TMI Blog2011 (8) TMI 971X X X X Extracts X X X X X X X X Extracts X X X X ..... ctions 397 and 398, the discretionary power given to the CLB under section 402 to set right, remedy or put an end to such oppression is very wide - company is hereby directed to restore the position of shareholding as reflected in its annual returns – Petition allowed - C.P. NO. 82 OF 2005 - - - Dated:- 26-8-2011 - VIMLA YADAV, J. Sanjay Maria, Arun Saxena and Ms. Sakshi Agarwal for the Appearing Parties. ORDER 1. In this order I am considering Company Petition No. 82 of 2005 filed by the petitioners against the respondents [R-1-company, namely, Amber Commercial (P.) Ltd. and others] under sections 397, 398, 402 and 409 read with section 111 of the Companies Act, 1956 ('the Act') alleging oppression and mismanagement and, hence, seeking setting aside of illegal and fraudulent transfer of 21,000 shares held by P-1 ; 9,090 shares held by P-2 ; 20,000 shares held by P-3 ; 20,000 shares held by P-4 ; 35,500 shares held by P-5 and 3,000 shares held by P-6 in R-1-company; rectification of register of members accordingly ; setting aside appointment of R-4 to 11 as directors appointed, vide Board resolution dated 5th July, 2004 ; appointing of an administrator ; directing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the year 2004 signed by the R-2 and another director respectively. As a result of manipulation of records, the shareholding of the petitioners was illegally reduced to 22,500 equity shares representing 11.57 per cent of the total shareholding of the R-1-company. On the contrary, as a result of manipulation of records, the shareholding of the respondents was increased to 1,57,000 equity shares representing 80.72 per cent of the total shareholding of the R-1-company. It was pointed out that there are 15 respondents in the present petition and R-3 alone has filed the reply to the present petition and has tried to justify the manipulated shareholding of the R-1-company, the R-12 to 15, who have been allegedly shown as shareholders in annual return 2004, have not filed any reply or affidavit in support of alleged shareholding in their names, the balance sheet of the R-12 to 15 do not show the investment for the alleged shareholding in the R-1-company. 4. It was argued that since the R-1-company is one of the shareholders of RMC Med. Ltd. (CP No. 37 of 2004), the R-19 has deliberately deleted the above said equity shares held by the petitioners which nefarious act has converted t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hares held by the petitioners which nefarious act has converted the shareholding of the petitioners into minority so that the R-7 can exercise the voting rights, through R-1-company, in RMC-Med. Ltd. to control the affairs in RMC Med. Ltd. 5. My attention was drawn to the annual return of the R-1-company for the year 2002 signed by the R-2 and 3 filed by the respondents and annual return 2004 which have shown totally different position of shareholding without showing any transfer of shares in the said annual return 2004, the list of shareholders shown in the annual return 2004 is forged and fabricated and on the contrary, the list of shareholders shown in annual return 2002 signed by the R-2 and 3, it was argued, is based on factual position and the same needs to be sustained. My attention was drawn to the balance sheet of the P-2 for the year ended 31st March, 2000 which under the heading Schedule 9 'Investment' clearly shows 9,090 equity shares held in the R-1-company, the balance sheet of the year 2000 has been duly signed by the R-3 along with P-l. It was argued that the respondents including the R-3 are estopped from alleging to the contrary. It was also argued that the re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The respondents have failed to produce any corroborative evidence in respect of purchase of 1,23,590 equity shares from the petitioners by the R-3, 12 to 15, respondents have failed to produce the transfer deeds, the minutes of Board meeting and the register of members of the R-1-company. 9. It was pointed out that the R-3 has produced the copy of the alleged share certificates in his possession along with the reply to justify his manipulation of the shareholding and deletion of the shareholding of the petitioners. It is noted that the said copy of the share certificates includes the share certificates of the P-1, 3, 4, and 6 as well. It was argued as to how the R-3 has claimed the possession of the original share certificates belonging to the P-1, 3, 4 and 6 while the petitioners have never given the possession of the said share certificates. On the contrary, the said share certificates had been stolen in the year 2004. It was further argued that the copies of the alleged share certificates produced are forged and fabricated. It was pointed out that the stamp duty affixed, on the said alleged share certificates is deficient resulting in nullifying the said alleged share certif ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts order 8, rule 5 of the Code of Civil Procedure. The statements made in paragraph 18 of the election petition must, therefore, be deemed to have been admitted." - Sushil Kumar v. Rakesh Kumar AIR 2004 SC 230 refers. Further, it was reiterated that - "14. An admission made in a pleading is not to be treated in the same manner as an admission in a document. An admission made by a party to the lis is admissible against him proprio vigore ." "16. A thing admitted in view of section 58 of the Evidence Act need not be proved. Order 8, rule 5 of the Code of Civil Procedure provides that even a vague or evasive denial may be treated to be an admission in which event the court may pass a decree in favour of the plaintiff. Relying on or on the basis thereof a suit, having regard to the provisions of order 12, rule 6 of the Code of Civil Procedure may also be decreed on admission. It is one thing to say that without resiling from an admission, it would be permissible to explain under what circumstances the same had been made or it was made under a mistaken belief or to clarify one's stand, inter alia , in regard to the extent or effect of such admission, but it is anot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s International Ltd. v. Collyer India Freight Forwarding ( P .) Ltd. [2010] 154 Comp. Cas. 161 (CLB). 13 . It was contended that the respondents are estopped from denying the fact that the petitioners are shareholders of the respondent 1-company particularly when the respondents have signed and filed the annual return of the respondent 1-company for the years 1999 to 2002 which clearly show the names and equity shares held by the petitioners in the annual returns of the R-1-company. Reliance was placed on the case law as under : "13. Estoppel is a rule of evidence and the general rule is enacted in section 115 of the Indian Evidence Act, 1872 ('the Evidence Act') which lays down that when one person has by his declaration, act or omission caused or permitted another person to believe a thing to be true and to act upon that belief, neither he nor his representative shall be allowed in any suit or proceeding between himself and such person or his representative to deny the truth of that thing." - Sunderbai v. Devaji Shankar Deshpande AIR 1954 SC 82 refers. "15. On the whole, an estoppel seems to be when, in consequences of some previous act or statement to which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the other is immaterial. The expression "fraud" involves two elements, deceit and injury to the person deceived. Injury is something other than economic loss, that is, deprivation of property, whether movable or immovable or of money and it will include and any harm whatever caused to any person in body, mind, reputation or such others. In short, it is a non-economic or non-pecuniary loss. A benefit or advantage to the deceiver, will almost always cause loss or detriment to the deceived. Even in those rare cases where there is a benefit or advantage, the second condition is satisfied.' - Dr. Vimla v. Delhi Administration [1963] Supp. 2 SCR 585; India Bank v. Satyam Febres (India) (P.) Ltd. [1956] 5 SCC 550 and State of Orissa v. Harapriya Bisoi [2009] 12 SCC 378 refers. 1. "Fraud avoids all judicial acts, ecclesiastical or temporal observed Chief Justice Edward Coke of England about three centuries ago. It is the settled proposition of law that a judgment or decree obtained by playing fraud on the Court is a nullity and non est in the eyes of law. 5. The courts of law are meant for imparting justice between the parties. One who comes to the court, must come with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rsonal gains, without complying with the legal requirements and maintaining fair play and probity in corporate management ; and (g) appointing directors and removing the petitioners as directors without following the proper procedure, would be oppressive and harsh warranting interference of the CLB. 18. Replying to the respondents contention that : "23. It was argued that P-1 had attended Board meetings of respondent No. 1-company regularly and, particularly. Board meetings held on 1st September, 2004 and on 1st September, 2005, respectively, and petitioner No. 1 had approved the annual accounts for the year 2003-04 and 2004-05 respectively of the respondent No. 1-company. As a result, petitioners are stopped from making any allegation of diversion and siphoning of profits of funds." 