941. Thereafter he was appointed as Managing Director of the Company and he was discharging his duties as such, till 1945. Mr. Thonse Upendra Pai was not a shareholder of the Company. Mr. Thonse Pai died in 1956 and Dr. T.M.A. Pai was in control of the Company till 1979, i.e. till his death. Thonse Upendra Pai died leaving behind him 3 sons, Mr. T.A. Pai, Mr. Ramesh U. Pai and T. Sathish Pai. After the death of Dr. Mr. Thonse Upendra Pai was not a shareholder of the Company. Mr. Thonse Pai died in 1956 and Dr. T.M.A. Pai was in control of the Company till 1979, i.e. till his death. Thonse Upendra Pai died leaving behind him 3 sons, Mr. T.A. Pai, Mr. Ramesh U. Pai and T. Sathish Pai. After the death of Dr. T.M.A. Pai, the eldest son T.A. Pai, the elder brother of Ramesh Pai and the 5th appellant, who was a former Union Minister was managing the Company for about two years till his death in 1981. Ramesh U. Pai was an ordinary Director of the Company at that point of time. It is after the death of T.A. Pai in the year 1981 Sri Ramesh U. Pai and his family members and the Companies in which they have substantial interest acquired shares in the Company. The share holding of the Companies is clearly set out in para-3 of the Petition and it discloses that together they hold 41.72% shares. 25. The aforesaid acquisition of shareholding discloses that Ramesh U. Pai, who was the eldest member of the family, after the death of his elder brother acquired the share of himself, his wife and two sons and not for the benefit of the joint family. It is because, the 5th respondent, though he is a full-fledged brother of Ramesh Pai and now he is shown as part of Mohandas Pai Group. If the shareholding of the 5th respondent is also taken into consideration along with the shareholding of Ramesh Pai, it exceeds 50%. Therefore it is clear that it is not a case of this company being supported by any joint family or a partnership belonging to a joint family. After this public limited company was formed, it is Dr. T.M.A. Pai who for the first time acquired substantial interest in this company. However, as pointed out, his brother was made as the manager and subsequently as General Manager though he did not have any shareholding in the company. The shares acquired by Dr. T.M.A. Pai was not for and on behalf of any joint family of which his brother was also a member. They were acquired in his individual capacity. It is because of that, after the death of Dr. T.M.A Pai and Dr. T.A. Pai, Ramesh U. Pai played a dominating role in the company. The shares acquired by Dr. T.M.A. Pai was not for and on behalf of any joint family of which his brother was also a member. They were acquired in his individual capacity. It is because of that, after the death of Dr. T.M.A Pai and Dr. T.A. Pai, Ramesh U. Pai played a dominating role in the company. It is he who started to acquire the shares from the public and thus now he has managed to acquire roughly about 44% of the shareholding. It is only when other group came to know of these designs, probably they have asserted their right to exercise their majority voting power in the company and see that Ramesh Pai does not succeed in his designs of rendering them a minority shareholders. As the material on record shows, the 5th respondent was a natural brother of Ramesh U. Pai. He is not supporting Ramesh Pai in his grand design. If his shareholding is also added to Ramesh Pai, it is they who constitute a majority. 26. Therefore, in the light of these undisputed facts which are clear from the averments in the petition itself, this is not a case of one group of family members trying to dominate the other group and are trying to exclude the minority shareholders from participating in the management of the company. On the contrary, an attempt was made by a person who did not have a shareholding in the company to acquire shares and render the family which had the majority share to the status of a minority shareholder and wanted to takeover the company. It is because the said design was stopped by the majority of the shareholders, the present petition is filed. Therefore, as requested by the learned counsel for the respondents, when we pierce the veil and see the undisputed facts of this case, this is what emerges. Therefore, the said legal principles which are well settled has no application to the facts of this case. 27. Now let us see what are the grounds which are made out in the petition and whether it constitutes a just and sufficient cause for winding up of the company. The grounds which are made out in the petition are as under: (i) Non-registration of Shares. (ii) De-listing of Shares. (iii) Exorbitant expenses, personal expenses created to company’s account. (iv) Allotment of Preference Shares. The grounds which are made out in the petition are as under: (i) Non-registration of Shares. (ii) De-listing of Shares. (iii) Exorbitant expenses, personal expenses created to company’s account. (iv) Allotment of Preference Shares. (v) Exclusion of petitioners from management. (vi) Non-sending of notices and balance sheet. (vii) Leasing of lands. 28. The Company Law Board acting on the submissions made on behalf of the counsel for the petitioners herein to the effect that the registration of the shares would be made expeditiously on fulfillment of the legal requirements, it was of the view that the said ground does not survive for consideration. It is now not disputed that the shares have been transferred in the name of the petitioners and the said grievance no more exists. 