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2015 (1) TMI 255 - HC - Companies LawMaintainability of the petition - Entitlement for having shares in the company - Scope of Section 111 of the Companies Act – Held that:- It is difficult to see how it could ever have been said that Ponds had become a member or shareholder of Advansys - In order to be a member and shareholder and one holding alleged 7.5 lakh shares, those shares would have had first to have been issued to Ponds, making Ponds a member of Advansys - Absent any such share issue, no rectification of the register of members could have been permitted - If, as it does indeed appear in the present case, all that Ponds could at highest lay claim to, was an agreement for purchase of shares, Ponds would nonetheless first have to file a civil suit for specific performance of such an agreement - It could not bundle that claim for specific performance with an application for rectification of the register - The suit for specific performance was a necessary precursor to a rectification application - the explanation set up by Ponds is no explanation at all - Ponds merely says that it had not indicated that the purpose of the remittance was towards invoices - It has not affirmatively stated what, if any, purpose was stated on that remittance when it originated from NatWest Bank in the UK - It defies credulity that such a substantial amount would have been remitted, without specifying or identifying a purpose, especially given the fact that the transactions and the correspondence between the parties pertained to a large number of interlocking issues. There does not seem to be any indication in the prior correspondence to explain how this figure of £92,500 is actually derived - what that figure actually does achieve is a complete and an explicable match with the reconciliation statement of outstanding invoices - Thus, on the one side, as postulated by Mr. Chinoy, on behalf of Advansys, there is entirely plausible explanation for the remittance - There is the endorsement of the FIRC certificate - The amount can be traced and exactly matched to the invoices in a reconciliation statement sent by Hunjan himself - on the other hand, the case propounded by Ponds, remains in a shadowy, grey area absent all specifics. No concluded agreement, no consideration – Held that:- It could not be comprehended as to how and on what basis, the Company Law Board could have possibly have concluded that there existed such an agreement or that it had been acted upon and fully effected - In order to arrive at that conclusion, the Company Law Board would have had to find as a matter of incontrovertible fact, capable of no other interpretation, that there was such an agreement and that it had been implemented - It is impossible to sustain the finding of the Company Law Board. It is not open to a party to constantly attempt to improve his case in this manner - as against this, there is evidence in the form of buyback agreement dated 1st February 2002 that prima-facie indicates that Tansun would provide loans in the form of capital equipment to Advansys - This explains why Balwani treated the payments from Tansun as loans or advances for manufacturing, and which were latter set off against exports - the buyback agreement also says that the relation between the parties is not that of a joint-venture, a joint undertaking, a partnership or co-ownership - the entire edifice seems to have constructed around the consequence of an inconvenient or awkward audit query, which itself was result of some internal inconsistency or contradiction created by the Ponds, Tansun, Hunjan and Rana - the findings of the CLB that there was a concluded agreement for valuable consideration, is entirely unsustainable. FEMA/FERA Violation – Held that:- There is a material factual error in the Company Law Board's decision where it notes that Advansys being a 100% Export Oriented Unit ("EOU"), it is located in SEEPZ - the material error lies in the fact that while Advansys is a 100% EOU, it is located in Pune - the fact that it was a 100% EOU would not make it a SSI also - thus, even on the respondents' own construct, the automatic route was never available for investment in Advansys - there was no agreement in the first place - there was nothing on which any permission of FEMA could be obtained or, not having been obtained and the provisions of FEMA having been violated could have been compounded. Delay, laches, acquiescence, suppression and bona fides – Held that:- The petition was filed by one Chatrabhuj Mathuradas, a gentleman who surfaced only at the time of affirmation of the petition - He claimed to be a director and shareholder of Ponds - He claimed to have a general power of attorney. This general power of attorney however shows that Mathuradas is merely a "friend" of Hunjan and Rana; that, between them, Hunjan and Rana hold 75% and 25% respectively, i.e., the entirety of the equity in Ponds - They are also the only two directors of the Respondent No.1. In an affidavit in rejoinder, it is admitted that Mathuradas is neither a shareholder nor a director - Hunjan filed an affidavit in rejoinder on 4th October 2012 - He dealt with the issue of delay - He said that 2012 was the first time since 2009, when he had a stroke, that he visited India to attend to this litigation. He then filed an affidavit in sur-sur-rejoinder on 30th October 2012 - In this he attempted to explain several discrepancies as "typographical errors", including the description of Mathuradas as a director and shareholder of Ponds, but now admitting that between 2009 and 2012, he visited India several times - He claimed that the date of 2009 in his affidavit in rejoinder was a typographical error for 2011 - He admitted to having visited India more than once - He was here on five occasions in 2010 and also again in 2012 - this makes matters even worse on the question of delay and laches - If Hunjan was in India in 2010, and more than once, there is certainly no explanation for the delay in filing this petition - How this issue could have been seen in favour of Ponds is baffling - There is absolutely no basis for the Company Law Board's finding that there was delay in approaching it - Hunjan's affidavits shown him to be an Ananias in every respect; no credence whatever could be given to a single word. Indoor Management – Held that:- There was no discussion between the shareholders or directors about this item of business - the correspondence from Johnstone indicates that he, as a relatively late entrant, could not understand how the initial remittance of Copex of £4000 could have been shown as towards share subscription - this is the entire genesis of these two documents - that is the only purpose for which they were issued, i.e., to suit the respondents' internal auditing and accounting purposes - Mr. Bharucha's argument glissades over all these factors, every one of which is of his clients' own making - It is also not without significance that the first draft of these documents emanated from Hunjan, was sent to Balwani, who filled it in having been by then totally subjugated and bent to the financial and commercial will of Tansun, Hunjan and Rana, and sent it back to Johnstone for "approval", with a copy of Hunjan - all of this is in the context of Hunjan's repeated statements that the share certificates were needed "for internal purposes", without "upsetting the apple cart" - That is something that is never satisfactorily explained, and it lies at the core of the dispute. The order dated 14th January 2013 of the Company Law Board is entirely unsustainable - There was no agreement for purchase of shares - Certainly, there was no consideration for it - The Company Law Board had not the power or authority u/s 111 of the Act to hold as it did, effectively decreeing a suit for specific performance and also simultaneously ordering a rectification of the register - the two documents at Exhibits "C" and "D" are not share certificates and do not confer any rights on Ponds - at no point did Ponds make any payment for the shares it claims - the only basis for the claim is of Hunjan's and Rana's own contrivance in incorrectly, or perhaps for other, murkier reasons, showing the initial remittance of £4000 as being toward share subscription in Ponds' own books of account - the relentless audit that followed forced Hunjan and Rana into an intractable position, one from which there was no escape except by badgering and pressuring Balwani into issuing a share certificate to assuage increasingly perturbed auditors - That is the only plausible explanation for Hunjan's repeated assurances that these documents were needed for internal use - Ponds' entire case is bogus - It is an edifice built of straw on a foundation of half-truths, deceit and wholly improper financial duress - Decided in favour of appellant.
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