TMI Blog2013 (9) TMI 655X X X X Extracts X X X X X X X X Extracts X X X X ..... e of shareholding since the year 2003-04, etc. - But the letter was not conclusive enough to show that the company was a listed one - Materials produced by the respondents sufficiently established that the petitioners had been holding out the company as unlisted. Shareholders or not – Oppression and Mismanagement u/s 397 and 398 – Relief u/s 402(f) - Whether the petitioners were shareholders of the company as on the date of filing the case - Whether the petitioners have made out a case of oppression and mismanagement u/s 397 and 398 of the Act - Whether the petitioners were entitled to any reliefs u/s 402(f) of the Act – Held that:- The company petition does not make out a case of oppression or mismanagement - The subsequent sale of the property had the approval of the Board and the valuation appears to be reasonable - No relief under section 402(f) could be granted since the CP was filed three months after the date of sale - The petitioners were not entitled to any reliefs u/s 397 and 398, because they had derived the benefits of the arrangement between the two parties through various payments spanning over a period from 2004-08, after voluntarily relinquishing their interest i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e annual return for the year ended 31st March, 2004. It is alleged that the share certificates evidencing the shareholding of the petitioners were entrusted to a mediator (RS) as a security for the loan availed from a money lender who are impleaded as respondents 2 to 6. From the year 2006 onwards, the respondents are filing returns with the Registrar of Companies ('RoC'), deleting the names of the petitioners from the list of shareholders. The main allegation is that R2 to 6 bad illegally and forcefully seized the share certificates and took possession of the company's properties and later on increased the paid-up capital and started filing wrong returns with the RoC from the year 2006 onwards. R7 is A R R S Mega Mall (P.) Ltd. who had purchased the company's property in the year 2008 for a consideration of Rs. 12 crore, illegally according to the petitioners. The ninth respondent is the son of the so-called mediator (R8). R9 has been appointed as auditor of the company by respondents 2 to 6. 10th respondent is Indian Overseas Bank, Salem, which according to the petitioners could explain the financial position of the various accounts and also explain whether any norms prescribed b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... prejudicial to the interest of the members, the petitioners say. The increase of the authorised capital of the company to Rs. 10 lakh and the allotment of three lakh shares to R2 to R6, the change of face value of shares as Rs.1,000, changing the number of shareholders as five, etc., are other oppressive acts alleged by the petitioners. R2 to R6 filed annual return for the year 2006 as if the petitioners have ceased to be shareholders/directors. Everything was done in collusion with R9 (auditor) who was appointed without obtaining the consent of the earlier auditor. The eighth respondent also committed breach of trust and colluded with R2 to R6 by handing over the documents of the company to the second respondent on the next day of availing the loan. 2.1 On 10th September, 2007, petitioners sent a legal notice offering to repay the loan and requested to return the share certificates and documents of the company. While so, respondents, through their henchmen had forcefully taken possession of the property of the company. Out of fear, petitioners and their relatives signed some blank papers. The petitioners filed criminal OP No. 2844/2007 before the High Court of Madras and the sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpany. The suit was contested by the respondents which ultimately ended in a comprehensive compromise of all issues pending between the parties; on 8th April, 2008. As per the compromise, an aggregate amount of Rs. 8 crore (including the payments in 2004) was paid to the petitioners who acknowledged and ratified the transfer of shares in favour of the respondents and also the reconstitution of the Board by inducting the respondents as directors, and also the resignation of petitioners from the Board. It was further recorded that petitioners have no right, title or interest in respect of the company's properties. The memorandum of compromise specifically details all the transactions from 29th October, 2004 onwards. Rs.6,45,00,000 was paid to the petitioners on 8th April, 2008 and the petitioners confirmed the transfer of shares (86.5 per cent) in favour of the respondents and also agreed to transfer the remaining shares, and consented to the sale of the company's properties to A R R S Mega Mall by the respondents/directors. All the cases pending before the various forums were agreed to be withdrawn. On the basis of the compromise, the suit was disposed on 17th April, 2008 as