29. In so far as exorbitant expenditure and personal expenses remitted to the companies account is concerned, the Company Law Board held that, various expenses appears to be on the higher side, but the respondents have not established that such expenses have been incurred on personal account of the petitioner. Therefore, it held that there is no merit in the said plea. 30. In so far as delisting of the shares is concerned, the Company Law Board held that the petitioners had acquired shares in the market which facility would not be fully available now due to de-listing and accepting the same, they did not find fault with the contention of the petitioner. Therefore, grounds (1)(2)(3) do not survive for consideration. However, the Company Law Board observed the allotment of preference shares, excluding the petitioners from management, leasing of lands and non sending of notices are prejudicial to the interest of the company. Therefore, let us see whether any of these grounds are legally made out as held by the Company Law Board and a case for winding up of the company is made out. (a) REGARDING ALLOTMENT OF PREFERENCE SHARES 31. The complaint is, the company held an Extraordinary General Meeting on 05.12.2002 and amended Article 3 of the Articles of Association by passing necessary special resolution. Apart from passing the special resolution under Section 81(1)(A) of the Companies Act, empowering the board to allot shares to other than the existing members, they did not receive any notice for the Extraordinary General Meeting held on 05.12.2002. Apart from passing the special resolution under Section 81(1)(A) of the Companies Act, empowering the board to allot shares to other than the existing members, they did not receive any notice for the Extraordinary General Meeting held on 05.12.2002. After the said meeting, the Board of Directors had met on 11.12.2002 and made allotment of 2000, 8% Cumulative Redeemable Preference Shares to the 8th and 9th respondents. The 2nd respondent is a trustee of respondents 8 and 9. By virtue of this allotment, the respondents would continue to be in the management of the company by holding majority of the shares in the company. The records have been created by the 2nd respondent and his associates as if an Extraordinary General Meeting had been held on 05.12.2002 and several resolutions had been passed amending the Articles of Association and empowering the Board of Directors of the company under Section 81(1)(A) of the Act, to issue and allot 2000, 8% Cumulative Redeemable Shares to other than the existing members. Therefore the allotment made to the 8th and 9th respondents by the Board on 11.12.2002 is ex-facie illegal, improper and liable to be struck-down. 32. Traversing the said allegations, the respondents have contended that, the allotment of Preferential shares were made only to comply with the requirements of Section 3(5) of the Companies Act, 1956. This requires public companies to have a minimum Paid Up Capital of Rs.5.00 lakhs. The Shares were allotted to the 8th and 9th respondents, so that they will have no alteration in the voting power among the shareholders. Secondly, the educational institution would get tax free income from dividends. It may be seen that the dividend is now tax free and higher than the bank rate. Therefore, the entire transaction is bonafide which would achieve the dual purpose of satisfying the legal requirements and also benefit the educational institution. It is further stated that all the necessary formalities in connection with this allotment have been complied with. It is most unfortunate that the 1st petitioner should seek to challenge the Preference Shares given to an educational institution. 33. It is not in dispute that the company had a share capital of Rs.3.00 lakhs. The Companies Act, 1956 was amended by Act No.53/2000 with effect from 13.12.2000. It is most unfortunate that the 1st petitioner should seek to challenge the Preference Shares given to an educational institution. 33. It is not in dispute that the company had a share capital of Rs.3.00 lakhs. The Companies Act, 1956 was amended by Act No.53/2000 with effect from 13.12.2000. The definition of a “Public Company” as amended, means a company whose minimum paid Up Capital should be of Rs.5.00 lakhs or such higher Paid Up Capital as may be prescribed. Sub-Section (4) of Section 3 provides that, every Public Company existing on the commencement of the Companies (Amendment) Act, 2000 with a Paid Up Capital of less than 5.00 lakhs shall within a period of two years from such commencement, enhance its Paid Up Capital to Rs.5.00 lakhs. Sub-Section (5) of Section 3 provides that if Public Company fails to enhance its Paid Up Capital, in the manner specified in subsection (4), such company shall be deemed to be a defunct company within the meaning of Section 560 of the Act and its name shall be struck off from the register by the Registrar. 34. Therefore, it is clear, if the company had not raised its Share Capital to Rs.5.00 lakhs, within two years from the aforesaid amendment, it would have been deemed to be a defunct company and its very existence was in jeopardy. It is to overcome such a hurdle, the Special General Body Meeting was called. The petitioners who were holding substantial shares had not taken care to comply with the legal requirements. As the respondents were in management, they have to take steps to increase the Share Capital. They chose to issue the Preferential Shares which is now allotted to respondents 8 and 9. If the Preferential shares had not been issued within the time prescribed under law, the company would have deemed to have been defunct company and all the shareholders of the company including the petitioners’ interest would have been seriously affected. 35. The Preferential Share Capital is defined under Section 85 of the Companies Act which reads as under: “85. If the Preferential shares had not been issued within the time prescribed under law, the company would have deemed to have been defunct company and all the shareholders of the company including the petitioners’ interest would have been seriously affected. 