TMI Blog2012 (4) TMI 339X X X X Extracts X X X X X X X X Extracts X X X X ..... Court is of the opinion that both the parties have failed to prove the minutes of meeting dated 1st December, 2004. Accordingly, the allocation of additional shares and appointment of three additional Directors by both the appellants and respondents are set aside. The appellants, who constitute a minority shareholding cannot abuse their majority on the Board by completely excluding the respondents from the affairs of the appellant-company and further by converting the majority shareholders into minority. There is also no violation of principles of natural justice as allegation regarding siphoning off funds - except a bald denial of siphoning off funds, neither of the appellants gave any explanation in the CLB with regard to withdrawal of the said fund and/or their usage. Consequently, in the opinion of this Court, the CLB rightly concluded that the denial by the appellants of the allegation of siphoning off funds was bald, lacking in particulars and thus constituted an admission of siphoning off funds on their part. The directions given by the CLB in sub-paras (ii), (iii), (iv), (v), (vi) and (viii) of para 34 of the impugned order are upheld. Instead of directions (i) and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ents, Mall Road, New Delhi 8 5. Master Abhishek Paliwal Flat No. 18, North Wing Revera Apartments, Mall Road, New Delhi 8 6. Sh. A.K. Paliwal Flat No. 18, North Wing Revera Apartments, Mall Road, New Delhi Sh. J.K. Paliwal 105 7. Smt. Vijaya Paliwal Flat No. 18, North Wing Revera Apartments, Mall Road, New Delhi Sh. A.K. Paliwal 8 8. Smt. Parakaswati Paliwal, 310, Ansari Road, Muzaffarnagar 500 9. N.K. Paliwal Sons 205, Adishwar Aptts. 34, Feroz Shah Road 8 TOTAL 7742 %age of total 38.71% RESPONDENTS HEREIN Particulars of the Members Father's/Husband's Name No. of Shares 1. Sh. J.K. Paliwal 310, Ansari Road Muzaffarnagar Sh. D.S. Paliwal 5100 2. Sh. Sanjay Kr. Paliwal 32, Ahata Aulia Muzaffarnagar Sh. B.K. Paliwal 5 Total Percentage of paid-up Capital 5105 23.53% OTHERS SUPPORTING THE RESPONDENTS 1. Sh. B.K. Paliwal 32, Ahata Aulia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of appointment of R-4,5 and 6 as Directors on 1.12.2004 without complying with the provisions of law and whereby the respondents created a new majority of which, if the petitioners were given due notice to attend the meeting were unlikely to allow the appointment of directors as the same has resulted in an oppression to the majority shareholders, the respondents contention is that the meeting on 1.12.2004 is admitted by the petitioners, the respondents have produced certified copies of Form 32 filed with the ROC whereas the socalled Form 32 produced by the petitioners is alleged to be false and fabricated making use of the same receipt number whereby the respondents had filed the socalled genuine form 32, of which the petitioners are allegedly set to be fully aware. On considering these contentions, I find the petitioners are on a sound ground as simply fabricating documents and filing with the ROC and getting a certified copy cannot change chronology of events and give a stamp of genuineness unless it is established that the appointment was done following the due procedure and law in accordance with the provisions of the Act, no evidence is given to prove that the so called meet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are serious allegations and counter allegations. The respondents allege that P-2 had transferred 5000 shares to R-3 (his son), the transfer is valid in the eyes of law as it was made with due knowledge and concurrence of the petitioner in accordance with mandatory provisions in relation of transfer of shares. The consideration of Rs. 5 lacs for transfer of these shares was paid by R-3 as is reflected in the bank account of P-2. On the other hand, P-2 had taken a strong objection to this pointing out that no shares were transferred by him, the respondents have failed to produce any transfer deeds in original till May 2006 despite several opportunities provided to them. However, only certified copies of transfer deeds, certified by notary public without any supporting affidavit and index were produced. These certified copies of transfer deeds suffered from various discrepancies and defects as pointed out by the petitioners in their contentions given above. Furthermore, the P-2 has alleged that his signatures have been forged on Form No. 2 wherein his shares numbering 5001 have been shown as 0100 and R-3's shareholding of 3255 shares has been shown as 8255 by fabrication of record. