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TMI Blog2015 (3) TMI 464X X X X Extracts X X X X X X X X Extracts X X X X ..... evity). It transpires that Shankar's sister, Lokamata, who had worked in the IT industry and who was said to have gained considerable experience, also evinced interest in being part of the Company and she was also brought into the company as a Director. Thus, with the petitioner, Shankar and Venkatesh, each holding 33% share and Lokamata holding 1% of the shares commenced the business. It is stated that it grew from strength to strength and soon had touched a turnover of Rs. 48 Crore with a workforce of 3700 employees. It is stated that the petitioner was a whole time director of the company, while Shankar was said to be the Managing Director of the company. Shankar was said to be handling the financial transactions while the petitioner was working in the field. The petitioner along with Shankar and Venkatesh were authorised signatories on behalf of the company. It is emphasized that though apparently it was structured as a company, in reality, and in essence was a partnership firm and was a company only to appeal to its clients. 2. While matters stood thus, Shankar is said to have taken ill and died all of a sudden in February, 2013. It then transpires that the elder brother ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -company was formed no longer exists. 3. It is alleged that Umesh and Lokamata had called for an extra-ordinary general body meeting on 6.4.2013, and when the petitioner went to attend the meeting, it is alleged, that he was physically overpowered by Umesh, Lokamata and others and he was forced to affix his signatures to various documents, including what appeared to be notices and minutes of meetings. It is claimed that it is these documents which were utilized in purportedly amending the Articles of Association. And by virtue of which, Umesh was made a permanent member of the Board and it was also sought to be ensured by incorporating an amendment to the effect that without the affirmative vote of Umesh and Lokamata, any resolution passed by the shareholders would not be valid. It is further stated that Lokamata had issued letters to the several bankers of the company to freeze the accounts of the company on the accusation that the petitioner was responsible for several financial irregularities. Public notices in that regard were also said to have been issued in daily newspapers. 4. The petitioner is said to have opposed the actions of the respondents, which lead to the petitio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... imed that Shankar and respondent No.2 were responsible for securing the clientele and the petitioner was said to be handling the financial transactions of the company and had also undertaken to arrange for collateral security to raise loans for the business. It is contended that the petitioner, late Shankar, and respondent No.6 each held 16,500 equity shares in the respondent-company amounting to 33% of the issued and paid-up equity share capital of the respondent-company and the remaining 500 equity shares amounting to 1% of the equity share capital was held by respondent No.2. The respondent-company is earning good profits and is repaying loans due to banks. The properties of the brother of the petitioner and late Shankar were offered as collateral security for securing loans from bank, along with the property of respondent No.6. The respondent No.2 was the Chief Operating Officer of the company and she along with late Shankar were instrumental in getting projects from various clients for the respondent-company. Though all the directors were given cheque signing authority, since the petitioner was the Chief Financial Officer, the accounts and the financial aspects of the respond ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... company, as directors of the respondent - company with the petitioner continuing to be a whole time director. It is claimed that prior to the demise of late Shankar, all the directors of the company, except respondent No.2 had cheque signing authority. The demise of late Shankar necessitated the change of signatories in the bank and therefore, it was decided to make respondent No.3 and 6 along with the petitioner as joint singatories. It was also decided to authorize respondents No.3 and 6 to represent the respondent-company. It is claimed that on March 30, 2013, the respondents had found, during the review of books of account, that the petitioner had unauthorisedly withdrawn cash from the account of the respondent-company to the tune of Rs. 65 lakh for his personal use within a span of 13 days apparently with an intention of defrauding the respondent-company. Cash was withdrawn by the petitioner by purportedly borrowing loans from various financial institutions while having produced a fake shareholding pattern, an inaccurate list of the board of directors and a fabricated board resolution, evidently in connivance with the statutory auditor of the respondent-company and responden ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arnt that the respondent-company owes huge amounts to the said departments. That the petitioner, who was acting as the Chief Financial Officer of the respondent-company had systematically siphoned off the amounts to be credited towards service tax and employees provident fund. The petitioner, who, as the Chief Financial Officer