35. The Preferential Share Capital is defined under Section 85 of the Companies Act which reads as under: “85. (1) “Preference share capital” means, with reference to any company limited by shares, whether formed before or after the commencement of this Act, that part of the share capital of the company which fulfills both the following requirements, namely:- (a) that as respects dividends, it carries or will carry a preferential right to be paid a fixed amount or an amount calculated at a fixed rate which may be either free of or subject to the income-tax; and (b) that as respects capital, it carries or will carry, on a winding up or repayment of capital, a preferential right to be repaid the amount of the capital paid-up or deemed to have been paid-up, whether or not there is a preferential right to the payment of either or both of the following amounts, namely:- (i) any money remaining unpaid, in respect of the amounts specified in clause (a), up to the date of the winding up or repayment of capital; and (ii) any fixed premium on any fixed scale, as specified in the memorandum or articles of the company. Explanation: Capital shall be deemed to be preference capital, notwithstanding that it is entitled to either or both of the following rights, namely: (i) that, as respects dividends, in addition to the preferential right to the amount specified in clause (a), it has a right to participate, whether fully or to a limited extent, with capital not entitled to the preferential right aforesaid. (ii) That, as receipts capital, in addition to the preferential right to the repayment, on a winding up, of the amounts specified in clause (b), it has a right to participate, whether fully or to a limited extent, with capital, not entitled to that preferential right in any surplus which may remain after the entire capital has been repair.” 36. Section 86 of the Act deals with new issues of Share Capital which reads as under: “86. Section 86 of the Act deals with new issues of Share Capital which reads as under: “86. The share capital of a company limited by shares formed after the commencement of the Act, or issued after such commencement, shall be of two kinds, namely:- (a) equity share capital; and (b) preference share capital.” From the aforesaid provisions, it is clear that a person who acquires Preference Share Capital would not acquire any voting rights. The Preferential Shareholder is entitled to be paid a fixed amount or an amount calculated at the fixed rate, it may be either free or subject to income tax. In substance it is in a nature of Debenture. All that has happened by allotting these Preferential Shares is, they have complied with the legal requirements. A sum of Rs.2.00 lakhs has been contributed by those Trusts as share amount and the company has to pay interest at the specified rate for the investment made by those Trusts. As the Trusts are running educational institutions, the dividend received by them from this company is exempted from income tax. Beyond that, there is absolutely no benefit which has accrued to the trusts. The Trust got no voting right in the company by acquiring preferential shares. By such allotment the voting pattern has not been altered to any extent to the detriment of the respondents. The grievance of the petitioners is, by such illegal allotment of shares to two Trusts, the respondents who have substantial interest, are benefited. They are attempting to take complete control of the company. They seem to think that the voting power is seriously hampered. It is a misconception. It is in this context, the Company Law Board without properly appreciating the facts held, the additional shares in the company have been allotted in favour of respondents 8 and 9 being Trusts, which are under the management of respondents group. The plea of the respondents that the voting rights of the petitioners and the shareholding in the company are not adversely affected cannot justify the impugned allotment in exclusion of the petitioners. The plea of the respondents that the voting rights of the petitioners and the shareholding in the company are not adversely affected cannot justify the impugned allotment in exclusion of the petitioners. Moreover, the allotment in favour of the Trust is prohibited by the provisions of Section 153 while there is justification for the allotment made by the company to meet the statutory requirements, allotment for the benefit of the educational institution under the management of the respondents group in exclusion of the petitioners, is not tenable. Thus, the impugned allotment of shares in exclusion of the petitioners amounts to an act of oppression against the minority shareholders. 37. The Supreme Court in the case of NEEDLE INDUSTRIES (INDIA) LTD., AND OTHERS v. NEEDLE INDUSTRIES NEWEY (INDIA) HOLDINGS LTD., AND OTHERS reported in AIR 1981 SC 1298 dealing with the powers of the Company Court held as under:- “Neither the judgment of Bhagawati J. nor the observations in Elder are capable of the construction that every illegality is per se oppressive or that the illegality of an action does not bear upon its oppressiveness. The true position is that an isolated act, which is contrary to law, may not necessarily and by itself support the inference that the law was violated with a mala fide intention or that such violation was burdensome, harsh and wrongful. But a series of illegal acts following upon one another can, in the context, lead justifiably to the conclusion that they are a part of the same transaction, of which the object is to cause or commit the oppression of persons against whom those acts are directed. 52. It is clear from these various decisions that on a true construction of Section 397, an unwise, inefficient or careless conduct of a Director in the performance of his duties cannot give rise to a claim for relief under that section. The person complaining of oppression must show that he has been constrained to submit to a conduct which lacks in probity, conduct which is unfair to him and which causes prejudice to him in the exercise of his legal and proprietary rights as shareholder. The person complaining of oppression must show that he has been constrained to submit to a conduct which lacks in probity, conduct which is unfair to him and which causes prejudice to him in the exercise of his legal and proprietary rights as shareholder. It may be mentioned that the Jenkins Committee on Company Law Reform had suggested the substitution of the word ‘Oppression’ in Section 210 of the English Act by the words ‘unfairly prejudicial’ in order to make it clear that it is not necessary to show that the act complained of is illegal or that it constitutes an invasion of legal rights (see Gower’s Company Law, 4th edn., page 668). But that recommendation was not accepted and the English Law remains the same as in Meyer. ((1959) AC 324) and in Re H.R. Harmer Ltd., (1959) 1 WLR 62 as modified in Re. Jermyn St. Turnkish Baths (1971) 3 ALL ER 13. We have not adopted that modification in India.” 