18.1 The petitioners have contended that the R-2 had approved and signed the balance sheet of the year ended 31st March, 2000 of the petitioner No.2-company which shows the investment of 20,000 equity shares in the R-1-company is unequivocal admission by the R-2 and the list of shareholders in annual returns 2003 and 2004 is forged and fabricated by the respondents. Further, reliance was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uation and coerced Shri Vinod Kumar Rungta to surrender all the shares and property of the family to him. In this process Shir Rajender Prasad signed an agreement ignoring all other beneficiaries and family members Shri Vinod Kumar Rungta to enter into the memorandum of understanding ('MoU') on 6th July, 1999, within 4 months from the death of his son. It was pointed out that the MoU dated 6th July, 1999, inter alia, states that Shri Vinod Kumar Rungta is entitled to l/3rd share in the entire property of the family including the Rungta Hospital, Shri Rajendra Prasad Rungta had stated that he will pay to the Shri Vinod Kumar Rungta Rs. 40 lakh, however, Shri Vinod Kumar Rungta had stated that there are five beneficiaries in the entire property. Further, it was pointed out that the family was subject to another great tragedy of the death of Shri Rakesh Agarwal, aged about 25 years, the youngest son-in-law of Shri Budhi Prakash Rungta, Shri Rajendra Prasad Rungta did not miss this opportunity also and entered into an agreement on 4th January, 2001 with Suresh Kumar Rungta, Shri Rajendra Prasad Rungta further wrote a letter to Shri V K Rungta on 28th June, 2001 which was sent through o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itioners for the rectification of the register of members is liable to be dismissed as their names were never appearing in the register of members of the company. 23. Further, it was argued by the respondents that though the petition has been filed by Roadco (India) (P.) Ltd. but the same is not supported by any Board resolution or any affidavit, instead an affidavit signed by some Mr. Amjad Ali has been annexed with the petition signed and affirmed in his individual capacity, therefore, the petition has been filed without any authority from P-2, and is liable to be dismissed on this ground itself. It is further submitted that the affidavit filed in support of the rejoinder on the behalf of the P-2 has been signed and affirmed by Shri Rajender Prasad Rungta but the Board resolution annexed with the rejoinder has authorised Amjad Ali, accountant of Roadco India (P.) Ltd. to file the above said rejoinder, therefore, again the affidavit, verifying the rejoinder for Roadco (India) (P.) Ltd. has not been signed by proper authority. It was argued that technically both the petition and the rejoinder on behalf of P-2 cannot be taken on record. It was pointed out that the P-2, Roadco (I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a to Hadoti Cement (P.) Ltd. has been signed by Sushila Devi Rungta whereas Sushila Devi Rungta has not signed her own invoice at p. 22 of rejoinder. These invoices produced by the petitioners do not show any evidence of the delivery of shares, petitioner No. 5 has purchased 10,000 shares from Mrs. Saroj Periwal as per her Bill dated 20th October, 1998 and payment was made through DD No. 33784 dated 11th November, 1998 on Union Bank of India for Rs. 30 ; 600 whereas the copy of the pay in slip clearly shows that the pay order was issued by Union Bank of India on 11th November, 1990, it is not understood how the payment has been made 8 years before the sale of shares; there is no mention of the transfer deeds for the alleged transactions. Nor is there any proof of lodgment of any transfer deed with the company, for the transfer of the alleged shares. 26. Alternatively the respondents have contended that without prejudice to their contentions and considering the worst case scenario, and assuming that the above invoices are genuine, the question arises whether on the basis of the sale and purchase of shares of a company, can the purchaser become the member of a company, the answer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nted out that the abovesaid notice was dated 21st July, 2004, whereas the copy of the notice show the date of notice as 15th July, 2004, meeting could not be called in view of the order of the CLB in CP No.37/2004. Moreover there is no need for the respondents to do any such alleged act as the petitioners are neither in the majority on the Board of directors of R-1-company nor in majority in the share capital of the R-1-company and their presence in any meeting of the R-1-company would not have any adverse impact on the passing of resolutions in such meetings. 