settled ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s.10 each. It is false that the authorised capital of the company is only Rs.7 lakh. It is denied that respondents 2 to 6 had misused the instrument of transfer or share certificates entrusted with the 8th respondent towards money lending transaction. It is also denied that company's property was worth Rs. 36-40 crore. It is denied that 8th and 9th respondent acted as middlemen in the transaction. They are qualified professionals and their names have been unnecessarily dragged into these proceedings and, insinuating allegations have been intentionally made to tarnish their image. All the procedures legally required for takeover of the company have been complied with. Having had the benefit of share transfer consideration for the newly allotted shares, the petitioners cannot turn around and impugn the allotment, which were made by them. No coercion was employed to get the CP No.110/2007 withdrawn. 4. In the counter filed by R7 it has been stated that the promoters of R7 are leading businessmen, running the biggest textile store in Salem. The landed property of R1-company was sold to him by deed of sale dated 3rd January, 2008 and registered on 4th January, 2008 and the resolution ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rties was only money-lending. The petitioners say that the respondents are silent about the methodologies of transfer and adherence to mandatory norms and, hence, the annual return as at 30th September, 2005 is not a dependable evidence to prove the transfer of shares. There are contradictions if the annual returns for the years 2004 and 2005 are analysed. Petitioners wonder how the respondents got shares transferred from persons who are dead. Regarding the minutes dated 1st November, 2004, it is argued that mere production of loose leaf cannot be taken as evidence according to sections 193 and 194 of the Act. It is argued that the purported minutes had been fabricated out of the signed blank papers obtained by coercion. The alleged collusion is well substantiated from the following proceedings initiated by the 1st petitioner and his group : (i) OS No.312/2007 filed before civil court on 7th March, 2007 ; (ii) written police complaints dated 9th September, 2007; (iii) order dated 21st September, 2007 by the local magistrate directing the police to investigate and report ; (iv) criminal OP No.28441/ 2007 filed before the Madras High Court on 14th September, 2007. 7. Regard ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Chand Technoligical Resources (P.) Ltd. v. Rajendra Keshwani [2009] 150 Comp. Cas. 123 (CLB); Mohinder Singh v. Hoshiarpur Express Transport Co. Ltd. [2008] 86 SCL 155 (CLB-New Delhi). It is pointed out that the recitals in the loan agreements and sale agreements both dated 29th October, 2004 and deed of contract dated 30th October, 2004 were executed between the second respondents group and first petitioner's group and that the company is not a party or signatory to those documents. The provision to pay interest from the rent collected from the tenants is heavily relied on by the petitioners to argue that the understanding among the parties was that the transaction is only a loan agreement for Rs. 3 crore to be repaid after two years and eleven months. This provision, according to the petitioners, supports their case that there was no takeover of the company not there was any sale of the company's property. According to the petitioners, the validity of the loan agreement and the two sale agreements dated 29th October, 2004 has validity only for two years and, hence, the remedy open to the respondents was to approach the civil court by depositing the balance sale consideration and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rty the entire substratum of the assets of the company had eroded justifying a winding up of the company on just and equitable grounds. Regarding the compromise deed dated 8th April, 2008 and the full satisfaction-cum-compromise deed signed on 28th April, 2008, it is argued that both the documents were executed by individuals and the company is not at all a party or signatory to these compromise deeds. Petitioners wonder as to how a reasonable man ought to have agreed to sell the valuable property of the company at Rs. 8 crore. The ratification by the petitioners of all the illegal acts will not give the compromise deed any legality and, hence, not enforceable. Above all the payment of Rs. 5.7 crore on the date of the compromise deed is not sufficient consideration. Of late, petitioners are relying on a criminal complaint filed by them before the Judicial Magistrate and also a criminal OP filed before the High Court of Madras in the year 2011 to argue that they are still prosecuting the alleged coercion and threat practised by the respondents in bringing about the compromise and encashment of the demand drafts. 