38. As the allotment of the said preferential shares has in no way altered the voting rights of the shareholders and it was done to prevent the company being a defunct company and now that the company has come forward to allot equal number of preferential shares to the petitioners also, if they wish to have it, we are satisfied that the said ground does not constitute a just and sufficient cause for winding up of the company. It does not constitute an act of oppression and mismanagement. EXCLUSION FROM MANAGEMENT 39. The grievance of the petitioners is that the 1st petitioner’s father Upendra Pai was the Manager of the company upto 1941 and as Managing Director upto 1945. The 1st petitioner became a Director with effect from 1.4.1945 and has been the Managing Director of the company from 1945 to 1957. The 2nd respondent was employed as a General Manager of the company during 1957 and continued as a General Manager up to March 1984. After that, he became a Director. The fourth respondent was appointed as a General Manger in the year 1984 and became a Director in 1988. He is the Managing Director since 27.5.1994. The 1st petitioner was not re-elected as a Director of the company for the year ending 31.3.1997. After that, he became a Director. The fourth respondent was appointed as a General Manger in the year 1984 and became a Director in 1988. He is the Managing Director since 27.5.1994. The 1st petitioner was not re-elected as a Director of the company for the year ending 31.3.1997. He had received a letter from the Managing Director T. Ashok Pai dated 2.9.1997 asking whether the 1st petitioner was willing to offer himself to be appointed as a Director. The 1st petitioner wrote a letter on 4.9.1997 offering himself to be appointed as a Director, who retired by rotation. However, he was not re-elected as a Director of the company. When the 1st petitioner gave notice under Section 257 signifying his candidature for the office of Director at the Annual General Meeting held on 30.9.2003, the same was rejected by the company on the ground that he had incurred disqualification under Section 274(1)(g) of the Act. Similarly, the notice given by the third petitioner under Section 257 for his appointment to the office of Director was defeated at the Annual General Meeting held on 30.9.2003. These events subsequent to the filing of the company petition, according to the petitioners, reveal the conduct of the respondents’ group in excluding the petitioners holding 44% from the management of the company. At present, there is none from the petitioners’ group on the Board of the company. The respondents having thin majority are in entire control of the Board by inducting their own relatives and ignoring the interest of the petitioners. The petitioners holding substantial interests, must have equal representation on the Board in the interest of justice and fair play. Thus, the petitioners have lost trust and confidence in the respondents, whose conduct is harsh, burdensome, wrongful and amounts to an oppressive act on the part of the respondents. 40. The said allegations are met by the respondents by contending that, the removal of the 1st petitioner from the post of Director cannot be an act of oppression, especially when he had acted against the interests of the company. None of the acts complained of in the company petition is in any way prejudicial either to the rights of the petitioners or the shareholders or prejudicial to the company and the acts complained of are not continuing. None of the acts complained of in the company petition is in any way prejudicial either to the rights of the petitioners or the shareholders or prejudicial to the company and the acts complained of are not continuing. The real test is whether the majority shareholders have acted prejudicially or in a wrong, burdensome and harsh manner. There should be an element of lack or probity or fair dealing in relation to the interest of minority shareholders. 41. On the aforesaid pleadings, the Company Law Board held that, the relationship between the parties would indicate that the company is a family company, wherein the representation from both the groups on the Board of the company should have been ensured. The petitioners with substantial holding must have some representation on the Board ensuring fair opportunity in the management of the company. The respondents should not have denied a representation for them at the Annual General Meeting held on 30.9.2003, when the 3rd petitioner signified his candidature for the office of Director, notwithstanding the fact that the respondents hold majority shares. Such an act could definitely be considered as an act of oppression against the petitioners holding 44% shares. 42. Therefore, the question that arise for consideration is, Whether the exclusion of the shareholders from being elected as Directors and thus participate in the management of the company would constitute a just and equitable ground for winding up of the company and consequently would constitute an act of oppression of the minority shareholders by the majority shareholders? 43. In the case of SURESH CHANDRA MARWAHA VS. LAULS PRIVATE LTD. & ORS. Reported in 1978 Company Cases Volume 48 Page 110, the Punjab and Haryana High Court, dealing with almost an identical situation held as under: “It is well settled that it is only oppression in the character of a member of a company that can be complained or and not in any other capacity. A shareholder of a company has two kinds of rights, namely, individual right and corporate rights. Every shareholder can enforce his individual rights singly but corporate rights have to be enforced by the majority. It is only improper or illegal removal from directorship that may affect the right of a shareholder but not the removal by a general meeting of the company in accordance with the provisions of the Companies Act.” 44. Every shareholder can enforce his individual rights singly but corporate rights have to be enforced by the majority. It is only improper or illegal removal from directorship that may affect the right of a shareholder but not the removal by a general meeting of the company in