Tax Management India. Com
Law and Practice  :  Digital eBook
Research is most exciting & rewarding
  TMI - Tax Management India. Com
Follow us:
  Facebook   Twitter   Linkedin   Telegram

TMI Blog

Home

2011 (6) TMI 676

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... ho hold 20,819 shares (13.3 per cent.) of the issued, subscribed and paid-up shares, allege that an illegal allotment of 1,137 shares had been made to respondents Nos. 6 and 15 on February 14, 2004 and another allotment of 20,737 shares to various respondents on October 9, 2006. 2. The company forfeited the petitioners' shares and sold them to 31 shareholders on April 7, 2005 at Rs. 260 per share. Though the petitioners' group requested to maintain the parity in the shareholding among the family members and requested to sell the forfeited shares to them, the company did not oblige. Thus the parity among family members with regard to shareholding has been affected. 3. On a company petition by the petitioner alleging oppression and mismanagement by the same respondents, this Company Law Board passed an order on the basis of a compromise on September 8, 2006. Petitioners Nos. 1 and 5 paid Rs. 52 lakhs to the company as directed in clause 4 of the compromise order. The proof is filed as annexure 11. The relevant portion of the order is extracted hereunder : "1.The company will allot shares afresh to the extent of shares held in the name of petitioners Nos. 1 and 6 and forfeited by t .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... r was dismissed by the High Court of Madras (Sugavaneswara Spg. Mills Ltd. v. S. Arunachalam [2008] 143 Comp. Cas. 676/ 88 SCL 31 ). 6. Pursuant to the above two orders, the company on March 26, 2007 allotted 4,920 shares to petitioner No. 1 and 4,642 shares to petitioner No. 5. In compliance with clause 2 of the order, the petitioners were willing to purchase 944 shares at Rs. 260 each. 7. However, it failed to pay dividend in accordance with the order dated November 28, 2007, for the years ending March 31, 2003 (15 per cent.), 2004 (15 per cent.) and 2005 (25 per cent.). Though petitioner No. 1 wrote to the company to remind about the dividend on July 26, 2008, the company did not comply. 8. As per clause 32 of the articles of association, all directors except the first director shall hold office until the third annual general meeting (with provision for reappointment). 9. Similarly, after the death of Veerbadra Mudaliar (managing director) in 1998, respondents Nos. 3 and 4 are continuing without making them liable to retire by rotation, whereas they should have retired after three years and then reappointed. Respondents Nos. 3 and 4, in collusion with other respondents-direc .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... ly states that there was no allotment during the year. The statutory auditors of the company pointed out that the company has violated the provisions of section 58A of the Act. 15. The balance-sheet for the year ending March 31, 2007 and 2008 disclosed that Rs. 85 lakhs has been advanced by the company to the directors, and their relatives and associates. 16. On July 10, 2007, the respondents agreed to pay petitioners Nos. 1 and 5 their due share of profit in cash and shares to maintain parity. Then they postponed it and the petitioners filed a police complaint for criminal breach of trust. The respondents assured to sort out the issue, but failed to do so. 17. The annual general meeting for the year ending March 31, 2008 was to be held on September 10, 2008, but was adjourned sine die on the understanding that they will sort out the issues between the parties. However, the petitioners received a notice dated October 29, 2008 for the annual general meeting to be held on November 19, 2008. The notice is invalid for want of 21 clear days' notice. The respondents have not complied with the consent order dated September 8, 2006 and ignored the entitlement of petitioners Nos. 1 and 6 .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... ebruary 14, 2004. (k)To direct the company to furnish all details of payments made by it to its shareholders as distribution points from April 1, 2003 till date and call upon the company to make similar payments and benefits to the petitioners and their family group. (l)To direct the company to charge interest at prevailing bank rate for the various advances made by it to the respondents and their associates as per register. (m)To declare that all the directors have ceased to hold office by virtue of failure to comply with the articles of association and direct the company to provide proportionate representation to the petitioners on the board and amend the articles of association accordingly. 