Isabella Mariam

The High Court of Judicature at Bombay, Single Bench of Justice Manish Pitale, has stated on appeals arising from the Company Law Board's (CLB) order dated 19.09.2006, setting aside the directive that allowed a shareholder to nominate a non-functional director on the company’s board. The Court found that the CLB erred in concluding that the petitioner had become a 1/3rd shareholder on an earlier date and further held that the power to grant such relief was not available under Section 397 of the Companies Act, 1956. Accordingly, the appeal challenging this directive was allowed, and the corresponding appeal seeking further reliefs was dismissed.

Juhu Beach Resorts Limited, incorporated as a private company on 15.01.1974, became the subject of dispute between two shareholder groups: the K. Raheja Group and Aasia Properties Development Limited (later renamed Hinduja Realty Ventures Ltd.). In 1978, the Shah Group and K. Raheja Group acquired shares in a 1:2 ratio. Ashok Hinduja, representing Aasia Properties, was appointed an additional director in 1981 based on an alleged oral understanding that the Hinduja Group would be given proportional board representation.

Also Read: Right To Do Business Includes Right To Shut Down | Supreme Court Upholds Article 19(1)(g) Protection

Rahejas contended that Ashok Hinduja's appointment was not confirmed at the AGM on 27.06.1981, and that he resigned in 1982. They relied on Form 32 filed with the Registrar of Companies (ROC). Aasia Properties claimed it acquired 1/3rd shareholding on 30.08.1982 from K. Raheja Group, a claim disputed by Rahejas who maintained the transfer was completed only on 28.01.1983. Meanwhile, the Shah Group transferred its shares to the B. Raheja Group on 15.01.1983.

Aasia Properties asserted that this transfer breached Article 38 of the Articles of Association, which granted existing shareholders a right of pre-emption before shares were offered to outsiders. Aasia contended that its 1/3rd holding as of 30.08.1982 gave it pre-emptive rights which were violated. Between 1983 and 1989, the company constructed a five-star hotel operated under an agreement with Marriott Hotels. In 1989, Aasia alleged it was informed about Ashok Hinduja's cessation as director and the Shah Group’s share transfer.

Despite allegations of manipulation and fraud, Aasia did not pursue legal remedies until 2005, claiming it had been misled and was only fully informed in 2004 upon inspecting company records. On 23.09.2005, Aasia filed Company Petition No.91 of 2005 before the CLB under Sections 397 and 398 of the Companies Act, alleging manipulation of company records and oppressive conduct by Rahejas. Reliefs sought included declaration of certain share transfers as void, nullification of the management agreement, and nomination of a director on the Board.

The CLB held on 19.09.2006 that while discrepancies in the records existed, they did not conclusively support Aasia’s claims. It found Aasia became a shareholder on 28.01.1983, based on share certificates. However, recognizing Aasia as the largest single shareholder with substantial investment, the CLB, on equitable grounds, allowed it to nominate one non-functional director.

This relief was stayed by the Bombay High Court in interim proceedings on 20.11.2008. Both parties—Rahejas and Aasia Properties—filed cross-appeals under Section 10F of the Companies Act.

Justice Manish Pitale observed, "The positive documentary material, in the light of the statutory mandate of the Companies Act, was properly taken into consideration by the CLB to render finding against Aasia Properties." The Court agreed with the CLB's view that the share certificates, dated 28.01.1983, had legal sanctity under Section 84 and overrode entries in the register of members, which are maintained internally and susceptible to manipulation.

The Court stated, "The share certificates that bear the stamp of the ROC are prima facie evidence of the title in shares and outweigh conflicting entries in company-maintained registers." Aasia Properties was found unable to rebut this statutory presumption.

Regarding Article 38, the Court held, "There is no ambiguity in the language of Article 38; the requirement is that holders of not less than two-thirds of the issued share capital must approve a transfer to a non-member." The Court noted that Aasia was not a shareholder on 15.01.1983 and could not claim pre-emptive rights at that point.

As for subsequent transfers, the Court agreed with the CLB that any transfers not in compliance with Article 38 would be a fruitless exercise to reverse, stating, "Even if such transfers were declared void, the shares would revert to the transferors, not Aasia Properties."

The Court also examined the jurisdiction of the CLB under Sections 397 and 402 of the Companies Act, holding that the CLB erred in concluding that "winding-up on just and equitable grounds would be automatic upon establishing oppression." Citing Supreme Court precedents including Hanuman Prasad Bagri v. Bagress Cereals Pvt. Ltd. and Tata Consultancy Services Ltd. v. Cyrus Investments Pvt. Ltd., the Court noted that both ingredients—oppression and a finding that winding-up would unfairly prejudice shareholders—must be independently satisfied.

Also Read: Kerala High Court On Paddy Land Act | Magistrate Can’t Grant Custody Once Seized Vehicles Are With Collector

The Court rejected Aasia’s argument that the CLB retained an inherent power to do substantial justice beyond statutory confines, stating, "The CLB is a creature of statute and cannot act outside the scope of Sections 397 and 402."

The Court stated that, "In the light of the findings rendered hereinabove, this Court is of the opinion that the impugned order deserves to be set aside to the limited extent of the direction issued in favour of Aasia Properties on the basis of a declaration that it had a right to nominate a non-functional director on the Board of the Company. Accordingly, the said direction is set aside. All other findings rendered against Aasia Properties deserve to be confirmed. In that light, Appeal No.6 of 2006 is allowed and Appeal No.11 of 2006 is dismissed."

"Pending applications, if any, also stand disposed of."

Advocates Representing the Parties:

For the Appellants: Mr. Fredun Devitre, Senior Advocate with Mr. Chirag Kamdar, Ms. Bindi Dave, Mr. Raghav Gupta, Mr. Kashish Mainkar, Mr. Siddharth Kate, Ms. Rashi Savla, Ms. Hemlata Jain, and Mr. Navin Bhatia instructed by Wadia Ghandy & Co.

For the Respondents: Mr. Navroz Seervai, Senior Advocate with Mr. Gaurav Joshi, Senior Advocate, Mr. Dhruva Gandhi, Mr. Naishadh Bhatia, and Mr. Heet Kumar Vacchani instructed by Crawford Bayley & Co.

Case Title: Jyoti C. Raheja and others v. Aasia Properties Development Ltd. and others; Hinduja Realty Ventures Ltd. v. Juhu Beach Resorts Ltd. and others

Neutral Citation: 2025:BHC-OS:8777

Case Number: Company Appeal No.6 of 2006 and Company Appeal No.11 of 2006

Bench: Justice Manish Pitale

[Read/Download order]