accordance with the provisions of the Companies Act.” 44. The Madras High Court in the case of V.M. Rao vs. V.L. Dutt & Ors. Reported in 1987 Company cases Volume 61 Page 20 has set out the conditions to be satisfied for maintaining a petition under Sections 397 & 398 of the Companies Act, as under: “For maintaining a petition under Section 397 and 398 of the Commissioner for Workmen’s Companies Act, 1956 (a) it must be established that the oppression complained of affected a person in his capacity or character as a member of the company as harsh and unfair treatment in any other capacity such as a director or a creditor is outside the purview of the section; (b) there must be continuous acts constituting oppression up to the date of the petition; (c) the events have to be considered not in isolation but as part of a continuous story; (d) it must be shown as a preliminary to the application of Section 397 that there are just and equitable grounds for winding up the company; (e) the conduct complained or can be said to be oppressive only if it can be said that it is burdensome, harsh and wrongful and the oppression involves at least an element of lack of probity and fair dealing to a member in matters of proprietary right as a shareholder.” 45. The Supreme Court in the case of HIND OVERSEAS P. LTD., vs RAGHUNATH PRASAD JHUNJHUNWALA AND ANOTHER reported in 1976 Company Cases Vol. 46 page 91 held as under:- “Relief under Section 433(f) of the Companies Act, 1956, 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 interest of the company. It is not a proper principle to encourage hasty petitions for the winding up of a company without first attempting to sort out the dispute and controversy between the members in the domestic forum in conformity with the articles of association. It is not a proper principle to encourage hasty petitions for the winding up of a company without first attempting to sort out the dispute and controversy between the members in the domestic forum in conformity with the articles of association. There must be materials to show when the “just and equitable” clause is invoked, that it is just and equitable not only to the persons applying for winding up but also to the company and to all its shareholders. The company court will have to keep in mind the position of the company as a whole and the interests of the shareholders and see that they do not suffer in a fight for power that ensures between two groups.” 46. In the case of V.J. Thomas Vettom Vs. Kuttanand Rubber Co. Ltd. reported in 1984 Company Cases Volume 56 Page 284, wherein it has been held as under: “The dissatisfaction of a minority of shareholders with the conduct of the company by the majority will not normally persuade a court to interfere with the management. It is only when the court has before it reliable evidence where the majority acts against the provisions of the articles of association of the company or of the statute governing it or makes unconscionable of the majority’s power resulting or likely to result in financial loss or where action which could be characterized as unfair and improper is made, that the court will exercise its powers under Section 397 or 398 of the Companies Act. Every kind of oppression cannot be remedied by the court. The oppression must be such as to justify the winding up of the company on just and equitable grounds. Since the words used are “are being conducted”, the action complained of must be a continuous one and not either an isolated or a stale one. Once the court is satisfied that the complaint is made without bona fides and to settle old scores or with the sole intention of mud-slinging, no orders under Section 397 and Section 398 will be passed. The court must have strong grounds before it to order winding up. An order under Section 397 or Section 398 can be supported only if such grounds are present. The court must have strong grounds before it to order winding up. An order under Section 397 or Section 398 can be supported only if such grounds are present. The fact that the complaining parties were themselves participants in the alleged activities will be one of the factors to dissuade the court from exercising its power under the Section. Delay and acquiescence in the acts complained of will also be circumstances against the grant of reliefs. The powers of the court under Section 402 are wide. But the courts have always exercised restraint in interfering with the affairs of the company, for the affairs of the company are normally its own concern and the concern of its shareholders. It is only when the facts and evidence before the court are such as to persuade it to hold that interference with the affairs of the company is necessary, that it would exercise its powers. The interest of public good will always be kept by the court in mind. But the concept of public interest will preponderable over the autonomy of a company and the management under the articles of association and within the confines of the provisions of the Companies Act, only if such evidence is available before the court. Stray cases of mismanagement or even a few cases of mismanagement without sufficient proof will not lead a court to entrust the powers of the management of a company, in the interest of public good, to strangers appointed by the court. Disgruntled shareholders there will always be, Courts will not listen to them unless they make out a persuasive case of oppression or mismanagement. The provisions of the Companies Act, especially Chap. VI, are not meant to convert the company law into a superstructure supervising all its activities and affairs. Since the powers are wide, they have to be exercised with utmost restraint.” 