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t in view of the facts that the final accounts could not be prepared in the absence of complete account books and statutory records. Account books for the part period were in the possession of the petitioners and hence the Annual Returns filed with the ROC are incorrect and null and void. 33. In this case I notice that the respondents have breached their fiduciary duties as directors. On the role of Directors, the law is well settled. In some respects, Directors resemble trustees. Equity prohibits a trustee from making any profit by his management, directly or indirectly. The power to issue shares in this case has been exercised with an improper motive. It is objectionable to use such power simply or solely for the benefit of directors or merely for an extraneous purpose like maintenance or acquisition of control over the affairs of the company. Directors are required to act on behalf of a company in a fiduciary capacity and their acts and deeds have to be exercised for the benefit of the company. The fiduciary capacity within which Directors have to act enjoins upon them a duty to act on behalf of a company with utmost good faith, utmost care and skill and due diligence and in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gs rendered by CLB in the impugned order were contrary to record. 8. Mr. Kathpalia submitted that though there was no challenge to the appointment of three Directors, namely, Mr. Abhishek Paliwal, Mrs. Prakash Wati Paliwal and Mrs. Kamlesh Paliwal on 1st December, 2004 or to the allotment of 550 shares to Mr. Ajay Paliwal faction, yet the CLB in the impugned order had set aside not only the appointment of the aforesaid Directors but also the allocation of said shares. 9. Mr. Kathpalia pointed out that in the company petition filed by the respondents herein before CLB, the first contention urged was that the appointments of Mr. N.K. Paliwal, Mrs. Rashmi Paliwal and Mr. Vijay Paliwal had been made on 1st December 2004 w.e.f. 1st March, 2005. He stated that the respondents herein had also urged that these appointments had been made with an intent to create a new majority in the Board of Directors inasmuch as at that point of time, Mr. B.K. Paliwal and Mr. J.K. Paliwal families held more than 60% shares of the appellant-company and it was unlikely that they would allow the said appointments. Mr. Kathpalia submitted that the CLB failed to appreciate that Mr. N.K. Paliwal, Mrs. R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with regard to advancement of aforesaid loan, yet CLB while holding his removal to be wrongful, had not even considered it appropriate to direct him to bring back the aforesaid amount. 15. Mr. Kathpalia lastly submitted that the CLB's finding with regard to transfer deed of 5000 shares alleged to have been executed by Mr. J.K. Paliwal in favour of his son Mr. Ajay Paliwal on 1st February, 2005 was erroneous. He stated that the aforesaid transfer deed was neither forged nor fabricated and that the same should be examined by CFSL. He stated that full stamp duty had been paid and the same was reflected in the transfer deed. Mr. Kathpalia referred to the passbook of Mr. J.K. Paliwal to show receipt of consideration of Rs. 5 lacs by him on 1st February, 2005, i.e., the date of transfer. He contended that the CLB's finding that the appellants had failed to produce the transfer deed despite several opportunities, was contrary to record as the appellant had never been asked to produce the said deed. He referred to the original transfer deed which had been placed on record in the present appeal. 16. Mr. Kathpalia also stated that there was no forgery in annual return dated 30th Ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 13.12.2004, two documents i.e. Form-32 and Form-2 were filed in the name of Paliwal Hotels (P) Ltd. for which an amount of Rs. 500/- + Rs. 500/- were paid vide receipt no. 606742. Hence, it is clear from the above that no document vide receipt no. 606762 dated 13.12.2004 has been filed in the name of M/s. Paliwal Hotels (P) Ltd., Delhi. Yours faithfully Sd/- (ATMA SAH) Asst. Registrar of Companies" [Emphasis supplied] 20. Mr. Mehta pointed out that the counterfoil of receipt no. 606762 had never been produced by the appellants, whereas the respondents have not only produced the payment vouchers but also copies of Form Nos. 2 and 32 along with the original receipt No. 606742. Consequently, according to him the copy of Form No. 2 filed on record by the respondents herein under receipt No. 606742 reflected the actual decision of the Board of Directors of the appellant-company on 01st December, 2004. 