20. Shri K. S. Ravichandran, the learned Practicing Company Secretary appearing for the contesting respondents submitted as hereunder : The authorised capital of the company as on March 31, 2008 is Rs. 2.5 crore and not Rs. 25 crore. The averments like non-payment of dividend for the financial years 2002-2003, 2003-2004, 2004-2005, irregularity in the appointment of directors, managing director and joint managing director, diversion of funds during the period from April 7, 2004 and Decem .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... of the 16 families holding shares in the company, four are non family members. The appointments of directors have been made in the general meetings and hence binding on the petitioners. Respondent Nos. 3 and 4 were functioning as the managing director and joint managing director for more than 15 years. In the board meeting held on May 28, 2000, respondents No. 3 and 4 were appointed and petitioners Nos. 1, 3 and 4 were present in that meeting. The allegation regarding diversion of funds by respondents Nos. 3 and 4 is disproved by the growth of the company. The accounts were approved and authenticated by the board of directors of the company in the meeting of the board of directors held on August 20, 2004 and subsequently adopted by the shareholders at the annual general meeting held on September 20, 2004. The petitioners were parties to these meetings. The petitioners are trying to unsettle things settled by the two orders passed by this Bench. The averments are hit by delay, laches and acquiescence etc. The petitioner is engaged in forum shopping. 22. The third petitioner is holding 3,000 shares. The fourth petitioner has not filed any application for transmission of shares and d .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... spondents seek an order directing the exit of the petitioners from the company. Case laws relied on by the petitioners : 1.Pulavarthi Venkata Subba Rao v. Valluri Jagannadha Rao AIR 1967 SC 591. 2.Baldev Das Shivlal v. Filmistan Distributors (India) (P.) Ltd. AIR 1970 SC 406. 3.Ram Gobinda Daw v. Smt. H. Bhakta Bala Dassi AIR 1971 SC 664. 4.Srikakulam Municipality v. M.V. Ranganadham AIR 1970 AP 375. 5.Uphras Lapasam v. Ka Esiboll Lyngdoh AIR 1986 Gauhati 55. 6.N.V.R. Nagappa Chettiar v. Madras Race Club [1949] 19 Comp Cas 175 (Mad). 7.Duggi Veera Venkata Gopala Satyanarayana v. Sakala Veera Raghavaiah AIR 1987 SC 406. 8.Siddik Mahomed Shah v. Mt. Saran, AIR 1930 PC 57. 9.Dale & Carrington Invt. (P.) Ltd. v. P.K. Prathapan [2004] 122 Comp Cas 161/ 54 SCL 601 (SC). 10.Sangramsinh P. Gaekwad v. Shantadevi (P.) Gaekwad [2005] 123 Comp Cas 566 / 57 SCL 476 (SC). 11.M. Moorthy v. Drivers and Conductors Bus Service (P.) Ltd. [1991] 71 Comp. Cas. 136 (Mad). Case laws relied on by the respondents : 1.Kuki Leather (P.) Ltd v. T.N.K. Govindaraju Chettiar & Co. [2002] 110 Comp Cas 474 / 39 SCL 1 (Mad.). 2.Manish Mohan Sharma v. Ram Bahadur Thakur Ltd. [2006] 131 Comp Cas 149/ 6 .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... confirming the order. Evidently petitioners Nos. 1 and 6 owed large sum of money (Rs. 45,25,966 as on December 25, 2004) to the company, towards the yarn purchased by them for the various concerns belonging to them. This amount remained unpaid, following which the first petitioner on his own volition offered to sell his family shares for discharge of their liability to the company, as evident from the letter dated December 1, 2003 (annexure 13 Vol. B). Since there were no development in this matter the company repeatedly requested the first petitioner to settle the liabilities and a resolution was passed in the presence of the first petitioner and other petitioners who agreed that they will pay at least part of the liability. Since the liability remained unpaid even thereafter, the company exercised its lien on the shares held by the petitioners and a resolution was passed to the above effect on February 13, 2005. Accordingly, the company decided to sell the lien marked shares. At that stage some of the petitioners instituted a civil suit O. S. No. 139 of 2005 before the Principal District Munsiff Court, Salem contending that no interest is payable by them on the amount due to the .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... flected as share application money in the balance-sheet for the year 2003-2004, that the respondents have diversified the business to unrelated areas resulting in huge debts incurred by the company,there are manipulation of the affairs of the company and siphoning of the profits under the guise of bogus transactions, that the company has invested in windmill which is totally unrelated to the business of the company,that the managing director and joint managing director are enjoying extraordinary pecuniary benefits at the cost of the company, that an investigation is necessary regarding the accounts maintained by the company etc. 28. The respondents therein had filed a counter denying the allegations made against them and sought the dismissal of the company petition. However, when the petition came up for hearing, my predecessor in office suggested the parties to amicably settle the disputes following which a consent order was passed on September 8, 2006 as extracted at page 3 of this order. 