and Director of the respondent-company, was custodian of the respondent-company's finances, has defrauded the respondent by withdrawing and using the same. The assets of the respondent should have been held in trust by the petitioner, but the petitioner with an ulterior motive, had withdrawn the cash from the bank and had jeopardised the reputation of the respondent-company and had committed grave fraudulent acts. It is claimed that when the respondents became aware of the fraud and misappropriation committed by the petitioner, the petitioner is said to have resigned from the Board on 20.4.2013 and had written a letter, to the bankers of the respondent, requesting them to release the security provided for the loans borrowed by the respondent-company. The banks are said to have refused to defreeze the accounts, relying on the letter issued by the petiti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er was yet to be considered for admission, an application in CA 1886/2013 was filed on behalf of the petitioner, dated 13.9.2013, contending that the respondents had convened an Extraordinary General Meeting on 25.9.2013, whereby it was proposed to remove the existing directors of the company and that respondent No.2 was seeking to act as the Chairman and hence sought a stay of the meeting and in the alternative sought that an independent person be appointed to act as Chairman, if there was to be such a meeting. Though the respondents opposed the application by filing their objections, the application was allowed in the following terms : ORDER In this case, the applicant has sought for a direction for convening of the extraordinary general meeting of the Company, either on 25.09.2013 or on 03.10.2013 and to appoint an independent Chairman to preside over the said meeting. Learned counsel for the parties submit that the extraordinary general meeting of the Company may be convened on 25.09.2013. It is also submitted that the special notice for the removal of Directors has been complied with. They have also no objection to appoint Sri Shreyas Jayasimha, learned advocate, to preside ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... act there is no unequivocal right to attend EGMs as observers, the requests for permission to attend as observers were rejected. At the outset, it was also clarified to the members and there was unanimous agreement amongst the members that the Chairman would not have any casting vote. 2. Before any of the resolutions were put to vote, the shareholders Nos. 1 and 4 (Smt. Lokamata Rangappa and Sri. Umesh R.) objected to the vote placing reliance on Article 12 (iii) of the Articles of Association, reproduced hereunder for ready reference: Article 12 (iii): Mr. Umesh R be the permanent member of the Board of Directors of the Company and any Resolutions passed at the Board meeting and shareholders meeting are not valid unless affirmative vote is cast by Mrs. Lokamata Rangappa or Mr. Umesh R. The preliminary objection to the vote was overruled in view of the fact that the said Article would not come in the way of a vote being held as the Article itself contemplates the validity of resolutions passed at meetings. 3. The following Resolution No.1 was then proposed by Mr. Khathim Kunnummi, shareholder No.3 and seconded by Mr. Venkateshachar Krishnachar, shareholder No.2: RESOLUTION No. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... held by him. As per Section 180 (2) I informed the persons present that the poll would be taken within 48 hours of the demand and stated that the details about when the poll would be taken would be informed by me on the same day i.e., 25th September, 2013. I then proceeded to appoint scrutineers for the poll to be conducted. As per Section 184 (3) of the Companies Act, 1956, of the two scrutineers to be appointed, one shall always be a member (not being an officer or employee of the Company) provided such a member is available and willing to be appointed. However, out of the persons present, shareholder Nos. 1, 2, and 4 were also Directors of the Applicant Company and shareholder No.3 was not willing to act as scrutineer. Hence Mr. Prashant Bhat and Mr. K. Jayarama, both practising Company Secretaries were appointed scrutineers and they accepted their appointment. 7. The following Resolution No.3 was then proposed by Mr. Venkateshachar Krishnachar, shareholder No.2 and seconded by Mr. Khathim Kunnummi, shareholder No.3: RESOLUTION NO.3: "RESOLVED THAT pursuant to the provisions of Section 284 of the Companies Act, 1956 Mr. Umesh Rangappa, Managing Director, be and is hereby re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the demand and stated that the details about when the poll would be taken would be informed by me on the same day i.e., 25th September, 2013. I then proceeded to appoint scrutineers for the poll to be conducted. As per Section 184 (3) of the Companies Act, 1956, of the two scrutineers to be appointed, one shall always be a member (not being an officer or employee of the Company) provided such a member is available and willing to be appointed. However, out of the persons present, shareholder Nos. 1, 2, and 4 were also Directors of the Applicant Company and shareholder No.3 was not willing to act as scrutineer. Hence Mr. Prashant Bhat and Mr. K. Jayarama, both practising Company Secretaries were appointed scrutineers and they accepted their appointment. 