TMI Blog2009 (4) TMI 1003X X X X Extracts X X X X X X X X Extracts X X X X ..... t in relation to such shares ; (b) Direct the respondents to return the share certificates to the petitioner which are in their custody ; (c) Declare that the petitioner continues to remain a whole-time director of the company and declare her removal as a director as null and void ; (d) To appoint an independent auditor to audit the financial affairs of the company; (e) Surcharge the second and third respondents in terms of Section 406 of the Companies Act, 1956, read with Schedule XI by directing to carry out investigation in relation to the affairs of the company; (f) To appoint an interim administrator to take charge of the affairs of the company; and (g) Pass such other orders as this hon'ble court deems fit and proper in the circumstances of the case and thus render justice. 3. He submitted that the company has only three shareholders including the petitioner, thereby representing more than one-tenth of the total number of members. Accordingly, the petition is maintainable. The petitioner joined as secretary in Shivamani Industries a proprietary concern in the year 1986. Later on, the assets and liabilities of Shivamani Industries were taken over ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er submitted, to adjust gross profit, the second respondent generated and procured the bills and also showed the components, processed in-house/suppliers as if processed by his business companies and billed accordingly. Thus, the second respondent made the members to believe that the total purchases and the inter unit transfers amounted to ₹ 2,32,43,837. 5. He submitted that the third respondent (herein is the wife of the second respondent), has never attended the office and was only a director in name and never took part in the affairs of the company from the date of inception except attending to some poojas. Learned Counsel submitted that the remuneration is being paid to the third respondent in addition to the sitting fees as if she was a whole-time director. Furthermore, she did not possess the necessary qualification required for managing the company. The payment of remuneration is reflected in the profit and loss account of the company for the half year ending September 30, 2006. Further, for the year 2006-07, she received only ₹ 60,000 from the company as remuneration whereas the profit and loss account for the half year ending September 30, 2006, showed ͅ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aying consideration misused the share transfer forms and transferred the shares in his favour. The share transfer was not approved at any board meeting of the company which constituted a further act of oppression by the respondents and the transfer was also in violation of the provisions of Section 111 of the Act. When the petitioner questioned the various acts of mismanagement of oppression committed by the second and third respondents as narrated above, the second respondent started abusing the petitioner. The matter came to a halt when the second respondent misbehaved with the petitioner on April 20, 2006 and from April 21, 2006, the petitioner stopped attending work. The petitioner inspected the documents filed with the Registrar of Companies, Karnataka at Bangalore. During the inspection, she was shocked and surprised to know that the annual return of the company as on December 30, 2005, filed with the Registrar of Companies disclosed that the second respondent had got transferred 2,170 equity shares from the petitioner. He submitted that the second respondent obtained her signatures in blank transfer deeds and misused the same. The petitioner never had any intention of transf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... second respondent as an act of oppression as well as violation of Section 111 of the Act. In view of the above provision, the petitioner is entitled for rectification of the register of members by removing the name of the second respondent in respect of 2,170 shares which were illegally transferred to his name and to restore her name in respect of 2,170 shares. Learned Counsel for the petitioner submitted that the above narrated facts clearly establish the second and third respondents being the majority shareholders behaved in an oppressive manner by taking advantage of the fact that the petitioner is a lady. 8. To quote another instance of oppression, the petitioner being a director of the company received a notice on December 27, 2006, at 1.15 p.m., for a board meeting to be held on December 29, 2006, at 9.30 a.m. The board meeting was deliberately being held with only one day's clear notice, only to see that the petitioner would not be able to attend the board meeting. Learned Counsel for the petitioner further submitted that the board meeting held on December 29, 2006, scheduled to begin at 9.30 a.m., commenced only at 10.15 a.m., wherein the second respondent being pre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e board meeting, the convening of the said meeting as well as the conduct of the meeting was illegal and contrary to the provisions of the Act. The above act is only yet another instance of the continuing acts of oppression and mismanagement of the company by the