29. Later, the petitioners filed an application C. A. No. 82 of 2007 complaining that the respondents are acting against the spirit of the consent order dated September 8, 2006, and even thoug .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... ere issued to them in terms of the consent order. It was further held that since applicants Nos. 1 and 6 have already enjoyed the benefit out of the sale of their 9,562 shares at Rs. 260 per share towards partial discharge of their dues to the company, they are bound to remit at Rs. 260 per share for the shares to be allotted by the company as per the consent order. On the basis of the above finding it was held that there is no merit in their contention that shares issued in February, 2004 as well as October, 2006 in favour of some respondents at Rs. 100 per share is illegal. 32. Even though several illegalities and aberrations are pointed out, the petitioners seem to be serious about the allotment of 1,137 shares on February 14, 2004 and 20,737 shares on October 9, 2006, because they want a valuation de hors these allotments to have an exit from the company. The first issue deals with the impugned allotment of 1,137 shares on February 14, 2004 to respondents Nos. 6 and 15. The allegation is that they did not bring in funds for the said allotment nor any proceedings have been placed in support of the same. According to learned counsel for the petitioner there were no share applica .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... ence estopped from raising the same issue in this petition. It is pointed out that the principles of res judicata will apply to the facts of this case. On merits it is argued that the impugned allotment of 1,137 shares on February 14, 2004 was for the purpose of allotting shares on proportionate basis (25 per cent. to each group) to all the shareholders. To make-up the respective 25 per cent., shares were allotted to all the shareholders as on March 31, 2003, but no shares could be allotted to respondents Nos. 6 and 15 in view of delay in remittance of funds by them and hence 1,137 shares were allotted to them on February 14, 2004. This fact will be evident from the following chart (*Volume B-page 44). Folio No. old/new Shareholders As on 16-10-1996 shares 25% Shares allottment on 31-3-2003 14-2-2004/ 20-8-2004 Folio No. old/new Shareholders As on 16-10-1996 shares 25% Shares allottment on 31-3-2003 14-2-2004/ 20-8-2004 1 K. Thangavel - died 6,807   -   8 T. Ponnuthai - died 680   -   7 T. Dhanasekaran 2,827   700   18 D. Vijaya 170   700 646           (Cash received on 20-8-2004) 21 T. .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... pugned allotment of 1,137 shares is illegal. The issue relating to the allotment of 1,137 shares is raised without any bona fides just to achieve some collateral purpose. That apart, on merits also the impugned allotment is not liable to be set aside. As rightly contended by the respondents and as evident from the chart extracted at page 21 of this order, the impugned allotment was made to respondents Nos. 6 and 15 to make up the parity at 25 per cent. held by each group before March 31, 2003. It is evidently clear from this chart that the petitioners were also allotted 1,912 shares on March 31, 2003 in order to arrive at the parity of 7,650 shares. I am unable to describe this allotment as mala fide or unfair or an oppressive act. As per the audited balance-sheet as on March 31, 2004 (Vol. B page 42) Rs. 1,13,700 is shown as share application money for the allotment of 1,137 shares. When the consent order directed the restoration of parity of the shareholding of petitioners Nos. 1 and 5 as existed prior to April 7, 2005 the petitioners are no longer entitled to challenge the allotment of 1,137 shares made on February 14, 2004. By agreeing to a consent order, a presumption arises t .