47. Similarly, Section 397 is attracted only to a case where when the affairs of the company are being conducted in a manner oppressive to any member or members. If the conduct of the company assuming it is oppressive as far as the Director is concerned in as much as he was not re-elected as a Director is not a ground to invoke the jurisdiction under Section 397(2). If the conduct of the company assuming it is oppressive as far as the Director is concerned in as much as he was not re-elected as a Director is not a ground to invoke the jurisdiction under Section 397(2). At any rate if a shareholder fails to get elected as a Director of the company as he does not possess the requisite shares to get elected it is neither a ground for winding up of the company on just and equitable grounds nor would amount to an act of oppression on the part of the majority shareholders over the minority shareholders. It is settled law that the holders of a majority of the stock of a company have the power to appoint, by election. Directors of their choice and the power to regulate them by a resolution for their removal. A company is in some respects an institution like a State functioning under its ‘basic Constitution’ consisting of the Companies Act and the Memorandum of Association. Carrying the analogy of Constitutional law, the members in general meeting and the directorate as the two primary organs of a company and compares them with the legislative and the executive organs of a Parliamentary democracy where legislative sovereignty rests with Parliament, while administration is left to the Executive Government, subject to a measure of control by Parliament through its power to force a change of government. Like the Government, the Directors will be answerable to the ‘Parliament’ constituted by the general meeting. But the practice (again like the Government), they will exercise as much control over the Parliament as that exercises over them. Though it would be constitutionally possible for the company in general meeting to exercise all the powers of the company, it clearly would not be practicable for day-to-day administration to be undertaken by such a cumbersome piece of machinery. So the modern practice is to confer on the Directors the right to exercise all the company’s powers except such as the general law expressly provides must be exercised in general meeting. 48. Therefore, in a corporate democracy if a shareholder wants to hold a post of Director he must secure the requisite votes in General Body Meeting and become a Director. If the members in a General Body Meeting do not vote and he is not elected, he cannot complain against the company. 48. Therefore, in a corporate democracy if a shareholder wants to hold a post of Director he must secure the requisite votes in General Body Meeting and become a Director. If the members in a General Body Meeting do not vote and he is not elected, he cannot complain against the company. If the majority shareholders in such corporate democracy do not vote for a shareholder in whom they have no confidence and thereby see to it he is defeated, they are exercising their just lawful rights in such corporate democracy based on their rights which are vested in them by virtue of the share which they hold. The said act cannot be construed as an act which justifies an order of winding up on just and equitable grounds or it would constitute an act of oppression as sought to be made out. It is only an act vis-à-vis shareholder which can be a ground for passing an order under Section 397(2) and if that shareholder also happens to be the director and if the director has any grievance, he has to work out remedies in a manner known to law and not by invoking Section 397(2) of the Act. The complaint which is upheld by the Company Law Board, is in respect of the so called injustice done to a director and not to a shareholder and therefore, the said finding is unsustainable. Unfortunately, the Company Law Board has not appreciated the facts in a proper perspective and seems to think that as the petitioners are holding 44% of the shares, they should not be excluded from the management, they should be given representation in the Board proportionate to their shareholding, which concept has no legal basis. On the contrary, it runs contrary to the corporate democracy which finds statutory provisions in the provisions of the Companies Act. Therefore, we are of the view that the Company Law Board committed a serious error in recording its finding and as such it is to be set aside. Accordingly, it is set aside. EXECUTION OF LEASE DEEDS 49. The Company Law Board, was of the view that execution of lease deeds are detrimental to the interest of the company. The necessary plea is found in the company petition at paragraph 4. Accordingly, it is set aside. EXECUTION OF LEASE DEEDS 49. The Company Law Board, was of the view that execution of lease deeds are detrimental to the interest of the company. The necessary plea is found in the company petition at paragraph 4. The case of the petitioners is that, the company had purchased vast extent of land in Manipal apart from the various buildings it had constructed. According to them, the company owns about 83 acres of land. Most of the immovable properties, namely land and buildings have been leased to the group companies in which the respondents are interested. The details of the same are furnished in Annexure-5. A bare perusal of the aforesaid annexure discloses that, the company has leased vacant lands and buildings at a very nominal rent over a period running to 20 to 99 years. By virtue of these leases the only beneficiary are the lessees in which the respondents 2 to 7 are interested since they are in control and management. So far as the company is concerned it is getting only nominal rental income and the same has not been revised till date. The total value of the land and building owned by the company will be about Rs.83 crores. None of the leases are advantageous to the company. The entire resources of the company are its landed property at Manipal. Therefore, it was contended the said act of leasing the landed property of the company for nominal rent is disadvantageous to the company. The respondents are the beneficiaries of such leases. This act amounts to an act of oppression and mismanagement of the company. 50. Meeting these allegations, the respondents in their counter have stated that, these leases are for long periods varying between 20 and 99 years. It is false to state that respondents 2 to 7 are directly or indirectly beneficiaries of the lease transactions. The company’s income is only from the hotel and leased rental. Such income is used for the expenses related to the hotel and the property maintenance. There is no scope for diversion of funds from the aforesaid income. 