respondents. The petitioner thereafter issued a legal notice dated January 13, 2007, through a lawyer, which was received by the company and is yet to get a reply till date. He further submitted that another board meeting was fixed on February 12, 2007, at 10.30 a.m., knowing fully well that a State bandh was scheduled to protest against the Cauvery Tribunal Award and the notice to the said meeting was served on the petitioner on February 11, 2007. The petitioner sent a letter expressing her inability to attend the meeting and requested to adjourn and convene the meeting as per articles of association. The company received the said letter but failed to respond to the same. The petitioner is not aware as to whether a board meeting was held on February 12, 2007 and whether resolutions, if any, were passed. These acts only go to establish that the second respondent is riding roughshod over the rights of the petitioner as a sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... usiness with MICO and Bharath Electronics Ltd. The unit was and is in SSI sector till date. The petitioner joined the firm as office assistant during 1986 and in the year 1987 the business was separated among the family members and Shivamani Industries became a proprietary concern with the second respondent as its proprietor and subsequently became a private limited company under the name of E. M. Shivamani Engg. P. Ltd., in the year 1991 and had its initial shares of 10 equity shares of ₹ 100 each allotted to Mr. S. Muralidharan (the second respondent), Mrs. Sushila Muralidharan (the third respondent) and Mrs. Dharini, w/o. K. Muralidharan. 14. In appreciation of her service, when E. M. Shivamani P. Ltd., was incorporated, the petitioner became a member of this company from September 24, 1993. The petitioner was allotted about 100 shares on September 24, 1993 and subsequently another 70 shares on December 16, 1994, which kept the total shares of the petitioner at 170 shares. The petitioner was inducted as director with effect from November 3, 1992. Subsequently, one Mr. V.S. Sridhar was inducted as a director and was allotted shares to him and also to his relatives as fol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt-company secured orders from ITC Ltd., for manufacture and supply of packaging machines which were developed using reverse engineering technology. With the supply of the machines regularly to ITC, the company's turnover grew from ₹ 64 lakhs in 1999-2000 to ₹ 1.93 crores in the year 2002-03. When the company was on the threshold of growth in its business, the management felt it necessary to strengthen its accounts department and started inducting deputies to the petitioner. None of the deputies appointed to the petitioner continued for more than six months. On ascertaining the reasons for the exit of deputies, it came to light that they could not continue to work under the petitioner because of her temperament, negative thinking, high handed approach, unable to give guidance so on and so forth, and on the other hand, the petitioner made spate of complaints on the deputies which clearly denoted that the petitioner could not handle her subordinates who are qualified and experienced in their field. The management felt it necessary to appoint a person with thorough knowledge and professionalism into the company to handle its accounts, finance and administration includi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evelling allegations on the respondents and other senior officials of the company. 17. The respondents dealt the issues raised by the petitioner paragraphwise as follows: In reply to paragraph 6.6, it was submitted that when the machine was sent to the proprietary concern for reconditioning, it was the petitioner who signed the delivery challan and the sales tax form (exhibit 1-pages 23-24 of the annexure to the counter) and the machine is still under repair since certain critical imported parts are not easily available and the machine is not used for the business of the first respondent-company. It is also submitted that two CNC machines of the proprietary concern are also being retained with the company for repair for availability of crane facility which is available with the company. It is to be noted that the petitioner as an administrator approved the dispatch of the machine. The contention of the petitioner that the machine employed is detrimental to the shareholders and caused huge losses to the company is absolutely false. 18. In reply to paragraph 6.7 of the petition, it is submitted that the goods were not finished goods but they are all work-in-process (semi fin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of materials. The petitioner's contention that the total purchases and the inter-unit transfers amounting to ₹ 2,32,43,837 is concerned, it is not known as to how and where from the petitioner has arrived at this amount. As a director and in charge of accounts, the petitioner should have asked for the details and raised objections before signing and approving the balance-sheet of the company for the said years from March 31, 1998 to March 31, 2005, instead of raising frivolous doubts. 