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... Courts at any rate seemed to incline the other way. Since the decision of the case I have cited, I apprehend that no further doubt will be thrown upon the correctness of this proposition" (Bombay High Court in Bhaishanker Nanobhoy (supra) (headnote)). "Person shall not claim relief with same facts and same cause of action which are available in earlier suit" (Madras High Court in paragraphs 12 and 13 in Raptakos Brett & Co. (P.) Ltd. (supra). "It was furthermore opined that it is settled law that the principles of estoppel and res judicata are based on public policy and justice. Doctrine of res judicata is often treated as a branch of the law of estoppel though these two doctrines differ in some essential particulars. Rule of res judicata prevents the parties to a judicial determination from litigating the same question over again even though the determination may even be demonstratedly wrong. When the proceedings have attained finality, parties are bound by the judgement and are estopped from questioning it. They cannot litigate again on the same cause of action nor can they litigate any issue which was necessary for decision in the earlier litigation. These two aspects are 'ca .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... ctioning as managing director and joint managing director for more than 15 years. After the death of Thangavel Mudaliar, Veerabadra Mudaliar became the managing director till his death in 1998, and thereafter respondent No. 3 was appointed as the managing director. Prior to 2000 respondent No. 3 was functioning as the joint managing director. Petitioners Nos. 1, 3 and 4 had been parties to the board meeting held on May 28, 2000 and June 3, 2005 (vide attendance register-page 55, volume A). Petitioners Nos. 1 and 3 were also present in the board meeting held on August 20, 2004 (page 56, volume A). The respondents pointed out that the impugned appointments were never challenged by the petitioners in the earlier company petition and that even if there are any irregularities it will not amount to oppression. The respondents take protection under article 34 and 44 of articles of association which empowers the board of directors to appoint any person as managing director/whole-time director on such terms as the board may think fit, and also under section 255 of the Act not to retire by rotation. The petitioners being parties to the decisions they cannot impugn those decisions later on, o .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... by respondents Nos. 2 to 4. For all the reasons discussed above I see no valid reasons to hold that respondents Nos. 3 and 4 had ceased to be directors of the company, accordingly reliefs (a), (b) and (c ) are declined. 41. Pursuant to the consent order dated September 8, 2006, the company allotted 4,920 shares to the first petitioner and 4,642 shares to the fifth petitioner on March 26, 2007. Because the petitioners did not care to remit the consideration, the 944 shares are not issued to them. There is no merit in the contention that the forfeited shares ought to have been sold to the petitioners themselves on April 7, 2005. The petitioners had no such case when the consent order was passed on September 8, 2006. Here also the rule of issue estoppel applies. It is relevant to note that the petitioners' shares were forfeited and sold to other respondents on their failure to discharge their liability due to the company. I see no irregularity in selling those shares to 31 persons who are the respondents in the company petition. It is relevant to note that the amount was due from petitioners Nos. 1 and 5 even after adjusting the consideration for the sale of 9,562 shares forfeited by .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... see no bona fides in this claim. As rightly said by the respondents the claim is imaginary. Firstly, they cannot base their claim on the allotment of 1,137 shares to respondents Nos. 6 and 15 at the board meeting held on February 11, 2004, for the reasons already discussed in this order above, and secondly, the consent order does not mention anything about allotting shares to petitioners Nos. 2, 3 and 4, but only to issue 944 shares to petitioners Nos. 1 to 5 to restore their parity that existed on April 7, 2005, and they cannot claim the shareholders' rights and benefits until shares are allotted as per the consent order. Since petitioners Nos. 1 and 5 defaulted the payments due to the company, any amount paid by them should have been adjusted to their dues. Having agreed to fix April 7, 2005 as the cut-off date to restore parity and having failed to comply with the consent order, in my view the petitioners are up to raise any contentions just to sustain this company petition. 44. One of the main allegations is that, within one month after the consent order, the impugned 20,737 shares were allotted to 11 persons at par who are in control of the affairs of the company, thereby the .