51. It is false to state that respondents 2 to 7 are directly or indirectly beneficiaries of the lease transactions. The company’s income is only from the hotel and leased rental. Such income is used for the expenses related to the hotel and the property maintenance. There is no scope for diversion of funds from the aforesaid income. 51. On consideration of the aforesaid pleas and the documents produced, the Company Law Board held that, it is on record that the second respondent had executed a number of lease deeds in respect of the properties of the company in favour of the lessees represented by the 5th respondent. These registered lease deeds are for a period from 20 years to 99 years. There is no provision for revision of the lease amount during the currency of the lease deeds. The lease amount in respect of these properties is varying from Rs.0.02 to 3.30 per sq. ft. per annum. There is no record to show that the lease rentals have been increased in respect of these properties, though the lease rentals in respect of certain other properties are found to be revised from time to time. The plea of respondents that the vacant lands belonging to the company are used for public purpose or for educational institutions remains unsubstantiated and is not in tune with the object clause as contained in the Memorandum and Articles of Association of the company and, therefore, they came to the conclusion the aid act constitutes an act of oppression. 52. In support of their contentions, the petitioners have produced the lease deeds, which are all duly executed and registered. They are all for the period prior to 1993. From the petition averments it is clear that during the period of those lease deeds the first petitioner was a Director of the company. During the said period there was no ill will between the two groups. In fact, during those periods it is their elders who were in complete management of these companies. In fact, before this Court the respondents have produced the minutes of the meeting of the company where resolutions were passed to lease these properties. A perusal of the aforesaid minutes clearly disclose that in the Board Meeting held, the first petitioner Ramesh Pai was present. In fact, before this Court the respondents have produced the minutes of the meeting of the company where resolutions were passed to lease these properties. A perusal of the aforesaid minutes clearly disclose that in the Board Meeting held, the first petitioner Ramesh Pai was present. When resolutions were passed leasing the property to the companies in which he a had substantial interest, he was not a party to these resolutions. In the minutes it is expressly stated that, as the first petitioner has a substantial interest in the companies in favour of which these leases are executed, he has not participated in those proceedings. Therefore, firstly these leases have come into existence at an undisputed point of time when the relationship between the family members were very cordial. All these leases are given to the companies in which each one of them have a substantial interest. When the leases were granted in favour of the companies where the petitioners had substantial interest, the first petitioner though he was a Director of the Company, has not participated in those proceedings. Therefore, it is not a case where any lease is created without the knowledge of the Director of the company in a clandestine manner and given to the respondents to make any wrongful gain. If the rentals mentioned in these lease deed is nominal, it is so in respect of all the lessees as the beneficiaries of the leases in real terms are the parties to the proceedings. Admittedly, the leases are for periods between 20 to 99 years. There is no question of renewal. If provision is not made for periodical enhancement of rent, the blame squarely falls on the members of both groups. Obviously it was not done because it was beneficial to the members of both the groups. Unfortunately, the Company Law Board has not properly applied its mind, has not taken into consideration the point at which the lease deed came into existence, who were the persons in management of the company and who were the Directors of the company on the date of those lease deeds. If there was no complaint against these lease deeds for nearly more than two decades, this complaint is made for the first time while filing this company petition. Therefore, it is clear that there is absolutely no bona fides in these allegations. If there was no complaint against these lease deeds for nearly more than two decades, this complaint is made for the first time while filing this company petition. Therefore, it is clear that there is absolutely no bona fides in these allegations. It is made only to make out a case of oppression and mismanagement. But unfortunately the material on record clearly demonstrates there is no illegality or any mala fides or bad intentions on the part of the respondents at the time of entering into these lease transactions. Therefore, the finding recorded by the Company Law Board is contrary to the material on record. Hence, it is liable to be set aside and accordingly it is set aside. (d) NON SENDING OF NOTICES 53. The material on record discloses that, because of the close and cordial relationship between the parties and as all of them were residing in the same town, the procedure adopted was to inform them about the meeting. No notice was sent by Registered Post Acknowledgement Due. They were not acknowledging service of any notice of the meeting of the Board. General Body Meeting of the company or the balance sheets, etc. when handed over. There was no complaint till the misunderstanding arose. It is not in dispute that the company is declaring dividends for the last 20 years. The dividend certificates have been handed over to the petitioners without any acknowledgment, which they have encashed. It is only in respect of this particular General Body Meeting, it is contended, they had no notice. If the notice is served and no acknowledgment is taken as of the practice, it is not possible for the respondents to show by any documentary evidence whether notice is served. But in the facts of this case, we are satisfied that the plea is taken is only an after thought to show that the respondents in a bad position, before the Company Law Board. 