21. The allegation of the petitioner is that the third respondent did not possess the necessary qualification required for managing the company. It is to note that the petitioner is a B.Com. graduate and the third respondent is a B.A. graduate. The business management of the company involves application of common sense, ability to study the situation and understand the overall performance of the company. The third respondent has been contributing to the company since its inception as a director and supporting the second respondent in taking decisions. The allegation with regard to remuneration being paid to the third respondent as if she was a whole-time director in addition to the sittin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o considering the fact that the land is BDA notified and hence any sale or transfer back by the second respondent becomes illegal. This was put forth to Mr. Shivaraman and it was agreed by both the parties that the company will return ₹ 4 lakhs with a condition not to re-transfer the land to Mr. Shivaraman. This is evident from the memorandum of understanding signed by both the parties and these conditions are mentioned in the said agreement (exhibit 6 ; pages 15-21). The settlement was communicated to the metropolitan court judge. The company agreed for ₹ 5 lakhs as settlement from Mr. Shivaraman based on the well-wisher's advice. The company still had retained its legal right over the property to get the benefit in an event the BDA reverses its notification. It is submitted that the petitioner was also a party to this decision/settlement. The money received from Mr. Shivaraman was deposited in the company's account on February 26, 2004, itself. 24. In reply to paragraph 6.15 of the petition, it is submitted that the share transfer was a proper share transfer form for 2,170 shares duly executed by the petitioner and approved by the board in its meeting held ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stituted board meeting and the petitioner as a member of the board has not raised a vote of dissent, the fear was also not recorded in the board minutes. The respondents have submitted that the petitioner's challenge now on this issue is illegal. The respondents have replied to the letter of the Registrar of Companies vide their letter dated December 15, 2006, wherein it has been categorically stated that the payment or non-payment of sale consideration is a matter between the transferor and the transferee and the company cannot comment upon the same. Accordingly, the company is not in a position to produce any documentary proof with regard to payment of consideration for transfer of shares by the transferee to the transferor (exhibit 22, page 59). 27. In reply to paragraph 6.22, the respondents have submitted that the petitioner was working with the group company for the past 20 years till the date of unauthorised absence. If there is any oppression, the petitioner would not have worked for 20 years. The petitioner cannot assume and interpret her difference of opinion and frustration that it would amount to behaviour in an oppressive manner. The company took a final step to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with effect from April 21, 2006. The respondents requested the petitioner over telephone and through a written communication dated October 30, 2006 (exhibit 20) to resume her duties, but the petitioner did not resume her duties ; (IV) The petitioner made frivolous allegations against the second respondent, senior officials of the company, colleagues, subordinates which had a great negative concern in the minds of all the officials involved in the day-to-day running and management of the company. 30. In view of the above acts, the respondents submitted that the company has removed the petitioner from the board of directors with effect from April 21, 2006. The removal of the petitioner from the board is not an act of oppression. The company is not at all benefited by the petitioner's presence, which otherwise is detrimental to the interest of the organisation. Further, it is submitted that from the date of inception of the company, there has been no complaints against the company whatsoever, till date, except the frivolous, false allegations by the petitioner. There were no labour problems and no strike and the company is contributing to the State Exchequer to the extent o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rported to be signed by the parties in Tirupati. The petitioner and the second respondent are residents of Bangalore. There is no reason for the parties to sign the share transfer deed in Tirupati. The share transfer deed is invalid because it has not been duly stamped. Under the provisions of the Stamp Act, the stamp duty has to be paid to the authorities and should not be made by affixture of share transfer stamps. Learned Counsel for the petitioner relied upon the judgment in MANU/WB/0084/1986MANU/WB/0084/1986 : [1988] 64 Comp Cas 775 (Cal) (Nuddea Tea Co. Ltd. v. Asok Kumar Saha) held (headnote) : Transfer of shares-Register of members-Rectification- Power of court-Instrument of transfer should be duly stamped-Adhesive stamp should be cancelled as required by Stamp Act-Non-cancellation- Not a mere formal defect-Court cannot give directions to company to register transfer and rectify register when adhesive stamp not cancelled as required by statute-Companies Act, 1956, Sections 108, 155-Indian Stamp Act, 1899, Section 12. 