30. Replying to the allegation that respondents have illegally appointed R-4, Rakesh Kumar Rungta on 1st July, 2004 and R-5 to R-11 on 5th July, 2004 as no notice of the Board meeting was given, proof of despatch of notice was not given, appointee were not shareholders, the respondents' contention is that the directors were appointed in the EGM on 30th June, 2004 with effect from 1st and 5th July, 2004 and not in any Board meeting, therefore, the directors were appointed in accordance with the article 53 of articles of association of the company, the above appointments were made much before the date of serving of the alle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at they have purchased the shares from different sellers, but they have not talked about the transfer of shares in the name of the purchasers in accordance with the provisions of section 108 of the Act, the purchase invoices, not produced earlier, do not show distinctive numbers, rate per share is in fraction of the rupee, rate on a single day is different, how the valuation of shares has been arrived at is not shown, some invoices have been signed by a different family member, invoices do not show any evidence of delivery of shares, it is not known whether any transfer deed was executed between the seller and the purchaser, whether these transfer deeds were delivered to the company for affecting transfer, whether they had received the shares certificates back duly certified from the R-1-company, P-2 is not a shareholder, P-2's affidavit is defective, how can their claim be based on balance sheet of 2002; the directors were appointed in EGM and not Board meeting. The petitioners' FIR regarding stealing of these shares, the investigation report filed through the petitioners' additional affidavit should not be relied upon as complete facts have not been given to the investigation off ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ointment of directors in July 2004 is for the purpose of gaining control over R-1-company by circumventing the CLB's order dated 13th July, 2004. Appointment of directors is not borne out from the records which were avoided to be produced. It reflects the state of affairs of the R-1-company. Resolutions were passed arbitrarily without complying with the procedures laid down. The acts done, when powers are used merely for an extraneous purpose like maintenance or acquisition of control over the affairs of the company, the same cannot be upheld. The respondents contention that the directors were appointed in EGM and not Board meeting does not carry their case any further, as no notices were given to the petitioners, appointments were at their back, were not justified, were in excess of the limit prescribed, the respondents have avoided to file counter affidavits, even if the petitioners are not on the Board, they have legitimate expectation of representation in control and management of the R-1-company. 33. As regards the change in the shareholding as shown in the annual return for 2004 reducing the petitioners to a minority and creating a new majority, it is noted that no annual ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d on annual returns of an earlier period, i.e., 2002 which has been signed by the respondents as well, unless these annual returns are revised the annual returns of 2002 and 2003 have to be relied upon. There is no transfer of shares shown in the annual return for 2004 which shows a changed position from 2002/2003. It is surprising that the shareholders as shown in the annual return of 2004 have, instead of defending their claim, have chosen to avoid entering appearance and filing counter-affidavits. Despite service and opportunities given, they have not filed reply to the company petition. The petitioners' case is that their names were duly entered in the register of members of the R-1-company after transfer of related shares and the same were duly reflected in the annual return for the year 2002, it is not their case that the equity shares were purchased by the petitioners and the same were not transferred and registered in the register of members. The petitioners' case of diluting their shareholding in the annual return of 2004 is made out. In view of the above, the respondents' contention that P-2 is not a shareholder is not tenable, a defect in the affidavit of P-2 cannot de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... out, the conduct of the respondents have been harsh, burdensome, against probity and good conduct) Once conduct is found to be oppressive under sections 397 and 398, the discretionary power given to the CLB under section 402 to set right, remedy or put an end to such oppression is very wide. The respondents have been involved in continuous acts of oppression against the petitioners and the present petition deserved to be allowed in favour of the petitioners. 36. In view of the foregoing, CP No. 82 of 2005 stands allowed. The R-1-company is hereby directed to restore the position of shareholding as reflected in its annual returns for the years 2002/2003, allotment of 21,000 shares held by P-1, 9,090 shares held by P-2 20,000 shares held by P-3, 20,000 shares held by P-4, 35,500 shares held by P-5 and 3,000 shares held by P-6 to respondents is hereby set aside, all statements/statute/forms filed in this regard with the RoC are held to be invalid, all resolutions passed in Board meetings/AGM/EGM are hereby cancelled, the R-1-company is hereby directed to rectify its register of members and shares register accordingly. Further, the appointments of R-4 to 11 as directors is hereby s ..... X X X X Extracts X X X X X X X X Extracts X X X X
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