9. Case Laws cited by respondents Syed Musharraf Mehdi v. Fron ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , rule 1 of Code of Civil Procedure applies to such case - Exception is habeas corpus petition. KSP Valli v. Richfield Agencies (P.) Ltd. [2006] 71 SCL 33 (CLB-Chennai)....Reaped the benefits of the deed of arrangement and declaration by unconditionally accepting the title deeds of the immovable properties, a sum of Rs. 15 lakh as per the schedule indicated in the deed and twenty-three LIC policies in full and final settlement of her claim. Having acted upon the deed of arrangement and having relinquished their interest in the company, she was bound to act in accordance with its various terms and having failed to satisfy the requirement of sections 397 and 398 of the Act she was not entitled to relief. Vijayan Rajes v. MSP Planatations (P.) Ltd. [1999] 19 SCL 106 (CLB-Chennai) .....Held also, that it was clear that the motive of the first petitioner was to bring pressure on respondent No.2 to transfer his building to petitioner No. 1. It is an established legal position that, when a petition under sections 397 and 398 is filed with a view to achieve some ulterior objective/collateral purpose, such a petition should not be encouraged. Ramesh Bhajanlal Thakur v. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hereby rejected. Charanjit Singh Ghumman v. Dr Reddy's Laboratories Ltd. [1999] 21 SCL 71 (CLB-Chennai). It was free from doubt that the petitioner withdrew the civil suit filed against the company and with the consent of the petitioner, the transfer of the shares in question was effected in favour of the second respondent, as borne out from the letter dated 21st July, 1994, of the petitioner. In view of the provisions of section 206A of the Act, the company could not have delivered the bonus share certificates to the petitioner when the transfer of the original shares was pending with the company. The evil suit filed by the petitioner was withdrawn with a certain understanding and the petitioner had executed the transfer instruments both in respect of the original 100 shares as well as 200 bonus shares. As had been noted by the Principal Bench in its order in the petition under section 237(b) filed by the petitioner, the company had taken an enormous precaution in the matter of registration of the transfer of the shares and whatever the company did was with the knowledge and consent of the petitioner. The petitioner having acquiesced, was not stopped from questioning the re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... res pursuant to share purchase agreement - No locus standi in to file petition - Companies Act, 1956, sections 397, 398, 399. Mrs. S Lakshmi v. E.M Shivamani Engineering (P.) Ltd. [2009] 150 Comp Cas 250. (CLB-Chennai)... Oppression and mismanagement-Petition for relief - Purchase of property notified to be acquired - Compensation received from seller - Money received from seller deposited in company account - No misappropriation of funds - Companies Act, 1956, sections 397 and 398. Oppression and mismanagement - Petition for relief - Transfer of shares - Share transfer form signed by shareholder - Transferor participating in proceedings of Board ratifying transfer - Technical objection that adhesive stamps affixed not cancelled not sustainable - Transfer of shares valid. Heard both sides ; gone through the pleadings and case laws submitted by both sides. The following issues arise for consideration. Issues 10. (a) Whether Premier Roller Flour Mills is a listed company? (b) Whether the petitioners herein are shareholders of the company as on the date of filing this CP? (c) Whether the petitioners herein have made out a case of oppression and mismanagement un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s a listed company. It appears that based on a letter dated 29th January, 2010 from the petitioners, SEBI had called for certain information regarding the change in promoters and their shareholding, percentage of shareholding since the year 2003-04, etc. But this letter is not conclusive enough to show that the company is a listed one. Materials produced by the respondents sufficiently establish that the petitioners have been holding out the company as unlisted. In the above circumstances I am of the considered opinion that they are estopped from contending that the respondents have not complied with the SEBI takeover code by offering the shares to the public. Petitioners have been parties to the execution of transfer deeds, party to the Board meetings and resolution for transfer of shares by executing a compromise ratifying the transfer, and receiving consideration and repeatedly acknowledging the validity of transfer. That being the case, the petitioners are estopped from challenging the validity of these transactions, to which they have been consenting parties. Petitioners cannot blow hot and cold and cause prejudice to the respondents as held in M.R Shah (supra). The company is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reholders/directors of the company (petitioners) and the respondents. The agreement further mentioned that in lieu of the amount borrowed from B Party (R2) the 'A' Party (petitioners) had transferred the shares (86.5 per cent) in respect of the above said mill (company) to the 'B' Party (respondents 2 to 6)' {vide loan agreement dated 29th October, 2004 p. 6, vol. IIA). The above terms in the agreement will clinch the issue in favour of the respondents. The subsequent agreement dated 30th October, 2004 further asserted that the petitioners had transferred the shares of the Premier Mills Ltd. company and the documents had been signed by both the parties. Thus, it can safely be concluded that the essential elements of a sale under the Sale of Goods Act has been complied with. The loan agreement dated 29th October, 2004 further provided that they will also execute sale agreements in favour of second respondent in respect of the property of the company. The above two agreements to be registered in the office of the Sub-Registrar and the period of the agreement would be for a period of 2 years and 11 months. On default of the repayment within the above period, this agreement provides th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pp. 49-85 of the typed set documents produced by the respondents. The suit was compromised by executing a deed of compromise on 8th April, 2008 between the 2nd respondent and petitioners, following which the suit was dismissed "as settled out of court". Memorandum of compromise, memorandum of withdrawal of the suit, decrees and judgment of the court are available at pp. 86 to 98. As per the deed of compromise, including all the payments from 2004, an aggregated amount of Rs. 8 crore was paid to the petitioners herein. As per this deed, the (petitioners categorically ratified and consented that the shares of the company had been transferred in the name of R2 to R4, that the petitioners had resigned the directorship of the company, that the 2nd respondent and his family members had become the directors thereafter, that they have mutually agreed to solve the dispute by receiving a total sum of Rs. 8 crore, that the balance shares of the company also shall be transferred to the second respondent, that they have no objection to the respondents selling the properties to R7, that the agreements dated 29th October, 2004 and 30th October, 2004 stand cancelled, that the cases pending between ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urther mentioned that due to the long closure of the company the statutory dues and records and books of account of the company is not available with the petitioners and it will be handed over if traced out. As is evident from the above minutes, (there is a change of management in which the petitioners were replaced by R2 to R6. It was further resolved that the old management will indemnify the new management for any defect in title to shares. 16. The petitioners strongly dispute the genuineness of these documents on me allegation that the original register of minutes is not produced and, hence, not acceptable as a piece of evidence. The impugned minutes contained the signature of the petitioners and other directors. If the minutes were actually not signed by them, the petitioners would have taken steps to get an expert opinion regarding genuineness of their signature in the minutes. But that is not done so. Except posing certain questions, the particulars of the coercion and threat are not forthcoming in the CP. De hors the alleged coercion which is not proven, the transfer of shares stands admitted and again ratified in the year 2008. In the written statement filed in the civil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nal Bank on 20th June, 2008 [vide p. 110). The petitioners have withdrawn all the complaints in the matter of Premier Roller Flour Mills, filed by them before the RoC, Coimbatore (vide letter dated 29th April, 2008 - p. 126). Viewed in this background I see no basis for the allegation that the petitioners have signed the transfer forms and the various documents under coercion. The alleged collusion between R2 to R6 and R7 remains as mere plea. There is no believable explanation as to why the petitioners have accepted the consideration (Rs.8 crore) by encashing the demand drafts. If they had signed any of the documents under coercion or threat, they would have abstained from encashing the cheque. At no point of time the petitioners have expressed any intention to deposit the loan amount received by them to show they have been honest in performing the original three agreements. Being a party to the transfer of shares, the petitioners are estopped from challenging the transfer on the ground that it had violated certain statutory provisions under the Act. I am of the considered opinion that challenge against the transfer of shares on the ground of non-compliances of several provisions ..... X X X X Extracts X X X X X X X X Extracts X X X X
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