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... ck the petitioner's (petitioners Nos. 1 and 5) shares and restore the parity. But it is a fact that till today they did not care to subscribe to 944 shares. This fact has been taken note of by this Bench in the order dated November 28, 2007, by observing that no material has been placed by the petitioner to show that he had remitted any consideration towards the shares to be issued in their favour in terms of the consent order and therefore the issue whether petitioners Nos. 1 and 5 are enjoying the benefits of shareholders subsequent to April 2005 in terms of the consent order is incorrect. In this company petition also there is no material placed in support of the above contention. The only mention in the company petition is that the petitioners are ready and willing to deposit the consideration. The lack of bona fides of the petitioners is evident from the above conduct. The real intention of the petitioners is to get the 944 shares allotted to them at Rs.100 per share instead of the agreed rate of Rs. 260, I see no bona fides in the submissions. The impugned 20,737 shares were issued at par and Form No. 2 was filed on October 9, 2006. The proposal to increase the authorised cap .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... ted the company to arrange for the sale of the shares of his family at a consolidated price. As evident from the director's report, it is the respondents who offered as guarantees to the term loan availed by the company. The accounts for the year 2006-2007 had been approved and adopted in the general body meeting. In the above circumstances, I am of the view that the petitioner is estopped from challenging the impugned allotment. The respondents have successfully established that the allotments have been need based and made in accordance with law. As already observed, the challenge is with some collateral purpose. I therefore decline to interfere with the allotment of 20,737 shares on October 9, 2006. The point is accordingly found and relief (e) are declined. 47. The next contention deals with the alleged failure to comply with section 171 of the Companies Act while convening the annual general meeting for the year ending March 31, 2008, on September 10, 2008. It is argued by the petitioner that the meeting has been adjourned without fixing a date and a fresh notice has been given on October 29, 2008 for the annual general meeting to be held on November 19, 2008. It is pointed ou .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... shareholders since their shares were forfeited on April 7, 2005 and sold and hence the buyers of those shares will only get the dividend. Evidently, petitioners Nos. 1 and 5 ceased to be members on April 7, 2005, since the petitioners are not members of the company on the date of declaration of the dividend, I hold that they are not entitled to the dividend declared on August 24, 2005. The dividend for the year 2003-2004 was duly paid to them (vide volume B pages 55 and 56). In the light of the above findings, I decline relief (f) in the company petition. The order dated November 28, 2007 specifically says that petitioners Nos. 1 to 5 are not entitled to gold coins distributed in 2006. 49. The non-transmission of 10 shares to the petitioners is beyond the scope of this company petition. The allegation regarding the payment of Rs. 3,50,000 during the financial year 2004-05 is again hit by issue estoppels, waiver etc., and there is absolutely no evidence to show that the fourth petitioner had paid Rs. 3,50,000 as claimed in the company petition. 50. There is absolutely no basis for the alleged mismanagement by the respondents. No grounds are made out to show that it is just and eq .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... ed in the consent order, whereas the petitioners have been called upon to pay Rs. 260 per share to maintain parity, that the financial benefits of the company is ignored while allotting the shares at par, that the petitioners did not suppress any facts since the earlier orders passed by this Bench have been placed by the petitioners before this Board, etc., are urged to show that they filed this company petition with good intention. 54. After having gone through the materials on record, I am of the view that the respondents have successfully established the repeated attempts made by the petitioners' group to harass the respondents by filing frivolous criminal cases against them (vide pages 65-91 volume B), and the respondents were repeatedly seeking anticipatory bail apprehending the arrest by the police. As seen from the annexure 25 volume B the fourth petitioner filed criminal O. P. No. 28084 of 2008 before the High Court of Madras against respondents Nos. 2 to 7 only to be withdrawn on November 28, 2008. The respondents have produced certain documents to prove the falsity of some of those cases. But I am not inclined to enquire into the details, suffice to say this shows the an .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

 

 

 

 

Quick Updates:Latest Updates