TMI Blog2011 (6) TMI 676X X X X Extracts X X X X X X X X Extracts X X X X ..... petitioners, who 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al filed against the above order 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 col ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpany secretary on August 20, 2004 clearly 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the petitioners and their group are concerned before February 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, diver ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he order dated November 28, 2007 in C.A. No. 82 of 2007. Out 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... No. 9 of 2005. Praying for the dismissal of the petition, the respondents 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.) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by this Bench on November 28, 2007, which reached finality following the High Court of Madras 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 Distric ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orm No. 2 disclosed that 1,137 shares have been issued but only an amount of Rs. 1.13 lakhs is reflected 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 res ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... coin since they were not enjoying the benefits of shareholders subsequent to April, 2005 nor shares were 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 pla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y raised this issue in C. P. No. 9 of 2005 and consciously accepted the terms of the consent order and hence 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... passing the consent order probably because the respondents conceded to restore the parity of petitioners Nos. 1 and 6 by allotting fresh shares. Since this particular point has been raised in the main petition and specifically not covered in the consent order, and indirectly taken care of in the consent order and refused to be looked into in the modified order also, I am of the view that the petitioners are estopped to raise the same issue in the subsequent litigation on principles of issue estoppel. When the consent order was modified by this Bench, it was specifically held that there is no merit in the contention that the impugned 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 al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it is the same thing as though he had abandoned his defences and admitted them to be untenable. Carrying that one step further, it is the same thing as saying that his case has been heard, for, if a party chooses to admit that he is not in a position to sustain his defences so far as the court is concerned that is practically the same thing as though he had adduced no evidence and decision had been given against him on all those issues. I have always been of opinion that decrees by consent had the same effect for the purposes of res judicata as decrees given in contested suits. That was my view before 1805 when some of the English 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 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d ought to have been raised (but not raised) in the earlier proceedings are hit by this rule. For all the reasons stated above relief (d) is declined. 38. The same finding will hold good against the contention regarding the alleged illegality in the appointment of respondents Nos. 3 and 4 as managing director and joint managing director on May 28, 2000 and June 3, 2005, on the ground that they have not been appointed as directors by the company in general meeting. The relevant minutes of the meeting of the board of directors is available at pages 57 and 60, of volume B. Evidently and admittedly, respondents Nos. 3 and 4 have been functioning 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 meetin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd 4 is challenged mainly on the ground that they have not retired as per article 32, and not on grounds of oppression/mismanagement. As held by Madras High Court in paragraph 12 in S. Krishnaswamy's case (supra) "where this practice has been in vogue in the course of long years, without any question or challenge, it itself is an indication that the rules which have been framed for internal management and for safeguarding and protecting the interests of the members have been understood in that sense". 40. So far, except the petitioners, no other shareholders including the non-family members have raised any objection to the management 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 forfei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the consent order dated September 8, 2006 provided for issue of 944 shares to petitioners Nos. 1 to 5. This issue was again raised in C. A. No. 82 of 2007 filed by the petitioners herein in Company Petition No. 9 of 2005, and found against them. The present attempt to raise the same issue on a different ground is an abuse of the process of the court. The petitioners are estopped from excavating the past and re-opening matters settled by the consent order. I have already found that the issue is not maintainable on merits also. 43. The petitioners claim that they are entitled to 11,112 shares as per the chart exhibited in the petition. I 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 shareh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not raised any objection, he cannot impugn those decisions later on and allege oppression by the company. The directors acted with due diligence and there was no personal gain for them. The petitioners are guilty of acquiescence and waiver. 46. On a careful analysis of the facts and materials available on record, I am of the considered opinion that there is merit in the contentions of the respondents. As per the consent order, an attempt has been made by this Bench to maintain the parity as on April 7, 2005, among petitioners Nos. 1 and 5 and other shareholders by offering additional shares (944 shares). The essence of the order is to give back 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 Apri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etitioners Nos. 3 and 4. The extract of the board meeting on October 9, 2006 resolved to allot 20,737 equity shares of Rs. 100 each to 25 persons from whom the company has already received the share application money (annexure R12 page 45 volume B). As per annexure R6 (volume A page 61), petitioners Nos. 3 and 4 were present in the board meeting held on October 9, 2006 and the first petitioner alone was the absentee. As already observed, the petitioners cannot challenge the actions to which they have been parties. Evidently and admittedly the first petitioner's group is not interested in the company from December 1, 2003 on which date he requested 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unt to an act of oppression since the petitioners have not challenged any business transacted at the impugned annual general meeting. Therefore I decline to set aside the proceedings of the annual general meeting 2008. Accordingly I decline relief (j) in the company petition. 48. It is the case of petitioners Nos. 1 and 5 that they have not been paid the dividend for the year ending March 31, 2005, as held by this Bench in the order dated November 28, 2007. The company had declared dividend in the annual general meeting held on August 24, 2005. It is the contention of the respondents that as on August 24, 2005, petitioners Nos. 1 and 5 were not 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 c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at several police complaints have been filed by them thereby dragging the company and its directors to police stations and courts causing undue hardship to the respondents, that the petition has been filed for a collateral purpose and hence their continuance in the company is highly detrimental to the interest of the company. 53. However, learned counsel for the petitioners contended that they have been forced to approach this Bench in view of the inconsistent stand taken by the company from time to time. That the company allotted 20,737 shares to others at par, without offering shares to the petitioners and without caring to restore the parity agreed 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 succ ..... X X X X Extracts X X X X X X X X Extracts X X X X
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