11. The following Resolution No.5 was then proposed by Mr. Venkateshachar Krishnachar, shareholder No.2 and seconded by Mr. Khathim Kunnummi, shareholder No.3: RESOLUTION NO.5: "RESOLVED THAT pursuant to the provisions of Section 284 of the Companies Act, 1956 Mr. Chethan Bhaskar Shetty, a Director, be and is hereby removed from the office of director of the Company. The aforesaid resolution was read to the members present. As ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the same day i.e., 25th September, 2013. I then proceeded to appoint scrutineers for the poll to be conducted. As per Section 184 (3) of the Companies Act, 1956, of the two scrutineers to be appointed, one shall always be a member (not being an officer or employee of the Company) provided such a member is available and willing to be appointed. However, out of the persons present, shareholder Nos. 1, 2, and 4 were also Directors of the Applicant Company and shareholder No.3 was not willing to act as scrutineer. Hence Mr. Prashant Bhat and Mr. K. Jayarama, both practising Company Secretaries were appointed scrutineers and they accepted their appointment. 15. The following Resolution No.7 was then proposed by Mr. Venkateshachar Krishnachar, shareholder No.2 and seconded by Mr. Khathim Kunnummi, shareholder No.3: RESOLUTION NO.7: "RESOLVED THAT pursuant to the provisions of Section 284 of the Companies Act, 1956 Mr. Budari Dasappa Basavaraj, a Director, be and is hereby removed from the office of director of the Company. The aforesaid resolution was read to the members present. As per Section 177 of the Companies Act, 1956, I ordered voting by a show of hands on the said resoluti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed. As per Section 184 (3) of the Companies Act, 1956, of the two scrutineers to be appointed, one shall always be a member (not being an officer or employee of the Company) provided such a member is available and willing to be appointed. However, out of the persons present, shareholder Nos. 1, 2, and 4 were also Directors of the Applicant Company and shareholder No.3 was not willing to act as scrutineer. Hence Mr. Prashant Bhat and Mr. K. Jayarama, both practising Company Secretaries were appointed scrutineers and they accepted their appointment. 19. The following Resolution No.9 was then proposed by Mr. Venkateshachar Krishnachar, shareholder No.2 and seconded by Mr. Khathim Kunnummi, shareholder No.3: RESOLUTION NO.9: "RESOLVED THAT pursuant to the provisions of Section 284 of the Companies Act, 1956 Mr. Mudduraju Rangappa, a Director, be and is hereby removed from the office of director of the Company. The aforesaid resolution was read to the members present. As per Section 177 of the Companies Act, 1956, I ordered voting by a show of hands on the said resolution. The result of the same was two "for" the resolution and two "against". 20. Mr. Khathim Kunnummi, shareholder N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e on sections 9 and 284 of the Companies Act and stated that the said Article 12(iii) is contrary to the provisions of the Act and that the Companies Act provisions ought to prevail. In reply to a question, the said shareholders also stated that they had not hitherto initiated proceedings to challenge Article 12. 26. Upon consideration of the objections raised and the reply, I as Chairman decided to only announce the factual position upon conclusion of the poll without commenting further on the validity of proposed resolutions so that the parties may work out their remedies before appropriate fora. 27. On scrutiny of the poll papers by the appointed Scrutineers and as per their report, 4 shareholders present in person representing 50,000 shares had cast their votes validly. Copies of the poll papers are produced as annexures C to F. The factual position upon conclusion of the poll on Resolution Nos. 1 to 9 are as under:- POLL PAPER NO. NAME OF SHAREHOLDER NO. OF EQUITY SHARES HELD MANNER OFVOTING 1 KHATHIM .K 16,500 FOR 2 VENKATESHACHAR .K. 16,500 FOR 3 UMESH .R 16,500 AGAINST 4 LOKAMATHA .R 500 AGAINST 25. I submit that the present Report clearly sets out th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The contesting respondents having found that the tables were turned on them at the said meeting, whether they would be in a position to refuse to abide by the result of the meeting, dehors the merits of the petition, is a question that looms up for consideration. The contesting respondent shareholders have sought to place reliance on Article 12 (iii) of the Articles of Association in holding that the result of the Extraordinary General Meeting was inconclusive and was not binding on them. The said Article reads as follows : " Article 12 (iii) : Mr. Umesh R. to be the permanent member of the Board of Directors of the company and any Resolutions passed at the Board Meeting and shareholders meetings are not valid unless affirmative vote is cast by Mrs. Lokamata Rangappa or Mr. Umesh R." Section 284 of the Act provides for the manner of removal of a Director of the company, and notwithstanding anything to the contrary in its Articles, would be removable by an ordinary resolution of which special notice has been given. The Section is general and applies to all Directors and includes all those not retiring by rotation. It applies to permanent Directors or Life Directors and Director ..... X X X X Extracts X X X X X X X X Extracts X X X X
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