54. In this context, learned Senior Counsel for the respondents submitted to the Court that the company is willing to allot 2000 Preferential Shares to the petitioners group and hereinafter they shall send notice and all other communications by registered post acknowledgement due at their cost so that the grievance of the petitioners is wholly met. 55. 54. In this context, learned Senior Counsel for the respondents submitted to the Court that the company is willing to allot 2000 Preferential Shares to the petitioners group and hereinafter they shall send notice and all other communications by registered post acknowledgement due at their cost so that the grievance of the petitioners is wholly met. 55. From the aforesaid material on record it is clear that none of the grounds urged by the petitioners or all grounds put together would not constitute a ground for passing up of a winding up order on the ground of just and equitable clause. Unless a case for winding up is made out the question of invoking the power under Section 397(2) or even Section 402 would not arise. The Court must have strong grounds before it to order winding up. An order under Section 397 or Section 398 can be supported only if such grounds are present. The person complaining of oppression must show that he has been constrained to submit to a conduct which lacks in probity and conduct, which is unfair to him and which causes prejudice to him in the exercise of his legal and proprietary rights as a shareholder. 56. 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 share-holders was oppressive to the minority as members. This requires that, events have to be considered not in isolation but as a part of a consecutive story. Stray cases of mismanagement or even a few cases of mismanagement without sufficient proof is not a ground for interference by the Court. The true position is that an isolated act, which is contrary to law, may not necessarily and by itself support the inference that the law was violated with a mala fide intention or that such violation was burdensome, harsh and wrongful. But a series of illegal acts following upon one another can, in the context, lead justifiably to the conclusion that they are a part of the same transaction, of which the object is to cause or commit the oppression of persons against whom those acts are directed. But a series of illegal acts following upon one another can, in the context, lead justifiably to the conclusion that they are a part of the same transaction, of which the object is to cause or commit the oppression of persons against whom those acts are directed. 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. Here lack of confidence between the majority share-holders and the minority share-holders 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. Such oppression must involve at least an element of lack of probity or fair dealing to a member in the matter of his proprietary rights as a share-holder. What is the meaning to be given to the words “oppressive” is explained in Harmer’s case, 1958-3 All India Reporter 689 where a house of Lords has held as under: “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 fact would justify the making of a winging 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 indefinitely varies 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 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 complaint 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 share-holder 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 share-holders however, relevant to a winding up seems to have no direct relevance to the remedy granted by Section 210. It is oppression 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 balance between share-holders per se that brings 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 proprietary rights as a share-holder.” 57. The averments in the objection statement as well as the documents produced in the case clearly discloses that the company is a profit making company. They have declared 50% dividend for the last 8 years. The dividend warrants have been promptly sent to the petitioners who have encashed them. In those circumstances there is absolutely no case either for winding up of the company or for exercise of power under Section 397(2) is made out. Once they hold 44% shares and the company is running under profit and proportionate to their share holding they are paid dividend to the extent of 50% their request for winding up is wholly misconceived and is actuated with mala fide intention. Therefore, the Company Law Board misdirected itself and has not applied its mind to this basic requirement of law before it exercised the power under Section 397 of the Companies Act. Therefore, the Company Law Board misdirected itself and has not applied its mind to this basic requirement of law before it exercised the power under Section 397 of the Companies Act. On that score, the order of the Company Law Board which is impugned herein is liable to be set aside. 58. For the aforesaid reasons, the impugned order passed by the Company Law Board cannot be sustained. Hence, we pass the following order:- (a) Both the appeals are allowed. (b) The impugned order passed by the Company Law Board is hereby set aside. (c) The respondents are directed to allot 2,000 preferential shares carrying 8% interest as was done earlier while allotting the preferential shares to respondents 8 and 9. However, such steps shall be taken by the company on a written application filed by the petitioners requesting for such allotment of shares. On receipt of such request, they shall take immediate steps to convene the General Body Meeting and see that equal amount of preferential shares on the same terms and conditions are allotted to the group of the petitioners. (d) The respondents are directed to send all notices and communications to the petitioners by registered post acknowledgement due here afterwards at the cost of the company. Parties to bear their own costs.