33. Learned Counsel in support of this contention relied upon the decision reported in [1970] 1 WLR 1194; [1971] 41 Comp Cas 735 (ChD) (Jermyn Street Turk ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the petitioner's services for 20 years if the petitioner was not qualified. Further, it is denied that the petitioner had not invested any of her own funds for the company's capital. The shares were paid by the petitioner out of her own funds and not out of the so called charity of the second respondent. 35. Learned Counsel further submitted that the reason given in the counter for removal of the petitioner as director is only an afterthought. No such reasons have been given in the notices sent by the company. Further, the petitioner stated that a special notice of 14 clear days is required for the removal of a director under Section 284(2) read with Section 190 of the Companies Act, 1956. Such a notice has not been given in the present case. A notice of only 3 clear days has been given. Therefore, the so called removal of the petitioner as a director is invalid. He submitted that the company had violated the provisions of law in contemplating action for removal of the petitioner from the board of directors which is illegal and void ab initio. He relied upon the decisions in the following cases in support of his contention: (a) [1993] 76 Comp Cas 821 (Ker) (Queens Kur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the company petition. 39. Heard counsel for the parties and gone through the pleadings, documents and precedents in their support and after perusal, the main allegations of the petitioner are (1) misappropriation of ₹ 11 lakhs ; (2) transfer of 2,170 shares in favour of the second respondent fraudulently ; and (3) removal from directorship. 40. I deal with the allegation No. 1-the petitioner has alleged that the company has purchased land from Mr. Shivraman in 1995. Later, it was found that the land was a subject-matter of acquisition by the BDA. The seller, i.e., Mr. Shivraman issued a cheque for ₹ 16 lakhs, but the same was dishonoured. The second respondent lodged a criminal complaint under Section 138 of Negotiable Instruments Act, 1881. The matter was settled between the parties and Mr. Shivraman repaid ₹ 16 lakhs but the second respondent had accounted ₹ 5 lakhs only in the books of the company and misappropriated ₹ 11 lakhs. The respondents in their counter categorically stated that it was true that the land was purchased by the company and it is also true that the land was notified for acquisition by the BDA. After coming to know of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... consideration misused the share transfer form and transferred the shares in his favour. The stand of the respondents that the transfer was through a proper share transfer form duly executed by the petitioner and the same was approved by the board in its meeting held on March 14, 2005 at 10 a.m. I perused the share transfer form filed by the respondents at exhibit 7 and I find that the share transfer form has been sealed and signed by the Registrar of Companies, Karnataka, Bangalore on February 16, 2005 and the petitioner has executed the share transfer form by affixing her signature in the said form which is dated March 12, 2005. In the said share transfer form, it is mentioned as 2,170 shares and that consideration is ₹ 6,26,000. The transferor is the petitioner and the transferee is Mr. S. Muralidharan, respondent No. 2 herein. I also perused the board minutes dated March 14, 2005 at exhibit 8 of the respondents wherein the said transfer has been approved and the petitioner was also present in the said meeting. Admittedly, the share transfer has taken place on March 12, 2005 and the contention of the petitioner that she has not received the sale consideration is a matter wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s and debentures held on the date of annual general meeting, i.e., September 30, 2005, wherein the petitioner's name appears in the list of shareholders and the number of shares shown is 2,180. The petitioner has annexed a copy of annual return along with the petition at page 69, the annual return made up to September 30, 2002, for the financial year 2002 wherein at annexure B, page 78, the petitioner shareholding is shown as 4,350 equity shares and the annual returns pertaining to the year 2004 filed at page 82 along with the petition and at page 92, the details of shareholding of the members is shown wherein the petitioner holds 4,350 equity shares and the said document is signed by the petitioner as well as the second respondent. From these, it is evident that the petitioner was holding 4,350 shares. As already stated supra, the petitioner transferred 2,170 shares to the second respondent. The remaining 2,180 shares as per the contention of the petitioner the share certificates are in the company premises. I hold that the petitioner is entitled to receive her share certificates for 2,180 equity shares and the same has to be handed over to the petitioner within a period of 30 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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