21. Mr. Mehta submitted that it was wrong for the appellants to claim that the only ground on which the CLB had faulted with the allotment of 4250 shares on 3rd February, 2005 was exhaustion of authorised share capital. According to him, the CLB had faulted with th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e the entries in the passbook of Mr. J.K. Paliwal with the alleged sale consideration. Mr. Mehta also pointed out that in the annual report dated 30th May, 2005 there were interpolations/over-writings in the holding of Mr. J.K. Paliwal which was artificially reduced from 5100 to '0100' ('5' changed to '0', thus making '5100' to '0100') and the shares of Mr. Ajay Paliwal had been claimed to be 8255 wherein the digit '3' had been converted into '8'. 27. In rejoinder, Mr. Arun Kathpalia submitted that number of the receipt under which Form Nos. 2 and 32 had been jointly filed on 01st December, 2004 was unclear and therefore, the appellants had wrongly mentioned the receipt No. as 606762 before the CLB and in the present appeal. He reiterated that as the appellants alone had filed certified copy of Form No. 2 dated 01st December, 2004, the appellants' version of the Board meeting dated 01st December, 2004 should be accepted. He also stated that additional Directors appointed on 01st March, 2005 had not been interfered with by the CLB. 28. Having heard the parties at length, this Court is of the view that it is necessary to first outline the jurisdiction of this Court in an appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly, the allocation of additional shares and appointment of three additional Directors by both the appellants and respondents are set aside. 30. The Board Meetings dated 3rd February, 2005 and 1st March, 2005 wherein 4250 shares were alleged to have been allocated to Mr. Ajay Paliwal faction and three additional directors had been appointed are set aside on the ground that appellants have failed to prove service of notice of the said Board Meetings upon Mr. Sanjay Paliwal, even though admittedly, on the said dates, he was a director of the appellant company. Non-issuance of notice to Mr. Sanjay Paliwal constitutes a violation of Section 286 of the Act. Consequently, the allocation of 4250 shares and appointment of three additional Directors by the appellants in the aforesaid meetings are also set aside. 31. In any event, even if appellants' versions with regard to Board Meetings dated 1st December, 2004, 3rd February, 2005 and 1st March, 2005 are accepted to be true and correct, then also the said decisions are liable to be set aside as constituting oppression and mismanagement. This Court is of the opinion that the appellants, who constitute a minority shareholding cannot a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts, it cannot be said that the said amount has been siphoned off by the respondents. It is pertinent to mention that till date no proceedings have been filed by the appellants for recovery of alleged amount of Rs. 64.50 lacs. In the opinion of this Court, allegation of siphoning off funds by the respondents has been raised by the appellants only to protract the proceedings. 37. This Court is also in agreement with the finding of CLB that alleged transfer deed with regard to transfer of 5000 shares by Mr. J.K. Paliwal to Mr. Ajay Paliwal is a forged and fabricated document. Mr. J.K. Paliwal in his petition filed before CLB had made a categorical statement that he had never signed a transfer deed nor any other document to give effect to the said transfer of 5000 shares to his son Mr. Ajay Paliwal. The averment in company petition filed before CLB by Mr. J.K. Paliwal is reproduced hereinbelow:- "( c ) A transfer of 5000 equity shares from Shri J.K. Paliwal Petitioner no. 2 to Shri Ajay Paliwal Respondent no 3 dated 01.03.2005 had been shown. The Petitioner no 2 wish to state that he has never signed any transfer deed nor any other documents to give effect to this transfer nor wa ..... X X X X Extracts X X X X X X X X Extracts X X X X
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